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HKMLA Drinks Gathering and CPD Seminar – 31 May

The HKMLA is holding a drinks get-together combined with a 1-hour seminar on recent shipping cases of interest.

Free to attend – drinks, food and a 1-hour seminar on recent cases of interest.

1 CPD point applied for.

When:     Thursday 31 May, 6.00pm for speakers at 6.30pm to 7.30pm

Where:    FCC Veranda

Programme:

1. Raymond Wong (Asia Maritime Adjusting Hong Kong): General average: “The Longchamp” [2018] 1 Lloyd’s Rep 1

2. Fergus Saurin (HFW): Charterparties: Lukoil Asia Pacific Pte Ltd v Ocean Tankers Pte Ltd [2018] EWHC 163 (Comm)

3. Nick Luxton (Gilt Chambers): Hague Visby Rules limitation: “The Aqasia” [2016] 2 Lloyd’s Rep 510, Sea Tank Shipping AS v Vinnlustodin [2018] EWCA Civ 276 and Kyokuyo Co Ltd v AP Møller-Maersk A/S [2018] EWCA Civ 778

4. Edward Alder (Prince’s Chambers): C/P guarantees and arbitration: Jiangsu Shagang Group Co Ltd v Loki Owning Co Ltd[2018] EWHC 330 (Comm)

We look forward to seeing as many as possible of you.

Please RSVP with email secretary@hkmla.org

香 港 海 商 法 協 會 HONG KONG MARITIME LAW ASSOCIATION

A Member of Comité Maritime International

www.hkmla.org

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AA Talk: Can Law be determined by reference to Practice?

Raymond Wong

“…, the law cannot be decided by what is understood among writers and practitioners in the relevant field … Experience shows that in many areas of practical and professional endeavour generally accepted points of principle and practice, when tested in court, sometimes turn out to be unsustainable.  I accept that it may be right for a court to have regard to practices which have developed and principles which have been adopted by practitioners, but they cannot determine the outcome when the issue is ultimately one of Law.”   

Lord Neuberger in “The Longchamp” [2017]

“THE LONGCHAMP”

Included in Issue No.118 is “An Adjusters’ Note on Substituted Expenses and Ransom Payments” contributed by Richards Hogg Lindley following the Commercial Court judgment on “The Longchamp” case having been reversed by the Court of Appeal, highlighting that the position under English law with regards to Rule F of the York-Antwerp Rules reverted to the position being in line with the views of the majority on the Advisory Committee of the British Association of Average Adjusters.

The Editor, however, did mention in this column that “Readers are reminded that the “Longchamp” case where the Court of Appeal has reversed the 2014 High Court judgment is coming up for trial in the Supreme Court.”

The Supreme Court, on 25th October 2017, allowed the Appeal, thus overruling the decision at the Court of Appeal.

The case has been widely reported but for sake of completeness and easy reference, the Editor would repeat briefly summary of the factual backgrounds and decisions.

 

The casualty

On 29 January 2009 the chemical carrier MV Longchamp (“the vessel”) was transiting the Gulf of Aden on a voyage from Rafnes, Norway, to Go Dau, Vietnam, laden with a cargo of 2,728.732 metric tons of Vinyl Chloride Monomer in bulk (“the cargo”).  The cargo was carried under a bill of lading dated 6 January 2009 which stated on its face that “General Average, if any, shall be settled in accordance with the York-Antwerp Rules 1974”.

At 06.40, seven heavily armed pirates boarded the vessel.  The pirates commanded the master to alter course towards the bay of Eyl, Somalia, where she arrived and dropped anchor at 10.36 on 31 January 2009.  At 14.05 on 30 January 2009 a negotiator for the pirates boarded the vessel and demanded a ransom of US$6m.  The vessel’s owners (“the owners”) had meanwhile formed a crisis management team who had set a target settlement figure of US$1.5m.  On 2 February 2009 an initial offer of US$373,000 was put to the pirates.  Negotiations between the pirates’ negotiators and the owners’ crisis management team continued over the following seven weeks with various offers and counter-offers being made.

Eventually on 22 March 2009, after a negotiation period of 51 days, a ransom was agreed in the amount of US$1.85m.  On 27 March 2009 the ransom sum was delivered by being dropped at sea.  At 07.36 on 28 March 2009 the pirates disembarked and at 08.00 that day the vessel continued her voyage.

It is worth noting that the cargo was subsequently valued at destination at US$787,186 and the value of the ship was assessed at US$3,947,096.  That is to say, the total value of the property at risk amounts to US$4,734,282 which sum is less than the ransom of US$6m initially demanded.

 

The relevant York-Antwerp Rules

Rule of Interpretation

In the adjustment of general average the following lettered and numbered Rules shall apply to the exclusion of any Law and Practice inconsistent therewith.

Except as provided by the numbered Rules, general average shall be adjusted according to the lettered Rules.

Rule A

There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.

Rule C

Only such losses, damages or expenses which are the direct consequence of the general average act shall be allowed as general average.

Loss or damage sustained by the ship or cargo through delay, whether on the voyage or subsequently, such as demurrage, and any indirect loss whatsoever, such as loss of market, shall not be admitted as general average.

Rule E

The onus of proof is upon the party claiming in general average to show that the loss or expense claimed is properly allowable as general average.

Rule F

Any extra expense incurred in place of another expense which would have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests, but only up to the amount of the general average expense avoided.

 

Adjustment dated 31 August 2011

The Adjusters allowed in general average the following expenses incurred during the negotiation period, which the cargo disagrees:

Commercial Court decision [2014]

The Court found that:

  • the expenses ii) – v) incurred during the negotiation period were allowable in general average under Rule F as “substituted expenses” (in lieu of US$4.15m saving);
  • the expenses i) and vi) were allowable in general average under Rule A;
  • payment of the original ransom demand of US$6m without negotiation would have been reasonable.

Court of Appeal decision [2016]

The cargo appealed challenging to the judgment on expenses i) – v) and the Court agreed that:

  • payment of the original ransom demand of US$6m without negotiation would have been reasonable;
  • the media response costs, i) are allowable in general average under Rule A;
  • consumption of bunkers is treated as an expense for the purpose of Rule F;

but found that:

  • the negotiation period expenses, ii) – v), did not fall within Rule F holding that negotiating a reduced ransom of US$1.85m (and the saving of US$4.15m) was not “an alternative course of action” to the payment of the original sum demanded – merely a variant (which decision apparently followed the reasoning supported by the leading textbooks and was in line with the conclusion made by the majority of the majority of the Advisory Committee of the British Association of Average Adjusters, reflecting the almost universal practice not to allow these items under Rule F in the circumstances).

Supreme Court decision [2017]

The owners appealed to the Supreme Court submitting that the negotiation period expenses, ii) – v) amounting to US$160,213.95, fell within the expression “expense incurred” by them within Rule F and those expenses were incurred “in place of another expense”, i.e. the saving of US$4.15m resulting from the negotiations.  Since the negotiation period expenses were less than the “general average expense avoided”, they were accordingly allowable in general average under Rule F.

The Supreme Court (by a majority of 4 to 1) reversed the Court of Appeal decision, allowing the negotiation period expenses, ii) – v), in general average under Rule F and finding that:

  • the language of Rule F did not require that the expenses were incurred following an alternative course;
  • it was not necessary to consider whether the initial ransom demand was reasonable under Rule A;

It is worth noting the issues considered by the Supreme Court, which are highlighted as follows:

  1. The Court found that it would not be necessary, and it would be wrong to assume that it would be necessary, to establish that it would have been reasonable to accept the initial ransom demand in order to justify the contention that the negotiation period expenses were allowable under Rule F.  Such assumption would mean that, “if a ship-owner incurs an expense to avoid paying a reasonable sum, he can in principle recover under Rule F, whereas if he incurs expense to avoid paying an unreasonable sum (i.e. a larger sum), he cannot recover.  The more obvious his duty to mitigate, and the greater the likely benefits of such mitigation, the less likely he would be to be able to recover.”
  2. The Court considered that the words in Rule F “another expense which would have been allowable as general average” were a reference to an expense of a nature/type which would have been allowable (rather than its’ quantum) under Rule A, under which a ransom would be allowable in general average.
  3. Lord Neuberger favoured the interpretation of Rule F which “produces an entirely rational outcome: whenever an expense is incurred to avoid a sum of a type which would be allowable, that expense would be allowable, but only to the extent that it does not exceed the sum avoided.” Accordingly, the negotiation period expenses in the amount of US$160,213.95 fell under Rule F as they were incurred to avoid paying US$6m, resulting in a saving of US$4.14m.
  4. The Court found that Rule C only applies to loss consequential on a general average act defined by Rule A. It does not apply to expenses covered by Rule F, which is concerned with sums expended in avoiding expense otherwise allowable as general average.
  5. The Court disagreed to the payment of a reduced ransom being not “an alternative course of action” to paying the original ransom demand but merely a “variant”. The Court found that incurring the negotiation period expenses was an alternative to paying a higher ransom; “the former involved incurring vessel-operating expenses whereas the latter involved paying a ransom”.
  6. The Court saw no reason for restrictively interpreting the word “extra” so as to require an expense to be of a nature which would not normally have been incurred in response to the peril threatening the adventure. The Court was of the opinion that the natural contextual meaning of “extra expense” was “simply an expense which would not otherwise have been incurred (but for the saving of the “other expense”)”.

The following comments made by the Supreme Court in the judgment are well worth noting:

  1. The York-Antwerp Rules are an international agreed sets of rules. In para 29 of the judgment, Lord Neuberger states: “Given that the Rules represent an international arrangement, it is particularly inappropriate to adopt an approach to their interpretation which involved reading in any words or qualification.  As already mentioned, it appears to me that, as a matter of ordinary language, Rule F applies to the negotiation period expenses for the reasons given in para 26 above.  To imply some qualification such as the requirement that those expenses must have been incurred so as to achieve an “alternative course of action” appears to me to be very dangerous.  In the same way as an international convention or treaty, the Rules should be interpreted by a United Kingdom court “unconstrained by technical rules of English law, or by English legal precedent, but on broad principles of general acceptation” …. “it is the unadorned language of the article to which attention must be directed”.”
  2. Lord Neuberger is not convinced that, as a matter of language, the passages in the leading textbooks support the conclusion that Rule F can only be invoked when the claimant has taken an “alternative course of action”, and he states in para 25 of the judgment: “… the law cannot be decided by what is understood among writers and practitioners in the relevant field … Experience shows that in many areas of practical and professional endeavour generally accepted points of principle and practice, when tested in court, sometimes turn out to be unsustainable.  I accept that it may be right for a court to have regard to practices which have developed and principles which have been adopted by practitioners, but they cannot determine the outcome when the issue is ultimately one of Law.” (The obvious precedents are the The Makis [1929] and The Alpha [1991]).

The English Supreme Court judgment is in contrast with the current practice of most average adjusters to disallow such negotiation period expenses and will no doubt affect the future English general average adjustments of substituted expenses under the York-Antwerp Rules.  It will be interested to see if the market would, like what it had done following “The Makis” case, seek to revert to the long accepted practice.

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The York-Antwerp Rules 2016

Areas of difference from the York-Antwerp Rules 1974 as amended 1990

It is not surprising to note that many contracts of carriage incorporate the York-Antwerp Rules 1974, as amended 1990.  Following our briefing on the newly adopted York-Antwerp Rules 2016 summarizing the major changes from the 1994 version, we have received enquiries with request to outline the major differences between the 2016 and the 1974 as amended 1990 versions.

Accordingly, we consider it being advisable to highlight the major differences from the YAR 1974/1990 whilst noting minor amendments made to “tidy up” the text, modernising some terms and providing a more coherent numbering of paragraphs.

RULE OF INTERPRETATION

The difference is the inclusion of a reference to the Rule Paramount in the second paragraph.          

RULE PARAMOUNT

Under this Rule (included since the 1994 version) it will be necessary for those claiming an allowance in general average to prove, on the basis of Rule E, first paragraph, that both the general average act and the quantum of allowances are reasonable.

RULE B

The 1974/1990 Rule B having been inserted as a second paragraph of the Rule A, a new Rule B was introduced (in 1994) to achieve uniformity for general average involving tug & tow in commercial activities, i.e. not in a salvage operation.

RULE C

The 2016 Rule C (same as 1994) provides for general exclusion from general average the allowances in respect of pollution and damage to environment.

Also, the second paragraph of 1974/1990 Rule was reworded (3rd para in the 2016 Rules) to take into account that loss of market should not be regarded as an indirect loss (in accordance with the decision of Czarnikow (C.) Ltd. v. Koufos – 1969).

RULE E

The 2016 Rule E provides clear time-line for the notification of a claim in general average and provision of documents and evidence with the intention to help speed up the adjusting process, and paragraph 3 allows:

(a) For notification or particulars in support a claim – 12 months from the termination of the common maritime adventure or payment of the expense;

(b) For particulars of value – 12 months from the termination of the common maritime adventure.

The Rule provides for average adjuster’s liberty to make an estimate of allowances or contributory values upon expiry of the 12 months of his requesting for such evidence and particulars.  The adjuster’s estimate may be challenged only on grounds that it is manifestly incorrect.  The parties are allowed to challenge the adjuster’s estimates within 2 months of receipt of same.

Paragraph 4 of 2016 Rule E is a new provision that any party pursuing a recovery from a third party shall advise the average adjuster and supply full particulars within 2 months upon receipt of the recovery achieved.  The adjuster should take note ensuring that any allowable credit to the general average is made in the appropriate manner.

RULE G

The 2016 Rule G includes a non-separation wording (first introduced in 1994) based on the Standard Non-Separation Form (used for many years as an attachment to security documents), but with the inclusion in the text of the “Bigham” clause acting as a ceiling on allowances made under this Rule.

The following example illustrates the working of the “cap”:

  • Vessel with cargo on board sustains propeller damage and is towed into Port of Refuge A;
  • In order to do repairs necessary for the safe prosecution of the voyage, it would be necessary to discharge, store and reload cargo;
  • Instead, cargo is discharged and then forwarded to destination;
  • Vessel is towed to Port of Refuge B (where there are the necessary repair facilities) and effects permanent repairs;
  • Ship and Cargo are 20/80% respectively of total values;
  • It would have cost Cargo US$350,000 to have arranged for its own carriage to destination.

It is worth noting that the unrecoverable part of Rule G paragraph 3, (i.e. US$400,000 – US$350,000 = US$50,000) is recoverable under English law per “Abt Rasha” (2000) from H&M Underwriters.  The position under other jurisdictions is less clear.

RULE II.          LOSS OR DAMAGE BY SACRIFICE FOR THE COMMON SAFETY

RULE V.           VOLUNTARY STRANDING

RULE VIII.      EXPENSES LIGHTENING A SHIP WHEN ASHORE, AND CONSEQUENT DAMAGE 

The inclusion of the wording “property involved in the common maritime adventure” is to emphasise that pollution liability falling on such property are not covered.

RULE III.          EXTINGUISHING FIRE ON SHOPBOARD

Under the 2016 Rules, only those losses caused by the heat of the fire will be excluded; other losses resulting from heat so long as they are a direct consequence of the extinguishing measures will be allowable.

RULE VI.           SALVAGE REMUNERATION

The wording of Rule VI paragraph b) is new to the YAR 2016, which concerns the treatment of Salvage.

We quote below extract from the CMI Guidelines:

“The wording of Rule VI paragraph (b) is new to the York Antwerp Rules 2016. It arises from concerns that, if the ship and cargo have already paid salvage separately (for example under Lloyd’s Open Form) based on salved values (at termination of the salvors’ services), allowing salvage as general average and re-apportioning it over contributory values (at destination) may give rise to additional cost and delays, while making no significant difference to the proportion payable by each party.

A variety of measures to meet these concerns have been considered, ranging from complete exclusion of salvage to using a fixed percentage mechanism. Such measures were found, during extensive CMI discussions to produce inequitable results or were impossible to apply across the range of cases encountered in practice.

It was pointed out that many leading adjusters will, when appropriate, propose to the parties that if re-apportionment of salvage as general average will not produce a meaningful change in the figures or will be disproportionately costly, the salvage should be omitted from the adjustment; it is then up to the parties to decide whether it should be included or not. However, it was considered that a means should be found to make this practice more universal and to set out express criteria that would help to ensure that the allowance and re-apportionment of salvage as general average (where already paid separately by ship and cargo etc.) would only occur in cases where there was a sound equitable or financial basis for doing so.

The average adjusters will still be required to exercise their professional judgment in applying paragraph (b) because several of the criteria (i-v) that are listed require a view to be taken as to what should be deemed to be “significant” in the context of a particular case. Because of the wide range of cases that the York-Antwerp Rules apply to, it was not considered desirable to offer a fixed definition of how “significant” should be construed, other than to note that the objective of the new clause was to reduce the time and cost of the adjustment process where it is possible to do so.

When assessing whether there is a significant difference between settlements and awards for the purposes of Rule VI(b)(v) the adjuster should have regard only to the basic award or settlement against all salved interests before currency adjustment, interest, cost of collecting security and all parties’ legal costs.”

 

RULE IX.          CARGO, SHIP’S MATERIALS AND STORES USED FOR FUEL

Under the 2016 Rules allowances can be made for cargo sacrificed when used as fuel.  No investigation will need to be made by the average adjuster as to the adequacy of the quantity of fuel provided.  A credit will have to be made only when ship’s materials and stores are used as fuel. 

RULE XI.     WAGES AND MAINTENANCE OF CREW AND OTHER EXPENSES PUTTING IN TO AND AT A PORT OF REFUGE, ETC.

New words “entry or detention” are added to paragraph (b)(i) to specify that allowances at a port of refuge are only made possible either when the ship and cargo remain in peril after arrival at the port of refuge or when repairs necessary for the safe prosecution of the voyage are being effected.

The definition of “port charges” is newly added under paragraph (c) (ii) in view of the comments made in the “Trade Green” (2000), which are contrary to the established practice and intentions of successive versions of the York-Antwerp Rules.

In place of the deleted 1974/1990 wording dealing with overtime, a new text of paragraph (d) is introduced to specify the circumstances in which allowances might be made in general average, the new paragraph of Rule C notwithstanding, for costs incurred to prevent or minimize environmental damage.

RULE XII.         DAMAGE TO CARGO IN DISCHARGING, ETC.

The wording in the 1974/1990 Rule, “caused in the act of”, being considered too wide, was altered to “sustained in consequence of”.  Accordingly, for an allowance to be made under this 2016 Rule, a casual connection will have to be demonstrated between the act in question, handling, etc. and the damage sustained.

RULE XIII.        DEDUCTIONS FROM COST OF REPAIRS

Paragraph (c) provides that the costs of cleaning, painting or coating of bottom shall not be allowed in general average unless the bottom has been painted or coated within the 24 months (against 12 months as specified in YAR 1970/1990) preceding the date of the general average act in which case one half of such costs shall be allowed.

RULE XVI.       AMOUNT TO BE ALLOWED FOR CARGO LOST OR DAMAGED BY SACRIFICE

Wording is added in paragraph (a) (i) to deal with issue arising from place of final delivery not being port of discharge, giving express sanction to the long-established adjusting practice.

RULE XVII.      CONTRIBUTORY VALUES

Recognition of the adjusting practice that low value cargo may be excluded from contributing to general average is now expressed in paragraph (a) (ii).

Furthermore, salvage payment which is not included in general average under the terms of Rule VI (b) would form “an extra charge incurred in respect thereof subsequently to the general average act” and a deduction in order to establish the contributory value of the property.  Additional wording in paragraph (b) makes it clear that the deduction in this respect is limited to the actual salvage payment made including interest and salvor’s costs.

Provision is made for the calculation of the contributory values of ship and cargo in the circumstances where Rule G, 3rd and 4th paragraphs concerning Non-Separation agreement, is applicable.

The 1974/1990 Rule only excludes passengers’ luggage and personal effects not shipped under a Bill of Lading, from contribution.  The 2016 Rule excludes also mails, accompanied personal effects and accompanied private motor vehicles.  Unaccompanied personal effects, such as a container full of house-hold goods being moved to another country are liable to contribute to general average.

RULE XX.        PROVISION OF FUNDS

There is no provision for Commission at 2% to be allowed on general average disbursements.

RULE XXI.       INTEREST ON LOSSES ALLOWED IN GENERAL AVERAGE

Under the YAR 2016, interest will be fixed annually at ICE LIBOR on the first banking day of each year in the currency of the adjustment plus 4%.  The interest is to run for 3 months after the date of adjustment.

For interest, it is noted that for a US$ adjustment that would produce a rate of 5.17% for 2016 as opposed to 7% under YAR 1974/1990.

RULE XXII.      TREATMENT OF CASH DEPOSITS

A significant change is made to the treatment of cash deposits.  Removing the joint account requirement, the new rule sets out more clearly how the average adjuster should handle such funds.

We quote below extract from the CMI Guidelines:

“Under Rule XXII(b) the adjuster is required to hold deposits in a special account constituted in accordance with the law regarding holding client or third party funds that applies in the domicile of the appointed average adjuster. 
Unless otherwise provided for by the applicable law, CMI recommends that any special account should have the following features:

  • Funds should be held separately from the normal operating accounts of the adjuster.
  • Funds should be protected in the event of liquidation or the cessation of the average adjuster’s business.
  • The holding bank should provide regular statements that show all transactions clearly.”

RULE XXIII. TIME BAR FOR CONTRIBUTING TO GENERAL AVERAGE

The YAR 1974/1990 does not include this time bar rule (which was first introduced in 2004) to provide for any rights to general average contributions to be time-barred after a period of

(a) 1 year after the date of the general average adjustment or

(b) 6 years after the date of the common maritime adventure, whichever comes first.

As recognized in the opening words of the Rule, its provisions may be invalid in some countries. 

[Click here for the YAR 1974 as amended 1990 and YAR 2016 in tabular format.]

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Seaworthiness in the context of Marine Insurance Contract and General Average

Our Ref  : IS/1438/16

Date    : 7 July 2016

Dear Members and Friends,

You are cordially invited to attend the Talk presented by Mr. Raymond T C Wong and

Capt. L C Chan on:

Seaworthiness in the context of Marine Insurance Contract and General Average 

On 27th July 2016 (Wednesday)

Time:                    1830 – 2030

Venue:                  No. 1 Conference Room of China Merchants Group

37 Floor, China Merchants Tower, Shun Tak Centre

168-200 Connaught Road Central, Hong Kong

Medium:              Cantonese (but questions from the floor can be in Cantonese, Putonghua or English)

Fee:                       Members HK$50.00 per person;  Non-members $100 per person

For young members (student) – free of charge

About the Speakers

Mr. Raymond T C Wong, the Emeritus Chairman of the Institute of Seatransport

Capt. L C Chan, Risk Management & Loss Prevention Consultant of CM Houlder Insurance Brokers Ltd.

About the Talk

Capt. Chan and Mr. Wong will jointly present on the subject of “Seaworthiness” focusing on and sharing experience in both technical aspects, in particular, on Owners exercising due diligence to make the vessel seaworthy, and marine insurance implications of unseaworthiness, also the application of Rule D of the York-Antwerp Rules, distinguishing the adjustment of the parties’ rights in General Average and the contractual rights and liabilities of the parties.

Registration is on a first-come-first-served basis.  Please send the reply slip on or before 23rd July 2016 to info@seatransport.org or by fax: 2581 0004 for enrollment.

 

Wellington Koo

Activities Sub-Committee

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The York-Antwerp Rules 2016 – Major Changes

Major changes from the York-Antwerp Rules 1994

As anticipated, at the CMI Conference in New York on 6th May 2016 the York-Antwerp Rules 2016 were adopted, which seem to largely reflect the York-Antwerp Rules 1994 which has been widely incorporated into contracts of carriage; while a more recent 2004 revision has remained largely redundant, being considered less favorable to ship-owners.

The Assembly of the CMI also adopted the “CMI Guidelines relating to General Average”.  The relevant documents can be downloaded from the CMI website: www.cmi2016newyork.org/session-1

It is noted that BIMCO, the world’s largest international shipping association, has already agreed that their standard documents will be amended to reflect the new rules, YAR 2016.  Accordingly, we consider it advisable to highlight the major changes from the YAR 1994, noting that the minor changes include an amended numbering system and greater consistency in the terms being used.

RULE B

YAR 2016 provides a clearer requirement for the “disconnection” to be a general average act in the tug and tow cases, as noted in paragraph 2:

2. If the vessels are in common peril and one is disconnected either to increase the disconnecting vessel’s safety alone, or the safety of all vessels in the common maritime adventure, the disconnection will be a general average act.

Paragraph 3 provides a brief introduction concerning port of refuge expenses.  It is submitted that if the tug and tow are detained at a port of refuge whilst repairs to the tow which are necessary for the safe prosecution of the voyage are effected, the port charges,  crew wages, maintenance and fuel and store referable to the tug will be allowed in general average.  Equally, if the detention is on account of repair to the tug, the port charges during the period of detention (and the crew wages and maintenance of the crew if she has one) referable to the tow will be allowed in general average.

RULE E

Rule E of YAR 1994 allows the parties to give notice of a claim in general average within 12 months, measured from the date of the termination of the common maritime adventure, or request from the adjuster, and provides for the average adjuster’s liberty to make an estimate of allowances or contributory values upon expiry of the 12 months of his requesting for such evidence and particulars.  The adjuster’s estimate may be challenged only on grounds that it is manifestly incorrect.

Rule E of YAR 2016 provides a clearer time-line for the provision of documents and evidence with the intention to help speed up the adjusting process, and paragraph 3 allows:

(a) For notification and particulars in support a claim – 12 months from the termination of the common maritime adventure or payment of the expense;

(b) For particulars of value – 12 months from the termination of the common maritime adventure.

The parties are allowed to challenge the adjuster’s estimates within 2 months of receipt of same.

Paragraph 4 of YAR 2016 is a new provision that any party pursuing a recovery from a third party shall advise the average adjuster and supply full particulars within 2 months upon receipt of the recovery achieved.  The adjuster should take note ensuring that any allowable credit to the general average is made in the appropriate manner.

RULE G

Additional words are added in the last paragraph of Rule G:

4. The proportion attaching to cargo of the allowances made in general average by reason of applying the third paragraph of this Rule shall be limited to the cost which would have been borne by the owners of cargo if the cargo had been forwarded at their expense. This limit shall not apply to any allowances made under Rule F.

It will help resolve an area of uncertainty and differences in average adjusting.  The following example illustrates the working of the “cap”:

  • Vessel with cargo on board sustains propeller damage and is towed into Port of Refuge A;
  • In order to do repairs necessary for the safe prosecution of the voyage, it would be necessary to discharge, store and reload cargo;
  • Instead, cargo is discharged and then forwarded to destination;
  • Vessel is towed to Port of Refuge B (where there are the necessary repair facilities) and effects permanent repairs;
  • Ship and Cargo are 20/80% respectively of total values;
  • It would have cost Cargo US$350,000 to have arranged for its own carriage to destination.

It is worth noting that the unrecoverable part of Rule G paragraph 3, (i.e. US$400,000 – US$350,000 = US$50,000) is recoverable under English law per “Abt Rasha” (2000) from H&M Underwriters.  The position under other jurisdictions is less clear.

RULE VI. SALVAGE REMUNERATION

The wording of Rule VI paragraph b) is new to the YAR 2016:

b) Notwithstanding (a) above, where the parties to the adventure have separate contractual or legal liability to salvors, salvage shall only be allowed should any of the following arise:

(i) there is a subsequent accident or other circumstances resulting in loss or damage to property during the voyage that results in significant differences between salved and contributory values,

(ii) there are significant general average sacrifices,

(iii) salved values are manifestly incorrect and there is a significantly incorrect apportionment of salvage expenses,

(iv) any of the parties to the salvage has paid a significant proportion of salvage due from another party,

(v) a significant proportion of the parties have satisfied the salvage claim on substantially different terms, no regard being had to interest, currency correction or legal costs of either the salvor or the contributing interest.

We quote below extract from the CMI Guidelines:

“The wording of Rule VI paragraph (b) is new to the York Antwerp Rules 2016. It arises from concerns that, if the ship and cargo have already paid salvage separately (for example under Lloyd’s Open Form) based on salved values (at termination of the salvors’ services), allowing salvage as general average and re-apportioning it over contributory values (at destination) may give rise to additional cost and delays, while making no significant difference to the proportion payable by each party.

A variety of measures to meet these concerns have been considered, ranging from complete exclusion of salvage to using a fixed percentage mechanism. Such measures were found, during extensive CMI discussions to produce inequitable results or were impossible to apply across the range of cases encountered in practice.

It was pointed out that many leading adjusters will, when appropriate, propose to the parties that if re-apportionment of salvage as general average will not produce a meaningful change in the figures or will be disproportionately costly, the salvage should be omitted from the adjustment; it is then up to the parties to decide whether it should be included or not. However, it was considered that a means should be found to make this practice more universal and to set out express criteria that would help to ensure that the allowance and re-apportionment of salvage as general average (where already paid separately by ship and cargo etc.) would only occur in cases where there was a sound equitable or financial basis for doing so.

The average adjusters will still be required to exercise their professional judgment in applying paragraph (b) because several of the criteria (i-v) that are listed require a view to be taken as to what should be deemed to be “significant” in the context of a particular case. Because of the wide range of cases that the York-Antwerp Rules apply to, it was not considered desirable to offer a fixed definition of how “significant” should be construed, other than to note that the objective of the new clause was to reduce the time and cost of the adjustment process where it is possible to do so.

When assessing whether there is a significant difference between settlements and awards for the purposes of Rule VI(b)(v) the adjuster should have regard only to the basic award or settlement against all salved interests before currency adjustment, interest, cost of collecting security and all parties’ legal costs.”

RULE XI. WAGES AND MAINTENANCE OF CREW AND OTHER EXPENSES PUTTING IN TO AND AT A PORT OF REFUGE, ETC.

New words “entry or detention” are added to paragraph (b)(i) to specify that allowances at a port of refuge are only made possible either when the ship and cargo remain in peril after arrival at the port of refuge or when repairs necessary for the safe prosecution of the voyage are being effected:

(b)  (i) When a ship shall have entered or been detained in any port or place in consequence of accident, sacrifice or other extra-ordinary circumstances which render that entry or detention necessary for the common safety, or to enable damage to the ship caused by sacrifice or accident to be repaired, if the repairs were necessary for the safe prosecution of the voyage, the wages and maintenance of the master, officers and crew reasonably incurred during the extra period of detention in such port or place until the ship shall or should have been made ready to proceed upon her voyage, shall be allowed in general average.

The definition of “port charges” is newly added under paragraph (c) (ii) in view of the comments made in the “Trade Green” (2000), which are contrary to the established practice and intentions of successive versions of the York-Antwerp Rules:

(c)   (ii) For the purpose of these Rules, port charges shall include all customary or  additional expenses incurred for the common safety or to enable a vessel to enter or remain at a port of refuge or call in the circumstances outlined in Rule XI(b)(i).

Also, additional words are added to paragraph (d) (iv) to correct an apparent anomaly:

(d)   (iv) necessarily in connection with the handling on board, discharging, storing or reloading of cargo, fuel or stores whenever the cost of those operations is allowable as general average.

RULE XIII. DEDUCTIONS FROM COST OF REPAIRS

Paragraph (c) provides that the costs of cleaning, painting or coating of bottom shall not be allowed in general average unless the bottom has been painted or coated within the 24 months (against 12 months as specified in YAR 1994) preceding the date of the general average act in which case one half of such costs shall be allowed.

RULE XVI. AMOUNT TO BE ALLOWED FOR CARGO LOST OR DAMAGED BY SACRIFICE

Wording is added in paragraph (a) (i) to deal with issue arising from place of final delivery not being port of discharge, giving express sanction to the long-established adjusting practice:

(a)  (i) The amount to be allowed as general average for damage to or loss of cargo sacrificed shall be the loss which has been sustained thereby based on the value at the time of discharge, ascertained from the commercial invoice rendered to the receiver or if there is no such invoice from the shipped value. Such commercial invoice may be deemed by the average adjuster to reflect the value at the time of discharge irrespective of the place of final delivery under the contract of carriage.

RULE XVII. CONTRIBUTORY VALUES

Recognition of the adjusting practice that low value cargo may be excluded from contributing to general average is now expressed in paragraph (a) (ii):

(a)  (ii) The value of the cargo shall include the cost of insurance and freight unless and insofar as such freight is at the risk of interests other than the cargo, deducting therefrom any loss or damage suffered by the cargo prior to or at the time of discharge. Any cargo may be excluded from contributing to general average should the average adjuster consider that the cost of including it in the adjustment would be likely to be disproportionate to its eventual contribution.

Furthermore, salvage payment which is not included in general average under the terms of Rule VI (b) would form “an extra charge incurred in respect thereof subsequently to the general average act” and a deduction in order to establish the contributory value of the property.  Additional wording in paragraph (b) makes it clear that the deduction in this respect is limited to the actual salvage payment made including interest and salvor’s costs:

(b)  To these values shall be added the amount allowed as general average for property sacrificed, if not already included, deduction being made from the freight and passage money at risk of such charges and crew’s wages as would not have been incurred in earning the freight had the ship and cargo been totally lost at the date of the general average act and have not been allowed as general average; deduction being also made from the value of the property of all extra charges incurred in respect thereof subsequently to the general average act, except such charges as are allowed in general average. Where payment for salvage services has not been allowed as general average by reason of paragraph (b) of Rule VI, deductions in respect of payment for salvage services shall be limited to the amount paid to the salvors including interest and salvors’ costs.

The insertion of the word “accompanied” in paragraph (e) is to make it clear that unaccompanied personal effects, such as a container full of house-hold goods being moved to another country are liable to contribute to general average:

(e)   Mails, passengers’ luggage and accompanied personal effects and accompanied private motor vehicles shall not contribute to general average.

RULE XIX. UNDECLARED OR WRONGFULLY DECLARED CARGO

The wording of the second paragraph is amended merely for clarity purposes:

(b)  Where goods have been wrongfully declared at the time of shipment at a value which is lower than their real value, any general average loss or damage shall be allowed on the basis of their declared value, but such goods shall contribute on the basis of their actual value.

RULE XX. PROVISION OF FUNDS

There is no provision for Commission at 2% to be allowed on general average disbursements.

RULE XXI. INTEREST ON LOSSES ALLOWED IN GENERAL AVERAGE

Under the YAR 2016, interest will be fixed annually at ICE LIBOR on the first banking day of each year in the currency of the adjustment plus 4%.  For interest, it is noted that for a US$ adjustment that would produce a rate of 5.17% for 2016 as opposed to 7% under YAR 1994.

(b)  The rate for calculating interest accruing during each calendar year shall be the 12- month ICE LIBOR for the currency in which the adjustment is prepared, as announced on the first banking day of that calendar year, increased by four percentage points. If the adjustment is prepared in a currency for which no ICE LIBOR is announced, the rate shall be the 12-month US Dollar ICE LIBOR, increased by four percentage points.

RULE XXII. TREATMENT OF CASH DEPOSITS

A significant change is made to the treatment of cash deposits.  Removing the joint account requirement, the new rule sets out more clearly how the average adjuster should handle such funds:

(a) Where cash deposits have been collected in respect of general average, salvage or special charges, such sums shall be remitted forthwith to the average adjuster who shall deposit the sums into a special account, earning interest where possible, in the name of the average adjuster.

(b) The special account shall be constituted in accordance with the law regarding client or third party funds applicable in the domicile of the average adjuster. The account shall be held separately from the average adjuster’s own funds, in trust or in compliance with similar rules of law providing for the administration of the funds of third parties.

(c) The sums so deposited, together with accrued interest, if any, shall be held as security for payment to the parties entitled thereto, of the general average, salvage or special charges in respect of which the deposits have been collected. Payments on account or refunds of deposits may only be made when such payments are certified in writing by the average adjuster and notified to the depositor requesting their approval. Upon the receipt of the depositor’s approval, or in the absence of such approval within a period of 90 days, the average adjuster may deduct the amount of the payment on account or the final contribution from the deposit.

(d) All deposits and payments or refunds shall be without prejudice to the ultimate liability of the parties.

 

We quote below extract from the CMI Guidelines:

“Under Rule XXII(b) the adjuster is required to hold deposits in a special account constituted in accordance with the law regarding holding client or third party funds that applies in the domicile of the appointed average adjuster. 
Unless otherwise provided for by the applicable law, CMI recommends that any special account should have the following features:

  • Funds should be held separately from the normal operating accounts of the adjuster.
  • Funds should be protected in the event of liquidation or the cessation of the average adjuster’s business.
  • The holding bank should provide regular statements that show all transactions clearly.”

RULE XXIII. TIME BAR FOR CONTRIBUTING TO GENERAL AVERAGE

The YAR 1994 does not include this time bar rule:

(a) Subject always to any mandatory rule on time limitation contained in any applicable law: 

(i) Any rights to general average contribution including any rights to claim under general average bonds and guarantees, shall be extinguished unless an action is brought by the party claiming such contribution within a period of one year after the date upon which the general average adjustment is issued. However, in no case shall such an action be brought after six years from the date of termination of the common maritime adventure. 

(ii) These periods may be extended if the parties so agree after the termination of the common maritime adventure.

(b) This rule shall not apply as between the parties to the general average and their respective insurers.

[Click here for the YAR 1994 and YAR 2016 in tabular format.]

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YORK-ANTWERP RULES 2016 – 中文版

At the CMI conference in New York on 6th May 2016, the York-Antwerp Rules 2016 were adopted.

The Assembly of the CMI also adopted “CMI guidelines relating to General Average”.

These Documents can be downloaded from the CMI website.

Download here is a Chinese Translation of the new rules by Mr. Ye Weiying, PRC lawyer, average adjuster and arbitrator.

二〇一六年约克—安特卫普规则         叶伟膺  译
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General Average on vessels in ballast – under English law and practice

In General Average cases it is necessary to establish the General Average community which is quite obvious with the presence of cargo on board the vessel at the time of General Average act. Where the vessel is proceeding in ballast under charter, the General Average community can be brought about by the presence of the charterer’s bunkers on board and/or chartered freight at risk, as the case may be. Where the vessel is proceeding in ballast and not under charter, there is no General Average community but Hull Underwriters under Clause 11 of ITC – Hulls 1/10/83 agree to pay GA expenses:

“When the vessel sails in ballast, not under charter, the provisions of York-Antwerp Rules, 1974 (excluding Rules XX and XXI) shall be applicable, and the voyage shall be deemed to continue from the port or place of departure until the arrival of the Vessel at the first port or place thereafter other than a port or place of refuge or port or place of call for bunkering only.  If at any such intermediate port or place there is an abandonment of the adventure originally contemplated the voyage shall thereupon be deemed to be terminated.”

Where the vessel is proceeding under Charter

For the position under English law and practice, the leading guide is the Association of Average Adjusters Rules of Practice no.B26 which reads as follows:

“For the purpose of ascertaining the liability of Underwriters on British policies of Insurance, the following provisions shall apply:-

When a vessel is proceeding in ballast to load under a voyage charter entered into by the shipowner before the general average act, the interests contributing to the general average shall be the vessel, such items of stores and equipment as belong to parties other than the owners of the vessel (e.g. bunkers, wireless installation and navigational instruments) and the freight earned under voyage charter computed in the usual way after deduction of contingent expenses subsequent to the general average act. Failing a prior termination of the adventure, the place where the adventure shall be deemed to end and at which the values for contribution to general average shall be calculated is the final port of discharge of the cargo carried under the charter but in the event of the prior loss of the vessel and freight, or either of them, the general average shall attach to any surviving interest or interests including freight advanced at the loading port deducting therefrom contingent expenses subsequent to the general average act.

When a vessel is proceeding in ballast under a time charter alone or a time charter and a voyage charter entered into by the time charterer, the general average shall attach to the vessel and such items of stores and equipment as are indicated above. Failing a prior termination of the adventure, the adventure shall be deemed to end and the value for contribution to general average calculated at the first loading port upon the commencement of loading cargo.

Where the charter to which the shipowner is a party provides for York-Antwerp Rules, the general average shall be adjusted in accordance with those Rules and British law and practice and without regard to the law and practice of any foreign port at which the adventure may terminate; and in the interpretation of Rule XI it shall be immaterial whether the extra period of detention takes place at a port of loading, call or refuge, provided that the detention is in consequence of accident, sacrifice or other extraordinary circumstance occurring whilst the vessel is in ballast.

In practice neither time charter hire, as such, nor time charterer’s voyage freight shall contribute to general average.“

As will be noted, the Rule clearly defines the General Average voyage where the vessel is proceeding in ballast “to load” under voyage charter which shall be deemed to end at the final port of discharge of cargo carried under the (voyage) charter. It therefore provides a clear guide that cancellation or frustration of the original voyage under the charter forms a prior termination of the adventure. This is because the other interest at risk, chartered freight, will have disappeared as soon as the fixed voyage is cancelled, resulting in there being no further common adventure.

However, the Rule makes no reference to any specific cargo voyage where the vessel is proceeding in ballast (without the words “to load”) under time charter. It provides for the termination of the adventure being at the first loading port upon the commencement of loading cargo, but without  reference to any specific cargo voyage. The sub-voyage charter party has no relevance at all, noting that any time charterer’s voyage freight shall not be brought in to contribute to General Average. Furthermore, if it had been intended to give similar effect that cancellation or frustration of the original intended voyage under the sub-voyage charter would form a prior termination of the adventure, it would have been so easy to simply add the same words “carried under the charter” as in the preceding paragraph or even better, the words “originally contemplated” after “at the first loading port upon the commencement of loading cargo”.

Having noted the construction of the Rule B26 in respect of the vessel proceeding in ballast under Time Charter being clearly different from that in respect of Voyage Charter, the Editor will consider further what constitutes “prior termination of the adventure” in cases where the vessel is proceeding in ballast under Time Charter.

The General Average community in the case of the vessel proceeding in ballast under time charter is established by the presence of the time charterer’s bunkers on board the vessel, which are always on board for resuming the ballast passage. The common adventure would therefore continue until, as provided by the AAA Rules of Practice, upon commencement of loading of cargo at the first loading port (except where there is a prior termination of the adventure).

For vessels trading under time charter, the ship-owner has virtually no say on where the vessel is to proceed to load cargo as this is dictated by the time charterer. In real life it is not uncommon that time charterers make alterations of loading and/or discharging port(s).  Indeed, in most cases involving considerable General Average detention, the originally intended voyage would almost certainly be cancelled as soon as it is apparent that the original cargo fixed by the time charterers can no longer wait and often the time charterers do not advise the ship-owners and merely instruct the Master to proceed to a new port/location until shortly before the completion of repairs. In the circumstances, whilst the voyage is altered the common adventure insofar as the General Average community, i.e. the vessel and the bunkers, continues and it is not right that when the General Average allowance will terminate will depend on when the time charterers bother to advise of the voyage cancellation or alteration during the detention whilst the vessel is under repairs.

It is worth noting the following submission on page 216 of the 3rd edition of “Marine Insurance And General Average In The United States – An Average Adjuster’s Viewpoint” by Leslie J. Buglass:

“… in practice it is sometimes difficult to determine if and when the voyage is terminated for general average purposes. A broad view is taken in this regard and even if a charter under which the vessel was proceeding in ballast is cancelled while the vessel is in a port of refuge, assuming the vessel proceeds to the same geographical destination within a reasonable time, it is considered that there has been no termination of the adventure in a geographical sense. In such circumstances, the general average continues until the vessel is ready to proceed from the port of refuge…”

The Editor believes that most, if not all British fellow adjusters  recognize and have been adopting this approach throughout since the publication of the first edition of this book in 1973 by an internationally recognized average adjuster.

The very first experience of the Editor in ballast General Average under time charter was in July 1973 in a vessel which was proceeding in ballast from Japan to the USA under a time charter and a voyage charter entered into by the time charterer.  The original chartered voyage was cancelled shortly after the collision giving rise to a detention for repairs at a port of refuge for some 2 months.  After completion of the necessary damage repairs, the vessel continued in ballast to the USA.  The vessel was insured with Underwriters at Lloyd’s and Institute of London Underwriters and both approved the Adjustment and settled the claim promptly without query.   The Editor has since been adjusting similar claims on that basis throughout without yet encountering any adverse comments from underwriters.

Apparently some average adjusters following the Buglass approach are concerned about lengthy detention, which, with due respect, does not sound logical since the principle would be consistent whether the detention is 1 month, 3 months or longer.  In this connection (regarding lengthy detention), the Editor experienced a vessel which was proceeding in ballast from Taiwan to load a cargo under a voyage charter at Richards Bay (for delivery in Taiwan).  Her engine-room flooded in November 1989 and the vessel was towed to Singapore where she detained for necessary repairs for some 4.5 months.  There was no cancellation date in the voyage charter party and whilst the original cargo intended to be loaded on this vessel was shipped by other vessel, the vessel did continue her ballast passage to Richards Bay to load another cargo under the same charter party, the charter hire (?) being earned by the ship-owner.  The whole period of detention was allowed in General Average, which was queried by Underwriters who after discussions eventually settled the claim in full.  This is not a ballast General Average under time charter but it demonstrates that the principle would not be affected by the detention period.     

In view of the foregoing, it has been suggested throughout (until recently) that the circumstances under which there is a “prior termination of the adventure” for the purposes of General Average ballast under time charter would be either

(a) the complete diminishment of the bunkers on board, thus exiting the common adventure, or

(b) the frustration by agreement or otherwise of the contract between the ship-owner and the time charterer, i.e. the time charter party, whichever occurs first.

This approach was challenged by some average adjusters a couple of years ago, who would be against continuing to make allowance as soon as the time charterer makes the decision to change the voyage or communicates his decision to the ship-owner.   

The subject was indeed discussed in the London market last year and apparently the market is in favour of a rule of practice to achieve uniformity of practice amongst average adjusters.  A sub-committee of the Association of Average Adjusters was therefore set up for this purpose.  We shall in due course report on the outcome in this respect.

(Do you have a specific problem on a marine insurance claim?  Then, write to “AA Talk” – email: info@seatransport.org) 

111 Issue Autumn, 2015 Journal of the Institute of Seatransport