Lecture
on General Average
by
ULYSSES
DIWA
Ladies and Gentlemen: Good
Evening.
Why Don’t we start with an example
to illustrate tonite’s subject.
Let us suppose the container
vessel, called “FERDIMEL MARCOUALDEZ” whilst on a loaded passage from Hong Kong
to Singapore, encountered heavy weather when she was a few miles off San
Fernando, La Union; and as a result of the heavy weather she became unstable so
that the master – Captain Fabian Enriles found it necessary to jettison some of
the containers marked “BENIGMO BONIFACIO”. After a sufficient No. of containers
were thrown over-board, the vessel regained even keel; took shelter at San
Fernando anchorage and when the weather calmed down the following day (thanks
to AMADO PINEDA), the voyage was resumed. However, it did not take very long
after departure from San Fernando,
when the vessel developed engine trouble which immobilized her, so that
“Salvage Assistance” was called for and the m.t. “EDWARDO COJREAGAN” came to
the rescue and towed the “FERDIMEL MARCOUALDEZ” to Bataan Shipyard &
Engineering Co. for repairs. Subsequent to these, the ship proceeded on her
voyage to Singapore
without further trouble – and, as the pleasant clause says: “and sailed happily
ever after”.
From that illustration, ladies and
gentlemen, we have in fact two general average situations: ONE: the “jettison”
of past cargo, and TWO: the “salvage assistance” rendered by the motor bug
“EDWARDO COJREAGAN”.
So, what is “General Average”?
General Average has existed for
thousands of years, and perhaps we should take a brief look at maritime history
which will throw some light on the matter.
Tracing
back, in the Western world, maritime commerce first developed in the
Mediterranean Sea and in particular in the Eastern end of it, where the two ancient
Phoenician cities of Tyne and Sidon – in what is now known as Lebanon –
developed as major shipowning and trading centres. During the last 600 years
B.C. the Greek cities, surrounding the sea, and particularly the Island of Rhodes, also developed as major
shipowning and trading centres. With the development of the Roman Empire, the
whole of the Mediterranean became a unified commercial area and activities
extended throughout it and out into the Atlantic, up the whole of the Western
seaboard of Europe, through the Red Sea to India, and down the East African
coast. At some time during this period of something like 1,000 years, there
developed the ideas which underlie the concept of “general average” as it is
known today. Reference to the idea occurs in the writings of the 4th
Century B.C. Greek lawyer and orator, Demosthenes – and when the great
“Byzantine Emperor and lawyer codified
the Roman Law in 533 A.D. we first find a definition of General Average which
itself refers back to the law of the Island of Rhodes. A relevant decree
provided:
“That if
in order to lighten a ship, merchandise is thrown over-board that which has
been given for all shall be replaced by the contribution of all”.
(You will
notice from that ancient decree that the subject matter involved was only the
act of throwing cargo over-board, or, what is commonly known in marine circle
as “jettison”.)
And
speaking of jettison biblical history tells us about an incident where, in the
middle of a stormy voyage, the apostles – had to throw over-board some of their
cargo and gears in order to save their boat from sinking. Whether or not that
contributed to the saving of the property and of their lives is a matter of
fact, because the story goes on to tell us that the scared apostles had to wake
their “holy passenger” up – who had to command the sea and the raging winds and
waves to calm down and stop. But surely, that incident is one of the earliest
recorded instances of jettison in Christian literature.
The
definition of general average developed from that Rhodian decree that I
previously mentioned. Its principle was retained in the Middle Ages and was
carried on to our time by the advanced maritime nations.
The basic
idea of general average in the English speaking sector of the world was first
enunciated in 1801 in the case of Birkley v. Presgrave wherein Judge
Lawrence declared:
“All loss
which arises in consequences of extraordinary sacrifices made or expenses
incurred for the preservation of the ship and cargo comes within general
average, and must be borne proportionally by all who are interested”.
General
Average, therefore, is basically a system of making good – or putting back to
the original financial situation prior to an occurrence – maritime losses based
on Equity.
IS THE PRINCIPLE OF GENERAL
AVERAGE ADOPTED IN THE PHILIPPINES?
ABA, SIYEMPRE!
General
Average reached our legal system through:
A. Continental Law – introduced by Spain which
resulted in the relevant provisions contained in our Code of Commerce.
B. The Common Law system of the U.S.A. and of England.
C. International Conventions.
Article
811 of our Code of Commerce defines General Average as follows:
“As a
general rule, general or gross average shall include all the damages and
expenses which are deliberately caused in order to save the vessel, its cargo,
or both at the same time, from a real and known risk and particularly the
following:
The Code
of course, enumerates 12 instances of damages and expenses – as enumeration
which is not exclusive.
Having
gone into the extent and depth of general average in my studies in London, it is not unsafe
to say that our Philippines Codal provisions on the matter are now inadequate,
if not obsolete.
The first
example under Art. 811, for instance, says:
“The goods
or cash invested in the redemption of the vessel or of the cargo captured by enemies,
privaters or pirates, and the provisions, wages, and expenses of the vessel
detained during the time of the settlement or redemption is taking place”.
This
provision was relevant during the time of the galleon trade between Manila and Acapulco.
And worse, Arts. 813 and 814, which prescribe the formalities in order to incur
the expenses and cause the damage corresponding to general average – are
self-defeating. If these are to be followed as a pre-requisite to a general
average act, nothing will be saved, including the sailors themselves.
But having
said that, even the English and American laws – or even those of other super
maritime nations are not – on their own, adequate. Moreover, inasmuch as every
maritime country has – considering its own local laws and practices – developed
its own law relating to general average, this naturally resulted in
considerable divergence in the treatment of general average. Owing to the
inconvenience caused by many differing laws governing general average, efforts
were made during the last century to draft and secure the adjudication of a
Code of general average which would be universally applied and as a result of
conferences of shipowners, merchants, underwriters, lawyers and Average
Adjusters held at York in England, Antwerp, in Belgium and other places, the
York Antwerp Rules of 1890 were devised. The original intention may have been
to incorporate these Rules into the national laws of the various countries; but
although this desirable object was never achieved, they were nevertheless
voluntarily adopted, almost universally by shipowners by reference in their
contracts of affreightment – which, by the way, are bills of lading or charter
parties. The York Antwerp Rules, by the way, have, since 1890 undergone
amendments which gave way to the York Antwerp Rules of 1924, 1950 and the most
recent of which are the York Antwerp Rules of 1974.
The York
Antwerp Rules of 1974 or the YAR, 1974, consist of (1) a rule of interpretation
which provides for the supremacy of the Rules over local laws and practice of
general average, (2) lettered rules (A-G) which are the general provisions and
(3) numbered rules (1-22) which are the specific rules – and which, by the way,
are not exclusive.
It should
be pointed out that it is common to find provisions in contracts of affreightment
or in marine insurance policies which provide – in effect – for the application
of other relevant rules where the YAR 1974 are not sufficiently useful to the
contracting parties.
Rule A of
the YAR gives the most modern and most appropriate definition of general
average. It says:
“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”.
From this
definition, let us briefly touch upon the essential features of general average
or what in the local situation, Mr. Agbayani calls: requisites for general
average:
1. The common
adventure must be in peril.
The peril or changes must be real,
must be imminent; it must not be imaginary.
The fear of the possibility of
encountering peril is not sufficient to give wise to a claim for general
average contribution, nor is a mistaken idea that a peril exists when in
fact it does not.
This latter point is illustrated
by the decision in the English case of Joseph Watson v. Fireman’s Fraud
Inc., Co. of San Francisco, (1992): wherein during the course of a voyage,
smoke was seen issuing from the ship’s hold in which resin was stowed and water
was poured on the cargo and steam was injected into the hold so that considerable
damage was done to the cargo. A claim for general average contribution in
respect of what they considered as “sacrifice of cargo” was denied by the court
because, no evidence was found that there had ever been a fire in the vessel.
It was a mistaken idea or what we may locally term “AY MALI”.
- The sacrifice must be voluntary.
It must be an intentional act on
the part of many as opposed to accidental loss by maritime peril.
Case: Plaintiff’s vessel on a
loaded voyage to Port A, stranded in the channel not very far from Port A
docks, both ship and cargo in imminent peril. Vessel was refloated and owing to
serious leaks which developed, the pilot decided to take her to Port A docks.
Both the master and the pilot contemplated that the vessel would strike the
pier in entering the docks owing to the strong tide. The vessel did in fact
strike the pier and damaged herself and the pier. The court held that the
damage to both ship and pier, which was the direct result of intentional
docking was allowable in general average.
- The sacrifice or expenditure, as the case may be, must be reasonably made.
If it is a case of general
average, sacrifice – the act must be done prudently.
If it is an expenditure – it must be fair and reasonable.
Situation: Mr. P.A.
SIKLAB, whose vessel, the MV “MARUPOK” with cargo, runs aground and needs
salvage assistance, sends out his other vessel, the MV “MANINGNING” – a
thoroughly new cargo vessel and which is many miles away from the scene of the
grounding – to refloat the MV “MARUPOK” and at the end of the salvage work
charges an exorbitant P 3,000,000.00,
when reasonably a salvage tug nearby can easily do the same job for say P 100,000.00. Clearly, an Arbitrator or
the court can only allow a salvage cost of P
100,000.00.
- The sacrifice, or expenditure, must be extraordinary in nature, and not one which is necessarily involved in the performance of the contract of affreightment.
Example : If a
vessel meets with heavy weather which threatens to become worse and the master
decides to increase the speed of his vessel in order to reach port – the cost
of extra fuel is not allowable in general average.
- There must be a common adventure and a common danger.
It is essential to preserve more
subject matters than one: i.e. not just for ships alone, or for cargo alone, or
for freight alone – but there must be at least two interest at risk.
Example: If the
refrigerating machinery of a reefer vessel (or the so-called “BANANA OR FRUIT
BOAT”) on a loaded voyage from, say, Davao to Yokohama, breaks down on route
and the vessel puts into Manila to effect necessary repairs. In such a case any
threat of loss or damage would be limited to the refrigerated cargo, for as far
as the ship is concerned, the voyage could quite safely continue. Therefore,
the deviation to Manila
resulting in expenditure will not give rise to general average.
6. The object of the sacrifice or expenditure
must be nothing other than the preservation of the property imperiled in the
common adventure.
From the expenses incurred or
damages caused must follow the successful saving of ship and cargo or others.
G.A. Loses: i.e.
GENERAL
AVERAGE SACRIFICE AND EXPENDITURE
It will be noted from the
definition of G.A. that the loss may either be a sacrifice or an
expenditure.
I. SACRIFICE: Something voluntarily made. Thus, there may be a sacrifice of
cargo or a sacrifice of ship for the common safety.
A)
Sacrifice of cargo – (1) exemplified by jettison or throwing over-board
of cargo (as in our example of the jettison of BENIGMO BONIFACIO cargo from the
FERDIMEL MARCOUALDEZ).
(2)
damaged to cargo by fire extinguishing operations.
(3) damage to cargo caused by lightening
operations as when refloating a grounded vessel caused by intentionally running
a vessel ashore.
B) Sacrifices
of ship
(1) damage
to the vessel resulting from intentional breaking.
(2)
damage to the vessel’s engine used in efforts to refloat the vessel from a
position of peril.
(3)
damage to ship caused by water used in fire extinguishing operations, or by
lightening operations whilst this vessel is ashore and in peril.
II. EXPENDITURE: refers to extraordinary expenses incurred
for the common safety.
Examples:
1. Payment
for salvage assistance as in our case of the motor tug “EDWARD COJREAGAN”.
2. Expenses
of entering and leaving a port of refuge: port charges.
3. Detention
expenses at port refuge.
4. Cost of
labour and vessels used to lighten a ship ashore.
5. Cost of
discharging and reloading cargo for the purpose of effecting necessary repairs
for the safe prosecution of the voyage.
6. Cost of
storage for cargo discharged.
CONTRIBUTIVE
INTEREST, CONTRIBUTORY VALUES.
It will be useless, of course,
just to know what G.A. is without proceeding on to the very purpose of
the principles, i.e. contribution. Whilst at the inception of a voyage, the
trip is K.K.B., i.e. each party bear its own relevant expense of one sort or
another, should there be an intervening “general average” prior to completion
of adventure, then those property saved thereby should contribute
proportionately to the G.A. loss. In this regard, the YAR rules provide the
guide under Rule XVII: contributory values:
Ex: G.A. expenditure:
Salvage P
100,000.00
Port charges, etc.
10,000.00
Total
G.A. P
110,000.00
Ship: Sound
value: P
2,500,000.00
Less: damage 50,000.00
Cargo: CIF: P
3,000,000.00
damage: NIL = P 3,000,000.00 pays P 60,550.00
G.A. and Insurance
The
principle of G.A. is closely linked with marine insurance, but in fact the
principles of G.A. are much older than any known system of marine and G.A. is
better understood when studied apart from insurance. However, from the
inception of Marine Inc., G.A. was a liability undertaken by insurance –
unless, by express stipulation between the Insurer and the assured – the G.A.
contribution payable by ship is not covered by the policy on the vessel.
Why
“general average? What is the origin of the words general average”
As I said at the outset, the term “general”
means “common” or gross, i.e.
Not “specific” or “particular” that is why, in
contrast “particular average” is a partial loss of a subject written which is
caused by a fortuitous event meaning accidental loss of a part. In particular
average or P.A. the loss is borne by only one party.
Case of
Commerce: Arts. 809/810
Now back to “general average”
General is
therefore “common” or “gross” but what about “average”? “Average” is derived
from the ITALIAN word “AVERE” meaning “property” – “general average” therefore
means “common property” or if referring to loss on property: “common loss”.
AVERAGE ADJUSTER
From all
that exposition, we therefore have the science, the art and the practice. Let
us now come to know the scientist, the artist and the practitioner.
One who
adjusts a Particular Average Claim or prepares a General Average Statement is
by English tradition called an “Average Adjuster” which is what our profession
is called. We adjust “average” (or losses in marine property) and we are called
average adjusters. Again by tradition, altho we deal with “losses” – we are not
called “loss adjusters”; this is because loss adjusters are NON-marine
adjusters (fire, losses, construction damages etc. are their territory). Ours
is marine, i.e. ship or vessels and cargo on board same.
The first
average adjusters were old seaman or commercial travelers who waited at the
quay side. If a vessel suffered a loss because a G.A. act was committed, the
adjusters explained the ancient sea laws to the inexperienced parties who in
those days – if they were cargo owners, normally traveled with their cargos –
hence the term “super cargo”. In modern maritime commerce, of course, some G.A.’s
are much more involved and some P.A. bases are very complicated so that a
highly technical skill is required to deal with these cases. That is why
“average adjusting” just like other profession entails rigorous training and
devoted study.
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