General average example General average adjustments are nearly always

prepared by professional average adjusters and are often very lengthy and complicated documents. It takes years of training and experience to become a competent general average adjuster, and it is unlikely that a Lloyd’s Agent would be required to produce a general average adjustment, except where the case is a relatively simple one involving only local interests. The following example is not designed to convert candidates studying this examination into instant professional average adjusters. The purpose is to reinforce the basic principles of general average dealt with above and to familiarise candidates with a typical (though simplified) presentation of a statement of general average.

Example

(In this example the York-Antwerp Rules 1994 apply).

A ship carrying 5,000 tons of bulk cargo runs aground on rocks in a storm. Salvage tugs are engaged on a daily-hire basis to assist the vessel to refloat.

As part of the refloating operation, part cargo is jettisoned and the ship’s engines are used at full reverse power – consider whether this might be a sacrifice on the part of the ship – does it satisfy the requirements?

The vessel is eventually refloated and proceeds to a port of refuge under her own power.

At the port of refuge, the cargo is discharged and stored in a warehouse while the ship goes into drydock for repairs to the hull and then reloaded after the repairs have been completed. Consider whether this activity has benefited everyone and whether therefore it falls for consideration in general average.

There is no loss or damage to cargo as a result of unloading, storing or reloading. After repairs, the vessel proceeded safely to destination – also known as the time and place that the adventure ends.

The following loss/damage and expenses were incurred:

Cost of salvage tugs $ 50,000

Cost of repairs to the ship’s bottom $300,000 (Of this, $100,000 was caused when running aground and

$200,000 was directly attributable to efforts to refloat – this is important to distinguish as only part of this will be general average, ie the element attributable to trying to refloat her).

Cost of repairs to ship’s engine – (damage

caused during refloating operations) $ 25,000 Discharge, storing and reloading at the

port of refuge $ 25,000

Wages and maintenance, fuel and stores and port of refuge expenses allowable

under Rules X and XI $ 50,000

Quantity of cargo jettisoned 200 tons

The value of the ship in sound condition is

$5,000,000.

The CIF value of the cargo is $500,000, with the freight payable on loading and non-returnable in any event.

For this exercise, the adjustment of the general average is shown as a guideline on how to set out the figures in a logical fashion. Interest and commission has been ignored and figures are rounded to the nearest whole number.

chapter 9

General average and salvage

Disburse-ments, etc.

General average

Remainder

$ Shipowner’s Disbursements and Allowances $ $

50,000 Cost of salvage tugs

Allow to general average: IN FULL– tugs engaged to assist the vessel to

refloat [Rule VI] 50 000

100,000 Cost of repairs to grounding damage

Allow to general average: NIL – accidental damage caused when the

vessel ran aground 100,000

200,000 Cost of repairs to refloating damage

Allow to general average: IN FULL – damage caused during efforts to

refloat the vessel [Rule II] 200,000

25,000 Cost of repairs to engine damage

Allow to general average: IN FULL – damage caused when engines were

used to assist refloating operations [Rule VII] 25,000

375,000 275,000 100,000

50,000 Port of refuge expenses 50,000

25,000 Discharging, storing and reloading cargo at port of refuge 25,000 (Allowances made in accordance with Rules X and XI)

450,000 350,000 100,000

Contributory value of ship

Value in sound condition $5,000,000

Deduct: loss/damage

(grounding damage, refloating damage, engine repairs and cost of salvage)

$375,000

$4,625,000 Add: made good

(everything as above apart from the grounding damage)

$275,000

$4,900,000

Loss/damage to cargo Loss/damage Made good

$ $

5,000 tons cargo – CIF Value - $500,000

200 tons jettisoned – CIF Value in proportion 20,000

Allow to general average: IN FULL – Cargo jettisoned for the common safety during efforts to refloat [Rule II]

20,000

20,000 20,000

Contributory value of cargo

CIF Value $500,000

Deduct: loss/damage $20,000

$480,000

Add: made good $20,000

Contributory value $500,000

Apportionment of general average

Ship: Allowances in general average $350,000

Cargo: Allowances in general average $20,000

(ie this is the total general average pot to be apportioned) $370,000

Apportioned:

Ship: Contributory value $4,900,000 pays $335,741

Cargo: Contributory value $500,000 $34,259

$5,400,000 pays $370,000

Balance in general average

Shipowners: Receive their disbursements and allowances in general average $350,000

Pay proportion of general average attaching to ship $335,741

Receive on balance $14,259

Cargo interests:

Pay proportion of general average attaching to cargo $34,259

Receive their allowances in general average $20,000

Pay on balance $14,259

chapter 9

General average and salvage

Notes

1 The damage caused to the ship when running aground is not general average – it is accidental damage that was not intentionally incurred for the common safety. The damage caused during efforts to refloat is general average damage – the refloating operation was an intentional act aimed at rescuing the property from peril. In practice, the hull surveyor has the often difficult task of having to differentiate between damage that happened when the vessel ran aground, and any new and separate damage solely attributable to the refloating efforts.

2 The damage to the ship’s engines was caused when the engines were used in efforts to refloat the ship. A ship’s engines are not intended to be used in this way; this is therefore an extraordinary and intentional use of the engines to try to rescue the adventure from peril and the cost of repairing this damage can be allowed as general average.

This is the only circumstance in which damage to ship’s engines sustained while they are being worked can be allowed as general average.

3 A general average adjustment always finishes with a balance showing who pays and who receives. Where there are multiple cargo interests

‘Cargo’ will usually be shown as a single item in the balance and a separate schedule will follow showing how much each individual cargo interest will pay or receive.

AppendiX

Contents

Institute Cargo Clauses (A) (1/1/09) 150 Institute Cargo Clauses (B) (1/1/09) 155 Institute Cargo Clauses (C) (1/1/09) 160 York-Antwerp Rules 1994 165