Is General Average a one-way street?

We have marine cargo underwriters lamenting about the frequency and severity of General Average claims. These claims remain open in the books for years adding to the reserve strain. As the number of TEUs on board large vessels and their values more often than not, exceed the value of the vessel, vessel-owners look at declaring general average at the slightest pretext….. or that is what the perception is. Do shipowners have a free hand in declaring general average as per their whims and fancies? Is general average a one-way street as far as marine insurers are concerned? The answer is No.

The rules governing General Average are embedded in the York Antwerp Rules 2016. These rules too came in for interpretation along with the concept of unseaworthiness of a vessel in the CMA CGM Libra case, technically Alize 1954 v Allianz Elementar Versicherungs AG. A basic understanding of the relevant rules under York Antwerp will be important.

Rule Paramount – In no case shall there be any allowance for sacrifice or expenditure unless reasonably made or incurred.

Rule A 1– 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. So who decides on the reasonableness of the expenditure/sacrifice for saving the common adventure? It is the Master of the vessel or the vessel owner. Hence Rule E 1 states —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. The corollary of this rule is that anyone from whom a general average contribution is sought ( cargo interests or their insurers, for instance) can after perusing the available documents & the circumstances of the incident, question if it was a fit case for general average to be declared. How often cargo insurers challenge the declaration of general average by the vessel owners is not clear, yet the point is ‘general average is not a one-way street’.

Furthermore Rule D reads — Rights to contribution in general average shall not be affected, though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the common maritime adventure, but this shall not prejudice any remedies or defences which may be open against or to that party in respect of such fault. In simple terms, if a general average has been rightly declared, though the incident which led to it was due to the fault of one of the parties, contributions have to be made but the parties not at fault will have remedies for recoveries against the party at fault.

Let us now look at the CMA CGM Libra cases wherein all the above facets came into play. In May 2011, the container vessel CMA CGM Libra with 8950 containers on board( cargo value over US$ 500 million) left the port of Xiamen in China. Shortly after the pilotage was done with, the master sailed out along the channel flanked by lit buoys but the vessel grounded on a shoal which the vessel owners claimed was uncharted. It was a Former Mined Area making hydrographic surveys difficult and the possibility of there being uncharted shoals could not be ruled out.

Salvaging operations were resorted to and general average too was declared for US$ 13 million of which salvors expenses came to US$ 9.5 million. All cargo interests were willing to contribute save for a small percentage who challenged the general average citing an actionable fault on part of CMA CGM under Rule D of the York Antwerp Rules. So what was the actionable fault alleged on part of CMA CGM, the vessel owners? The vessel was equipped with an electronic charting system but she had not been provided with official electronic charts. The vessel used the paper charts provided by the United Kingdom Hydrographic Office for navigation. The Second Officer had prepared the passage plan from Xiamen to Hong Kong and this was duly approved by the Master. The passage plan had missed out on two aspects — 1 ) A Preliminary Notice issued to Mariners by the UKHO a few months back alerting them to some uncharted depths in these waters near Xiamen. 2) The ‘no-go’ areas were neither identified nor marked in the passage plan.

The Court ruled that the defective passage plan was the primary cause for the grounding and the owners of CMA CGM had not exercised ‘due diligence’ in ensuring the vessel was seaworthy as per Article III Rule 1 of the Hague/Hague Visby Rules. Note that a faulty passage plan was interpreted to mean the vessel was unseaworthy and unseaworthiness did not merely relate to physical attributes of the vessel. CMA CGM appealed against this saying that yes, seaworthiness does not merely relate to physical attributes of the vessel, but in this case the action of the crew in preparing a faulty passage plan cannot be considered as a lack of due diligence on part of CMA CGM. This argument too was set aside by the Court which opined that Hague/Hague Visby Rules cast the responsibility of ‘due diligence’ on the vessel owner to ensure that the vessel is seaworthy. This responsibility is not ‘delegable’ or cannot be delegated to the crew or anyone else. This is one of the cases where a declaration of general average was successfully challenged. Insurers/cargo owners would do well to carefully study requests for general average contributions, seek legal advice and challenge them wherever it appears a fit case to be challenged.