Public Participation for the Compensation of Losses

The interminglement of concepts in the two fields of law and insurance, particularly when it comes to maritime issues, as well as the overly significance of some practical and frequently-occurring issues in this regard was the main motivation that drove me to paint a general picture of general average compensation in maritime transportation, and investigate this matter from the angles of York Antwerp Convention and court procedures.

News ID: 73918

Date: 14 May 2017 - 14:01

General Average Principle

Prior to the emergence of maritime law and the establishment of maritime transportation insurance as academic major , many tribes and nations that resided in the coasts of the Mediterranean Sea had already set general average principle as a maritime precedent, and abided by this law in their maritime commercial relationships. The losses for what is dumped into the sea to rescue a ship and its loads, they believed, must be shared and compensated by all the merchants involved.

The general average principle is based on the rationale that in a maritime venture, it is possible that the vessel runs into various troubles. For instance, it could run down or it could run into a tremendous storm and exposed to the risk of sinking. In such cases, inevitably, the captain might have to decide to dump a part of the cargo into water to lighten up the vessel and rescue the other portion of the cargo. Otherwise, the whole ship and cargo might be drown. Meanwhile, it has always been a controversial decision, in such critical cases, as to which part of the cargo should be thrown overboard. Hence, in order to prevent any controversies and conflicts, maritime trade convention provides the captain with full authority to decide which cargo and how much of it must be thrown overboard, based on his experience and the current conditions. In compensation to the losses, the merchants whose their cargo has survived are then required to pay their share of the losses.

The general average compensation regulations have been in place since 3000 years ago, and history has it that the Phoenicians were the first nation to establish and execute these rules since the 8th century BC. The earliest written version of these rules date back to 6th century BC, and has been credited to Justinian. In the next 13 centuries, however, these rules have been developed and expanded in the maritime laws of different countries in different manners.

York Antwerp Convention

The general average principle, which made it necessity for all the parties involved in a maritime venture to participate in compensating the losses, led to various conflicts since every country executed its own laws in this regard. In order to prevent such conflicts and devised a unified procedure for general average, an international conference was held in Glasgow in 1860, which resulted in Glasgow Resolution. Four years later, in 1864, ship owners, insurance companies, insurance assessors and experts participated in another conference was held in York, which led to the approval of York Convention Regulations. The two resolutions of Glasgow and York were revisited and revised in the 1877 conference of Antwerp, and this way, the first York Antwerp regulations were delineated. Ultimately, after further revisions and additions in multiple conferences , York Antwerp regulations were finalized in 1974, and they are still being practiced and executed worldwide. Whereas York Antwerp regulations have not been approved by the legislative systems of all countries, its clauses have been incorporated in maritime cargo transportation contracts (maritime transportation lading bills and ship lease contracts) and are executed. In other words, trade conventions regard such regulations as a general principle and enforceable.

Probing York Antwerp Regulations

York Antwerp Regulations are comprised of a Rule of Interpretation and 7 numbered rules (enumerated with letters from A to G), which encompass the general principles for compensation of losses. Besides, it encompasses 22 clauses related to specific rulings and complement to the numbered rules. Based on the Rule of Interpretation, in the calculation of general average, the enumerated rules (both by numbers and letters) outweigh all the conventions, traditions, rules or regulates that contradict them. General average will be determined based on the letter-enumerated rules, other than the cases for which special regulations have been set by the Rule of Paramount or numbered rules.

Rule of Paramount has it that no sacrifice or expenditure is allowed unless it is made reasonably. Overall, based on these rules:

According to Rule A of 2004 York Antwerp which has been adopted with minor alterations from clause 66 of Great Britain’s Maritime Insurance Law (passed in 1906), General Average compensation will be allowed when and only when the sacrifice or extra charges emerge as a result of logical action taken to maintain safety and to protect the cargo while being trapped in a joint maritime venture. However, the definition of general average in Clause D of Rule 185 of Iranian Maritime Law (passed in 1964) does not conform to the aforementioned Rule A definition. In Rule 185, Iranian law does not make any references to sacrifice, logical action or joint maritime venture. Given that each and every of these terms bear specific legal meanings and concepts, revisiting and revising Iranian law on this subject seems to be essential.

Determining General Average and some Examples

Rules vividly delineate that general average only encompasses the losses and expenses that are directly the consequences of shared loss, and costs such as demurrage or market loss are not incorporated in it.

Proving the imposed general average falls on the shoulder of the pretender, and all the individuals who intend to claim their losses in this regard are legally required to submit their claims in written form to the general average assessor within 12 months from the ending point of the maritime venture. In case any pretender fails to submit its written claim, fails to submit his/her documents and evidences upon his claim within the 12 months period, or fails to determine the specifications and values of his/her general-average-included lost properties, the assessor has legal authority to determine the value of the lost properties based on the documents and evidences available to him. However, if a disproportion could be proven between assessor’s speculation and the available facts, the case could be appealed.

Thus, it could be concluded that the general average compensation encompasses the costs and sacrifices as delineated in the following:

• The losses imposed to the machineries and mechanical parts as a result of general rescue or throwing the cargo overboard

• Lightening up the cargo on and under the deck to rescue the ship and other goods

• The costs of applying fire-fighting goods such as water and foam

• Costs related to embarking and disembarking the insured cargo in port of refuge, or when the ship runs down

• The costs of refloating vessel from running down

• The costs of entering port of refuge for necessary repairs

• Embarking and disembarking costs in the in port of refuge

• General average and salvage costs in the troubled vessel which is drowned, run down, is set on fire, or the losses imposed by fire, explosion, collision or colliding with any other maritime vehicle or floating object (e.g. an iceberg).

• Any other incident that causes the ship to call off the maritime venture in the port of refuge and disembarks the cargo, which is considered to be general average based on York Antwerp rules.

The company insuring the ship would be required to pay off the general average compensation, as determined and calculated by general average assessors. In case the incident is of general average nature, the insurance company is required to pay all the expenses related to the salvage of the ship.