General Average

F D Rose

Document

Page 112

CHAPTER 6 Adjustment

I General Principles

6.1 Adjustment of general average is founded on “the principle that the loss to the individual whose goods are sacrificed for the benefit of the rest is to be compensated according to the loss sustained on the one hand and the benefit derived on the other”.1 This principle must be applied to real, not hypothetical, circumstances. A comparison must be made between what would have happened if there had been no general average act and what has in fact happened. For example, if goods would in any event have arrived damaged, they are not to be valued as if they would have arrived undamaged.2 “The owner of goods jettisoned is to be indemnified against loss; but he is not to be a gainer by the sacrifice of his goods for the general benefit. He is not to be put in a better position than those whose goods have not been jettisoned.”3 “The rules as to contribution and adjustment … depend upon the probable state of things at, and to have reference to, the time and place [at which the voyage ends].”4 6.2 To ensure equality of treatment between the parties (to endeavour to ensure that it makes no difference whose property is sacrificed, and that the claimant does not end up better off than the contributors), contributions are assessed on both the property preserved and the property sacrificed. It is generally said that the contributory value of the claimant’s interest is the value remaining at the end of the voyage (if any) plus “the amount made good in general average” (by contribution from the interests benefited). This means that the value of the claimant’s property is taken as the value which it would have had at the end of the voyage if, like the contributors’ property, it had been subjected to the effects of both the danger and the general average act. Any expense incurred in realising the value at destination but which would have been avoided if the general average act had not been made (e.g. freight payable at destination on cargo which would have been lost, or repairs to ship which would have been necessitated by the danger) is deducted. Similarly, property which, as a result of the general average act, could have arrived at its originally intended destination, but which is separated from the adventure

Page 113

early, should be valued at the contributory value it would have had if it had completed the adventure, less any special charges which would have been incurred in bringing that situation about.5 6.3 Cargo interests will generally need to submit evidence of values to the adjuster. The documentation will normally include evidence of the value of the goods, the cost of freight and insurance premium details. Where cargo is sold on CIF terms, a copy of the CIF commercial invoice should be submitted. Documentation of damage occurring during the voyage will also be necessary, including survey reports stating the extent and cause of damage and of any cargo insurer’s settlement.6

II Time and Place of Valuation of Parties’ Interests

The end of the voyage

6.4 In a leading case on the adjustment of general average, Bovill CJ said that “The rules as to contribution and adjustment … depend upon the probable state of things at, and to have reference to, the time and place of adjustment, that is to say, when and where the adjustment ought to take place.”7 This statement reflects the earlier practice of making the adjustment at the place at which the common adventure terminates. This may, of course, still occur. However, in modern times it is the exception rather than the rule. It is not necessary that the adjuster should be based at or carry out his work at the place with respect to which general average is to be adjusted.8 Indeed, a foreign adjustment binds only where the parties agree that it should.9 The fact that there may be a difference between the place with respect to which rights and liabilities in general average are to be adjusted and the place of statement of general average is recognised in Rule G of the York-Antwerp Rules:10

(1) General average shall be adjusted as regards both loss and contribution upon the basis of values at the time and place when and where the common maritime adventure ends.
(2) This rule shall not affect the determination of the place at which the average statement is to be made up.

6.5 The term “place of adjustment” would be a convenient description of the place with respect to which rights and liabilities are adjusted. However, in practice it is used to refer to the place where the adjuster in fact makes his adjustment.

Page 114

6.6 One effect of fixing the place where the voyage terminates as the place for valuation is that property of value at the time of a general average act may change in value by the time the voyage terminates. For example, a casualty occurring after the general average act may diminish or eliminate the value of a (potential) contributory interest, so reducing or extinguishing the liability of the owner of that interest and increasing (up to the full amount) the burden which the other interested parties must bear.11 The risk that the value of a claim for a general average contribution may be so reduced or extinguished is insurable,12 the cost of insurance being itself allowable as a general average expenditure.

Valuation of sacrifices, expenditures and contributory interests

6.7 It was established at common law that, in the case of a general average sacrifice, the value of the contributory interests is the value which they in fact have, and the value of the property sacrificed is the value which (but for the sacrifice) it would have had, at the place of termination of the adventure.13 In the case of a general average expenditure, the value of such expenditure is fixed where and when it is incurred.14 However, the place for determining the value of the contributory interests in the case of a general average expenditure was undecided at common law. 6.8 Under the York-Antwerp Rules a uniform rule is applied to the valuation of contributory interests and property sacrificed. Subject to contrary provision,15 Rule G provides16 that:

(1) General average shall be adjusted as regards both loss and contribution upon the basis of values at the time and place when and where the common maritime adventure ends.

It is generally assumed that the relevant amount of expenditure remains the amount actually incurred at the time it was incurred. Rule G could conceivably be interpreted to mean that the sum in question should be converted to its equivalent value at the place where the adventure ends; but this would be wrong in principle. The commercial value of property involved in a common adventure, whether it be the property sacrificed or the property preserved, is the value to its owners at the intended destination; but the loss suffered in a case of expenditure is the amount actually expended at the time of the general average act.

Page 115

III Determining the Place at Which Contributory Values are Assessed

6.9 Reflecting the failure of the common law to settle the issue clearly, there is no provision in the York-Antwerp Rules for determining the place of termination of the adventure or other place with respect to which general average should be adjusted. At common law, it was held that such place may be either the originally intended destination or an earlier place of termination of the voyage:

The adjustment must be made at the port of destination, if it be reached, but if the voyage is interrupted by some supervening cause, which necessitates or justifies its termination at some intermediate place, that place is the proper place of adjustment.17

The rest of this document is only available to i-law.com online subscribers.

If you are already a subscriber, click Log In button.