York Antwerp Rules

2004
Progress or problems for Underwriters and
Shipowners?
Tim Madge FAAA - Partner
Mediterranean Average Adjusting Company
Marine Law and I nsurance 2006, Moscow

What is General Average?
General Average
A form of international maritime law/ practice - first
incorporated in York Rules 1864.

Exists irrespective of insurance or fault of any party.

All parties contribute to sacrifices and expenditure for the
common safety/ safe prosecution of the voyage.

Contribution based on values at end of voyage.

Property lost subsequently on voyage does not contribute.

Security = Underwriters Guarantee or cash deposit or
Bank Guarantee + Average Bond signed by Consignees.

Terms incorporated in Charter Parties & Bills of Lading.



Typical GA Sacrifices
For common safety:

Jettison of cargo at a time of peril
Loss/ damage to ship or cargo extinguishing a
fire
Damage to main engines refloating a laden
vessel which is aground and in peril
Loss/ damage to property owned by third
parties in consequence of refloating operations




Typical GA Expenditure
Salvage costs
Port charges at port of refuge
Crew wages at port of refuge
Cargo discharge for repairs
Cargo storage/ reloading costs
Temporary repairs
Overtime on repairs

Expenditure allowable
York Antwerp Rules:

1974/ 1994
Expenditure for common safety and for common
benefit (safe prosecution of voyage)

2004
For common safety but certain expenditure for
common benefit now limited


Reasons leading to 2004 Rules

Perceived widening of scope of GA in 1994, such as anti-pollution measures

Cargo often contribute more than Vessel due to higher values

Reapportionment of Salvage in GA considered unnecessary and expensive

Desire to restrict GA to Common Safety and to limit Common Benefit

First set of YAR Rules introduced without consensus between Shipowning and
other interests

2004 Rules only applicable if incorporated in Charter Parties/ Bills of Lading.

Effects of 2004 Rules






Who wins?
Who loses?
Salvage awards in
General Average

Salvage based on values at termination of salvage
services.
Contribution to General Average based on values
at end of voyage.
Further losses/ damage/ sacrifices after
termination of salvage services and before end of
voyage affect contributions ultimately payable for
salvage in GA.
Limits under YAR 2004.


Salvage allowable in GA
York Antwerp Rules..1974/1994 2004
LOF/ negotiated settlements
paid by all parties Yes No

Paid by one party on
behalf of all Yes Yes




Independently negotiated Salvage awards
1974/ 1994 Rules

Salved value Settlement GA
Ship $ 3,000,000 $200,000 (6.7%) $250,000

Cargo 9,000,000 800,000 (8.9%) 750,000
$12,000,000 1,000,000 1,000,000
= 8.3%
Under 2004 Rules payments remain as settled

LOF Salvage award
SHIP Sound value US$10,000,000
Deduct fire damage 1,000,000 Salvage
US$ 9,000,000 pays US$468,750
CARGO
1
st
consignment Sound value US$3,250,000
Deduct fire damage 250,000
US$ 3,000,000 pays US$156,250
2
nd
consignment
Sound value US$3,250,000
Deduct:-
Fire damage US$250,000
Extinguishing damage 600,000
850,000
US$ 2,400,000 pays US$125,000
US$14,400,000 pays US$750,000


= 5.2% of values

Reapportionment of salvage in GA
SHIP Sound value US$10,000,000
Deduct fire damage 1,000,000 GA (Salvage)
US$ 9,000,000 pays US$450,000
CARGO
1
st
consignment Sound value US$3,250,000
Deduct fire damage 250,000
US$3,000,000 pays US$150,000
2
nd
consignment
Sound value US$3,250,000
Deduct:-
Fire damage US$250,000
Extinguishing damage 600,000
850,000
US$2,400,000
Add back
Extinguishing damage 600,000
US$3,000,000 pays US$150,000
US$15,000,000 pays US$750,000

= 5% of values


Effects of reapportioning
salvage costs in GA
Benefits of a favourable settlement by one interest shared
by others
2004 Rules Individual Hull or Cargo Underwriters could
gain or lose depending on figures. No change for Owners.

Uninsured/ unrepresented interests share in salvage
arbitration costs
- 2004 Rules Hull and Cargo Underwriters lose. No change
for Owners.

Disproportionate legal costs representing time charterers
bunkers or freight shared by Ship and Cargo
2004 Rules Hull and Cargo Underwriters gain. No
change for Owners.




Excluding
Salvage from GA
Underwriters save the costs and time required to reapportion salvage
although still necessary to collect GA security.

Individual Hull or Cargo Underwriters could gain or lose as a
favourable salvage settlement or disproportionate legal costs not
shared.

Hull and Cargo Underwriters lose because uninsured/ unrepresented
interests do not share salvage arbitration costs.

Beneficial for Owners as exclusion makes GA absorption clauses in
Hull policies more effective.

Crew wages
York Antwerp Rules 1974/1994 2004

Crew wages:
Deviating to port of refuge
and resuming voyage Yes Yes

While detained effecting
repairs Yes No

Likely considerable losses to Shipowners under YAR 2004
Temporary repairs (1974/1994)
Temporary repairs to complete voyage US$100,000

Assumed savings:-
Cost of handling cargo.US$50,000
Extra detention expenses to
effect permanent repairs. 25,000
Allowance in GA..US$75,000

Excess US$25,000 not allowable.

Temporary repairs (2004)
Temporary repairs ..US$100,000
Permanent repairs 400,000
US$500,000

If estimated permanent repairs at port of refuge:-
A. If US$500,000 = no GA allowance
B. If US$450,000 = US$50,000 allowable, subject to GA savings.

2004 Rules result in higher claim PA claim on Hull Underwriters
but lower costs to Cargo Underwriters.


Transhipment/ forwarding cargo
1974/ 1994/ 2004 Rules
Owners not normally obliged to
forward cargo
Requires special agreement
Savings in costs allowable
Allowances under 1994/2004
Rules limited to costs which
cargo interests would incur
forwarding at their own expense
(Hull Underwriters may be
liable for the extra costs which
not GA)





GA Commission and Interest
2004 Rules
No commission allowable under 2004 Rules to party paying GA
expenditure.

Benefit to Underwriters but considerable loss to Shipowners as they
usually incur the expenditure (previously 2% excluding crew wages
and fuel replaced after the voyage).

Rate of interest on GA expenditure and sacrifices to be set annually by
CMI under 2004 Rules. Previously 7% fixed rate under 1974/ 1994
Rules.

Likely benefits to Underwriters but considerable losses to Shipowners.





Time Bar
New rule in 2004 Subject to mandatory rule on time
limitation under any applicable law:
- Rights to GA contribution cease unless party claiming
brings legal action within 1 year of GA Adjustment issue
date.
- No action can be brought after 6 years from termination
of GA voyage.
- These periods can be extended by agreement of the
parties.
- Rule does not apply between the GA parties and their
Underwriters.
Summary of changes in 2004

Salvage excluded except when
paid by one party.

No crew wages during detention
at port of refuge.

Different treatment of temporary
repairs.

No commission (previously 2%)

CMI set rate of interest annually
(previously 7% p.a.).

Time bar provision.

Example comparing GA allowances
Allowance 1994 2004
Salvage US$ 500,000 Remains as paid
Wages to port of refuge 2,500 2,500
Wages at port of refuge 17,500 ----
Temporary repairs 75,000 50,000
Commission 11,500 -----
Interest 40,000 2,000 (if 4%)
US$ 646,500 54,500
General Average in future
Shipowners may continue to insist on YAR 1974
or 1994 as more favourable than 2004.
B/Ls providing for 1994 YAR still apply as
YAR 2004 are new set of rules, not an
amendment or modification of 1994 Rules.
Absorption clauses could reduce number of GA
claims against cargo.
BIMCO Average Bond Clause may reduce time
and costs of collecting GA security.


End of Voyage