Security Collections under General Average

Guidelines for port agents

From time to time ship agents become involved in cases where a casualty has resulted in a General Average act. The agent may be called upon to collect security and a well organized collection is essential to prevent cargo either being unnecessarily delayed or from slipping through the net.

The principle of General Average was first formulated by the ancient Greeks in a maxim dealing with the question of jettison, but it is probable that the idea itself was of still more ancient origin. The modern principles are set out in the York-Antwerp Rules which define a General Average act as follows:

"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."

Events giving rise to General Average

The following are simple examples of General average situations:-

Many types of occurrences may give rise to a claim for salvage services. Rule VI of the York-Antwerp Rules provides that payments made in respect of salvage should be treated as General Average. Salvage services may be rendered under many different types of contract (e.g. a fixed lump sum, "no cure, no pay" etc.) and jurisdiction can also affect whether the shipowner is primarily liable for salvage or whether ship and cargo have a separate liability.

General Average Security

Usually it is the shipowner who is primarily concerned to see that rights in General Average are protected since it is usually he who is called upon to pay the General Average expenses. The shipowner has, as a condition of delivery of the goods, a lien on the cargo whilst in his custody for its contribution. In practice, the amount of the contribution can never be assessed at that time and the lien is therefore used to enforce the giving of satisfactory security instead of payment. Security usually consists of the signature by the parties to the Lloyds Form of Average Bond, together with either payment by the cargo owner of a cash deposit or provision of an insurers’ guarantee, instead of a deposit.

Instruction to collect security

Agents at discharge ports may receive instructions from owners to collect security. Such instructions will usually be sent through a firm of average adjusters appointed by the owners. The instructions from the adjusters may include:

a. A draft message to consignees setting out brief facts of the casualty and security requirements.

b. Details of security required and forms to be used.

c. Details of reporting procedures.

d. It is very important that agents should promptly acknowledge that they have received and understood the instructions.

The forms which require completion are usually:

1. Average Guarantee

This is for signature by the insurer of the cargo and is used instead of a deposit. The following points should be noted:

a. The form should not be amended or limited in any way, For example, annotations such as "subject to policy liability" are not acceptable. Some insurance companies may insist on using their own forms in which case the average adjuster should be consulted.

b. Ensure that full details of cargo are given, including ports of loading and discharge, as well as container numbers.

c. Ensure that full details of the insurance company are given because the average adjuster will need to contact the insurer for information and settlement.

d. Ensure that the guarantee has been signed by a bona fide insurance company - sometimes forms are "accidentally" signed by the consignee or his brokers.

2. Average Bond

This is for signature by the receiver. As for the guarantee, the agent should ensure the full details of the cargo and the consignee are provided. If possible, the agent should also ensure that the bond is accompanied by the actual commercial invoice for the goods as rendered to the receiver, (invoices raised for customs purposes etc. may often be misleading).

3. Deposit Receipts

If cargo is uninsured the average adjuster will advise a deposit amount expressed as a percentage of the invoice value of the cargo. The agent should ensure that:

a. The invoice produced is the genuine invoice reflecting the true value of the cargo.

b. The deposit receipt is completed correctly, and a photocopy retained on file.

c. The depositor understands that he must produce the original receipt in order to receive any refund after deduction of the contribution.

Instructions will be given regarding the handling of deposits. Agents should advise the average adjuster of any local restrictions or regulations likely to prevent onward remittance of deposit funds.

4. Special agreements

In certain cases special wordings may need to be incorporated in the security documents. An example is the standard form of non-separation agreement which relates to situations where some or all cargo is transhipped.

Release of Cargo

Although bonds and invoices will usually be returned to port agents, some guarantees may be sent direct to the average adjuster. Security may also be received by an agent that covers interests consigned to different ports or parties; when separate salvage security is being lodged the situation is complicated further. Co-ordination with the average adjuster is therefore essential. Often the average adjuster will create a central database to record security received and cargo authorized for release. Agents will usually be asked to report regularly. Generally, the decision to release cargo will rest with the agent. It cannot be too strongly emphasised that the appropriate security must in all cases be obtained before delivery of cargo. a promise to sign the relevant documents is insufficient, the actual signature of the parties being necessary before cargo is released. The agent should advise the owners and/or the average adjusters if there are likely to be any difficulties in holding cargo at the discharge terminal; for example, lack of space, local court action etc.

Cargo damage

There is a distinction between damage which is accidental in nature and that which results from a deliberate sacrifice for the common safety. The former is referred to as particular average and the latter as general average. Examples of particular average are damage due to fire, cargo lost overboard in heavy weather and cargo wetted in a hold flooded as a result of grounding. General Average would include jettison of cargo to assist refloating and cargo damaged by water while extinguishing a fire. Where there is extensive General Average sacrifice damage to cargo and/or ship it may be necessary to appoint a surveyor to act in the general interest - usually referred to as the "general average surveyor". Such an individual is not required to investigate the circumstances leading up to a general average situation (e.g. the cause of a fire) but once the situation exists his role is to:

1. advise all parties on the steps necessary to ensure the common safety of ship and cargo;

2. monitor the steps actually taken by the parties to ensure that proper regard is taken of the general interest;

3. review general average expenditure incurred and advise the adjuster as to whether the costs are fair and reasonable;

4. identify and quantify any general average sacrifice of ship or cargo;

5. ensure that the general average is minimized wherever possible, i.e., by reconditioning or sale of damaged cargo. Except in cases of extreme urgency or where communications are difficult, any significant action with regard to cargo (e.g. arranging for its sale at a port of refuge) must be taken in consultation with the concerned in cargo.

The authority and funds to make disbursements will generally come from the shipowner, usually via the master or the local agent. The general average surveyor, therefore, has no authority to order any particular course of action and his role is an advisory one. However, the surveyors impartial position and his influence on the eventual treatment of the expenditure will give his advice considerable weight with the other parties involved.

Assessing General average damage to cargo

It is important that the shipowner should be informed as soon as possible of the nature and approximate extent of any loss or damage to cargo and that the information should be conveyed in such a way that the approximate allowances in general average, if any, can be assessed. The general average surveyor should be consulted as appropriate when compiling this information.

Shipowner’s duty to protect cargo

The shipowner has a continuing obligation as bailee to care for the cargo in his custody and, when necessary during the voyage, to make arrangements for re-conditioning or sale of such cargo. Whenever practicable, decisions in this respect should be referred by him to the cargo owner but this is frequently not possible, particularly in cases involving large container vessels.

In such cases the shipowner must act himself, after taking the best advice possible, in the best interests of the cargo. Although the master has by law certain powers to act for cargo in such matters, in practice no action should be taken by master or ship’s agent to recondition, forward or sell cargo without prior reference to the head office of the shipowner, except in cases of extreme urgency. The advice of the general average surveyor should be sought in all matters affecting the handling and treatment of damaged cargo.

When cargo is sold at an intermediate port the proceeds should be held by the ship agent in a separate account pending instructions as to their disposal. The proceeds, less sale charges and brokerage, if any, belong to the cargo and must be kept intact. They should not be used to settle disbursements even though such disbursements are connected with the care and custody of the cargo, except with the agreement of the cargo interests.