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Interest & Cash Deposit - York Antwerp Rules

Author: M Jagannath
Date: November 29, 2016

One of the changes in the York Antwerp Rules 2016 vis-à-vis the earlier Rules is the provision of interests to be on the basis of a 12 month LIBOR rate for the currency in which the adjustment is prepared + 4%. This article will consider the interest and the provision of cash deposits in the various York Antwerp Rules (1974, 1994, 2004 and 2016) to consider whether parties making cash deposits can maximize their interest recovery by funding the GA.

  1. The latest edition of the York Antwerp Rules (“YAR”) is of 2016 (hereinafter known as “YAR 2016”) and where there have been some significant changes. This article will focus on the provisions for Interests and its interplay with cash deposits in the various YAR's.

  2. The interest provisions provided in Rule XXI in the various YAR 1974/1994/2004 & 2016 is as below:

    1. YAR 1974:Interest on losses made good in general average: Interest shall be allowed on expenditure, sacrifices and allowances charged to general average at the rate of seven per cent per annum, until the date of the general average statement, due allowance being made for any interim reimbursement from the contributory interests or from the general average deposit fund.

    2. YAR 1994: Interest on Losses made good in General Average: Interest shall be allowed on expenditure, sacrifices and allowances in general average at the rate of 7 per cent per annum, until three months after the date of issue of the general average adjustment, due allowance being made for any payment on account by the contributory interests or from the general average deposit fund.

    3. YAR 2004: Interest on Losses allowed in General Average:

      1. Interest shall be allowed on expenditure, sacrifices and allowances in general average until three months after the date of issue of the general average adjustment, due allowance being made for any payment on account by the contributory interests or from the general average deposit fund.

      2. Each year the Assembly of the Comité Maritime International shall decide the rate of interest which shall apply. This rate shall be used for calculating interest accruing during the following calendar year.

        (
        Our comment: YAR 2004 did not find favour with the Shipowning community due to the reduction in Interest rates)

    4. YAR 2016: Interest on Losses Allowed in General Average:

      1. Interest shall be allowed on expenditure, sacrifices and allowances in general average until three months after the date of issue of the general average adjustment, due allowance being made for any payment on account by the contributory interests or from the general average deposit fund.

      2. The rate for calculating interest accruing during each calendar year shall be the 12-month ICE LIBOR for the currency in which the adjustment is prepared, as announced on the first banking day of that calendar year, increased by four percentage points. If the adjustment is prepared in a currency for which no ICE LIBOR is announced, the rate shall be the 12- month US Dollar ICE LIBOR, increased by four percentage points.

  3. Accordingly, parties who have incurred sacrifices or expenditure are entitled to interests as provided in Rule XXI of the various YAR’s. The Rule also permits the funding of the expenses/settlement by any of the contributory interests (Property Owners such as Owners of the vessel, Equipment Owners, Freight if at risk, Cargo Owners, etc) or from the general average deposit fund.

  4. Owners, under English Law, have a duty to obtain sufficient General Average security not only for their own benefit but also for the benefit of other parties who may have suffered general average losses (see Crooks v Allen (1879), Strang v Scott ( 1889) and Castle Insurance Co Ltd v Hong Kong Islands Shipping Co [1984]). Accordingly, following a General Average incident, Owners will seek security from the various parties involved in the adventure and this would be by way of General Average Bonds together with General Average Guarantees provided by the parties Insurers. If the parties are uninsured, Owners may seek a cash deposit in lieu of the General Average Guarantees.

  5. The treatment of cash deposits is provided in Rule XXII of the various YAR and which is given below:

    1. YAR 1974: Treatment of cash deposits: Where cash deposits have been collected in respect of cargo's liability for general average, salvage or special charges, such deposits shall be paid without any delay into a special account in the joint names of a representative nominated on behalf of the shipowner and a representative nominated on behalf of the depositors in a bank to be approved by both. The sum so deposited together with accrued interest, if any, shall be held as security for payment to the parties entitled thereto of the general average, salvage or special charges payable by cargo in respect to which the deposits have been collected. Payments on account of refund of deposits may be made if certified to in writing by the average adjuster. Such deposits and payments or refunds shall be without prejudice to the ultimate liability of the parties.

    2. YAR 1994: Treatment of Cash Deposits:

      Where cash deposits have been collected in respect of cargo's liability for general average, salvage or special charges, such deposits shall be paid without any delay into a special account in the joint names of a representative nominated on behalf of the shipowner and a representative nominated on behalf of the depositors in a bank to be approved by both.

      The sum so deposited, together with accrued interest, if any, shall be held as security for payment to the parties entitled thereto of the general average, salvage or special charges payable by cargo in respect to which the deposits have been collected. Payments on account or refunds of deposits may be made if certified to in writing by the average adjuster. Such deposits and payments or refunds shall be without prejudice to the ultimate liability of the parties.

    3. YAR 2004: Treatment of Cash Deposits : Where cash deposits have been collected in respect of cargo's liability for general average, salvage or special charges such deposits shall be paid without any delay into a special account in the joint names of a representative nominated on behalf of the shipowner and a representative nominated on behalf of the depositors in a bank to be approved by both. The sum so deposited together with accrued interest, if any, shall be held as security for payment to the parties entitled thereto of the general average, salvage or special charges payable by cargo in respect of which the deposits have been collected. Payments on account orrefunds of deposits may be made if certified to in writing by the average adjuster. Such deposits and payments or refunds shall be without prejudice to the ultimate liability of the parties.

    4. YAR 2016: Treatment of Cash Deposits:

      1. Where cash deposits have been collected in respect of general average, salvage or special charges, such sums shall be remitted forthwith to the average adjuster who shall deposit the sums into a special account, earning interest where possible, in the name of the average adjuster.

      2. The special account shall be constituted in accordance with the law regarding client or third party funds applicable in the domicile of the average adjuster. The account shall be held separately from the average adjuster’s own funds, in trust or in compliance with similar rules of law providing for the administration of the funds of third parties.

      3. The sums so deposited, together with accrued interest, if any, shall be held as security for payment to the parties entitled thereto, of the general average, salvage or special charges in respect of which the deposits have been collected. Payments on account or refunds of deposits may only be made when such payments are certified in writing by the average adjuster and notified to the depositor requesting their approval. Upon the receipt of the depositor’s approval, or in the absence of such approval within a period of 90 days, the average adjuster may deduct the amount of the payment on account or the final contribution from the deposit.

      4. All deposits and payments or refunds shall be without prejudice to the ultimate liability of the parties.

  6. The interest rates on the cash deposits will always be less than the interest rates which may be paid to the losses allowed in YAR as provided in Rule XXI of the various Rules. Logically, parties making cash deposits should agree for their monies to be used to fund the general average exercise so as to maximise the interest recovery. While this indeed may be followed when the parties involved in the adventure are few (say in Bulk cargo shipments), this is rarely ever considered for container vessels due to numerous parties being involved. Instead, the cash deposits are held in a special account pending the receipt of an adjustment and if in order, payment is made from the deposit account with the balances being refunded back to parties. The reasons for this course of action may be due to the following reasons:

    1. Cash Deposits are not of substantial amounts and hence it is not worth the effort to consider this aspect.

    2. Cash deposit providers are not clear on the provisions of Rule XXII of the various YAR with respect to interest provisions available to funders of GA.

    3. Cash deposit providers are concerned that any prior use of their cash deposits may prejudice the recovery of their funds should it be ascertained that there was actionable fault on the part of Owners (in which case, Owners entitlement to GA contribution would be denied). In this regard Rule D of YAR 1974/1994/2004 and 2016 state : “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.” Accordingly, while an actionable fault may dis-entitle Owners from receiving any contribution for their losses, it does not bar other innocent interests from seeking contribution from the other interests involved in the adventure.
      (the only addition is in the 2016 wordings are the words "common maritime" preceding the word adventure and which is in bold above).

  7. As mentioned in 6 above, these competing interests may prevent parties (cash deposit holders) from taking advantage of the interest provisions available in Rule XXII of the various YAR. It is submitted that the intent of General Average is to "do equity" and therefore cash deposit holders have an entitlement to maximise their recovery. Accordingly, cash deposit holders, if they are concerned as mentioned in 6 iii above, should seek counter security from Owners to facilitate the use of their cash deposits to fund the GA exercise. If Owners provide counter-security to satisfy the amount of cash deposits used to fund the GA exercise, the exposure to the cash deposit holders would then be reduced such that this may be an acceptable risk for them to run i.e. allow their cash deposits to fund the GA exercise.

  8. However, should the Owners and their insurers deny the provision of any counter-security, parties should seek legal advice on whether they could seek assistance from the courts to force Owners to provide counter-security.
     
  9. In conclusion, a cash deposit provider for General Average should be aware that :

    1. their deposits could earn higher interests if used to fund the GA exercise instead of being kept in a deposit account.

    2. consider allowing the use of cash deposits to fund the GA exercise so as to earn higher interest rates.

    3. prior to allowing the use of their cash deposits, if concerned on the use of their monies to fund the GA exercise, consider seeking counter-security from Owners to reduce any risks from the use of thier funds.

 

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