General Average – Security

1. We had earlier written on the provision of securityⁱ by the various interested parties (which would include the cargo interests) following the declaration of a General Average (“GA”) and will not repeat what has been published earlier. This article will focus on the law and jurisdiction clause provided in the security wordings sought by the Average Adjusters on behalf of Owners.
2. With respect to the GA declared for The Ever Lenient, the Average Adjusters sought security by way of way of an Average Bond from cargo interests and an Average Guarantee from the cargo insurers which provided for English Law and Jurisdiction.
3. Law of the Contract: English Law is commonly preferred in shipping contracts, including Bills of Lading (“BL”), owing to its well developed body of precedent. This is understandable and in fact, the majority of shipping contracts provide for English Law as the Law of the contract. 
4. Jurisdiction:
   1. The selection of English Jurisdiction may however disadvantage cargo interests, particularly due to the costs and practical difficulties associated with pursuing or defending claims at a distance. This can include the expense of addressing issues such as denial of GAⁱⁱ, as well as the generally higher costs associated with proceedings in certain jurisdictions. 
   2. The Ever Lenient was trading in FE/SE Asia & Indian Sub-Continent and therefore the use of English Courts, arguably, would not have been with in the contemplation the cargo interests, particularly, if the Bills of Lading issued provided for another jurisdiction to deal with disputes.  
   3. Courts in other jurisdictions are also able to deal with issues related to GA (Singapore, Malaysia and Hong Kong to name a few) including dealing with foreign law (which in this case would be English Law). This will obviously bring diversity in the development of law and which should be welcomed! Accordingly, we believe that the time has come to consider other competing jurisdictions or processes and which may be more efficient not only in time but also in costs.
5. Incorporation of York Antwerp Rules in Contract of Carriage:
   1. With respect to shipments under charterparties (C/P’s), the charter would contain provisions for GA and which would include the relevant edition of the York Antwerp Rulesⁱⁱⁱ to be used for the adjustment together with the location/jurisdiction where the adjustment would be accomplished. We do not have any issues on the adjustments being accomplished on the basis of the C/P’s given that this was contractually agreed between parties.
   2. Liner shipments will invariably have concurrent contracts of carriage (underlying and overlying contracts) and which may provide for different terms i.e. the Owners C/P terms on GA may not match the terms of the BL issued to the cargo interests or by the underlying carriers/NVOCC’s. We had earlier touched on issues which may arise in shipping contracts having different codes^iv and similar issues would also arise for the provision of different jurisdictions to deal with disputes.
      1. The BL to the cargo interests may provide for another law and jurisdiction. An argument can certainly be made that the law related to the adventure including GA should be based on what is provided in the contract closest to the Owners or the BL issued to the cargo interests. We submit that given that security is sought from cargo interests, the provisions of their contract (cargo interests) should be the one which should be relevant to the security being provided by them. 
      2. Parties can vary the terms of their contract by agreeing to law and jurisdiction sought by Average Adjusters. The question then is whether cargo interests freely agreed to the varied wordings or were coerced? If coerced, cargo interests could later try and deny the application of the jurisdiction provided in the security wordings.
      3. Some jurisdiction’s expressly provide for the compulsory application of their law^v and jurisdiction for shipments from or to their jurisdiction. This being the case, irrespective of the wordings of the security, should a party initiate action in their jurisdiction, they would be entitled to deny the application of foreign law or jurisdiction as may be provided in the Average Bonds/Guarantees.
6. The way forward:
   1. It remains our view that these issues could all be dealt by choosing arbitration as the default dispute resolution process with a revolving seat^vi (to ensure that the courts of the location where the cargo interests are based have supervisory control of the arbitration) and Law (if absolutely necessary). While an argument can certainly be made that a revolving Seat and Law would create an issue with certainty, the fact is that where domestic law provides for supremacy of their local laws and jurisdiction, they would apply irrespective of the choice provided in the contract.
   2. Some of the Arbitration Rules do allow for joinder^vii (see R 29 of SCMA Rules) subject to the agreement of all parties. The advantage of joinder are efficiency, consistency and cost savings given that it allows related parties or claims to be dealt with in one proceedings, reducing the risk of conflicting awnings and avoiding duplication of time and expense.  
   3. Given that Arbitration is a contractual choice made by parties, rules of other associations/institutions can be amended to provide for such a provision. 
7. The York Antwerp Rules are regularly revised considering changes in law and technology. We had earlier suggested that the time has come to have separate YAR Rules^viii for Container Shipping. Accordingly, as and when the YAR come up next for revision, the issue of having separate rules for Container Shipping can be considered and discussed. Additionally, the GA rules for Container shipping can incorporate provisions such as class arbitration and which is now developing in consumer contracts.
8. In conclusion
   1. It is time to also look at other jurisdictions to deal with GA’s based on costs and geographical proximity to the voyage/incident in question.
   2. Given the changes in law, arbitration should be considered as the default dispute resolution process for GA’s given that the arbitral rules can provide for multiple seats and pathways to consider the potential differences in the contracts involved in the voyage.

^i. See our earlier articles, Salvage & General Average – Security Issues, General Average – CMA CGM Libra and Rule D Defence,General Average – Reasonableness,  General Average – Freight Forwarders & Containers, General Average – Differing Codes and Salvage & General Average – Excessive Security.
^ii. See our earlier article, General Average – CMA CGM Libra and Rule D Defence.
^iii. See Clause 29 of Gencon C/P 2022.
^iv. See our earlier article, General Average – Differing Codes.
^v. See our latest article, China’s New Maritime Code.
^vi. See our earlier article on The Revolving Seat.
^vii.See SCMA IV edition Rule  29.1 which states “If the parties so agree, the Tribunal shall have the power to add other parties (with their consent) to the arbitration and make a single final Award determining all disputes between them”.
^viiii. See our earlier article, General Average – Container Vessels.