Container GA’s – Reasonableness

1. This article argues that, whilst Rule G (“R.G”) permits Non-Separation Agreement allowances, Rule Paramount (“RP”) requires those allowances to satisfy an independent requirement of reasonablenessⁱ. In the context of modern liner container services, that requirement prevents the mechanistic recovery of prolonged detention costs where the commercial adventure relating to particular cargo/containerⁱⁱ (“cargo”) has effectively come to an end. This article does not question the validity of Rule G or the Non-Separation Agreement. Rather, it argues that the fictional continuation of the adventure created by Rule G remains subject to the independent and overriding requirement of reasonableness imposed by Rule Paramount. The catalyst for this article was an adjustment in which the average adjuster had allowed allowances in a Container GA, for crew wages for more than 90 days under Rule G (under R X and R XI) and the discharge, storage and loading charges of containers at the Port of Refuge (“POR”) till such time the containers were loaded on other vessels arranged by the container owners/operators (and not the Owners or the Head Operator).
2. Reasonableness: Bills of Lading issued to the cargo interests invariably provide for GA to be adjusted according to the York Antwerp Rules 1994ⁱⁱⁱ (“YAR 94”).
   1. Rule A of YAR 94 defines GA as “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” (words underlined by us for emphasis). This being the case, one of the requirements for a claim under GA is that the sacrifice or expenditure must be reasonable in nature.
   2. After the English Judgement of Vlassopoulos v British and Foreign Marine Insurance (The Makis), Rule of Interpretation^iv (“ROI”) was incorporated into York Antwerp Rules 1950 and which continues in the subsequent editions. The ROI provides for the primacy of the lettered rules i.e. if the facts support a claim for GA under the numbered rules, then a claim could be made irrespective of the fact that there was no GA under Rule A or the other lettered rules.
   3. Following the English decision of The Alpha, York Antwerp Rules were amended to incorporate a Rule Paramount^v and which provided for the requirement of “reasonableness” for both sacrifice and expenditure. Accordingly, from YAR 1994 onwards, every allowance for sacrifice or expenditure must independently satisfy the requirement that it was reasonably made or incurred.
   4. What is reasonable? Under English Law, what is “reasonable” is generally a question of fact which must be determined objectively considering the circumstances of the case i.e. there is no uniform standard, and one would have to look at the relevant conditions to determine whether it was reasonable or not.
3. Voyage can be defined as the movement of a vessel between designated ports for the purpose of carrying cargoes. Given that there must be a common interest in GA, the voyage for at least the cargo ends whenever the cargo parts the vessel (which may be the intended port of discharge or the transshipment port). This does not stop the contractual voyage given that this would be dealt by the terms and conditions of the Bill of Lading issued by the Carrier to the Cargo interests.
   1. Container vessels consist of both feeder vessels (relatively small vessels that transport containers between smaller regional ports to major hub ports, where the containers are then loaded to larger deep-sea container vessels to continue with the voyage)^vi and mother vessels (a large ocean-going container ship that carries containers on major international trade routes between major hub ports)^vii. The issue of reasonableness would arise more in the mother vessels rather than the feeder vessels given that in the case of a feeder vessel; the intended voyage would be shorter such that the allowances under Rule G would rarely arise.
   2. Issues would invariably arise when a mother vessel is on a schedule calling multiple ports with cargo being discharged and loaded during its voyage. The question would naturally be what would be the voyage for the GA in question? We submit that in so far as the cargo is concerned, the voyage would be from when it was loaded on board that vessel to its intended destination with respect to that specific vessel. We explain this further below.
      1. If a container was loaded say in Shanghai, China for discharge at Singapore, the voyage in question for that cargo will end at Singapore (generally of around 8-9 days).
      2. If another container was loaded in the same vessel in Shanghai, China for discharge at Rotterdam, The Netherlands, the voyage in question for that cargo would end at Rotterdam (generally of around 41–42 days).
4. R. G NSA allowances:
   1. It has been the custom for Owners to ask the cargo interests to contribute to the GA even if the cargo was forwarded on the fiction that the cargo remained at the port of refuge during the repairs to the vessel and subsequently carried in the original carrying vessel. YAR 1994 and subsequent editions contain the NSA provisions in R. G^viii.
   2. The advantage to Owners is that they could seek recovery of the wages and maintenance of crew, bunkers consumed and daily port charges throughout the detention whilst undergoing repairs under R. XI(b).
   3. The NSA provisions in R.G require that the detention should be …justifiable under the contract of affreightment and the applicable law.
      1. What is justifiable would again be a matter of fact.
      2. If the voyage in question (which would all depend on the length of the voyage and whether the cargo is time or period sensitive) is frustrated, then obviously the NSA provisions would not be fulfilled such that Owners, at least for the voyage frustrated, would be unable to seek contributions for the GA.
      3. English Law sets a very high threshold for frustration. However, given that the words in the NSA provisions mention “justifiable”, we submit that there is no necessity to look specifically at frustration on a legal basis. Instead, one should look at the commercial basis of the voyage in question and decide as to whether the detention is justifiable. If the voyage in question is for say 15 or 30 days and the repairs would take 90 days, in our view the delay for these cargoes would not be justifiable, particularly when they are finished goods or are meant for use within a brief period.
      4. Owners may legitimately ask why they should bear these losses, particularly in the absence of any actionable fault^ix.
         1. The charter hire which an Owner could get in the market would invariably be a function of the trade lanes in which they trade together with the other efficiencies (such as speed, consumption, etc.). Owners operating liner vessels are generally taken to understand the commercial characteristics of scheduled liner trades.
         2. If the GA is caused due to say unsafe port or dangerous cargo, Owners may still be entitled to seek recovery of these costs given that these may have arisen due to breach of the charter. On the other hand, if these costs were due to say navigational perils, Owners ordinarily have access to commercial risk allocation mechanisms, including Loss of Hire insurance and contractual remedies under the charterparty.
   4. If the NSA allowances are justifiable, then the next question to ask is on the specific allowances available under R. X(b)^x (for discharging cargo) and X(c)^xi (for the storage and reloading of cargo).
      1. As mentioned in 2c, there is a requirement of “reasonableness” such that allowances under R. X(b) and X(c) can only be made if they are reasonable.
      2. The question we need to ask is whether the allowances be made for storage till such time the vessel is repaired or only for a reasonable period given that the further on carriage is arranged by the container interests themselves (and not the Owners/Operator of the first carrying vessel).
      3. The POR’s chosen for container GA’s are generally hub ports and would have multiple vessel options for further carriage. This being the case, one would have to look at the reasonable period in which the container/cargo could be loaded to other vessels for on carriage to destination. In our view, absent exceptional circumstances, the period would at most be a week or 10 days due to the availability of multiple vessel options. This is because hub ports such as Singapore, Tanjung Palapas, Busan have departures every few days.
   5. On the other hand, if the NSA provisions are not reasonable/justifiable, then the voyage, as far as the first carrying vessel is concerned, will terminate such that the discharging costs and the storage of cargo should be borne by the container interests^xii and not be a part of the GA kitty.
5. Conclusion:
   1. The aim of this article was to review which appears to be the prevailing attitude on Rule G allowances in Container GAs and whether this is the correct approach given that there are different considerations with respect to Container Shipping.
   2. In the context of modern liner container services, one must evaluate not merely whether forwarding occurred, but whether continued detention of cargo remains commercially and legally justifiable.
   3. In practice, determining what constitutes a reasonable R. G allowance is unlikely to be straightforward, particularly where container liner services involve multiple cargo interests and different voyage points. Hence, it is time for the industry to develop a principled and workable standard^xiii.

ⁱ See our earlier article, General Average – Reasonableness.

ⁱⁱ In a containerized vessel, cargo is loaded in containers which may belong to the Owners (acting as an operator) or 3rd parties (in which case, the containers would be considered as Shippers Own Containers for the Owner/Head Operator). Sometimes empty (Mty) containers are loaded to reposition the containers to a place of demand or for sale. In this case, the Containers would be considered as the cargo.

ⁱⁱⁱ Clause 24 of the Maersk, Clause 22 of the MSC, Bills of Lading Terms and Condition.

^iv … Except as provided by the Rule Paramount and the numbered Rules, general average shall be adjusted according to the lettered Rules.

^v In no case shall there be any allowance for sacrifice or expenditure unless reasonably made or incurred.

^vi Example would be the vessels which call say from Chennai, India to Singapore and Port Kelang on a continuous loop.

^vii Example would be the East Asia – Europe Trade in which the vessels call at the ports in China, South Korea, Singapore, Malaysia and sail through the Suez Canal to call at the Northern Europe ports (Antwerp, Rotterdam, Hamburg & Felixstowe).

^viii See Para 3 of Rule G which states “When a ship is at any port or place in circumstances which would give rise to an allowance in general average under the provisions of Rules X and XI, and the cargo or part thereof is forwarded to destination by other means, rights and liabilities in general average shall, subject to cargo interests being notified if practicably, remain as nearly as possible the same as they would have been in the absence of such forwarding, as if the adventure had continued in the original ship for so long as justifiable under the contract of affreightment and the applicable law”.

^ix As stated in Lowndes & Rudolf XV edition Para D 30… As a matter of English Law it means a legal wrong which is actionable as between the parties at the time at which the sacrifice or expenditure is made or incurred.

^x The cost of handling on board or discharging cargo, fuel or stores whether at port or place of loading, call or refuge, shall be admitted as general average, when the handling or discharge was necessary for the common safety or to enable damage to the ship caused by sacrifice or accident to be repaired, if the repairs were necessary for the safe prosecution of the voyage, except in cases where the damage to the ship is discovered at……

^xi Whenever the cost of handling or discharging cargo, fuel or stores is admissible as general average, the costs of storage, including insurance if reasonably incurred, reloading and stowing of such cargo, fuel and stores shall likewise be admitted as general average. The provisions of Rule XI shall be applied to the extra period of detention occasioned by such reloading or restowing….

^xii In container shipping, shipment is effected under Bills of Lading issued by Carriers which permit them to load on multiple vessels and/or other modes of transport. This being the case, Carriers have a duty to continue with the carriage even if a portion becomes “frustrated”.

^xiii Hopefully this article will encourage further discussion leading to the adoption of clear guidelines, either through a future revision of the York-Antwerp Rules or by the introduction of a dedicated code governing General Average adjustments in container liner services. Also see our earlier article, Container Shipping – Separate York Antwerp Rules?