The London Shipping Law Centre (“LSLC”) conducted a webinar on Containership Casualties on 22nd Feb 2021 in which the speakers discussed on various issues in this industry. During the Q&A session, Keith Jones of Aon commented “The Rhodian’s could not have envisaged a casualty which might concern some 2000 interests. And surely the container industry should find their own solutions to a large casualty problem as opposed to relying on a costly and no doubt lengthy general average security collection and adjustment….”. We entirely agree with the comments given the size of container vessels, the large number of parties involved together with the resultant contractual complexities, and perhaps the time has come to consider a separate set of York Antwerp Rules(“YAR”)i for General Average(“GA”) for Container Shipping. As we write this article, another Container Vessel Casualty, The Ever Given, is developing and we may well see a repeat of the issues which occurs in a Container GA.
1. The first question we must ask is whether is it necessary to consider any changes for container shipping? The basic difference between Bulk and Container Shipping is the the number of parties involved in the adventure (the number of cargo interests involved in Bulk shipments would be in low single or double digits whereas in Container ships, this would easily number to a few thousands!) Additionally, for container shipping, there would invariably be a chain of contracts (Owner – Charter – Slot Operator – NVOCC – Freight Forwarder) making it necessary to navigate through these contracts. This being the case, whenever a GA / Salvage situation arises in a Container vessel, enormous costs and time are spent not only collecting securities but also in adjusting the General Average and which can run to a few years.
2. We had written earlier on the possible improvements to the York Antwerp Rules 2016. In this article, we will focus on what can be accomplished to make the collection and adjustment in Container Shipping more efficient. Accordingly, we would suggest the following:
- Definition of GA: GA exists independently of the contract of carriage. However, the Bills of Lading (“BL”) issued for container shipments invariably incorporate the York Antwerp Rules 1994ii(“YAR ’94) to deal with the adjustment. While the YAR 2016iii is the latest edition of the York Antwerp Rules and is considered to be much “fairer”, it appears to us that it would require another few years for it to become a standard for use in the container industry.
- The Rule of Interpretationiv of the YAR 2016 provides that if the facts support a claim for GA under the numbered rules, it does not matter as to whether it would fall within the definition of GA as provided in Rule A Para 1v. Accordingly, if the GA falls under any of the numbered rules, there is no requirement for the loss being extra-ordinary in nature.
- General Average declaration should be far and few and not a regular event. It should only be declared if the losses are truly extra-ordinaryvi in nature. However, as mentioned above, under the numbered rules, there is no requirement for the sacrifice or expenditure to be extra-ordinary in nature. We would therefore prefer for this aspect to be changed in the numbered rules i.e. the requirement the loss being “extra-ordinary” in order to seek a contribution under GA.
- What is extra-ordinary is a question of fact and should be decided considering the size and value of the vessel and the specific trade lanes in which she is involved. It would therefore be preferrable to define the specific monetary limits that could be considered as “extra-ordinary” in nature. By way of an example, an expenditure exceeding say USD 500,000 by a feeder vessel (nominal capacity of say 500 TEU’s) and USD 10,000,000 by a Main Line Vessel (nominal capacity of 15,000 TEU’s) should, we submit, only be considered as extra-ordinary. Any losses below these amounts should be borne by the Owners and who could consider dealing with these losses under a GA absorption clausevii(which we understand are generally for a lower amount and may not be sufficient to deal with the limits which we have proposed above). Accordingly, the Rules of Interpretation or the Rule Paramount of YAR 2016 (or any later editions) should also be amended to provide for a specific monetary limit to determine as to whether the loss is extra-ordinaryviii.
- Provision of Security:
- Salvage: Salvors are entitled to demand security for the value of the property when the vessel reaches a point of safety. Although this article is focussed on GA, invariably it would be coupled with a Salvage. The requirement to provide security by cargo interests may be much before completion of voyage and which may result in delays in the collection of security. In order to avoid these delays, it would be best to contractually provide for bridging security to be provided by the overlying carriers (Owners to the Salvors, and in turn Owners would be entitled to seek from the Time Charterers and so on so) so that the cargoes can continue with the intended voyage. The terms of the bridging security should require the contractual carriers to only release the cargo to the consignee on receipt of adequate security as may be demanded by the Salvors. This contractual provision will be of benefit to all parties given that not only that cargoes reach the intended destination at the earliest thus avoiding any drop in values but also that it would result in higher values for the cargoes leading to less chances of the cargoes being abandoned, a matter that would be of interest to Salvors.
- General Average: Owners of the GA vessel are entitled to adequate security from cargo interests when the cargo is ready and available for delivery. As some of the containers would be on-carried in other vessels, we submit that the Owners of the “GA” vessel is entitled to reasonable security before the containers/cargo are discharged from their vessel. Accordingly, the situation would be similar to the Salvage situation as listed above. Hence, a similar procedure as suggested for Salvage should be contractually provided for i.e., if GA securities have to be provided before the containers reach the intended port of delivery, it should be the responsibility of contractual parties (Charterers, Sub-Charterers, NVOCC’s, etc.) to provide interim / bridging security.
- Non-Separation Allowance (“NSA”) – Rule G:
- Para 3ix of Rule G York Antwerp Rules 2016 allows Owners to seek contributions to GA even when the cargo has parted from the vessel, provided that it was justifiable for the voyage to continue in the original ship.
- The fact is that most of the cargoes loaded in container vessels are time sensitive such that any delays would adversely impact their values. This being the case, we submit non-separation allowances in container shipping are not justifiable, particularly, if the voyage for some cargoes would either be frustrated (e.g. Goods which need to be available for a specific season) or the values adversely impacted. Accordingly, we would suggest the deletion of the NSA provisions from this Rule
- Loss of Freight – Rule XV: The Bills of Lading contracts issued for container shipments invariably provide for freight to be earned on loadingx. This being the case, the freight is no longer at risk and instead is merged with the cargo value. Hence, this rule is a mere surplusage and should be deleted.
- Contributory Values of Cargo- Rule XVII:
- Under the present rules (YAR 2016), the value of the cargo is ascertained from the commercial invoice rendered to the receiver or if there is no such invoice, from the shipped value. The intention of using commercial invoice was to reduce the time and work necessary to ascertain the contributory values. However, this does lead to an iniquity as detailed below.
- Let us consider a casualty such as “The Maersk Honam” and say following the casualty, 5000 containers are discharged and loaded on other vessels by operators and for which they incur say an average freight costs of USD 500 i.e. a total freight of USD 2,500,000.00. If the contribution due is say for 54%, then other interests (Owners and Charterers) have benefited by the contribution of USD 1,350,000 (54% X USD 2,500,000) borne by the Liner Operators in completing the voyage.
- In order to ascertain the contributory values of cargo, we would suggest deduction of the additional costs incurred after parting from the “GA” vessel to complete the voyage. We admit that it may be problematic for the adjuster to ascertain the freight costs following a GA incident but this issue could be better dealt with by having an agreed schedule of freight / slot rates in the common trade lanes provided jointly by the Container Operators (this schedule could be amended say on a yearly basis).
- Accordingly, wordings of Rule XVII ought to be amended so as to provide that the additional freight costs incurred in completing the voyage be deducted from the contributory value of cargo, provided these costs are agreed and available
- Damage to ship – Rule XVIII: The aim of considering new rules is to expedite the process for calculating the contributions due. Accordingly, it should be a requirement that only those sacrificial repairs accomplished within say 6 months should be considered for inclusion in the average adjustment. We admit that this may not always be the best way but there has to be some compromise to ensure that delays are minimised, particularly when the Owners are holding securities and for which cargo and their insurers would be liable for interests or bearing costs.
3. Other issues not covered under YAR 2016:
- Cash deposits: At present, uninsured cargo interests are required to make payment of cash deposits to Owners or the average adjusters’ nominated bank. Often, these bank accounts are sited in another jurisdiction far from the intended voyage. Hence, uninsured cargo interests would have to incur expenditure for the transmission of funds. If the amounts in question are huge, then the costs of transmission would pale in comparison. However, if the cash deposit is for say a figure of USD 1,000 or so, then the costs of transmission may well exceed USD 70 or so i.e. 7%. We submit that the industry should find a way to minimise the transmission costs. One of the ways to accomplish this is to use a bank or a financial institution such as Mar-Trust or Western Union and which would allow for payments in multiple jurisdictions.
- Counter-security from Owners:
- Owners are entitled to and have an obligation to seek security from all parties involved in the adventure. If GA costs are incurred by the Owners, then this would invariably be more than the security demanded by Owners from the other parties. However, if the GA is related to say a jettison and exceeds the costs incurred by the Owners, it would be appropriate for securities to be also provided by Owners as a course to the Average Adjusters.
- If the claim for General Average is defeated due to an “actionable fault”xi defence, the question is whether parties could also pursue Owners for recovery for their losses arising from the provisions of such securities i.e. interest costs. The problem is while the “actionable fault” defence may entitle a party to deny Owners entitlement to GA contributions, this may not be of assistance to counter-claim for losses unless the time allowed for action has been preserved.
- In order to preserve equity, it would be appropriate for Owners to also provide counter-security for such losses so that such security could be realised should the claim for GA be defeated by say “an actionable fault” defence. Given that this is a liability issue, we submit that the Owners P&I policy should be construed to cover for this exposure and the P&I Club ought to issue the relevant counter-securities.
- Law and jurisdiction clause:
- The BL’s issued by Container Carriersxii incorporate a law and jurisdiction clause. The BL’s also incorporate a clause dealing with GAxiii and which provide for the GA to be adjusted and settled at any port or place at the Carrier’s / Vessel Owners option. Under English Law, the law of the place of adjustment, in the absence of contractual agreement, would govern the adjustment of GAxiv. Accordingly, basis the GA clause, Owners could, arguably, adjust the GA in any jurisdiction where the laws are more favourable to them i.e. at a jurisdiction where delay plagues the court process together with limited development in the law to deal with such issues.
- The question would be whether the provisions of the GA Clause override the law and jurisdiction clause in the B/L. While we have seen no specific case law dealing with this issue, we submit that the law and jurisdiction clause of the Bill of Lading should override any provisions in the GA clause, particularly if this (Law and Jurisdiction) clause is on the face of the B/Lxv.
- In order to avoid issues cropping up at a later date and to preserve equity, we would suggest that the YAR for Container Shipping should provide for some mechanism for the place of adjustment / law to deal with the adjustment. While majority of Law and Jurisdiction clauses in BL’s gravitate towards English Law, we would prefer for the adjustments to be closer to where the cargoes are traded i.e. centres could be chosen depending on where the GA occurs – say Hong Kong / Shanghai for China Sea, Singapore for SE Asia, Dubai for Middle East, London/Rotterdam for Europe, New York / Vancouver for North America and so on.
4. We believe that there would be other provisions of the YAR 2016 which could also be tinkered to facilitate Container GA’s. The YAR’s are a continuous work in progress and therefore we must adopt methods which could assist in expediting the process. We obviously welcome comments and suggestions on what could be further amended/ added to make the YAR more suitable for Container Shipping so that this can be discussed further with the powers to be when the next iteration of York Antwerp Rules is discussed and considered.
i. We do not suggest entirely new rules but instead to make suitable amendments to the York Antwerp Rules 2016 to facilitate quick adjustment and resolution of GA claims.
iv.In the adjustment of general average the following Rules shall apply to the exclusion of any law and practice inconsistent therewith.
Except as provided by the Rule Paramount and the numbered Rules, general average shall be adjusted according to the lettered Rules.
v.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.
vi. Rule A of the YAR (and the earlier editions) states “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”.
vii.See Clause 40 of International Hull Clauses and which can be viewed at http://www.fortunes-de-mer.com/documents%20pdf/polices%20corps/Etrangeres/Royaume%20Uni/International%20Hull%20Clauses%202003.pdf
viii. The Rule Paramount came about due to the disquiet following the decision in Corfu Navigation v Mobil Shipping (The Alpha)  2 Lloyd’s Rep. 515. The Rule provides for a requirement of reasonableness and which would also apply for the numbered Rules. The Rule Paramount can be easily amended to also provide for the requirement of the sacrifice or adventure being “extra-ordinary”.
ix.“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 practicable, remain as nearly as possible the same as they would have been in the absence of such forwarding, as if the common maritime adventure had continued in the original ship for so long as justifiable under the contract of carriage and the applicable law”
x.See clause 16.2 of the Maersk BL terms, clause 16.2 of the MSC BL terms, clause 12.1 of the CMA-CGM BL terms.
xi. See The CMA CGM Libra in which both the English High Court and the Court of Appeal held that cargo interests could deny contribution to GA on the basis of actionable fault. This decision has been appealed and will be heard at the English Supreme Court and who will have the final say in this matter.
xii.See clause 26 of the Maersk BL terms, clause 10.3 of the MSC BL terms, clause 31 of the CMA-CGM BL terms.
xiii. See clause 24 of the Maersk BL terms, clause 22 of the MSC BL terms, clause 14 of the CMA-CGM BL terms.
xiv.Para 30.06 of Lowndes & Rudolf, XV edition.
xv. Para 30.31 of Lowndes & Rudolf, XV edition where the authors comment on Arbitration Clauses and GA on similar basis.