Should we leave well enough alone?

THOSE who attended the Comité Maritime International meetings in Sydney as members of the International Sub-Committee on General Average, and produced the York Antwerp Rules 1994 in final form, hoped that their work would survive for a couple of decades - as had the work of their predecessors.

The CMI, which is loosely rendered in English as the International Maritime Law Association, has been described as "custodian" of the York Antwerp Rules. The York Antwerp Rules are a code developed in the last century by shipping and mercantile interests. They prescribe how a general average should be adjusted. They can be, and almost invariably are, incorporated by two willing contracting parties into contracts of affreightment.

Despite full consultation by the CMI with the various national maritime law associations over a period of years prior to the adoption of the 1994 rules, certain industry groups - and in particular those cargo insurers represented by the International Union of Marine Insurance (IUMI) - came rather late to the discussion and they are already agitating for a further revision.

The spirit of the 1994 work was simplification, along with a thorough revision and extensive rewording of the rules to exclude any possibility of allowances in general average for pollution liabilities. The existing scope of what could and could not give rise to general average was not otherwise altered in any significant way.

The aim of general average is to distribute in an equitable way financial and material losses sustained in successfully bringing to safety a ship and cargo that find themselves in peril. The English law of general average has always emphasised attainment of safety. As the York Antwerp Rules developed, Continental and American notions of common benefit and safe prosecution of the voyage came into the picture. So the current rules also permit allowances, such as expenses of the vessel and of the crew while detained at a port of refuge effecting repairs necessary for the safe prosecution of the voyage, as well as certain expenses such as handling cargo to facilitate such repairs.

It is the claims arising out of this sort of general average that certain sectors of the insurance industry now seek to eliminate. The cargo insurance trade associations appear to have determined that some significant proportion of claims for general average arise from so-called artificial general average expenses incurred at the port of refuge, effecting repairs necessary for the safe prosecution of the voyage, after ship and cargo have attained physical safety. It seems to matter not that they are going nowhere until this extraordinary expenditure has been incurred.

The riposte is that general average has become a subsidy to substandard shipowners. Any owner who has implemented ISM is unlikely to agree that the oceans of the world are overly plagued with substandard ships. And the owners of substandard ships will always find that cargo interests vigorously, and quite correctly, assert unseaworthiness defences against the payment of claims for general average attributable to that unseaworthiness.

I have not seen any compelling writings on the case for simplification. Furthermore, the traditional demarcation between the hull and cargo markets has become very much eroded, and little attention has been paid to the fact that, in many cases, if certain categories of general average expense are to be transferred from the general average community to the ship, they are likely to fall on the same insurers from a different direction.

If the ambition is to make these sums a P&I matter, then in that case, too, there is increasing participation by the commercial insurance market by way of fixed premium vehicles . This means that, in many instances, the losses would lie not far from where they currently fall.

Nevertheless, IUMI has approached the CMI and asked it to review the 1994 rules. It has proposed certain changes to achieve the objective of limiting general average to expenses incurred in time of peril. We have room to review some of these here.

It can be said that the IUMI proposals recently transmitted to the CMI are not uniformly coherent. They propose that a general average act should now be defined as "any extraordinary sacrifice or expenditure intentionally and reasonably made or incurred for the common safety in time of peril for the purpose of preserving the property from that peril. This is apparently in place of the current Rule A definition of any extraordinary sacrifice or expenditure 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." Apart from (one hopes inadvertently) dispensing with the requirement of a common maritime adventure, it is difficult to see what has been changed. Perhaps the intention is to achieve the purists' dream of making the lettered rules prevail over the numbered rules, but that dream entails a radical redrafting of the rules.

IUMI goes on to say that it would like to see "reasonableness" apply not only to the circumstances giving rise to the general average act but also to the amounts claimed. Since this principle has traditionally been read into the word reasonably as it is employed in Rule A, the IUMI proposal seems potentially redundant.

There is a further proposal to embody in the York Antwerp Rules a requirement that claims for contribution should be dependent on compliance with ISM and STCW. It has long been the position of average adjusters that it is not the province of the York Antwerp Rules to deal with issues of liability. Indeed, they textually detach themselves from questions of remedy and defence. No good case has yet been made for changing the position now.

IUMI proposes that substituted expenses should not be recoverable in general average. The effect of incurring substituted expenses is almost always to achieve an earlier delivery of cargo and to make the ship more quickly available for repair. It would appear prudent to ascertain the reasoning behind the IUMI position before attempting to comment on it.

IUMI next assails the inclusion in general average of salvage costs. Support for this arises from the fact that some major cargo and insurance interests are sometimes able in cases of salvage to make a more favourable private settlement with commercial salvors than would arise if they followed the fate of all other interests at arbitration. These interests naturally want that advantage to remain exclusive to them rather than being reapportioned to the benefit of all in that particular general average community.

There are various good reasons for including salvage in general average. Firstly, it is a particularly pure form of expenditure in time of peril made for the common safety. Additionally, adjusting it on the basis of arrived values removes such anomalies as salvage being paid by an interest that, on account of some subsequent misfortune, never arrives at destination. It also sometimes brings into contribution large amounts made good in respect of general average sacrifice when ship and cargo interests might otherwise enjoy something of a windfall if the salvage is determined only on the physical value of the property on termination of services. Including salvage in general average achieves equity.

IUMI's assault continues with port of refuge expenses. It asserts that where a vessel has reached a port of refuge and thus becomes free from the "grip of peril" we consider that no expenses should be allowed under Rule X or XI(a), (b) or (c). It is a puzzling assertion. What of the vessel that arrives at a port of refuge on fire, or leaking, or with a shifted deck stow adversely affecting its stability? Is it truly free from the "grip of peril"?

In the area of repairs, IUMI sees no reason not to have a "new for old" deduction, for example in Rule XIII. A few moments' research reveals that Rule XIII or its equivalent has required a "new for old" deduction at least since 1890. What possibly is being mooted is an extension of the deduction to ships younger than fifteen years.

There are a couple of notable advocates of the reintroduction of Anew for old@ deductions in particular average. This might eventually come about, and it does not seem particularly controversial, although it is hard - and IUMI does not attempt - to say what a fair age would be.

Change is advocated in the abolition of advancing commission and limiting the period during which interest is allowed. Advancing commission of two per cent is generally accepted as a reasonable recognition of the cost of administering the transmission of money used to pay for general average expenditure. It benefits cargo and other interests as well as ship. So far as limiting the period during which interest can be allowed is concerned, the average adjuster under the 1994 rules has the ability to accelerate the adjustment process where full information is not forthcoming from the contributing interests. Since issuing the adjustment is usually the adjuster's only means of getting paid, it might be considered that seeking to limit the permissible duration of interest allowances is unlikely to achieve any significant further effect. And it must be remembered that, while they are awaiting the publication of the adjustment, the contributing parties have the use of the funds they will ultimately be asked to pay out.

IUMI=s initiative, for want of a better word, is accompanied by graphics based on the valuable research performed over the years by the ILU, work that it is to carried on by the IUA. The research demonstrates that, for example, a third of general average claims in number result from engine failure. It is a paradox of the methodology that, the longer the study is conducted, the more outdated some of its results become. It would be interesting to see an analogous study confined to cases that have arisen in, say, the last three years, a period during which we have seen a palpable change in the types of casualty we deal with, attributable in some part to the implementation of quality management practices.

Another graphic shows, surprise surprise, that as the age of ships increases their value diminishes, thus a greater proportion of general average falls on the cargo. One senses that, rather than tinkering with the York Antwerp Rules, cargo interests might better address this phenomenon by paying shipowners sufficient freight to induce them to renew their fleets.

Many insurance professionals, admiralty lawyers and average adjusters gave freely of their time over a period of years leading up to and while at Sydney. The changes implemented by way of the Rule Paramount and the pollution liability exclusions have attracted little criticism. Some thoughtful drafting changes were made, rendering the rules a much more cohesive document than preceding versions had been.

Average adjusters by nature are an enquiring lot, and doubtless the goodwill and energy exists to do it all again if the effort is truly warranted. We eagerly await the calibre of constructive proposal that would make that effort seem worthwhile.