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York Antwerp Rules 2004 Progress or problems for Underwriters and Shipowners?. Tim Madge FAAA - Partner Mediterranean Average Adjusting Company Marine Law and Insurance 2006, Moscow. What is General Average?. General Average.

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york antwerp rules 2004 progress or problems for underwriters and shipowners
York Antwerp Rules2004Progress or problems for Underwriters and Shipowners?

Tim Madge FAAA - Partner

Mediterranean Average Adjusting Company

Marine Law and Insurance 2006, Moscow

general average
General Average
  • A form of international maritime law/ practice - first incorporated in York Rules 1864.
  • Exists irrespective of insurance or fault of any party.
  • All parties contribute to sacrifices and expenditure for the common safety/ safe prosecution of the voyage.
  • Contribution based on values at end of voyage.
  • Property lost subsequently on voyage does not contribute.
  • Security = Underwriters’ Guarantee or cash deposit or Bank Guarantee + Average Bond signed by Consignees.
  • Terms incorporated in Charter Parties & Bills of Lading.
typical ga sacrifices
Typical GA Sacrifices

For common safety:

  • Jettison of cargo at a time of peril
  • Loss/ damage to ship or cargo extinguishing a fire
  • Damage to main engines refloating a laden vessel which is aground and in peril
  • Loss/ damage to property owned by third parties in consequence of refloating operations
typical ga expenditure
Typical GA Expenditure
  • Salvage costs
  • Port charges at port of refuge
  • Crew wages at port of refuge
  • Cargo discharge for repairs
  • Cargo storage/ reloading costs
  • Temporary repairs
  • Overtime on repairs
expenditure allowable
Expenditure allowable

York Antwerp Rules:

1974/ 1994

Expenditure for common safety and for common

benefit (safe prosecution of voyage)

2004

For common safety but certain expenditure for

common benefit now limited

reasons leading to 2004 rules
Reasons leading to 2004 Rules
  • Perceived widening of scope of GA in 1994, such as anti-pollution measures
  • Cargo often contribute more than Vessel due to higher values
  • Reapportionment of Salvage in GA considered unnecessary and expensive
  • Desire to restrict GA to Common Safety and to limit Common Benefit
  • First set of YAR Rules introduced without consensus between Shipowning and other interests
  • 2004 Rules only applicable if incorporated in Charter Parties/ Bills of Lading.
effects of 2004 rules
Effects of 2004 Rules

Who wins?

Who loses?

salvage awards in general average
Salvage awards inGeneral Average
  • Salvage based on values at termination of salvage services.
  • Contribution to General Average based on values at end of voyage.
  • Further losses/ damage/ sacrifices after termination of salvage services and before end of voyage affect contributions ultimately payable for salvage in GA.
  • Limits under YAR 2004.
salvage allowable in ga
Salvage allowable in GA

York Antwerp Rules……..1974/19942004

LOF/ negotiated settlements

paid by all parties Yes No

Paid by one party on

behalf of all Yes Yes

independently negotiated salvage awards 1974 1994 rules
Independently negotiated Salvage awards1974/ 1994 Rules

Salved valueSettlementGA

Ship $ 3,000,000 $200,000 (6.7%) $250,000

Cargo 9,000,000800,000 (8.9%) 750,000

$12,000,000 1,000,000 1,000,000

= 8.3%

Under 2004 Rules payments remain as settled

lof salvage award
LOF Salvage award

SHIP Sound value US$10,000,000

Deduct fire damage 1,000,000Salvage

US$ 9,000,000 pays US$468,750

CARGO

1st consignment Sound value US$3,250,000

Deduct fire damage 250,000

US$ 3,000,000 pays US$156,250

2nd consignment

Sound value US$3,250,000

Deduct:-

Fire damage US$250,000

Extinguishing damage 600,000

850,000

US$ 2,400,000 pays US$125,000

US$14,400,000 pays US$750,000

= 5.2% of values

reapportionment of salvage in ga
Reapportionment of salvage in GA

SHIP Sound value US$10,000,000

Deduct fire damage 1,000,000GA (Salvage)

US$ 9,000,000 pays US$450,000

CARGO

1st consignment Sound value US$3,250,000

Deduct fire damage 250,000

US$3,000,000 pays US$150,000

2nd consignment

Sound value US$3,250,000

Deduct:-

Fire damage US$250,000

Extinguishing damage 600,000

850,000

US$2,400,000

Add back

Extinguishing damage 600,000

US$3,000,000pays US$150,000

US$15,000,000 pays US$750,000

= 5% of values

effects of reapportioning salvage costs in ga
Effects of reapportioning salvage costs in GA
  • Benefits of a favourable settlement by one interest shared by others

– 2004 Rules Individual Hull or Cargo Underwriters could gain or lose depending on figures. No change for Owners.

  • Uninsured/ unrepresented interests share in salvage arbitration costs

- 2004 RulesHull and Cargo Underwriters lose. No change for Owners.

  • Disproportionate legal costs representing time charterers’ bunkers or freight shared by Ship and Cargo

– 2004RulesHull and Cargo Underwriters gain. No change for Owners.

excluding salvage from ga
Excluding Salvage from GA
  • Underwriters save the costs and time required to reapportion salvage although still necessary to collect GA security.
  • Individual Hull or Cargo Underwriters could gain or lose as a favourable salvage settlement or disproportionate legal costs not shared.
  • Hull and Cargo Underwriters lose because uninsured/ unrepresented interests do not share salvage arbitration costs.
  • Beneficial for Owners as exclusion makes GA absorption clauses in Hull policies more effective.
crew wages
Crew wages

York Antwerp Rules……… 1974/19942004

Crew wages:

Deviating to port of refuge

and resuming voyage Yes Yes

While detained effecting

repairs Yes No

Likely considerable losses to Shipowners under YAR 2004

temporary repairs 1974 1994
Temporary repairs (1974/1994)

Temporary repairs to complete voyage US$100,000

Assumed savings:-

Cost of handling cargo…….US$50,000

Extra detention expenses to

effect permanent repairs………. 25,000

Allowance in GA…..US$75,000

Excess US$25,000 not allowable.

temporary repairs 2004
Temporary repairs (2004)
  • Temporary repairs …..US$100,000
  • Permanent repairs…… 400,000

US$500,000

If estimated permanent repairs at port of refuge:-

A. If US$500,000 = no GA allowance

B. If US$450,000 = US$50,000 allowable, subject to GA savings.

2004 Rules result in higher claim PA claim on Hull Underwriters

but lower costs to Cargo Underwriters.

transhipment forwarding cargo 1974 1994 2004 rules
Transhipment/ forwarding cargo1974/ 1994/ 2004 Rules
  • Owners not normally obliged to forward cargo
  • Requires special agreement
  • Savings in costs allowable
  • Allowances under 1994/2004 Rules limited to costs which cargo interests would incur forwarding at their own expense

(Hull Underwriters may be liable for the extra costs which not GA)

ga commission and interest 2004 rules
GA Commission and Interest2004 Rules
  • No commission allowable under 2004 Rules to party paying GA expenditure.

Benefit to Underwriters but considerable loss to Shipowners as they usually incur the expenditure (previously 2% excluding crew wages and fuel replaced after the voyage).

  • Rate of interest on GA expenditure and sacrifices to be set annually by CMI under 2004 Rules. Previously 7% fixed rate under 1974/ 1994 Rules.

Likely benefits to Underwriters but considerable losses to Shipowners.

time bar
Time Bar

New rule in 2004 – Subject to mandatory rule on time limitation under any applicable law:

- Rights to GA contribution cease unless party claiming brings legal action within 1 year of GA Adjustment issue date.

- No action can be brought after 6 years from termination of GA voyage.

- These periods can be extended by agreement of the parties.

- Rule does not apply between the GA parties and their Underwriters.

summary of changes in 2004
Summary of changes in 2004
  • Salvage excluded except when

paid by one party.

  • No crew wages during detention

at port of refuge.

  • Different treatment of temporary

repairs.

  • No commission (previously 2%)
  • CMI set rate of interest annually

(previously 7% p.a.).

  • Time bar provision.
example comparing ga allowances
Example comparing GA allowances

Allowance19942004

Salvage US$ 500,000 Remains as paid

Wagesto port of refuge 2,500 2,500

Wages at port of refuge 17,500 ----

Temporary repairs 75,000 50,000

Commission 11,500 -----

Interest 40,000 2,000 (if 4%)

US$ 646,50054,500

general average in future
General Average in future
  • Shipowners may continue to insist on YAR 1974 or 1994 as more favourable than 2004.
  • B/Ls providing for 1994 YAR still apply as YAR 2004 are new set of rules, not an amendment or modification of 1994 Rules.
  • Absorption clauses could reduce number of GA claims against cargo.
  • BIMCO Average Bond Clause may reduce time and costs of collecting GA security.