Consequences and process of General Average – once it is declared

Consequences and process of General Average - Shipping and Freight ResourceFurther to the recent maritime disasters and subsequent to the declaration of General Average on the Yantian Express, I received some questions surrounding the consequences and process of General Average – once it is declared..

I sought the opinion and assistance of Jagannath Muthu, of NAU Pte Ltd on these questions and here is what he had to say..

 

1. In a GA situation are ALL goods blocked (cargo not available for delivery), until the Average Adjusters have completed their work..??

If the property owners provide valid security, it is indeed possible to take delivery of the cargo immediately subject to always the safety of the ship and other interests and whether the cargo can indeed be delivered.

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If the vessel is at a port of refuge, the intention would be to deal with the incident at hand. As noted from the casualty follow up from Roose & Partners, we understand that 198 containers have been declared as a Total loss and 460 containers are in the affected area, needing a survey.

It does appear to us that the other containers and cargo on board is undamaged – however, you could get the updated details from Richards Hogg Lindley, who we understand, have been appointed as the Average Adjusters for the above incident.

a. How long can the work of these Average Adjusters take on average?

The role of the Average Adjuster is to adjust the General Average i.e. to ascertain what is due from the various interests for the sacrifices/expenditures incurred during a General Average incident. This may easily take a few years given that this incident is on board a container vessel with thousands of various interests.

b. When will the goods be unblocked?

Cargo interests will be entitled to seek delivery of their cargo as and when they provide valid security as has been requested by the Average Adjusters. In case, the cargo is uninsured, cargo interests could provide security by way of a cash deposit in lieu of an Average Guarantee (which is invariably signed by cargo insurers).

c. Will all goods be unblocked?

Once the cargo interests have provided valid and sufficient security (GA Bond + GA Guarantee / Cash Deposit), the goods can be delivered to the cargo interests.

 

2. In this case, the final destination of the ship was Halifax but the ship has been taken to Freeport for assessment.. Do all goods have to stay on board till the full assessment is complete or do they release goods as assessed.. Say, for example, containers in a section of the ship that has not been affected at all..??

We understand that the vessel diverted to Freeport as a port of refuge (there was salvage involved). Once the vessel is in a position of safety, Salvors will tender the vessel back provided they have received security (Salvage security).

We believe that cargo interests would have to provide both Salvage and General Average Security (please check with Richards Hogg Lindley who have been engaged for this incident). Vessel Owners / Operators have a duty to continue with the voyage if it is possible.

However, prior to doing that, they would have to deal with the incident at hand and ensure that the vessel can continue with the voyage. If cargo has been damaged during the incident, it would be discharged/disposed off prior to continuing with the voyage to avoid any issues for entry into the ports where the vessel is scheduled to call.

Technically, it would be possible for cargo interests to seek delivery of their cargo at a port of refuge provided they have submitted adequate security.

However, the containers should be easily dischargeable and with the extra costs to be incurred on the account of the cargo interests (if there is shifting / restow / etc – this will be on the account of the cargo interests).

Yantian Express fire

3. When do all the different parties have to pay their part of the indemnity fees and is paid by insurance or cargo interest..??

If the cargo is insured for its full value in say ICC (A) form, then both Salvage and General Average will be covered and the insurers will either provide the security / make payment or reimburse the Insured for the same.

 

4. These unexpected delays can, of course, create a certain “damage” to the owners of the goods; I understand the Insurance does not include any of the consequences of the General Average..??

Marine Policies do not cover delay (invariably, Bill of Lading terms also exclude claims for delay – see clause 7(5) of the Hapag Lloyd Bills of Lading Terms and which can be viewed here).

However, should a party wish to be covered for these type of delay and which may result in down times, there are other covers available in the market.

 

5. When will the beneficiaries of the insurance paid out (this would then refer to the owners that really lost material or got their own material damaged) – do they have to wait until the Average Adjusters have done their work, made their conclusions, send in their reports etc… or can they claim immediately to the Insurance company and the Insurance company later on settles with the other parties?

If the cargo is a Total Loss, cargo interests can submit their claim to their insurers for indemnity. If the cargo is properly insured (say no underinsurance), generally cargo insurers step in and provide security (Salvage and General Average Guarantee).

In the off chance that the Insurers security is not accepted, cargo interests could instead provide security (say by cash deposit) and subsequently submit their claim from their Insurers for indemnity under the terms of the policy (any recovery will depend on the terms of the coverage of the policy).

 

Jagannath Muthu is the Director at NAU Pte Ltd.. NAU Pte Ltd (“NAU”) is a claims correspondent/consultancy firm based at Singapore dealing with Transport Liability, P&I and H&M Claims..


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