YAR 2016 General Average rules seen to redistribute balance back to shipowners

AJ Gallagher has published an article from law firm Campbell Johnston Clark relating to the changes to the York Antwerp General Average Rules, implemented this year.

With the ultimate aim of adjusting the York Antwerp Rules relating to General Average to reflect current practices, in May 2016 the International Working Group of the Comité Maritime International (CMI) approved YAR 2016. following many years of discussion mainly revolving around the unpopularity of YAR 2004, which were deemed by many to be too cargo-friendly. YAR 2016 attempts to strike a better balance between cargo interest and ship owners.

Major shipping association BIMCO has stated that all new and revised BIMCO charterparties, bills of lading and waybills will now refer to general average being adjusted in accordance with the YAR 2016. The International Union of Marine Insurance (IUMI) and the International Chamber of Shipping (ICS) have also given their approval to the YAR 2016.

Accordingly, YAR 2016 is expected to be widely incorporated in to contracts of carriage.

The key amendments are:

Tug & tow: Rule B has been amended to provide clarity as to whether a disconnection between vessels in common peril amounts to a general average act. Rule B now confirms that such disconnection will be a general average act – as opposed to a termination of the common maritime adventure – provided the disconnection is for safety reasons.

In order to expedite the adjusting process, Rule E has been amended to oblige a party to the common maritime adventure to supply particulars of value and particulars in support of a claim to general average contribution within 12 months. If these particulars are not provided within 12 months, the adjuster can estimate allowances and contributory values and these estimates will be binding unless challenged within 2 months of receipt of the communication. The adjuster’s estimates may only be challenged on grounds that they are “manifestly incorrect”. There is also an added requirement to keep the adjuster fully informed of any successful recoveries in general average against third parties within two months of its receipt.

Bigham clause: Rule G includes the equivalent of a non-separation agreement, which allows cargo owners to remove their cargo from the ship where delays are likely, but remain under an obligation to contribute to general average, as if their cargo still remained on-board the delayed vessel. However this responsibility is capped at the cost the cargo owners would have had to bear, had the cargo been forwarded to its final destination at their expense. The amendments to Rule G now make it clear that this cap does not in fact apply to any allowances under Rule F. Salvage: The changes in relation to salvage are a compromise between YAR 1994, which allowed salvage generally, and YAR 2004, where this allowance was severely restricted. YAR 2016 includes a compromise on salvage whereby salvage expenditure is included in GA. However, where a salvage contract or legal liability to salvors exists (i.e. Lloyds Open Form-type salvage) then this is not included in GA unless one of the five scenarios listed at Rule VI(b)(i) to (v) occurs and if they are “significant”. However, no definition of “significant” is provided.

Wages & Port Charges: YAR 2016 restates the position under the 1994 Rules, that wages and maintenance of the master, officer and crew, which are reasonably incurred at a port of refuge, are allowable as general average expenses. A new addition makes it clear that port charges under the YAR include all customary/ additional expenses incurred for the common safety.

Low Value Cargo: YAR 2016 now provides that low value cargo can be excluded – at the discretion of the adjuster – from contributing to general average if it is considered that the cost of including it in the adjustment, in comparison to the value of its contribution, is disproportionate. The effect of this Rule is that it negates the difficulties faced in obtaining security from all the cargo owners on big container vessels. It has been known that the costs incurred in obtaining security for some low value containers, has exceed the value of their contribution. The YAR seeks to address that issue.

Interest and Commission: Interest on general average funds will be 4% above the 12-month LIBOR rate for the particular currency in which the adjustment is prepared. This is more flexible than the 7% interest provided for under the YAR 1994, which was deemed generous to ship owners, but more than the 2.5% under the YAR 2004. Rule XX now omits the entitlement to a 2% commission provided under the YAR 1994, as also omitted under the YAR 2004, with the interest rate acting as compensation.

Cash Deposits: The adjuster is now required to open a “special account” in his name in trust for the parties in accordance with the relevant law in the adjuster’s domicile. The CMI Guidelines also include recommendations for the features of the “special account”, such as provision of protection in the event of liquidation. Campbell Johnston Clark concluded that, despite the widely held view that the General Average regime increases the overall costs of a maritime casualty,” there is clearly a requirement to codify a mechanism that redistributes the burden of losses and expenses that arise from sacrifices incurred for the common good of the adventure”.

It said that 2016 YAR was not a comprehensive general average regime, but the new rules sought to encourage uniformity in line with current adjustment practices, even if that meant undoing some of the changes introduced by the YAR 2004. “Overall, it is thought that here is now a better balance between the interests of cargo owners and shipowners, which many believed was lacking from the 2004 Rules.”

In addition, YAR 2016 provides more flexibility by placing greater importance and emphasis on the adjuster’s discretion,” which in turn should lead to faster and cheaper adjustments”, the law firm says.