General average clause - BIMCO Bulletin

General average clause

CONTRACTS AND ClAUSES | GENERAL AVERAGE CLAUSES November 2018 BIMCO updates its general averagerelated clauses By Donald Chard, Consultant, Contracts and Clauses at BIMCO t riggered by the recent revision of the York-Antwerp Rules, BIMCO has made updates to its clauses related to general average, in order to meet the needs of shipowners and operators, and help reduce administrative costs. The BIMCO Average Bond Clauses, which facilitate delivery of cargo after a general average incident, were reissued earlier this year. By making the amendments, we aim to confer greater certainty in relation to applicable time limits. We also took the opportunity to make minor editorial improvements, says Grant Hunter, Head of Contracts and Clauses. At the same time, amendments were made to the BIMCO General Average Absorption Clause to clarify the quantum of insurers liability for claims made in place of a declaration of general average, said Hunter. By making the amendments, we aim to confer greater certainty in relation to applicable time limits Supporting general average Donald Chard BIMCO fully supports the principles of general average. The concept, which can be traced to antiquity, provides a regime whereby losses sustained for the common safety of all involved in a maritime adventure are equitably shared among the different interests. The system has evolved over the years, with the framework for settling and adjusting claims set out in the York-Antwerp Rules (YAR), which were first issued in 1890 and have been updated over the years. The controversial YAR 2004 were not acceptable to the shipping industry and BIMCO declined to recommend their use. Further changes followed and the subsequent YAR 2016 have since been endorsed. All new and revised BIMCO charter parties and bills of lading now refer to adjustments being settled in accordance with YAR 2016. However, the transition will necessarily be a slow process and YAR 1994 are likely to continue in use for the foreseeable future, according to Hunter. Average Bond Clause using the right provision A declaration of general average often leads to time being spent and costs incurred by shipowners having to obtain general average security from many individual cargo interests and their insurers. However, delays can be minimised by incorporation of the BIMCO Average Bond Clause in the contract of carriage. The clause sets out a self-standing regime for the delivery of cargo in return for certain undertakings, including provision of a general average guarantee or deposit. This means there is no need to obtain a consignees or shippers signature on a separate document, allowing cargo to be released more quickly, thereby reducing delays and saving administrative costs. Two versions of the clause have been issued for use, respectively, in contracts of carriage where general average is to be adjusted in accordance with YAR 2016 and contracts where YAR 1994 is to apply. Given a number of differences between the two sets of YAR, including the treatment of salvage, it is important to ensure that the right provision is used to avoid later disputes about meaning and intention if the clause has to be invoked. Absorption Clauses A declaration of general average is not always the answer, however, especially where there are multiple cargo receivers, as in container trades, or a small claim. The solution is a general average absorption clause, whereby the insured shipowners claim in general average is absorbed by underwriters up to an agreed amount. The BIMCO General Average Absorption Clause, developed with representatives of insurance underwriters, average adjusters, shipowners and the P&I clubs, was first published in 2002. It was updated in 2017 to reflect the YAR 2016 and more minor improvements have recently been made. Users can further modify the scope to extend the single ship basis to cover multiple vessels, each with an individually agreed absorption limit. The clause is for incorporation in a marine insurance policy and should not be included in a charter party or other contract of carriage. It provides for payments to be made up to the monetary limit agreed by the parties for general average, salvage and special charges. In order to avoid small or lowvalue vessels defeating the objective of the provision, a threshold figure of US$250,000 has been incorporated, although this can be amended by party agreement. Adjustments are determined in accordance with the YAR 2016, regardless of any other general average provision in a charter party or bills of lading. Claims are paid without application of any deductible. The clause is triggered when shipowners decide not to make a general average claim up to the agreed limit. Losses beyond this cannot be recovered and duplicate claims for general average are not permitted. However, absorption provisions may often represent a cost-effective means of recovering losses incurred. Connect with BIMCO Facebook Twitter Linkedin YouTube