I. Introduction
This memorandum addresses the concept of General Average, a fundamental principle in maritime law. It is a mechanism for distributing certain maritime losses among all parties to a maritime adventurethe shipowner, cargo owners, and sometimes the freight payerwhen a voluntary and extraordinary sacrifice or expenditure is made for the common safety of the whole venture. Its purpose is to ensure equity, as it would be unjust for one party to bear the entire burden of a loss incurred for the collective benefit.
II. Legal Foundation and Governing Law
In the Philippines, General Average is primarily governed by the Code of Commerce (Articles 806-818). However, in practice, most international shipping contracts incorporate the York-Antwerp Rules (latest revision being 2016), a globally accepted set of rules for adjusting general average. Philippine courts, following the principle of party autonomy under the Civil Code, generally recognize and give effect to these contractual stipulations. In the absence of such stipulation, the Code of Commerce applies subsidiarily.
III. Essential Elements for a Valid General Average Act
For an act to constitute General Average and give rise to a contribution, the following elements must concur, as derived from Article 811 of the Code of Commerce and the York-Antwerp Rules:
IV. Examples of General Average Acts
Common examples include: jettison of cargo to refloat a grounded vessel; damage to machinery while fighting an onboard fire; costs of entering a port of refuge (port charges, wages, and fuel); and expenses for temporary repairs at such a port if necessary for the safe completion of the voyage.
V. The General Average Declaration
When the shipowner (usually through the Master) decides that a General Average situation has occurred, a formal “Declaration of General Average” is issued. This declaration is a prerequisite for collecting contributions. It must be made promptly upon arrival at a port of safety and directs all cargo interests to provide security before delivery of their goods.
VI. Security and the General Average Bond
Before releasing the cargo, the shipowner has a possessory lien over the cargo. Cargo owners must provide security to ensure their contribution will be paid. This is typically done through:
Without providing such security, the carrier may refuse to deliver the cargo.
VII. The Adjustment Process
The actual calculation of each party’s contribution is a complex accounting process performed by a professional General Average Adjuster. The adjuster determines:
The Total General Average Loss (sacrifices and expenditures).
The Contributory Values of the property saved (value of vessel, cargo, and freight at the termination of the adventure).
Each party’s share is proportional to the value of its saved property relative to the total saved value of the adventure.
VIII. Distinction from Particular Average
It is crucial to distinguish General Average from Particular Average. Particular Average refers to a partial loss or damage suffered by a specific interest (e.g., water damage to one consignment of cargo) that is not made for the common benefit. Such a loss is borne solely by the owner of that property or their insurer, and does not give rise to contribution from other parties.
IX. Practical Remedies
For a shipowner, promptly declare General Average at the first port of refuge and engage a reputable Average Adjuster. Secure the voyage by collecting bonds and guarantees from all cargo interests prior to discharge. For a cargo owner/consignee, upon notification, immediately contact your cargo insurer. The insurer will typically issue the required guarantee. Do not sign any bond or agreement without legal or insurance advice. If a contribution is demanded, verify the adjuster’s final statement for correctness and ensure the act truly met all legal elements. Contest the contribution formally if there is evidence the sacrifice was due to the shipowner’s fault or lack of due diligence (e.g., unseaworthiness at the voyage’s commencement), as this may defeat the claim. In case of dispute, be mindful of the arbitration clauses commonly found in adjustment rules; litigation in Philippine courts should be a last resort, pursued only on clear grounds of illegality or manifest error in the adjustment.
