Another feature of modern general average practice that it not reflected in
standard form shipping contracts is the use of general average absorption clauses.
The process of adjusting general average can be slow and costly, particularly in
relation to container vessels, where there may be thousands of different cargoowners who would, in theory, be required to contribute in general average, even
though each cargo-owner’s contribution would be very small. As a result, it has
become common to include general average absorption or “small general average”
clauses in hull and machinery policies, which stipulate that the hull and machinery
insurer will pay general average charges in full up to a stipulated percentage of the
insured value of the vessel, or a stipulated dollar amount, whichever is higher. By
agreeing to absorb all of the general average costs or expenditure up to the agreed
amount, the hull and machinery insurer obviates the need for the shipowner to claim
general average contribution from the cargo owners and other interests. It is estimated by expert average adjusters that about 70% of “blue water” vessels have
general average absorption clauses of some kind in their hull and machinery
policies.
83 BIMCO published a standard form general average absorption clause in
2002; it issued a revised version in 2018 to accommodate the changes made by the
York-Antwerp Rules in 2016, and it now recommends that the 2002 version no
longer be used.
84 The 2016 version of the Rules contains a new “small general
average” provision of its own, Rule XVII(a)(ii), which provides that cargo may be
excluded from contributing to general average if the adjuster considers that the cost
of including it in the adjustment would likely be disproportionate to its eventual
contribution.
Given that general average absorption clauses have been in widespread use for at
least 20 years, why is there no reference to their effect in standard form shipping
contracts? The general average provision in most shipping contracts simply says
“General average shall be adjusted” in accordance with the agreed version of the
Rules in some specified place. Of course, if the carrier does not claim general
average contribution because of the absorption clause in its hull insurance policy,
which will often be the case, the provisions of the relevant clause in the carriage
contract become moot, but that clause might reflect reality rather better if it were to
read something like: “If a contribution is claimed, general average shall be adjusted,
etc.” The whole point of absorption clauses is to render unnecessary the adjustment
of general average except in large or difficult cases. At one level, that could be
regarded simply as a matter between the shipowner and its hull insurer. At another
level, it could be argued that this is of enough interest to cargo-owners to be reflected
in some way in contracts for the carriage of goods by sea. Here, too, the contracts
most widely used in shipping practice are at odds with the legal reality.
83 Nigel Rogers, director of Richards Hogg Lindley, quoted by Gard, “BIMCO standard general
average absorption clause” (2003), available at http://www.gard.no/web/updates/content/53338/
bimco-standard-general-average-absorption-clause.
84 The clause is available from BIMCO’s website at: https://www.bimco.org/contracts-and-clauses/
bimco-clauses.
170
M. Davies
standard form shipping contracts is the use of general average absorption clauses.
The process of adjusting general average can be slow and costly, particularly in
relation to container vessels, where there may be thousands of different cargoowners who would, in theory, be required to contribute in general average, even
though each cargo-owner’s contribution would be very small. As a result, it has
become common to include general average absorption or “small general average”
clauses in hull and machinery policies, which stipulate that the hull and machinery
insurer will pay general average charges in full up to a stipulated percentage of the
insured value of the vessel, or a stipulated dollar amount, whichever is higher. By
agreeing to absorb all of the general average costs or expenditure up to the agreed
amount, the hull and machinery insurer obviates the need for the shipowner to claim
general average contribution from the cargo owners and other interests. It is estimated by expert average adjusters that about 70% of “blue water” vessels have
general average absorption clauses of some kind in their hull and machinery
policies.
83 BIMCO published a standard form general average absorption clause in
2002; it issued a revised version in 2018 to accommodate the changes made by the
York-Antwerp Rules in 2016, and it now recommends that the 2002 version no
longer be used.
84 The 2016 version of the Rules contains a new “small general
average” provision of its own, Rule XVII(a)(ii), which provides that cargo may be
excluded from contributing to general average if the adjuster considers that the cost
of including it in the adjustment would likely be disproportionate to its eventual
contribution.
Given that general average absorption clauses have been in widespread use for at
least 20 years, why is there no reference to their effect in standard form shipping
contracts? The general average provision in most shipping contracts simply says
“General average shall be adjusted” in accordance with the agreed version of the
Rules in some specified place. Of course, if the carrier does not claim general
average contribution because of the absorption clause in its hull insurance policy,
which will often be the case, the provisions of the relevant clause in the carriage
contract become moot, but that clause might reflect reality rather better if it were to
read something like: “If a contribution is claimed, general average shall be adjusted,
etc.” The whole point of absorption clauses is to render unnecessary the adjustment
of general average except in large or difficult cases. At one level, that could be
regarded simply as a matter between the shipowner and its hull insurer. At another
level, it could be argued that this is of enough interest to cargo-owners to be reflected
in some way in contracts for the carriage of goods by sea. Here, too, the contracts
most widely used in shipping practice are at odds with the legal reality.
83 Nigel Rogers, director of Richards Hogg Lindley, quoted by Gard, “BIMCO standard general
average absorption clause” (2003), available at http://www.gard.no/web/updates/content/53338/
bimco-standard-general-average-absorption-clause.
84 The clause is available from BIMCO’s website at: https://www.bimco.org/contracts-and-clauses/
bimco-clauses.
170
M. Davies