General Average

General Average is a method of equitable distribution of the financial consequences of actions taken to preserve the property imperiled in a common maritime adventure. Almost universally, it is adjusted in accordance with a code called The York Antwerp Rules, of which an international maritime law body called the Comité Maritime International (CMI) is custodian.

The CMI publishes a very useful set of General Average Guidelines, designed to introduce the topic to those unfamiliar with it.

If you are involved in a general average, you very likely will be asked to provide security for the contribution that eventually will be ascertained to be due from your property. If you are insured, your insurers should provide an underwriters’ guarantee. If you are not insured, you will be asked to provide a cash deposit to cover your eventual contribution.

General average security forms have been developed in consultation among principal industry stakeholders including the CMI, a non-governmental not-for-profit international organization focused on promoting uniformity in international maritime law; the International Chamber of Shipping, “representing around 80% of the world’s merchant tonnage through membership by national shipowners’ associations”; and the International Union of Marine Insurance, whose members comprise national insurance and marine insurance associations.

If you are asked to sign any type of security other than these forms that have industry-wide approval, you are well-advised to scrutinize them closely, and consider seeking professional advice.

The forms all are available on the CMI website, as follows:

A note on cash deposits: historically, cash deposits were held in interest-bearing accounts, frequently jointly by the average adjusters and the ship owners, but banking regulations have made this structure impossible in most jurisdictions. The York Antwerp Rules have been amended to specify how such deposits should be handled:

Rule XXII – Treatment of Cash Deposits
(a) Where cash deposits have been collected in respect of general average, salvage or special charges, such sums shall be remitted forthwith to the average adjuster who shall deposit the sums into a special account, earning interest where possible, in the name of the average adjuster.
(b) The special account shall be constituted in accordance with the law regarding client or third party funds applicable in the domicile of the average adjuster. The account shall be held separately from the average adjuster’s own funds, in trust or in compliance with similar rules of law providing for the administration of the funds of third parties.
(c) The sums so deposited, together with accrued interest, if any, shall be held as security for payment to the parties entitled thereto, of the general average, salvage or special charges in respect of which the deposits have been collected. Payments on account or refunds of deposits may only be made when such payments are certified in writing by the average adjuster and notified to the depositor requesting their approval. Upon the receipt of the depositor’s approval, or in the absence of such approval within a period of 90 days, the average adjuster may deduct the amount of the payment on account or the final contribution from the deposit.
(d) All deposits and payments or refunds shall be without prejudice to the ultimate liability of the parties.

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