General Average: The Rule That Makes You Pay for Someone Else's Casualty

A container ship catches fire in the Arabian Sea. Your cargo is in a hold that never burned, on a vessel you do not own, in a casualty you had nothing to do with. Weeks later you receive a demand for 54 percent of the value of your goods before anyone will release them.

That is not a mistake and it is not extortion. It is general average, one of the oldest surviving principles in commercial law, and the demand is enforceable.

For cargo interests it is the single most surprising exposure in shipping. For shipowners it is the mechanism that makes salvage and casualty response financially possible. This article covers what triggers it, how the rules actually work, what happens to your cargo, and where the whole system runs into difficulty.

The Principle

General average predates most of the law around it. The concept comes from Rhodian sea law and passed into Roman law, and the logic has not changed in two thousand years.

If a ship is in peril and something is deliberately sacrificed to save the common venture, the loss should be shared by everyone whose property was saved rather than falling on whoever happened to own the thing that was thrown overboard.

The classic case is jettison. Cargo is pushed over the side to lighten a grounded vessel, the vessel floats free, and everyone else's goods arrive safely. It would be arbitrary for the shipper whose crates went into the sea to bear the entire cost of saving everyone else's.

The modern application extends well beyond jettison, and that is where cargo interests get caught out.

What Actually Triggers It

The governing framework is the York-Antwerp Rules, most recently revised in 2016 by the Comité Maritime International. They are not law. They apply because bills of lading and charter parties incorporate them, which almost all do.

Rule A sets the test. There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety, for the purpose of preserving from peril the property involved in a common maritime adventure.

Four elements carry the weight.

Extraordinary: Ordinary operating expenses do not qualify. The cost of bunkers on a normal voyage is not general average. The cost of a tug engaged to save a grounded vessel is.

Intentional: The sacrifice must be a decision. Cargo that burns in a fire is a particular average loss borne by its own owner and insurer. Cargo that is damaged by water used to fight the fire was sacrificed deliberately and is general average.

Reasonable: Rule Paramount states plainly that no allowance shall be made unless the sacrifice or expenditure was reasonably made or incurred.

Common Safety and Common Peril: The action must be for the benefit of the whole venture rather than for one interest.

In practice, general average is declared after groundings, fires, machinery breakdowns requiring salvage or towage, collisions, heavy weather cargo loss, and deviations to a port of refuge. The trigger is usually the moment an owner engages salvors or incurs extraordinary expense to save the venture.

How the Rules Are Structured

Two things about the architecture matter when a dispute arises.

The Rules are split between lettered rules, which set general principles, and numbered rules, which deal with specific categories of loss and expense. The Rule of Interpretation provides that the numbered rules take precedence, so where a specific rule addresses a situation, it governs regardless of whether the general test in Rule A would produce a different answer.

The numbered rules cover the recurring situations. Rule II addresses loss by sacrifice for the common safety. Rule III covers damage caused extinguishing a fire. Rule V deals with voluntary stranding. Rule X covers port of refuge expenses and Rule XI covers wages and maintenance while there. Rule XIV covers temporary repairs. Rule XVII establishes contributory values. Rule XVIII covers damage to the ship.

Rule F is worth knowing about because it saves owners money and quietly benefits everyone. Additional expense incurred in place of an expense that would have been allowable as general average is itself allowed, up to the amount of the expense it replaced. That is what permits forwarding cargo by an alternative route rather than holding it at a port of refuge indefinitely.

What Changed in 2016

The 2016 revision made two changes that affect how these cases now run.

Salvage is generally no longer re-apportioned. Under the 1994 Rules, salvage paid separately was brought into the adjustment and redistributed over general average contributory values. The 2016 Rules remove that, on the basis that where ship and cargo have already paid salvage on salved values, redistributing it over different values at a different date produced cost and delay without changing the substance. There is an exception where one party has paid another's share.

A one year time bar. Rule XXIII extinguishes rights to general average contribution, including rights under bonds and guarantees, unless action is brought within one year of the date the adjustment is issued, with an absolute long stop of six years from termination of the common maritime adventure. The periods can be extended by agreement after the adventure ends, and the rule does not apply between the parties and their own insurers.

That is a substantial shortening. Previously a six year period ran from the adjustment date, as confirmed in The Potoi Chau [1984] 1 AC 226.

The 2016 Rules also abolished the two percent commission that adjusters previously allowed on general average disbursements.

One practical wrinkle worth flagging. Rule XXI sets the interest rate by reference to twelve month ICE LIBOR plus four percentage points. LIBOR has since been discontinued, which leaves the drafted mechanism pointing at a rate that no longer exists. Anyone working through a current adjustment should confirm what their adjuster is applying instead.

The Part That Hits First: Security

Here is what actually happens to a cargo interest, and it happens long before anyone calculates who owes what.

The shipowner declares general average and appoints an average adjuster. The adjuster demands security from every cargo interest before the goods are released. The shipowner has a lien on the cargo for the contribution due, which means no security, no cargo, and in the last resort the owner can sell the goods to satisfy the contribution.

The demand comes in two parts and both are percentages of your cargo's CIF value.

If your cargo is insured, your cargo underwriter provides a general average guarantee, an undertaking to pay whatever contribution is ultimately assessed. You sign an average bond. Your goods are released. The cost to you is essentially administrative.

If your cargo is uninsured, you post a cash deposit for the full percentage demanded, in advance, and potentially wait years to find out how much of it you get back.

The Maersk Honam illustrates the scale. Fire broke out aboard the 15,262 TEU vessel in the Arabian Sea on 6 March 2018, killing five crew. Maersk declared general average on 9 March and appointed Richards Hogg Lindley. The adjuster set salvage security at 42.5 percent of CIF value with a further 11.5 percent as general average security.

A shipper with $100,000 of goods aboard faced a bill of $54,000 to get them released.

Security demands of that magnitude were not always the norm. Practitioners have reported historic ranges closer to 10 to 20 percent, with recent casualties running considerably higher. The Ever Given grounding in the Suez Canal in 2021 produced another high profile declaration.

The practical consequence is straightforward and it is the single most useful thing in this article. Cargo insurance covers general average contributions. Without it, a casualty on a ship you do not own can require you to find tens of thousands of dollars in cash, quickly, to recover goods you have already paid for.

The Adjustment, and How Long It Takes

The average adjuster is an independent professional who determines what qualifies as general average, what is allowed, what the contributory values are, and what each interest owes.

Contributory values are assessed under Rule XVII, broadly on the value of the property at the termination of the adventure. Cargo values are taken at the time of discharge, with the commercial invoice frequently taken as evidence, including insurance and freight where freight is at cargo's risk.

Rule E imposes obligations that cargo interests routinely miss. Parties claiming in general average must give notice in writing, and particulars in support of a claim, and particulars of value, within twelve months of termination of the adventure. Fail to supply them and the adjuster is at liberty to estimate. Those estimates can only be challenged within two months of receipt, and only on the grounds that they are manifestly incorrect.

That is a short window with a high bar, and it is easy to miss if the notice goes to an address nobody monitors.

As for timing, the honest answer is that adjustments take years. The Maersk Honam final calculation was expected to take years at the outset and that expectation was accurate. On a container ship with several thousand bills of lading, the adjuster is corresponding with hundreds of parties in dozens of jurisdictions, many of whom have never encountered general average before.

The Defence That Actually Works

Cargo interests are not without recourse, and this is where general average disputes are genuinely fought.

Rule D provides that rights to contribution are not affected even where the event was caused by the fault of one of the parties, but that this does not prejudice any remedies or defenses available in respect of that fault.

In plain terms, the shipowner can still claim, and the cargo interest can still defend on the basis that the owner's actionable fault caused the peril.

The most common route is unseaworthiness. Under the Hague and Hague-Visby Rules, a carrier must exercise due diligence to make the vessel seaworthy before and at the beginning of the voyage. Where the owner failed to do so, and that failure was causative of the casualty, cargo can resist contribution entirely.

Two decisions illustrate how this operates.

In Alize 1954 and another v Allianz Elementar Versicherungs AG and others [2019] EWHC 481 (Admlty), concerning the CMA CGM Libra, the court held that a defective passage plan rendered the vessel unseaworthy, that the owner had failed to exercise due diligence, and that this constituted actionable fault. Cargo interests successfully defended the claim for general average contributions. The decision was upheld on appeal, ultimately reaching the Supreme Court in 2021, and it substantially expanded what seaworthiness encompasses.

In The BSLE Sunrise [2019] EWHC 2860 (Comm), arising from a grounding off Valencia, the Commercial Court held that cargo insurers can resist payment under a general average guarantee where the peril was caused by the owner's actionable fault, or while the underlying liability question remains unresolved. The court reviewed what it considered settled industry practice and concluded that only very clear wording would displace it.

The second decision matters more than it looks. It confirms that a general average guarantee is not an unconditional promise to pay whatever the adjuster assesses. The defence survives the security.

Where It Breaks Down

Several structural problems recur, and anyone likely to encounter general average should understand them.

The standoff. The owner claims contribution. Cargo alleges actionable fault. Neither position resolves until the causation question is determined, which may require litigation running years. Meanwhile the security sits posted and the adjustment cannot close.

Container shipping strains the model. General average was designed for a ship with a handful of cargo interests. A modern boxship carries thousands of consignments belonging to parties of wildly different sophistication. A small importer with a single container has the same procedural obligations as a multinational and considerably less capacity to meet them.

The uninsured are hit hardest. Cargo insurance costs a fraction of a percent of value. The absence of it turns a general average declaration from an administrative event into a cash crisis, and the parties least likely to be insured are the least able to absorb it.

Security demands have outpaced expectations. A shipper budgeting on historic experience of 10 to 20 percent and facing 54 percent has a working capital problem rather than an insurance problem.

Delay compounds everything. Goods held pending security may be perishable, seasonal, or contractually committed. The commercial loss from delay frequently exceeds the contribution itself, and general average does not compensate it.

What to Do When One Is Declared

For cargo interests:

Notify your cargo underwriter immediately. They issue the guarantee and they will not act until they know. This is the first call, before your forwarder and before the adjuster.

Do not ignore correspondence from the adjuster. Rule E's twelve month notice requirements and the two month window to challenge estimates run whether or not anyone is reading the mail.

Provide particulars of value promptly and accurately. If you do not, the adjuster estimates, and an estimate is hard to displace.

Ask what caused the casualty. If the peril arose from unseaworthiness the owner could have prevented with due diligence, the actionable fault defense may be available. Raise it early and preserve it, because your guarantee does not extinguish it.

Do not assume the demand is final. Security is an interim figure calculated conservatively. The eventual contribution is frequently lower.

For shipowners and operators:

Declare early and appoint a recognized adjuster. Delay compounds cost and complicates security collection.

Understand that your seaworthiness position determines your recovery. Passage planning, maintenance records, and evidence of due diligence before the voyage are the material that decides whether cargo pays. As the CMA CGM Libra demonstrated, the standard reaches further than many owners assumed.

Check whether your charter parties and bills of lading incorporate the 2016 Rules. Many still reference 1994, and the differences on salvage and time bars are substantial.

Know your own time bar. One year from issue of the adjustment, six years absolute. Missing it extinguishes the claim.

The Bottom Line

General average survives because the alternative is worse. A master facing a decision to sacrifice cargo or engage expensive salvage should not be weighing which interest bears the cost. The rule removes that calculation and lets the casualty be managed on its merits.

What it does is transfer the consequence to parties who had no involvement in the decision and frequently no idea the exposure existed.

For a cargo interest, the entire practical answer is insurance. A cargo policy converts a demand for tens of thousands in cash into a form your underwriter signs. It is among the cheapest protections available in shipping and among the most consequential when a general average is declared.

For a shipowner, the answer is seaworthiness and the evidence to prove it. General average entitles you to contribution unless your own fault caused the peril, and increasingly the courts are finding that it did.