York Antwerp Rules

N; Geoffrey Hudson; M; A; and Michael D; Harvey

Document

Page 221

CHAPTER 32 Rule XX: Provision of Funds

(a) The capital loss sustained by the owners of goods sold for the purpose of raising funds to defray general average disbursements shall be allowed in general average.
(b) The cost of insuring general average disbursements shall be allowed in general average.

Introduction

32.01 The law maritime has always recognised the obligation of co-adventurers to furnish funds in the event of an emergency. Lowndes tells us, on the authority of the Consolado del Mare, that “if the merchants have money, and if they are in a place where the master has need of supply or things necessary for the ship, the merchant must lend it to him”, subject to the agreement of the co-adventurers. However, if funds were available from an outside source, the merchants were not obliged to lend their money to the master, though they might do so if they thought fit. 32.02 When the merchants ceased to travel with the ship, their authority became invested in the master who, in case of necessity, was empowered to employ the following extraordinary means to raise funds, but only after all ordinary efforts had failed. In ascending order of extremity, the master might raise funds:

(a) on the security of the ship and pending freight, by way of a bottomry bond;
(b) on the security of cargo by way of a respondentia bond;
(c) as a last resort, by selling a part of the cargo.

32.03 In so doing, the master is said to be acting as an “agent of necessity”, but for such agency to be recognised by English law, it is essential that the master should have attempted to obtain funds or direct instructions from the shipowner and, in the case of the sale of cargo, to have attempted to obtain the express authority of the cargo owner.1 32.04 Bottomry and respondentia bonds were forms whereby the property was hypothecated to the lender on terms that the loan would be repayable within a short time (usually three days) after the arrival of the ship and cargo at the destination. If the ship and cargo failed to arrive safely, nothing was repayable. The lender had an insurable interest in the amount which he had advanced, and the premium chargeable on the bottomry or respondentia bond could be expected to be fairly high, as it would comprise both the lender’s commission and the cost of insuring the loan for the remainder of the voyage.

Page 222

32.05 Since the obligation to repay the loan formed a charge on the property at the destination, it may be seen that when and insofar as the loan was necessary to defray general average disbursements, the charge on the property was akin to a sacrifice of part of its value. Hence, the bottomry or respondentia premium, and the loss of sale on cargo was allowable in general average to the extent that the loan had been used to pay for general average disbursements. 32.06 With better communications, and more efficient banking methods, these extreme methods of raising funds are now all but obsolete. 32.07 In the everyday case of sending funds to a foreign port to pay for disbursements, a shipowner has always been entitled to claim the bank charges he has incurred as part of the cost of remitting those funds, and when disbursements have been paid by a time charterer and debited subsequently to the shipowner, it is customary for the time charterer to charge a disbursing commission, usually 2.5 per cent, on the amount of the disbursements which are for the shipowner’s account. In practice, these commissions have always been reflected in the allowances made in a general average adjustment, but as for any commission to be credited to a shipowner in recompense for his time and trouble there was a difference in practice between the United Kingdom and other countries. Such commission was allowed in the United States at 2.5 per cent, and at various rates in European countries, whereas in the United Kingdom no such allowance was made.2

Evolution

32.08 Rule XX was therefore put together at the time of the 1924 revision of the York-Antwerp Rules in order to bring uniformity into the matter of the commission allowable to shipowners, or other parties to the adventure, for advancing money, and at the same time to make provision for the exceptional methods of obtaining funds abroad, to which we have already alluded. In 1924 the Rule was numbered XXI and read as follows:

Provision of funds

The rest of this document is only available to i-law.com online subscribers.

If you are already a subscriber, click Log In button.