Maritime Law and Practice in China

Liang Zhao and Lianjun Li

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CHAPTER 13 General average

13.1 General average in the CMC 1992 means the extraordinary sacrifice or expenditure intentionally and reasonably made or incurred for common safety and for the purpose of preserving a ship, goods or other property involved in a common maritime adventure from peril.1 The provisions regarding the general average in the CMC 1992 apply to coastal and inland water carriage of goods, provided that the ships for those carriages are “ships” as defined under the CMC 1992.2 A “ship” in the CMC 1992 refers to sea-going ships and other mobile units, but does not include ships or crafts used for military or public service purposes, nor small ships of less than 20 tons gross tonnage.3 According to the Contract Law,4 the entitlement of general average can be transferred to a third party if such a transfer has been notified to the debtor of the general average.5

Scope of general average

13.2 When a ship suffers damage due to a fire, the costs and expenses for salvage, rescue and repairs for safety of both the ship and the goods on board shall be allowed as general average.6 When a ship, after having been damaged in consequence of accident, sacrifice or other extraordinary circumstances, enters a port or place of refuge or returned to its port or place of loading for repairs that are necessary for the safe prosecution of the voyage, the port charges paid, the wages and maintenance of the crew incurred and the fuel and stores consumed during the extra period of detention in such port or place, as well as the loss or damage and the cost arising from the discharge, storage, reloading and handling of the goods, fuel, stores and other property on board for the repairs, shall be allowed as general average.7 Furthermore, any extra expenses incurred in place of another expense that would have been allowed as general average shall be counted as general average and accordingly

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allowed, but the amount of such expenses incurred cannot exceed the replaced general average expense.8 13.3 However, any loss or damage sustained due to the delay of the ship or the goods, whether on the voyage or post voyage, including the damage for detention of the ship, the loss of market and other indirect losses, shall not be allowed under general average.9 Furthermore, goods undeclared or wrongfully declared shall be considered for the contribution to general average, but the special sacrifice sustained by such goods shall not be allowed under general average.10 The shipowner or the owner of the property on board may raise actions for the dispute of general average. However, the recourse actions raised by such a shipowner or owner of the property on board against a liable third party are not considered as a dispute of general average.11

General average in claim

13.4 In a claim of general average, the burden of proof is on the party claiming contribution of general average to show that the losses or expenses claimed are properly allowed as general average.12 The carrier’s conjecture of accident does not discharge his burden of proof.13 Aside from the proof of the existence of general average, the claimant also needs to prove the amount of sacrifice or expenditure for general average. If the amount has not been appropriately calculated in another relevant but separate claim, the claim for contribution of general average will be dismissed by the Chinese courts.14 This practice may apply to the circumstance where the amount of sacrifice or expenditure is not finalised in the adjustment of general average.15 However, a practical problem, arises where a claim for contribution of general average may be time barred when the amount of sacrifice or expenditure is specified. In practice, a better solution for the claimant is to require security for the contribution of general average before it releases the goods to the cargo interests.16 13.5 In the CMC 1992, rights to the contribution of general average shall not be affected even if the event that gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure. However, this does not prejudice any remedies that may be available to that party at fault.17 At the stage of the contribution of general average, if it is unclear whether a declaration of general average was caused by a fault for

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which the carrier is liable, the cargo interests must first contribute to the general average. Cargo interests may then raise recourse actions against the carrier if the causation is later found between the carrier’s non-exempted fault and the general average.18 13.6 However, if it is clear that the fault of the carrier resulted in general average, the cargo interests are entitled to reject the contribution to general average. In Hainan Hulian Shipping Co Ltd v PICC Guangxi Branch and Guangxi International Cooperation Economics and Trade Co Ltd,19 the ship in dispute was towed to a safe port due to an unsolved problem in the main engine. The vessel was then towed again to the destination port because the main engine could not be obtained in the safe port. The shipowner as the carrier announced general average for the cost of the two instances of towage. The carrier, after the adjustment of general average, claimed against the cargo interests for the contribution of the towage cost as general average. The cargo interests argued that the second towage was unreasonable, which caused more extraordinary expenditure. The Beihai Maritime Court pointed out that the cargo interests had the burden to prove that the remuneration for the second towage was higher than the freight for the transhipment of the goods from the safe port to the port of destination. The carrier had the title to sue the cargo interests according to the general average clause on the reverse side of the bill of lading. However, it was found that the towages occurred due to the unseaworthiness of the ship and the carrier was not exempted from the liability for the unseaworthiness. Therefore, the carrier’s claim for contribution of the general average was dismissed.

The amount of sacrifice and contribution

13.7 In the CMC 1992, the amounts of sacrifice of the ship, the goods and the freight are respectively determined as follows:20

(1) The amount of sacrifice of the ship shall be calculated based on the actual repair costs of the ship, from which any reasonable deduction in respect of “new for old” can be made. Where the ship has not been repaired after the sacrifice, the amount of sacrifice is calculated on the basis of the reasonable reduced value of the ship after the general average sacrifice. This amount shall not exceed the estimated costs of repair. Where the ship is an actual total loss or where the cost of repair would exceed the value of the ship after the repair, the amount of sacrifice of the ship is calculated on the basis of the estimated sound value of the ship, less the estimated costs of repair not allowed as general average, as well as the value of the ship after the damage.
(2) The amount of sacrifice of the goods already lost shall be calculated on the basis of the value of the goods at the time of shipment plus insurance and freight, deducted from any freight not required to be paid due to the sacrifice. For damaged goods that have already been sold before an agreement was reached on the extent of the damage sustained, the amount of sacrifice is calculated on the basis of the difference between the value of the goods at the time of shipment plus insurance and freight, and the net proceeds of the goods when sold.
(3)

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The amount of sacrifice of the freight shall be calculated on the basis of the amount of loss of freight on account of the sacrifice of the goods, minus the operating expenses that ought to be paid in order to earn such freight but need not be paid because of the sacrifice.

13.8 Where the value of the goods has been improperly declared at a value below its actual value, the contribution to general average shall be made on the basis of their actual value and, where a general average sacrifice has occurred, the amount of sacrifice shall be calculated on the basis of the declared value.21 Furthermore, any interest shall be allowed for general average sacrifice and general average expenses paid on account. A commission shall be allowed for the general average expenses paid on account, except those for the wages and maintenance of the crew and fuel and store consumed.22 13.9 The contribution to general average shall be made in proportion to the contributory values of the respective beneficiaries. The contributory value in general average by the ship, goods and freight shall be determined as follows:23

(1) The contributory value of the ship shall be calculated on the basis of the sound value of the ship at the place where the voyage ends, minus any damage that does not come under general average sacrifice. Alternatively, calculation can be made based on the actual value of the ship at the place where the voyage ends, plus the amount of general average sacrifice.
(2) The contributory value of the goods shall be calculated on the basis of the value of the goods at the time of shipment plus insurance and freight, minus the damage that does not come under the general average sacrifice and the carrier’s freight at risk. Where the goods have been sold before its arrival at the port of destination, its value for contribution shall be the net proceeds plus the amount of general average sacrifice. Passenger’s luggage and personal belongings are not included in the value for contribution.
(3) The contributory value of freight shall be calculated on the basis of the amount of freight at the risk of the carrier and that the carrier is entitled to collect at the end of the voyage, less any expense incurred for the prosecution of the voyage after the general average, in order to earn freight, plus the amount of general average sacrifice.

13.10 The contributing parties shall provide security for general average contribution at the request of the parties that have an interest therein. Where the security has been provided in the form of cash deposits, such deposits shall be put in a bank by an average adjuster in the name of a trustee. Nevertheless, the provision, use and refund of the deposits shall be without prejudice to the ultimate liability of the contributing parties.24

General average adjustment

13.11 The adjustment of general average shall be governed by the average adjustment rules agreed upon in the relevant contract. In the absence of such an agreement in the

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contract, the relevant provisions regarding general average in the CMC 1992 shall apply.25 In shipping practice, it is very common that bills of lading will provide a general average clause adopting a certain adjustment rule for general average. For example, Cosco Container Lines Bill of Lading (amended 24 August 2001) provides that “General Average shall be adjusted at any port or place at the Carrier’s option according to the York-Antwerp Rules 1974, as amended in 1990, and any other amendments thereto.”26 Aside from the popular York-Antwerp Rules 1974, the China Council for the Promotion of International Trade provides Provisional Rules for General Average Adjustment 1975 (known as the “Beijing Rules for Adjustment”). 13.12 The contents of the Beijing Rules are similar to those of the York-Antwerp Rules 1974 except one outstanding difference. According to the principle of adjusting general average of the Beijing Rules, if the event giving rise to a claim submitted for adjustment as general average is due to the fault of one of the parties to the contract of carriage, for which he is not entitled to exemption from liability, no general average adjustment shall be proceeded with.27 This principle is different from relevant rules in both the York-Antwerp Rules and the CMC 1992.28 The problem with this principle in the Beijing Rules is how the adjustor decides whether general average is due to the fault of one of the parties to the contract of carriage before the adjustment of the general average. It should be the judge or the arbitrator, and not the adjustor of general average who decides the issues of fault and exemption of liability of the parties. In fact, as a matter of general practice in instances of general average, the adjustor under the Beijing Rules always proceeds with the normal adjustment of general average, and leaves the issues of fault and exemption of liability to be solved through other means. 13.13 The Beijing Rules provide a time limit for general average. All parties shall, upon the occurrence of the accident giving rise to general average, do everything necessary in time and declare general average and provide the Department for Average Adjustment29 with relevant materials within the following time limits:30

1. Declaration of general average

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