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RULE XVIII

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Originally appearing in Volume V03, Page 58 of the 1911 Encyclopedia Britannica.
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RULE XVIII.—ADJUSTMENT Except as provided in the foregoing rules, the adjustment shall be drawn up in accordance with the law and practice that would have governed the adjustment had the contract of affreightment not contained a clause to pay G.A. according to these rules. The above rules differ in some important respects from English common law, and from former English practice. They follow ideas upon the subject of G.A. which have prevailed in practice in foreign countries (though often in apparent opposition to the language of the codes), in preference to the more strict principle of the common law applied by English courts. That principle requires that, in order to have the character of G.A. a sacrifice or expenditure must be made for the common safety of the several interests in the adventure and under the pressure of a common risk. It is not enough that the sacrifice or expenditure is prudent, or even necessary to enable the common adventure to be completed. G.A., on the English view, only arises where the safety of the several interests is at stake. " The idea of a common commercial adventure, as distinguished from the common safety from the sea," is not recognized. It is not sufficient " that an expenditure should have been made to benefit both cargo owner and shipowner."1 Thus expenses incurred after ship and cargo are in safety, say at a port of refuge, are not generally, by English law, to be treated Port of as G.A. ; although the putting into port may have refuge ex- been for safety, and therefore a G.A. act. If the put- penser, ting into port has been necessitated by a G.A. sacrifice, as by cutting away the ship's masts, the case is different; the port expenses, the expenses of repairing the G.A. damage, and the incidental expenses of unloading, storing and reloading the cargo are, in such a case, treated as consequences of the original sacrifice, and therefore subjects for contribution. But where the reason for putting in is to avoid some danger, such as a storm or 1 Per Bowen, L.J., in Svensden v. Wallace, 1883, 13 Q.B.D. at p. 84.hostile cruiser, or to effect repairs necessitated by some accidental damage to the ship, the G.A. sacrifice is considered to be at an end when the port has been reached, if the ship and cargo are then in physical safety. The subsequent expenditure in the port is said not to flow from that sacrifice, but from the necessity of completing the voyage, and is incurred in performance of the shipowner's obligation, under his contract. The practice of English average adjusters has indeed modified this strict view by treating the expense of unloading as G.A.; but it may well be doubted whether that practice can be legally supported. Moreover, expenditure in the port which is incurred in protecting the cargo as in warehousing it, is by English practice treated as a charge to be borne by the cargo for whose benefit it was incurred. If we turn now to York-Antwerp Rule X., it will be seen that a much broader view is adopted. Whatever the reason for putting into the port of refuge, provided it was necessary for the common safety, the expenses of going in, and the consequent expenses of getting out (if she sails again with all or part of her original cargo), are allowed as G.A., Rule X. (a). Further, the cost of discharging the cargo to enable damage to the ship to be repaired, whether caused by sacrifice or by accident during the voyage, is to be allowed as G.A., " if the repairs were necessary for the safe prosecution of the voyage," Rule X. (b). And that is to be so even where such re-pairs are done at a port of call, as well as where done at a port of refuge. ,Again, when the cost of discharging is treated as G.A.; so also are to be the expenses of, storing the cargo on shore, and of re-loading and stowing it on board, after the repairs have been done (Rule X. (c) ), together with any damage or loss incidental to those operations (Rule XII.). Further, by Rule XI. the wages of the master, officers and crew, and the cost of their maintenance, during the detention of a ship under the circumstances, or for the purpose of the repairs'mentioned in Rule X., are to be allowed in G.A. It is questionable whether English law allows the wages and maintenance of the crew at a port of refuge in any case. Where the detention is to repair accidental damage it seems clear that they are not allowed. And in practice under common law, the allowance is never made; so that Rule XI. is an important concession to the shipowner. Like the changes introduced by Rule X., it is a change towards the practice in foreign countries. It may be noted that the rules do not afford equal protection to a shipper in the comparatively infrequent case of his being put to expense by the delay at a port of refuge. Thus a shipper of cattle is not entitled to have the extra wages and provisions of his cattle-men on board, nor the extra fodder consumed by the cattle during the stay at a repairing port, made as good as G.A. under Rules XI. and X. (Anglo-Argentine &c. Agency v. Temperky Shippin..g Co., 1899, 2 Q.B. 403). As to the acts which amount to G.A. sacrifices, as distinguished from expenditures, the York-Antwerp Rules do not much alter English common law. They do, however, make definite General provisions upon some points on which authority was average scanty or doubtful. (See Rules I.-IX.) And in Rule I., sacrifices. as to jettison of deck cargo, a change is made from the common law rule, for the jettison is not allowed as G.A. even though the cargo be carried on deck in accordance with an established custom of the particular trade. Rule III. deals with damage done in extinguishing fire on board a ship. Modern decisions have cleared away the old doubts whether such damage to ship or cargo should, at law, be allowed in G.A. But recent cases in the United States have raised the question whether the allowance should be made where the fire occurs in port, and is extinguished, not by the master, but by a public authority acting in the interests of the public. Tlpe Supreme Court of the United States decided against the allowance in 1894 in a case of Ralli v. Troup (157 U.S. 386). The ship had there been scuttled to put out a fire on board, by the port authority, acting upon their own judgment, but with the assent of the master. It was held that the damage suffered by ship and cargo ought not to be made good by G.A. contributions; for the sacrifice had not been made `by some one specially charged with the control and safety of that ad-venture," but was the compulsory act of a public authority. On the other hand, in the English case of Papayanni v. Grampian S.S. Co. (I. Corn. Ca. 448). Mathew, J., held that the scuttling of a ship at a port of refuge in Algeria, by orders of the captain of the port, was a G.A. act. It had been done in the interest of ship and cargo, and there was no evidence of any other motive. Rule V. deals with the question whether, and under what conditions, a voluntary stranding of the ship is a G.A. act, in a manner which will probably be held to express the law in England when the matter comes up for decision. Rules VI. and VII. deal with the damage sustained by the ship, or her appliances, in efforts to force her off the ground when she has stranded. Such efforts involve an abnormal use which is likely to cause damage to sails and spars, or to engines and boilers; and they are treated as acts of sacrifice. The case of The Bona," 1895 (P. 125) shows that the rules are in accord with English law upon the point. The court of appeal held that both the damage sustained by the engines while worked to get the ship off, and the coal and stores consumed, were subjects for G.A. contribution at common law. Rule VIII. allows as G.A. any damage sustained by cargo when discharged and, say, lightered for the purpose of getting the ship off a strand. And the corresponding damage in the case of cargo discharged at a port of refuge to enable repairs to be done to the ship is allowed by Rule XII. But in the latter case the allowance does not expressly, extend to damage sustained while stored on land. Whether the law would require contribution to a loss of goods, say, by thieves or by fire, while landed for repairs, is not clear. Where the landing has been necessitated by a G.A. act, as cutting away masts, it would seem that the loss ought to be made good, as being a result of the special risks to which those goods have thereby been exposed. The risks which they would have run if they had remained on board throughout are taken into account, as will, presently appear, in estimating how much of the damage is to be made good, Where cattle were taken into a port of refuge in Brazil, owing to accidental damage to the ship, with the result that they could not legally be landed at their destination (Deptford), and had to be taken to another port (Antwerp), at which they were of much less value, this loss of value was allowed in G.A. (Anglo-Argentine &c. Agency v. Temperley Shipping Co., 1899, 2 Q.B. 403). The case of a stranded ship and cargo often gives rise to difficulty as to whether the cost of operations to lighten the ship, and after--Wards to get her floated, should be treated as G.A. expenditure, or as expenses separately incurred in saving the separate interests. The true conclusion seems to be that either the whole operation should be treated as one for the common safety, and the whole expense be contributed to by all the interests saved, or else the several parts of the operation should be kept distinct, debiting the cost of each to the interests thereby saved. Which of these two views should be adopted in any case seems to depend upon the motives with which the earlier operations (usually the discharge of the cargo) were presumably undertaken. It may, however, happen that this test cannot be applied once for all. Take the case of a stranded ship carrying a bulky cargo of hemp and grain, but carrying also some bullion. Suppose this last to be rescued and taken to a place of safety at small expense in comparison with its value. It may well be that that operation must be regarded as done in the interest simply of the bullion itself, but that the subsequent operations of lightening the ship and floating her can only be properly regarded as undertaken in the common interest of ship, hemp, grain and freight. In such a case there will be a G.A. contribution towards those later operations by those interests. But the bullion will not contribtite; it will merely bear the expense of its own rescue (Royal Mail S P. Co. v. English Bank of Rio de Janeiro, 1887, 19 Q.B.D. 362). The York-Antwerp Rules have not only had the valuable result of introducing uniformity where there had been great variety, and corresponding certainty as to the principles which will be acted upon in adjusting any G.A. loss, but also they have introduced greater clearness and definiteness on points where there had been a want of definition. Thus Rule XIII. has laid down a careful and definite scale to regulate the deductions from the cost of repairs, in respect of " new for old," in place of the former somewhat uncertain customary rules which varied according to the place of adjustment; while at the same time the opportunity has been taken of adapting the scale of deductions to modern conditions of shipbuilding. And Rule KM. lays down a rule as to contributory values in place of the widely varying rules of differentcountries as tothe.amounts upon which ship and freight shall contribute (cf. Gow, Marine Insurance, 305). It may be of interest to refer briefly to one or two main principles which govern the adjustment (q.v.) of general average, i.e. the calculation of the amounts to be made good and paid by the several interests, which is a complicated matter. The fundamental idea is that the several interests at risk shall contribute in proportion to the benefits they have severally received by the completion of the adventure. Contributions are not made in proportion to the amounts at stake when the sacrifice was made, but in proportion to the results when the adventure has come to an end. An interest which has become lost after the sacrifice, during the subsequent course of the voyage, will pay nothing; an interest which has become depreciated will pay in proportion to the diminished value. The liability to contribute is inchoate only when the sacrifice has been made. It becomes complete when the adventure has come to an end, either by arrival at the destination, or by having been broken up at some intermediate point, while the interest in question still survives. To this there is one exception, in the case of G.A. expenditure. Where such expenditure has been incurred by the owner of one interest, generally by the ship-owner, the repayment to him by the other interests ought not to be wholly dependent upon the subsequent safety of those interests at the ultimate destination. If those other interests or some of them arrive, or are realized, as by being landed at an intermediate port, the rule (as in the case of G.A. sacrifices)is that the contributions are to be in proportion to the arrived or realized values. But if all are lost the burden of the expenditure ought not to remain upon the interest which at first bore it; and the proper rule seems to be that contributions must be made by all the interests which were at stake when it was made, in proportion to their then values. Again, the. object of the law of G.A. is to put one whose property is sacrificed upon an equal footing with the rest, not upon a better footing. Thus, if goods to the value of £10o have been thrown overboard for the general safety, the owner of those goods must not receive the full boo in contribution. He himself must bear a part of it, for those goods formed part of the adventure for whose safety the jettison was made; and it is owing to the partial safety of the adventure that any contribution at all is received by him. He, therefore, is made to contribute with the other saved interests towards his own loss, in respect of the amount " made good " to him for that. The full £loo is treated as the amount to be made good, but the owner of the goods is made to contribute towards that upon the sum of £loo thus saved to him. The same principle has a further consequence. The amount to be made good will not necessarily be the value of the goods or other property in their condition at the time they were sacrificed; so to calculate it would in effect be to withdraw those goods from the subsequent risks of the voyage, and thus to put them in a better position than those which were not sacrificed. Hence, in estimating the amount to be made good, the value of the goods or property sacrificed must be estimated as on arrival, with reference to the condition in which they would probably have arrived had they remained on board throughout, the voyage. The liability to pay G.A. contributions falls primarily upon the owner of the contributing interest, ship, goods or freight. But in practice the contributions are paid by the insurers of the several interests. Merchants seldom have to concern themselves with the subject. And yet in an ordinary policy of insurance there is no express provision requiring the -underwriter to indemnify the assured against this liability. The policy commonly contains clauses which recognize such an obligation, e.g. a warranty against average " unless general," or an agreement that G.A. shall be payable " as per foreign statement," or according to York-Antwerp Rules "; but it does not directly state the obligation. It assumes that. The explanation seems to be that the practice of the underwriter to pay the contribution has been so uniform, and his liability has been so fully recognized, that express provisions were needless. But one result has been that very differing views of the ground of the obligation have been held. One view has been that it is covered by the sue and labour clause of an ordinary policy, by which the insurer agrees to bear his proportion of expenses voluntarily incurred " in and about the defence, safeguard and recovery " of the insured subject. But that has been held to be mistaken by the House of Lords (Aitchison v. Lohre, 1879, 4 A.C. 755). Another view is that the underwriter impliedly undertakes to repay sums which the law may require the assured to pay towards averting losses which would, by the contract, fall upon the underwriter. Expenses voluntarily incurred by the assured with that object are expressly made repayable by the sue and labour clause of the policy. It might well be implied that payments compulsorily required from the assured by law for contributions to G.A., or as salvage for services by salvors, will be undertaken or repaid by the underwriter, the service being for his benefit: But the decision in Aitchison v. Lohre negatives this ground also. The claim was against underwriters on a ship which had been so damaged that the cost of repairs had exceeded her insured value. A claim for the ship's contribution to certain salvage and G.A, expenses which had been incurred, over and above the cost of repairs, was disallowed. The view seems to have been that the insurer is liable for salvage and G.A. payments as Iosses of the subject insured, and therefore included in the sum insured, not as collateral payments made on his behalf. This bases the claim against the insurer upon a fiction, for there has been no loss of the subject insured; in fact, the payment has been for averting such a loss. And it suggests that the insurer is not liable for salvage where the policy is free of particular average, which does not accord with practice. An important question as to an insurer's liability for G.A. arose in the case of the Brigella (1893, P. 189), where a shipowner had incurred expenses which would have been the subject of G.A. contributions, but that he alone was interested in the voyage. There were no contributories. He claimed from the insurers of the ship what would have been the ship's G.A. contribution had there been other persons to contribute in respect of freight or cargo. The claim was disallowed on the ground that there could be no G.A. in such circumstances, and therefore no basis for a claim against the insurer. The liability of the insurer was thus made to depend, not upon the character of the loss, but upon the fact or possibility of contribution. But this was not followed in Montgomery v. Indemnity Mutual M. I. Co. (1901, i K.B. 147). There ship, freight and cargo all belonged to the same person. He had insured the cargo but not the ship. The cargo underwriters were held liable to pay a contribution to damage done to the ship by cutting away masts for the general safety. The loss was in theory spread over all the interests at risk, and they had undertaken to bear the cargo's share of such losses. Their liability did not depend jipon the accident of whether the interests all belonged to one person or not. This agrees with the view taken in the United States. As to Particular Average, see under INSURANCE: Marine.
End of Article: RULE XVIII
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