Misunderstanding General Average Concepts Could Harm Offshore Operators

At a recent seminar in London organized by the International Underwriting Association of London (IUA) and the Association of Average Adjusters (AAA), participants heard how ignoring or not fully understanding the concept of General Average (GA) when concluding charter-party contracts for offshore services could cause problems in the event of an incident or accident.

Michiel Starmans, a Fellow of the AAA and Director Legal Department of the Spliethoff Group and Alf Inge Johannessen, an Associate of the AAA and Senior Claims Manager at DOF, spoke at the seminar and explained the issue:

“General Average is a simple cost sharing agreement where all parties involved in a common maritime adventure contribute to indemnify the party who incurred costs or suffered a sacrifice of their property to save other property involved in the adventure from common peril,” Johannessen explained. “So that might include ordering a tug to assist a vessel which has run aground or jettisoning cargo to save the ship,” he said.  

But should offshore vessels be treated differently from traditional merchant vessels transporting cargo from one port to another?

Starmans argues not. “More often than not, offshore vessels are carrying cargo or property owned by a number of different entities, this might include cargo to construct a floating wind turbine, cable loaded on a carousel, or a subsea vehicle. All this cargo/equipment has a value and is likely to be insured with separate insurers.

“General Average applies to all property in peril in a common maritime adventure, and this clearly includes moving cargo/equipment from a storage port to an offshore construction or operational site. It will also cover the period the vessel is working on the site,” he said. “The principles of General Average apply equally to the offshore sector as they do to any common voyage.”

The speakers went on to reference a series of common charter-parties used in the offshore sector such as Heavycon 2007 (voyage charter for super heavy and voluminous cargoes), Heavyliftvoy 2009 (voyage charter for the mid-sized heavy lift sector carrying specialist cargo), Supplytime 2017 (time charter for offshore support vessels and any other vessels carrying cargo and/or equipment for Charterers) and Windtime 2013 (time charter for transfer of personnel and equipment to and from wind farm installations).

“All these contracts (except Heavyliftvoy 2009) include a knock-for-knock clause,” said Starmans. “This means each party would bear its own losses in the event of an incident, so any damage to the vessel would be the responsibility of the vessel owner and costs associated with cargo loss or damage would be for the charterers or their insurer to cover. General Average and knock-for-knock can perfectly exist next to each other in the same contract (as has been the case since Supplytime 1975), but extra attention is required that General Average is excepted from the overriding application of the knock-for-knock clause.

“As from Windtime 2013, the General Average clause has been omitted. This gives rise to two issues: The first is that just because a General Average clause is not included does not mean that GA does not exist. GA is embedded in the law of all maritime countries, in English law, for example, it is contained within the Marine Insurance Act. This means that GA principles can always be relied on by a party wishing to make a GA claim, but omitting to include a GA clause in the contract is likely to make such a claim more contentious (adjustment as per the uncertain law of the place of destination instead of the well-known York-Antwerp Rules). "

This has the potential to impact a number of insurance covers including Hull & Machinery, Cargo, Construction All Risks (CAR) and subsea equipment insurance for ROVs and other subsea vehicles.

An added issue would be P&I cover. Usually, the P&I Club would cover any unpaid cargo contribution to GA, if the cargo interests are able to prove a breach of contract by the owner. However, if GA is specifically excluded then the unrecoverable GA contribution from cargo, equipment or property owned by the charterers will not be recoverable from the P&I Club as there had not been a breach of the contract of carriage.

The speakers were keen that those involved in the offshore sector were fully aware of the principles of GA and how it applied to their business. 

Summing up, Johannessen said: “General Average is there as a matter of law, whether or not it is mentioned in the charter-party. Including a GA clause in the charter-party is an advantage to secure certainty as to how GA should be dealt with. If contracting out of GA, parties should be fully aware of the implications and consider securing special insurance cover for what cannot be recovered from other parties. To avoid full GA procedures for smaller GA situations, parties should ensure that the vessels involved have a reasonable GA Absorption Limit in their H&M policies.”

The seminar was held in London on November 13, 2024 and chaired by Ann Waite, Honorary Chair of the Association of Average Adjusters.