Relevance Maritime law, often viewed through the prism of complex international rules and conventions, encompasses many unique legal principles that govern the intricate relationships between shipowners, cargo owners, and insurers. Among these principles, the doctrine of general average stands out as one of the key legal institutions, embodying the spirit of cooperation and shared responsibility inherent in maritime operations. General average arises in situations where extraordinary sacrifices have to be made to preserve the maritime venture, requiring the parties involved to share the costs incurred proportionately. This legal mechanism not only underscores the cooperative nature of maritime activities but also highlights the importance of fair decision-making in times of peril.

The significance of the general average in maritime arbitration cannot be overestimated. As international trade continues to grow, the frequency of maritime incidents — such as cargo loss, vessel damage and natural disasters — increases year by year, creating a growing need for a robust for dispute resolution framework. According to the International Maritime Organisation (IMO), more than 90% of global trade is conducted by sea, making the effective management of maritime disputes essential. In 2022 alone, maritime arbitration cases involving general average claims accounted for approximately 25 per cent of all maritime arbitrations, underscoring the critical role this doctrine plays in the industry.

This article examines the intricacies of general average regulation within the context of maritime arbitration, focusing on its historical evolution, legal underpinnings, and contemporary relevance. Through an analysis of established case law and recent statistical data, the study aims to elucidate the role of the general average as a legal institution that fosters fairness and stability in the maritime industry.

Introduction

The term «general average» was first coined in the 17th century; however, the origins of the concept can be traced back to the era of ancient slave societies.

Since the dawn of civilization, maritime traders have faced numerous risks in the transport of goods by sea, ranging from pirate attacks to severe weather conditions, as well as simple human error. These dangers often resulted in damage not only to ships but also to the cargo they carried. Consequently, the necessity for guidelines to regulate relationships between parties engaged in maritime trade emerged, with the aim of ensuring a fair allocation of losses arising from a variety of maritime incidents.

For many centuries, concept of general average served as the principal means of regulating the allocation of losses arising from maritime casualties. One of the most enduring principles of maritime commerce – forming the foundation of the modern doctrine of general average – is the notion of “sacrificing a part to save the whole.”

The Concept of General Average

General average is a principle of maritime law that refers to shared losses incurred as a result of actions taken to ensure the common safety of the entire maritime venture.

According to Article 284 of the Code of Merchant Shipping of the Russian Federation (CMSRF), general average is defined as a loss resulting from extraordinary expenses or sacrifices that are intentionally and reasonably incurred to preserve property involved in a common maritime venture from a common peril. This property includes both the vessel itself and the freight and cargo it carries.

Thus, the doctrine of general average implies that all parties participating in the maritime venture–shipowners, cargo owners and charterers– must proportionately share the losses arising from measures undertaken to avert greater loss or damage. This principle promotes the equitable distribution of costs and losses among all parties involved in sea freight.

Signs of a General Average in Maritime Law

In maritime law, damage is classified as general average only if it results from an event that meets specific criteria. The following conditions must be satisfied for a loss to qualify as general average:

1. Emergency

Losses must result from unforeseen expenses incurred during the voyage, which were not anticipated prior to departure.

2. Active measures

Actions taken must be preventive; simply refraining from action is not sufficient.

3. Deliberate actions

The events leading up to the loss must be caused by human intervention, not by random accidents.

4. Common security

The primary purpose of the action taken should be to protect the ship, its cargo, and any associated freight.

5. Common danger

It is important that there be a collective threat to the cargo; without the cargo, there can be no common danger.

6. Reasonable action

The actions undertaken must be reasonable and proportionate to the circumstances, aimed at effectively minimizing potential losses.

Examples include the following circumstances:

(1) vessel calling at an intermediate port or returning to the port of departure, with losses consisting of the costs incurred at the port of refuge and expenses related to transshipment operations.

(2) extinguishing a fire on a vessel may result in damage to parts of the vessel not directly affected by the fire, including flooding caused by firefighting efforts.

(3) jettisoning lawful cargo to avert a common peril.

(4) transshipment of cargo and other property may be undertaken when a vessel is aground, and damage sustained while aground may also qualify – provided the grounding was necessary to save the vessel and cargo from a common peril.

(5) remuneration to salvors.

Allocation of Losses

An important component of a general average is the equitable distribution of losses. Private losses that affect only one party are borne solely by that party. However, losses from a general average arising from a general average event — resulting from actions taken to preserve the entire maritime venture — are apportioned proportionately among all parties with an interest in the voyage, according to the value of their respective interests. Detailed examples of such calculations, as well as the formulae applied, are readily available in the general average manual published by the International Maritime Committee (IMC).

To illustrate this principle, consider a situation in which a ship owned by multiple parties. If a portion of the cargo is jettisoned to save the ship from sinking, the resulting loss is not borne solely by the owner of the sacrificed cargo. Instead, the total loss is shared proportionally among the shipowner, the owner of the jettisoned cargo, and the owners of the remaining cargo, based on the relative value of their respective interests.

Central to this process is the role of the dispatcher (also referred to as the adjuster). Typically appointed by the shipowner, this professional plays a crucial role in the fair determination and apportionment of general average contributions. Impartiality and independence are paramount to the dispatcher’s work. The dispatcher meticulously collects all relevant documentation, including accident reports prepared by inspectors, the ship’s and engine room logs, the master’s statement (often in the form of a maritime protest), certificates pertaining to the vessel and cargo, and documents evidencing the value of the cargo and the charterers’ property interest. The dispatcher is ultimately responsible for collecting contributions from all parties and distributing the funds in accordance with the calculated proportions. Throughout this process, they maintain open communication with all participants, providing regular updates on their progress. Contributions to the general average are either paid into the dispatcher’s account or supported by a bank or insurance company guarantee. Guarantee forms are provided in the International Maritime Committee’s General Average Manual.

Let’s look at some examples of court cases involving a general average.

Stroyservice Trading Ltd (Cyprus) v SK ORBITA LLC Case No. A40-101639/19-43-928

In the case of Stroyservice Trading Ltd (Cyprus) v SK ORBITA LLC (Case No. A40-101639/19-43-928), the court considered a claim for payment of general average contributions. On 9 October 2018, the vessel NILA suffered hull damage, resulting in flooding. The vessel and its cargo were subsequently salvaged by the FGBU «Marine Rescue Service», which led to the declaration of general average on 30 October 2018. Stroyservis Trading Ltd, the owner of the cargo, submitted an insurance claim to its insurer, SK ORBITA LLC, seeking indemnity to cover its general average contribution.

However, the insurer raised two key objections. First, referring to the Rostransnadzor investigation, they argued that the accident was caused by excessive corrosion, which rendered the vessel unseaworthy under Article 124 of the Russian Merchant Shipping Code. Second, they challenged the valuation of the vessel used in calculating the general average, arguing that the valuer’s reliance on the shipowner’s own assessment prevented a proper determination of the total insured value. The cargo owner argued that the unseaworthiness exclusion was invalid, as it had no knowledge of the vessel’s condition.

The courts ultimately rejected the cargo owner’s claims for insurance benefits in decisions dated 18 September 2019, 27 January 2020 and 26 May 2020. The outcome turned on the judge’s agreement with the insurer’s arguments concerning the vessel’s unseaworthiness and the flawed assessment of the general average contribution. This case highlights the complexity of general average claims, particularly in relation to the vessel’s seaworthiness and the challenges of establishing an accurate valuation for the purposes of contribution.

LLC Kontur SPB v LLC IC Soglasiye Case No. A56-102256/2018

This case concerned a dispute over general average contributions following an incident involving the vessel Abrau. On 18 January 2018, the Abrau experienced a clutch failure, resulting in a loss of steering and creating an emergency situation that posed a serious threat to the vessel. Rescue services were engaged and successfully towed the vessel to safety. A general average was declared on 2 February 2018, with Ships and People Ltd acting as the dispatcher.

The insurer, IC Soglasiye LLC, rejected the claim for insurance indemnity related to the general average, arguing that the vessel’s deficiencies — specifically, the clutch failure due to natural wear and tear — rendered the event uninsurable. However, LLC Kontur SPB presented convincing evidence to the contrary. An investigation by Rostransnadzor established that the clutch failure was caused by the vessel’s propeller striking an underwater object. This conclusion was supported by an independent expert from Admiral S.O. Makarov State University of Sea and River Fleet, as well as by findings from a subsequent diving inspection.

On 7 May 2019, the court ruled in favor of LLC Kontur SPB, obliging LLC IC Soglasiye to pay the claimed general average insurance indemnity. However, on appeal, the final indemnity amount was reduced by the policy deductible. This case underscores the crucial role of independent investigations and expert opinions in resolving complex disputes involving general average claims and in assessing the seaworthiness of a vessel.

Akari Free Port Ltd v PJSC IC Energogarant Case No. A40-221349/19-68-1450

This case involved a dispute over insurance coverage for general average expenses. On 28 November 2017, the vessel UMUT suffered an engine failure, necessitating a diversion to a port of refuge. A general average was declared on 1 December 2017.

Notably, the consignee (Akari), the charterer, and the shipowner reached a settlement agreement regarding the allocation of the costs, which was subsequently approved by the insurer. Despite this agreement, SEVEN SEAS & CO. LTD, the appointed dispatcher, did not issue a formal general average adjustment.

On 24 January 2020, the court rejected Akari’s claim for insurance benefits, the decision was upheld on appeal on 28 July 2020. The court’s decision was based on the lack of a formal general average adjustment, despite the existence of a settlement agreement between the parties involved. This case underscores the importance of a complete and properly documented general average adjustment process, even when a settlement agreement appears to resolve the underlying dispute.

LLC Barrus Logistics v JSC Insurance Company of Gas Industry Insurance Company Case No. A40-291576/19-67-1287

The proceedings concerned a dispute over the issuance of a general average guarantee. On 23 August 2019, the vessel Beautrophy suffered a main engine failure, causing it to drift at sea. Rescue services towed the vessel to a port of refuge in Sri Lanka for repairs. After completing the repairs, the vessel proceeded to its port of discharge. In September 2019, a general average was declared, with Groninger Welke Janssen, sworn average adjusters (Netherlands), appointed as the dispatcher. Subsequently, the dispatcher requested general average contributions from Barrus Logistics Ltd.

Gas Industry Insurance Company, a.s., the insurer, refused to issue a guarantee for the general average contributions. The refusal was based on several grounds: (i) the absence of hull insurance for the vessel; (ii) the absence of a mandatory safety obligation under Article 273 of the Russian Merchant Shipping Code; (iii) insufficient evidence of a common peril threatening both the vessel and the cargo; (iv) the absence of proof that the shipowner was capable of saving the cargo; (v) the exclusion of engine-related losses from the scope of general average; (vi) the absence of any actual damage to the vessel or cargo; and (vii) the assertion that no recognised general average event had occurred.

On 13 December 2019, the court upheld the insurer’s refusal to issue a general average guarantee, and this decision was subsequently affirmed on appeal. This case underscores the stringent requirements for asserting a valid general average claim and obtaining payment, particularly the necessity of clearly demonstrating the existence of a common peril and strict adherence to established principles of maritime law.

Alize 1954 and another (Appellants) v Allianz Elementar Versicherungs AG and others [2021] UKSC 51

In this case, the Supreme Court of the United Kingdom heard a dispute arising from CMA CGM LIBRA incident. On 18 May 2011, the vessel ran aground outside the designated fairway while en route from China to Hong Kong. Following the declaration of general average, the shipowners sought to recover contributions from the cargo owners.

The court of first instance declared the vessel unseaworthy due to an erroneous route plan. On appeal, the shipowners argued that the grounding was the result of navigational error or negligence, which would fall within the exception provided by Article IV, Rule 2(a) of the Hague Rules, exempting shipowners from liability for losses resulting from negligence. The Supreme Court ultimately held that negligent navigation of operation of a vessel can render it unseaworthy. In particular, the Court stressed that the existence and use of an accurate and proper passage plan is a fundamental aspect of seaworthiness. As a result, the shipowners’ claim for general average contribustions was dismissed.

This decision clarifies the relationship between navigational errors, unseaworthiness of the vessel and the right to recover general average costs under the UK Carriage of Goods by Sea Act 1971, incorporating the principles of the Hague and Hague-Visby Rules.

Mitsui & Co Ltd and others (Respondents) v Beteiligungsgesellschaft LPG Tankerflotte MBH & Co KG and another (Appellants)

The present litigation arose from a dispute over general average contributions following a pirate attack on the vessel LONGCHAMP in January 2009.

The shipowners paid a ransom of $1.85 million to secure the release of the vessel — an amount significantly reduced from the pirates’ initial demand of $6 million through negotiations. The shipowners declared general average, seeking reimbursement for a range of expenses incurred during the period of negotiations and captivity. These expenses included crew wages (including risk bonuses), provisions, consumables, and fuel — costs considered to have been incurred in lieu of paying the higher ransom initially demanded.

The cargo owners challenged the claim, arguing that the initial $6 million ransom was an unreasonable expense unrelated to the general average, making any subsequent cost-saving measures inappropriate. The trial court sided with the shipowners. However, the Court of Appeal overturned this decision, ruling that contributions for a general average should be limited to the ransom actually paid.

The UK Supreme Court ultimately overturned the Court of Appeal’s decision in 2017. Relying on a rule of the York-Antwerp Rules 1974, the Court held that expenses incurred in substitution for other costs that would have qualified as general average were themselves entitled to general average contributions, regardless of the potential savings to other interests. The court reasoned that, even if the initial ransom demand was unreasonable, the subsequent actions taken to mitigate loss, such as negotiating a reduced ransom, constituted legitimate attempts to prevent the general average event. Accordingly, the associated costs were deemed recoverable as general average contributions.

This case sets an important precedent regarding the scope of general average contributions in situations involving the payment of ransoms to pirates.

St Maximus Shipping Co Ltd v AP Moller-Maersk A/S [2014] EWHC 1643 (Comm)

The Commercial Court of England and Wales considered the interpretation of a letter of guarantee considering general average charges. In this case, AP Moller-Maersk A/S, acting as charterer, issued a letter of guarantee to the shipowner, St Maximus Shipping Co Ltd, undertaking to pay «the appropriate proportion of any general average and/or special charges... due from the Cargo, its shippers or owners in accordance with the Departures prepared by the appointed dispatchers.» The guarantee also referenced the charterparty dated 16 August 2004 and the relevant bills of lading.

A dispute arose over the interpretation of the term «proper proportion». The charterers argued that it limited their liability to the amount due to them by law based on their pro rata share of the total accident, which was less than the amount stated in the final adjustment of the total accident (the «Dispatch»). The shipowners, on the other hand, argued that the guarantee obliged the charterers to pay the full amount stated in the Dispatch.

The court sided with the shipowners, holding that the letter of guarantee constituted an unconditional obligation to pay the amount stated in the dispatch. The court’s reasoning implied a mutual agreement: if the Communication overstated the charterers’ liability, they could claim indemnity from the shipowners; conversely, if the Communication understated the amount, the charterers were fully liable for the amount stated in the Communication, irrespective of their pro rata share.

This case provides valuable clarification regarding the interpretation of the guarantee wording in the context of a general average settlement.

TSPC LLC Antrax Case No. A51-5481/2022, 30 August 2023

On 30 August 2023, the Fifth Arbitration Court of Appeal (Vladivostok) reviewed a dispute between TSPC JSC (charterer) and Antrax LLC (shipowner) concerning claims for damages and unjust enrichment. The shipowner filed a counterclaim seeking recovery of unpaid freight under the time charter agreement, as well as reimbursement for the cost of fuel, ship oil, and satellite communication services. The vessel Grigory Lovtsov, owned by Antrax LLC, was chartered by TSPC JSC under a time charter agreement for the transportation of cargo.

On 6 December 2021, the vessel departed from port carrying cargo bound for the port of Korsakov. On 8 December 2021, the shipowner altered the voyage assignment and directed the vessel to Udskaya Guba Bay. On 21 December 2021, the cargo was unloaded, and other cargo was loaded on board. The vessel headed to a new port, traveling in the Sea of Okhotsk at its own pace, including through icy waters. From 26 December 2021, the vessel drifted among ice, and on 27 December 2021, it entered Engelma Bay. Given that the vessel was navigating in icy conditions, the shipowner invoiced the charterer for the cost of towing the vessel, which the charterer paid. On 4 January 2022, near Utichy Island, the ship’s captain issued a distress signal due to the tugboat’s malfunction. The following day, the ship’s crew was evacuated by helicopter, and the ship was left at sea until spring.

The charterer notified the shipowner of the termination of the contract and demanded a refund of the funds paid for the towing service, arguing that the service had not been provided. In April 2022, the shipowner located the vessel, assigned a new crew, and delivered it to the port of Nakhodka. The shipowner filed a counterclaim against the charterer, asserting that the vessel remained under the charterer’s lease until 24 June 2022.

The shipowner refused to return the money paid for towing the vessel, arguing that the funds had been used to rescue the vessel from ice captivity. However, the court disagreed with the shipowner’s position, explaining that this did not exclude the rules on the application of unjust enrichment exempt the case from the rules on unjust enrichment, as the vessel had not been salvaged at that time and the towing services had not been rendered. The shipowner contended that the principles of general average should apply, specifically attributing the expenses for evacuation of the ship’s crew to such costs and arguing that they should be deducted from the charterer’s advance payment for towing the vessel. However, the court held that the actions of delivering the vessel to the port of Nakhodka by the new crew could not be considered salvage, as the vessel had arrived on its own.

The court noted that, as part of the general average, a dispatch should have been drawn up and a dispatcher should have been involved.

However, there was no evidence of these events in the case. No general average had been established. As a result, the court deemed it appropriate to return the advance payment for the towing of the vessel and ordered it to be recovered from the shipowner.

Conclusion

The regulation of general average in maritime arbitration represents a distinctive intersection of maritime law, contract law, and international dispute resolution. While arbitration offers significant advantages over traditional litigation — particularly in terms of efficiency, subject-matter expertise, and confidentiality — it is not without its shortcomings. The complexities involved in determining general average, accurately assessing damages, and equitably apportioning contributions require a deep understanding of maritime conventions, national legislation, and the specific terms of the relevant contractual instruments. The litigation reviewed in this article highlights the wide range of disputes that can arise — from disagreements over the existence of a common peril to issues of asset valuation and contractual interpretation. The role of the dispatcher, acting as a neutral and experienced specialist, is vital to ensuring that such disputes are resolved fairly and efficiently. Nevertheless, the potential for further disputes arising from the dispatcher’s findings remains.

Developments in maritime law and arbitration practice will continue to influence the regulation of general average. The growing adoption of standardized frameworks, such as the York-Antwerp Rules, and the emergence of specialized arbitration and mediation centers with maritime expertise are expected to enhance consistency and predictability in the resolution of general average disputes.

Nevertheless, the inherent complexities of maritime accidents and the diverse range of stakeholder interests involved necessitate ongoing efforts to refine procedural mechanisms and promote fair and efficient outcomes. The effective resolution of general average claims remains crucial to the stability and integrity of international maritime trade, and the continued evolution of dispute resolution practices is essential to navigating this intricate legal landscape. ■