8 B R I TA N N I A N E W S N OV E M B E R 2 0 0 8

Preserving rights in general average

A recent case in New York demonstrates the difficulties that can be encountered when
attempting to recover general average contributions. We are grateful to Wayne D Meehan
of Freehill Hogan & Mahar LLP, New York, for the following summary. It provides a good
lesson to owners on how best to protect their rights to general average.

Background
This case involved the transportation of an
oil cargo from West Africa to St. Croix in the
US Virgin islands. While en route to St. Croix,
fully laden, owners were advised that there
was a delay and the vessel would not be
berthing upon arrival. Owners took
advantage of the situation and decided to
divert the vessel to a nearby port for a
non-essential repair. Regrettably, during the
diversion the vessel grounded due to a
navigational error on the part of the Master.
Although the vessel was successfully
re-floated without hull damage or cargo loss,
owners expended significant sums in the
re-floating operation. Owners declared
general average, seeking a contribution
towards those expenses from cargo interests.
In due course, a general average adjustment
was prepared, but cargo interests refused to
contribute their proportionate share.

Discussion
General average is an ancient common law
doctrine which permits a vessel owner to
recover from cargo owners expenses incurred
for the common good to save the maritime
venture.There are three requirements which
must be met before an expenditure will
qualify as a general average expense:
There must be an imminent common
danger or peril;
There must be a voluntary sacrifice or
expenditure for the common benefit; and
The sacrifice or expenditure must be
successful in avoiding the peril.
Where qualifying general average expenses
are incurred, a ship owner is entitled to a
ratable contribution from cargo owners.
Significantly for purposes of this discussion,
however, US law also provides that any
negligence on the part of owners or their
servants (including the Master), acts as a bar
to owners recovery of general average
contributions.Therefore, the Masters
navigational error in grounding the vessel
would act as a bar to owners efforts to
recover general average contributions from
cargo interests.
It is important to bear in mind, however, that
the right to recover in general average is
frequently altered by terms contained in the
applicable contract of carriage. In THE JASON,
225 U.S. 32, 32 S.Ct. 560, 56 L.Ed. 969 (1912),
the US Supreme Court upheld the
enforceability of a clause in a contract of
carriage which preserved an owners right
to recover general average notwithstanding
negligence, provided the owner would be
immune from liability under COGSA or other
statute. Such clauses are known as Jason
Clauses named after the Supreme Court
decision which upheld their validity.
The relevant section of a typical Jason Clause
reads as follows:
In the event of accident, danger, damage, or
disaster, before or after the commencement
of the voyage resulting from any cause
whatsoever, whether due to negligence or
not for which, or for the consequence of
which, the Carrier is not responsible by
statute, contract or otherwise, the goods,
shippers, consignees, or owners of the goods
shall contribute with the Carrier in general
average to the payment of any sacrifices,
losses or expenses of a general average
nature that may be made or incurred and
shall pay salvage and special charges
incurred in respect of the goods.
In the context of this case, therefore, the
Masters negligent navigation would
normally bar general average recovery. If,
on the other hand, the contract of carriage
contained a Jason Clause, the Masters
navigational error would not bar owners
general average recovery since owners
would have a defense under US COGSAs
well known error in navigation defense.
Here, the vessel was chartered from owners
to charterers on an ASBATANKVOY form
charter party, whereas the bill of lading was
issued to the cargo owner, an entity related
to but separate from charterers. Significantly,
the charter party contained a Jason Clause,
but the bill of lading issued to the cargo
owner did not.Thus, the case came down to
whether the cargo owner was bound by the
charter party (and more importantly, the
Jason Clause) or by the bill of lading.
US law generally provides that where the
bill of lading does not incorporate the
charter party by date, the bill of lading holder
is not bound by the terms contained in the
charter party. In this case, the space on the
face of the bill of lading for inserting the date
of the charter party was left blank, and as a
result, the Court found that the charter party
was not properly incorporated.The net result
was that the bill of lading was held to be the
controlling contract of carriage with the
cargo owner and, since the bill of lading
did not contain a Jason Clause, the Masters
negligence precluded owners recovery
against cargo owner.
Conclusion
This case demonstrates the importance of
ensuring that all applicable contracts of
carriage contain a Jason Clause. While
negligence on the part of the owners or their
servants (including the Master) will normally
act as a bar to owners recovery of general
average contributions, the inclusion of a
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Jason Clause in the applicable contract of
carriage will protect general average rights
notwithstanding negligence, to the extent
that owners otherwise have a defence under
COGSA or other applicable statute.
With that background, we recommend the
following:
Review charter parties, bills of lading and
any standard terms and conditions used to
make sure that all applicable contracts of
carriage contain a Jason Clause.
Consider including a clause in all charter
parties that requires the charterer to ensure
that all bills of lading issued pursuant to the
charter party will contain a Jason Clause. In
the event that the charterer fails to comply
and issues a bill of lading which does not
contain the required Jason Clause, the owner
will not have the protections of a Jason Clause
against a third party bill of lading holder;
however, the charterers failure to include the
Jason Clause would be a breach of charter,
in which case the owner would have a claim
against the charterer for the consequences
of not including the Jason Clause, which could
include the loss of general average rights.
Finally, we recommend that owners issue
instructions to Masters and agents directing
them to ensure that the charter party under
which the vessel is operating is specifically
incorporated by date on the face of all bills
of lading presented for signature.
General average incidents are relatively
rare, and owners ability to recover hinges
on many factors; however, taking the steps
outlined above will assist in avoiding at least
one potential pitfall in recovering what can be
very substantial general average contributions.