Report No. 21

Clause 74

General.-This deals with measure of liability for

(i) general average contribution; and

(ii) salvage charges.

Application of the section.-The section [sub-section (1) is intended to indicate the rules governing measure of liability of the insurer for amounts which the assured has paid or is liable to pay as general average contribution. Loss caused directly by the act of assured himself is not the subject-matter of the section.

Contributory Value.-The measure of indemnity is governed by "Contributory value". The contributory value of an interest is its arrived value less any expenses or charges incurred after the general average act which would not have been incurred had this proved abortive.1-2

If the contributory value is less than the insured value, the insurer pays in full. Otherwise his liability is rateably reduced.

The rules actually adopted in buFiness practice as to contributory values provide that contribution shall be made, "upon the actual net values of the property at the termination of the adventure, to which values shall be added the amount made good as general average for property sacrificed if not already included." (with certain deductions).3

Illustration.-The following illustration4 may be useful:-

Cargo insured on valuation of 5000

Particular loss amounting to 10%

Deduction from the insured value [vide last 20 words of sub-section (1)] 500 (i.e., 5000 divided by 10).

Basis of insurer's liability thus reduced to 4500 (5000-500).

On the above data-

(i) if the contributory value is less than 4500, the insurers are liable in full for general average contribution [section 73(1), earlier part].

(ii) if the contributory value is more than 4500, the insurer's liability is proportionately reduced. For example, if the contributory value is 6000, the Insurers pay only three-fourths (4500/6000) of the general average contribution, [section 73(1), middle part].

Salvage.-Sub-section (2) provides that liability for selvage charges5-i.e., extent of liability-will be determined on the like principles.

Criticism regarding salvage charges.-Two criticisms have been made against this provision (relating to salvage charges)-

(i) The subject-matter must contribute to salvage charges on the basis of its saved value and not its arrived value as in general average.

(ii) Where a portion has been actually sacrificed in general average and the general average act necessitates salvage, one difficulty arises. The salvors can collect pro rata on the saved values, while the contribution in general average must be based on arrived values. The sacrificed portion does not, however, actually "arrive" but should be charged with its share of the general average (on equitable principles). But since it was not saved, the salvors cannot expect it to meet any proportion of the salvage remuneration. This difficulty was formerly solved6 by introducing (in statements of general average) a figure called "hypothetical salvage", representing the value on which the sacrificed goods would have contributed to the salvage if they had not been sacrificed. This ensures equitable distribution of the burden by placing the sacrificed goods in no better position than if some other interests had been sacrificed. (The assured contributing on the basis of this hypothetical value can of course recover from the insurer under section 66(5)].

However, in modern times, rule 44A of the Rules of Practice of the Association of Average Adjusters7 provides that "expenses of salvage services rendered by or accepted under agreement shall in practice be treated as a general average provided that such expenses were incurred for the common safety " It is, therefore, unnecessary to pursue the matter further.

1. Dover, p. 430.

2. For a detailed treatment of contributory values, see Keate, pp. 128-129.

3. See Rule XVII of the York-Antwerp Rules, 1950, reproduced in Keate, p. 177 and in Dover, p. 749. See also the Rules of Practice of the Association of Average Adjusters, rules 30, 31, 32, 33 and 34, reproduced in Keate, p. 194 and Dover, p. 734.

4. Cf. Dover, p. 430-431.

5. See clause 66.

6. Dover, p. 43.

7. Reproduced in Dover, p. 739 and in Keate, p. 200.