In the expression "general average" the word "average" should be read as "loss" as the principle relates to the common proportionate liability of all to contribute to the loss of one or a few, incurred to save the vessel otherwise in distress (such as throwing cargo overboard to keep a boat afloat until rescued).
The principle is of ancient original and is the only legal maxim which survives of the great body of law of the Island of Rhodes, circa 800 BC (known as the Lex Rhodia).
Today, the maxim is often referred to by the name of the international set of rules which purport to establish points of detail as to its application: the York-Antwerp Rules.
The United States Supreme Court, in 1869, described general average as follows:
"General average contribution is defined to be a contribution by all the parties in a sea adventure to make good the loss sustained by one of their number on account of sacrifices voluntarily made of part of the ship or cargo to save the residue and the lives of those on board from an impending peril, or for extraordinary expenses necessarily incurred by one or more of the parties for the general benefit of all the interests embarked in the enterprise.
"Losses which give a claim to general average are usually divided into two great classes: 1. Those which arise from sacrifices of part. If the ship or part of the cargo, purposely made in order to save the whole adventure from perishing. 2. Those which arise out of extraordinary expenses incurred for the joint benefit of ship and cargo.
"Common justice dictates that where two or more parties are engaged in the same sea risk, and one of them, in a moment of imminent peril, makes a sacrifice to avoid the impending danger or incurs extraordinary expenses to promote the general safety, the loss or expenses so incurred shall be assessed upon all in proportion to the share of each in the adventure.
"Where expenses are incurred or sacrifices made on account of the ship, freight, and cargo, by the owner of either, the owners of the other interests are bound to make contribution in the proportion of the value of their several interests, but in order to constitute a basis for such a claim it must appear that the expenses or sacrifices were occasioned by an apparently imminent peril; that they were of an extraordinary character; that they were voluntarily made with a view to the general safety; and that they accomplished or aided at least in the accomplishment of that purpose."
In Birkley v Presgrave (1801), the British House of Lords used these words as credited to Lords Kenyon and Lawrence:
"... all extra perils of the sea and ordinary losses and damages sustained by the ship happening immediately from the storm ... must be borne by the ship owners. But all those articles which were made use of by the master and crew upon the particular emergency, and out of the usual course, for the benefit of the whole concern, and the other expenses incurred, must be paid proportionably ....
"All loss which arises in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo come within general average and must be borne proportionably by all who are interested. Natural justice requires this."
The law of general average occupies rows in the law libraries of maritime law schools. The fundamental terminology is as follows:
- An act which purports to create compensation based on general average is called a general average act;
- An emergency expenditure which qualifies under the principle of general average, and which gives rise to proportionate contribution from others, is called a general average expenditure; and
- A contribution from a person towards the loss of another by operation of the general average law, is called a general average contribution.
An international convention on working the law of general average in practice exists and is known as the York-Antwerp Rules, and is managed by the Comité Maritime International, based in Antwerp, Belgium.
Understanding general average and applying it are two different things as each case involves jurisdiction issues, interest, contributions and other such detail and subject to the workings of insurance adjusters and appraisals. In the result, most cases settle or, as was stated by Justice Collier in the Canadian case, Northland Navigation: "most claims do not go to litigation".