REPORT
OF
THIRTY NINTH ANNUAL MEETING
OF THE
ASSOCIATION OF AVERAGE ADJUSTERS
OF CANADA
Held at
the Fairmont Tremlant, Mont Tremblant Quebec on May 25th, 2005
OFFICERS
OF THE
ASSOCIATION
OF AVERAGE ADJUSTERS
OF CANADA
(Founded
1967)
2005-2006
___________
Chairman:
Maurice
Gesner
____________
Executive
Committee:
Ian
Fraser, Chairman
Tony
Brain Ron
Eldridge
____________
Rules of
Practice Committee:
David
Holden, Chairman
Ian
Fraser Gordon
Gibbons
___________
Membership
Committee:
Tony
Brain, Chairman
Bill
Kyle Ron
Eldridge
____________
Advisory
Committee:
Bill
Kyle, Chairman
John
Cantello Neil Dennis
____________
Secretary
R.
Fernandes
Maurice
Gesner, Chairman: Good afternoon distinguished guests, ladies and
gentlemen. Welcome to the 39th Annual Meeting of the Association
of Average Adjusters of Canada. I would like to extend a warm welcome
to our distinguished guests and ask that they stand to be
recognized. Please hold your applause until the end.
• Jay McGuire – Chairman of the U.S. Association of Average Adjusters
• Matt Douris – President of the Canadian Board of Marine Underwriters
• Peter Cullen - President of the Canadian Maritime Law
Association
• Mario Rossi – Chief Surveyor for Canada – The Salvage Association
It is my sad duty to pass on to you that one of our full members, Mr.
William Garth Coates, passed away last year. Garth was a founding
member and a former Chairman of our association and will be deeply
missed. I would ask for one minute of silence in honour of
William Garth Coates.
Before continuing with my address there is one formal matter which
requires to be taken care of and that is the adoption of the Minutes of
the last Annual Meeting held in Toronto on June 10th, 2004. I
would therefore make the following motion: “that in accordance with the
Bylaws, the Minutes of the last Annual Meeting, having been examined
and certified correct by the Executive Committee, now be
confirmed.” May I have a seconder?
Seconded by Ian Fraser
All in favour? Motion Passed
Many years ago, when I was an aspiring adjuster, but not yet average,
my boss who at the time was David Holden and a full member of our
association, sat me down to have a little chat. He went on to
describe the benefits of becoming a fully qualified average adjuster
and encouraged me to make preparations for the examinations. He
neglected to inform me conveniently, that some day I may be called upon
to chair the association, and more to the point, present an address to
you all. Well, here I am, some twenty years after becoming a full
member of the association.
It certainly has been a privilege and an honour to represent our
association at the events in the past year. It has provided me
with an opportunity to visit the cities of New York and London for the
very first time.
In October of last year, I was invited by the U.S. Average Adjuster’s
Association to attend their meetings in New York. This event took
place on October 6th and 7th, 2004. I received the warm
hospitality of their Chairman, Mr. K.H. Mao and his wife Diana at a
delightful dinner. Earlier that day I attended their Viewpoints
Seminar on the 6th where an excellent panel discussion was held on
Shipbuilding and Ship Repairer’s Liability. On the following day
of the 7th the U.S. Chairman, Mr. K.H. Mao, presented an enlightening
address of “The State of Our Association”. To contemplate the
comments of Mr. Mao, and the discussion held at the Chairman’s dinner
the previous night, we are not alone in our membership concerns.
Later that evening we had a wonderful dinner at the Marriott Financial
Center Hotel. I met the incoming Chairman, Mr. Jay McGuire, who
I’m very pleased, could join us today.
In May of this year I received an invitation from the Association of
Average Adjusters of the United Kingdom to attend their meeting which
was held in London on May 12th, 2005. Unfortunately this
conflicted with the 2005 Spring meeting and dinner of The Maritime Law
Association of the United States. Their Chairman, Thomas Rue,
kindly sent me an invitation to attend their dinner which I had to pass
on my regrets.
At the U.K. meeting I received the hospitality of Michael Harvey and
his wife Sheila for a wonderful dinner. On the next day Mr.
Harvey gave a superb address on “Physical Damage”. This was a
fascinating topic on how blockage of pipes has been ruled by the courts
to represent physical damage within the confines of coverage. On
that evening we had the annual dinner at the Savoy Hotel which was a
very formal and enjoyable affair. During the week I met the
incoming Chairman Nigel Rogers who unfortunately due to a scheduling
conflict was unable to attend our meeting.
The subject of my address today is somewhat of a “hot topic” of recent
years. It concerns General Average and the York-Antwerp Rules.
Two years ago in our 2003 annual meeting Rui Fernandes, the immediate
past Chairman of our association, presented a paper at our meeting in
Toronto on the developments of General Average and the movement put
forward to change the York-Antwerp Rules. This was a superb
address which outlined the origin of General Average, the development
of the York-Antwerp Rules and the push for change in the Y/A Rules, all
of which were leading up to the upcoming meeting of the Comite Maritime
International (CMI) to be held in Vancouver in June 2004.
At our meeting of June, 2004, again held in Toronto, which was a week
following the CMI Conference, a panel was arranged to have a
“point/counter-point” discussion on the future of General Average
presented brilliantly by Norm Letalik and William Sharpe.
I attended the CMI meeting in Vancouver and was present during the
revision of the Y/A Rules. It therefore seems only fitting that I
present a “sequel” to Rui’s address of 2003 to report on the results of
those meetings.
The title to my paper is therefore: The Search for Peace within the
York-Antwerp Rules
It was in 1801 in the case of Birkley v Presgrave that a legal
definition was given for General Average in the English Courts which
became the basis of English law. Mr. Justice Lawrence stated the
following: “All loss which arises in consequence of extraordinary
sacrifice made, or expenses incurred, for the preservation of the ship
and cargo, comes within General Average and must be borne
proportionately by all who are interested”.
By the latter part of the 1800’s underwriters had been including the
risk of General Average Contribution and Sacrifice in their
policies. However in 1877, the Committee of Lloyd’s wrote a
letter, dealing with some proposals made by the Association for the
Reform and Codification of the Law of Nations, which contained the
following sentence: “There is a strong feeling in this Committee that
the differences, which exist in various countries upon this subject
would be best met by abolishing General Average altogether.” It
was felt that when insurance was invented, if General Average had been
forgotten, a tremendous amount of trouble would have been avoided.
However, there is, some would consider, merit in the argument that
under the accepted principle of General Average, the master has freedom
of action in cases of emergency. He should be able to use his
discretion as a seaman, for the benefit of the venture as a whole,
without having to give consideration on whether his duty to the
shipowner must take precedence over his obligation to protect other
property on board.
Lowndes and Rudolf have stated: “The rule of a general contribution . .
. by rendering it immaterial whose property is taken in the first
instance, and material only that that should be taken which will most
surely and effectually, and at least cost, save the whole, does away
with this conflict in the captain’s mind between interest and duty,
leaves him alone with purely nautical considerations, and thus, no
doubt, does more than any statesman or philanthropist can effect for
the preservation of life and property at sea. The utility of the
rule of General Average thus no doubt explains its universality and
permanence.”
Thus the debate would begin on General Average!
In 1890, following ten years operation, the York-Antwerp Rules were
agreed at the Liverpool Conference and adopted almost universally
throughout the world. Some believe that had it not been for the
timely agreement of these rules providing international uniformity,
General Average may well have been abolished.
Notwithstanding this universal agreement, there were shortcomings
considered in the Rules and proposals were made for further
reform.
Over the years due to the continuous changing conditions of commerce
the York-Antwerp Rules were constantly reviewed.
• In 1924 a new set of Rules were developed to
conform with the current requirements of those times, along with
providing the principles of General Average to be applied to those
circumstances not provided for in the numbered Rules.
• In 1950 the Rules were revised whereby they were
preceded by the following Rule of Interpretation:
In the adjustment of General Average the following lettered and
numbered Rules shall apply to the exclusion of any Law and Practice
inconsistent therewith.
Except as provided by the numbered Rules, General Average shall be
adjusted according to the lettered Rules.
• In 1974, following five years study, the allowances
and method of adjustment were simplified.
• In 1994 the Rules were again revised which
introduced a new Rule Paramount which stated:
In no case shall there be any allowances for sacrifice or expenditure
unless reasonably made or incurred. This followed the case of the
“ALPA” (1991) when damage was caused by the master’s negligence in
attempting to refloat a stranded vessel and was rewarded with a GA
contribution.
If you examine the number of years between the different revised Rules
you will find that they have diminished in time as though building up
to a climax. Part of the concern for any change in the 1994 Rules
was that it was too soon to make any amendments. It was felt by
some that the 1994 Rules hadn’t had enough of an opportunity to test
their effectiveness. The International Union of Marine Insurers
(IUMI) nevertheless, pressed for significant changes in the Rules, if
not their complete abolishment.
A report was subsequently presented by IUMI with proposals for “radical
change” in General Average. The principal philosophy of their
report is that the emphasis of General Average should be for the common
safety rather than common benefit. Common benefit expenses would
relate to those which were necessary for the safe prosecution of the
voyage. For example, under Rule X (b) & (c) the cost of
handling, discharging, storing, reloading and stowing cargo, fuel and
stores to enable repairs made for accidental damage to the ship, shall
be admitted as General Average if the repairs are necessary “for the
safe prosecution of the voyage”.
In Rui’s address in 2003, he has provided examples of these Common
Benefit expenses. Furthermore, he reported on IUMI’s arguments
for excluding common benefit expenses as well as the counter arguments
for including these costs. This is excellent reading and I
encourage you all to take the opportunity to review it.
So, as you can well imagine, there was a certain degree of drama
unfolding as the Comite Maritime International Conference scheduled for
June 2004 in Vancouver, was approaching.
The Comite Maritime International (CMI) was originally established in
1897. They are the oldest international organization in the
maritime field. The CMI was the first international organization
which was involved exclusively with maritime law and related commercial
practices. The founding fathers of the CMI with individuals from
other countries, who were working to organize national maritime law
associations, came together in Brussels in June of 1897. They
formally established a parent international organization to carry on
the effort to unify the world’s maritime laws and adopt a constitution
for the CMI. They have drafted conventions for consideration and
adoption jointly by the International Maritime Organization (IMO) and
the United Nations Conference on Trade and Development (UNCTAD).
This included the 1994 International Convention on Maritime Liens and
Mortgages, and the draft International Convention Relating to the
Arrest of Sea-Going Ships.
For the majority of the existence of the CMI, they have been the
custodian of the York-Antwerp Rules. The Rules were revised
during their conferences throughout the years.
The 2004 meeting for the revision of the Y/A Rules was held in a rather
small/cosy sized room. Tables had been set up whereby
representatives of the Maritime Law Associations of over 40 countries
attended the meeting.
The meeting was started with the representative from IUMI presenting
their proposals along with supporting arguments to reinforce their
position for radical change in the Rules. The representative from
the International Chamber of Shipping provided counter-arguments to
allow the Rules to continue in their present form. In recognizing
the complications of completely abolishing General Average, which is a
concept entrenched in the law of most maritime nations, IUMI
concentrated on restricting the categories of loss or expense which
would be made good by GA contributions. Hence they directed their
attack on the Common Benefit expenses with a goal of restricting
General Average to Common Safety situations.
There were also debates on Salvage, Port of Refuge Expenses, Temporary
Repairs, Commission & Interest, and, Time Bar for Contributions to
General Average. The last one brings a “shudder” to Average
Adjusters.
There was a debate for each of the items brought under review.
All of the delegates representing each country were invited to
comment. Following each of the debates a vote was held on the
proposed rule change with a final vote held at the end of the
conference.
At the conclusion of the conference the following Rule changes were
made which now make up the new York-Antwerp Rules 2004:
Rule VI - Salvage Remuneration
Salvage has been generally treated as General Average and, together
with other General Average losses, been apportioned over values at the
destination.
The arguments for excluding salvage from General Average are:
1. Inclusion of salvage involves unnecessary
duplication of the apportionment of the salvage remuneration between
contributing interests.
2. In most cases the proportions are not changed
significantly but the cost of readjustment may be relatively high.
3. It requires collection of two sets of security to
cover basically the same moneys.
4. It prolongs the whole operation, sometimes for
years.
5. It involves additional hassle for cargo
underwriters.
The arguments for inclusion of salvage in General Average are:
1. It produces a fairer result at the end of the case.
2. In some cases to leave salvage where it falls
after salvage settlement or arbitration can cause serious injustice
(e.g. sacrifices made good in General Average are added back in
computing the values under Rule G).
3. A second casualty can also materially affect the
values at the end of the adventure and thus the apportionment.
4. Some jurisdictions e.g. Netherlands, contain laws,
which require the shipowner to pay salvage in full and collect from
cargo in General Average – this is recognized in the IUMI proposals.
5. In many serious casualties General Average
security will still be collected because the shipowner’s likely
financial exposure may not be fully known and the possible extent of
cargo sacrifices cannot be determined without delaying the release of
cargo.
6. It redresses the balance if one party to the
adventure is able to use commercial or other pressures to reach a
particularly favourable negotiated settlement with salvors leaving
other parties to pay the full cost at arbitration.
7. Even if salvage is not allowed in General Average,
it will still be treated as a special charge (which will be deducted in
calculating contributory values) therefore the adjustment cannot be
completed until the final amount of the salvage charges paid by each
interest is available.
The majority of delegates voted in favour of the exclusion and the
first paragraph of the rule has been replaced whereby salvage charges
will not be included in General Average unless one party pays the
entire expense of the salvage or a portion due from another party.
Rule XI - Wages and Maintenance
There was quite a lively debate on IUMI’s proposal to abolish the
allowance of wages and maintenance of crew, fuel and stores consumed
and port charges incurred during the extra period of detention.
Such are currently allowed under Rule XI (b). IUMI considered
this allowance to be an incentive to shipowners to declare General
Average unnecessarily when their ship requires repairs and therefore
imposing expenses on underwriters which they believe they should not
have to bear. Opposing views were that the owner has an
obligation to continue paying wages and that the shipowner may
otherwise elect to abandon the voyage leaving the cargo at the port of
refuge.
I’m proud to report that our very own Canadian delegation of Vincent
Prager, John O’Connor and Sean Harrington presented a compromise to
exclude wages and maintenance only while at the port of refuge.
This compromise was approved by the delegates.
Rule XIV - Temporary Repairs
Under the 1994 Rules temporary repairs to accidental damage effected
for the safe prosecution of the voyage at a port of refuge would be
allowed in General Average up to the savings in General Average which
would have otherwise been incurred in the absence of these
repairs. For example, consider that temporary repairs of say
$50,000 were incurred to avoid port of refuge expenses of about
$40,000. The General Average allowance for temporary repairs
would be up to the savings which, in this case, would have been $40,000.
Concern was expressed whereby the savings to the ship interests for
permanent repairs may be significant and the 1994 rule requires no
contribution until the General Average savings are exhausted.
The delegates voted in favour to allow temporary repairs for accidental
damage on the premise that it is limited to the extent that the cost of
temporary repairs carried out at the port of refuge, etc. together with
the cost of permanent repairs actually carried out (or depreciation in
the value of the vessel at the completion of the voyage) exceeds the
estimated cost of permanent repairs if they had been effected at the
port of refuge etc.
For example:
Temporary repairs actually carried out:
$ 40,000
Permanent repairs actually carried out:
200,000
Total Expenditure: $240,000
If the estimated cost of permanent repairs at the Port of Refuge were:
1. $240,000 – there would be no allowance
2. $200,000 – as this would be less than then
combined actual costs, the temporary repairs up to $40,000 could be
considered as a General Average allowance subject as before to savings.
Shipowners need not be concerned, since any reduction in the allowance
for temporary repairs under General Average would be claimed as
Particular Average.
Furthermore, this would not apply to temporary repairs for the common
safety or of damage caused by the G.A. sacrifice.
Rule XX – Provision of Funds
An argument was made that there was an unwarranted duplication with
interest already being included by virtue of Rule XXI. The 2%
Commission allowance has therefore been eliminated.
Rule XXI – Interest
Concern was expressed over the flat rate of 7% interest which many
delegates felt was inflexible. A revised Rule was agreed by the
majority whereby each year the Assembly of the CMI would determine the
rate of interest. This rate shall be used for calculating
interest accruing during the following year.
Guidelines have been prepared when deciding the annual interest rate
whereby the Assembly may take the following matters into account:
The rate of interest shall be based upon a reasonable estimate of what
is the rate of interest charged by a first class commercial bank to a
ship owner of good credit rating.
Due regard shall be had to the following:
1. That the majority of all GA adjustments are drawn
up in US Dollars.
2. That therefore the level of interest for one-year
US Dollar loans shall be given particular attention.
3. That most adjustments, which are not drawn up in
US Dollars, are drawn up in Great Britain Pounds, Euro or Japanese Yen.
4. That, if the level of interest for one year loans
in GBP, EUR or JPY differs substantially from the level of interest for
one year loans in USD, this shall be taken into account.
5. That readily available information about the level
of interest such as USD prime rate and LIBOR (London Interbank Offered
Rates) shall be collected and used.
6. Any amendment of these guidelines shall be made by
a decision of a conference of the CMI.
Rule XXIII – Time Bar for Contributions to General Average – New Rule!
It was noted that the Y/A Rules carry no provision concerning time
barring of General Average contributions. Some of the maritime
nations carry time-bar provisions in their national laws, while others
do not and some are unclear. International unification would
therefore be considered an advantage to provide an incentive to
progress the matter.
It was therefore agreed by the majority of delegates that a time-bar
rule would be instituted which states that the rights to a claim under
General Average Bonds and Guarantees shall be extinguished unless an
action is made within one year of issuing the general average
adjustment. Furthermore there is limit of six years after the
date of termination of the common maritime adventure to bring such an
action.
Provisions are also in place to allow for the extension of these
periods subject to the agreement of the parties.
Additional Changes
Finally, there were a number of minor amendments made to the Rules to
“tidy up” the text along with a more consistent numbering system.
I thought we could look at the affect of these new rules in a
fictitious example.
Take, for instance, the fate of the good ship “FLOUNDERING NEMO”,
carrying a cargo of hockey sticks, which grounds heavily off the West
Coast of Vancouver Island. Professional salvors, The Constructive
Destructive Salvage Brothers, are engaged under Lloyd’s Open
Form. During refloating efforts the hull of the vessel is
damaged. The vessel is delivered by the salvors to a port of
refuge at Port Hardy. Temporary repairs were carried out to the
accidental damage deemed necessary for the safe prosecution of the
voyage, and the vessel was subsequently towed to the final intended
destination in Vancouver.
In comparing the 1994 Rules with the 2004 Rules, a very brief synopsis
of the claim would be as follows:
Claim under Y/A Rules 1994
• Salvage remuneration.
• Sacrificial damage to the vessel due to the
re-floating efforts.
• Deviation to the Port of Refuge.
• Port of Refuge Expenses
• Wages & Maintenance of Crew while detained at
the Port of Refuge
• Temporary repairs (subject to savings in GA costs
avoided)
• Commission & Interest
Claim under Y/A Rules 2004
• Sacrificial damage to the vessel due to the
re-floating efforts.
• Port of Refuge Expenses
• Temporary repairs (subject to savings in GA costs
avoided) provided if when combined with permanent repairs actually
carried out it exceeds the cost of the estimated permanent repairs at
the port of refuge
• Interest
So there you have it, the new, York Antwerp Rules 2004. Whether these
new rules have the desired effect of IUMI, remains to be seen. Of
course these rules are only as effective as when they are used.
They still must be inserted by shipowners into their bills of lading
before they can be utilized. Since it was the shipowners who
resisted this change it will be interesting to see how often the Y/A
2004 Rules are used and how much pressure can be exercised to ensure
they are not ignored.
At our meeting last year the Chairman of the US Association of Average
Adjusters Mr. K.H. Mao was asked to offer his opinion on General
Average and whether it should continue to exist. Mr. Mao
presented a response of “It does not really matter”. As an
Average Adjuster he explained if General Average was abolished, those
expenses which would normally be considered to be GA would be moved to
what he referred to as Political Average. Insurance will in any
event be necessary and the expertise of an Average Adjuster would
always be required. At the time I felt that was a refreshing
response with the great debate which has transpired. I’ve always
believed that Average Adjusters are independent and should not take a
stand other than in an advisory role. We could find ourselves on
either side of the equation and thus maintaining independence is vital
to our role as adjusters.
To conclude I would comment how rewarding it was to see the debate on
the York-Antwerp Rules come to an end, at least for the present time,
after only a week of meetings. Now, if only the National Hockey
League and Players Association could make such a remarkable
achievement. Thank you.
[Applause]
Maurice Gesner: “Any comments?”
No Comments from the floor.
Maurice Gesner: I would like to move now to the Nominating
Committee. Bill Kyle of that committee will report on the
election.
Bill Kyle:
Good morning ladies and gentlemen. In the coming year Maurice
Gesner from Vancouver will continue as Chairman. A number of years ago
we changed the by-law to allow for a two year term. The Executive
Committee will be headed by Ian Fraser, Chairman, Tony Brain and Ron
Eldridge. The Rules of Practice Committee Chairman will be David
Holden, Ian Fraser and Gordon Gibbons from the underwriters side.
Membership Committee – Chairman will be headed by Tony Brain, with
members Ron Eldridge and myself. The Advisory Committee –will be
headed by myself and I will be joined by Neil Dennis and John Cantello.
Rui Fernandes will continue as Secretary - Treasurer. Thank you
Maurice Gesner: I now call upon the Mr. Ron Eldridge who will provide
the Membership Committee report.
Ron Eldridge:
Thank you Maurice, ladies and gentlemen, good morning. It has
been my pleasure to act as Chairman of the Membership Committee for
2004-2005. No examinations for full membership were held this
year. New members are David Alderson, Marc Isaacs, Kevin Quinn
and Sean Rozum. The total membership now stands as follows:
Honorary Members: 5
Full Members: 13
Associates: 1
Resident Associate: 137
Foreign Associates: 42
For a grand total of 198.
Respectfully submitted, Ron Eldridge.
Maurice Gesner: With respect to the coming year the association is
exploring having its annual meeting and dinner at Halifax in
conjunction with the CBMU, the Canadian Maritime Law Association, the
Eastern Admiralty Law Association, and the Canadian Institute of Marine
of Marine Engineers in June 2006. Further information will be
provided to the members in due course.
I think that now brings me to an end and brings this meeting to an
end. I would like to call for a motion to adjourn.
Moved by Ian Fraser.
Seconded by Tony Brain.
Maurice Gesner: Then I hereby adjourn this meeting. Thank you.