THE CHAIRMAN’S ADDRESS

3. The Chairman’s Address 2022 “General Average Back To The Future”

A daunting task; those were the words of a colleague adjuster many years ago to describe the task of preparing and presenting a Chairman’s address. These were also the words that popped up in my mind, when our former Chairman Richard Cornah phoned me over two years ago to ask if I would consider becoming his successor, which implies preparing an address at the end of the term. As a non British and non practising Fellow, I needed some weeks to think this over and then said “yes” instead of “non”. So here is my address. Choosing a suitable subject for the address is the most difficult part of this task. I could have chosen the Covid 19 pandemic that affected our lives over the past two years. This would have involved a study of how marine insurers introduced new clauses into their policies to limit or exclude cover for pandemic related expenses and delays. Richard has already presented his address on Covid 19 and the impact on Hull claims and General Average in 2020. I did not want to step into his footsteps and I think that we are all fed up with Covid 19 by now. Another subject that came to mind could have been the brutal Russian invasion of the Ukraine and the evolving consequences this has on human suffering and the war risk insurance market. Which person that witnessed the Berlin wall coming down in 1989 would have thought that the Cold War between East and West with threats of the use of nuclear weapons would be back on the agenda again in 2022. As to the war risk insurance, the premiums have rocketed up to 7% of the vessel’s insured value per 7 days for vessels in Ukrainian waters. This implies that Owners could pay the equivalent of the value of the vessel on war risk insurance premium in only 15 weeks. I do hope that owners have the correct War Risks clauses in their charterparties, which entitles them to get reimbursed by charterers for these additional war risk premiums. I thought it is too early to choose this topic for an address. In times of pandemic and war, people usually turn to safe investments like gold and silver. The same logic applies to adjusters, who turn to their safe haven called General Average (GA hereafter). So this will be the subject of my address but unlike usual references to GA presented as an ancient maritime principle going back to Rhodian law, I will focus on the future of GA. We will not go back to the past, but back to the future. The largest part of my address deals with the biggest challenge of mankind in the next 25 years, which is combatting climate change. New legislation is being introduced to put a cap on CO2 emissions in shipping and such emissions will no longer be free of charge. Can the new carbon levies consequent on a GA act be allowed in General Average? Before we hop on the DeLorean car with Michael J. Fox for our Back to the Future GA experience resulting from the proposed legislation, I will briefly discuss two recent Supreme Court cases where GA played a crucial role. It is very rare that GA cases reach the Supreme Court, so it therefore deserves attention in my address. The Longchamp (2017) Surprise, surprise, The Longchamp! This case has already been the subject of the address by Lord Clarke back in 2019. The issue of this case was whether the daily vessel operating expenses of shipowners incurred while they were negotiating to reduce the ransom demand of pirates could be allowed in GA.

The Supreme Court interpreted the meaning of Rule F differently than the long standing adjusting practice. It was held that where GA is adjusted according to the York Antwerp Rules 1974, the exclusion in Rule C of loss sustained through delay has no application to substituted expenses under Rule F. Do not worry, I do not want to repeat each fact and ruling of this important judgment. I would only like to revert here to the explicit reasoning of the Supreme Court by which a long-standing practice of adjusters was set aside.

Lord Neuberger, held that the “alternative course of action” practice as applied by adjusters was unsustainable. This action implied that a claimant should not only prove that the substituted expenses incurred are lower than the avoided expenses allowable in GA but must also be of a different nature than the avoided expenses. According to Lord Neuberger, the words of clause F “extra expenses incurred in place of” do not support the conclusion that Rule F can only be invoked when the claimant has taken an “alternative course of action”. The negotiation period expenses represent the extra expenses incurred in place of the difference between the original and the accepted ransom sum and is allowed under Rule F. In Lord Neuberger’s words within paragraph 25:

“Experience shows that in many areas of practical and professional endeavour generally accepted points of principle and practice, when tested in court, sometimes turn out to be unsustainable.

I accept that it may be right for a court to have regard to practices which have developed and principles which have been adopted by practitioners, but they cannot determine the outcome when the issue is ultimately one of law.” Lord Neuberger continued in paragraph 29:

“Given that the Rules represent an international arrangement, it is particularly inappropriate to adopt an approach to their interpretation which involves reading in any words or qualification.

As already mentioned, it appears to me that, as a matter of ordinary language, Rule F applies to the negotiation period expenses for the reasons given in para 26 above. To imply some qualification such as the requirement that those expenses must have been incurred so as to achieve an ‘alternative course of action’ appears to me to be very dangerous. In the same way as an international convention or treaty, the Rules should be interpreted by a United Kingdom court ‘unconstrained by technical rules of English law, or by English legal precedent, but on broad principles of general acceptation’.” Lord Sumption confirmed these words in paragraphs 41 and 42 as follows:

“The York Antwerp Rules ... are designed to create a body of principle applicable internationally in a uniform way, although incorporated in shipping agreements of different kinds, governed by different laws. It will therefore rarely if ever be appropriate to imply matter into them which is not apparent from the natural meaning of the words, unless the implication is necessary to make them workable or intelligible or to avoid absurdity. Rule F is simplicity itself.

In the absence of a comprehensive body of case law ... adjusters have adopted a variety of practices or rules of thumb to supplement the Rules. This is perhaps inevitable, but such practices are not law and there is a tendency in this field for them to lose sight of the basic concepts expressed in the Rules themselves.”

Guidance by the Supreme Court The guidance given by the Supreme Court to the adjusting community for the future interpretation of the York Antwerp Rules is to apply the natural meaning of the words used in the York Antwerp Rules and only supplement the Rules by practices or rules of thumb, if necessary to avoid absurdity. 15

The law cannot be determined by reference to adjusting practices. Although this principle is correct, it ignores the fact that new law is sometimes born out of accepted practices, which filled the gap where the law was silent.

Rule F of the York Antwerp Rules came to the drawing table of the drafters of the York Antwerp Rules 1924 after the case of Wilson v Bank of Victoria (1867), where it was held that the principle of substituted expenses was not tenable at law and where Blackburn J held: ‘If in any particular trade it has been found convenient to act on this principle, and that has been done to such an extent as to create a custom... the case would be different’.”

In the Wilson case, the judge called upon practitioners to establish a customary practice for allowing substituted expenses in GA, whereas in The Longchamp case the customary practice of interpreting Rule F was found to be unsustainable.

Both Lords held that because of the international nature of the York Antwerp Rules, they should be interpreted in an uniform way and on principles of general acceptation. It is not entirely clear what international and uniform interpretation both Lords had in mind, because the York Antwerp Rules themselves are drawn up by a very international maritime community. The Comité Maritime International (CMI) are the custodians of the York Antwerp Rules and represent the view of the Maritime Law Associations of many maritime nations in the world. Just like the Association of Average Adjusters, its object is to promote the unification of maritime law and practice. Other York Antwerp Rules stakeholders are IUMI, BIMCO and ICS, which have all expressed the view that GA should not be extended by the allowance of indirect expenses via the back door of Rule F. The High Court decision in The Longchamp was discussed during the drafting of the York Antwerp Rules 2016 and it was then decided not to interfere with this ruling until the case was finally decided in the Court of Appeal and Supreme Court. This judgment might therefore have a corrective impact on the future drafting of the York Antwerp Rules, like the “Makis” (1929) case did for the Rule of Interpretation and the “Alpha” (1991) case for the Rule Paramount in the York Antwerp Rules. I do not believe that there is another maritime professional other than an average adjuster, who interprets the York Antwerp Rules on a daily basis. Both AAA and Association Mondiale de Dispacheurs (AMD) have been asked for input by CMI, whenever the York Antwerp Rules are under review for possible alterations. Both Associations have assisted the CMI in preparing the CMI Guidelines relating to GA and in particular to the last York Antwerp Rules 2016 edition. The CMI has recently set up a Standing Committee to agree a default wording for the GA Guarantee and Average Bond. Adjusters of both AAA and AMD are active members on this Standing Committee. Lord Sumption’s remark that adjusting practices have a tendency to lose sight of the basic concepts expressed in the York Antwerp Rules seems to be therefore somewhat unjustified. Unfortunately, no further guidance was given by Lord Sumption what those basic concepts are apart from interpreting the natural meaning of the words in the York Antwerp Rules. Guidance by the AAA Guidance by the AAA has been given to maintain uniform practice in adjusting GA claims under Rule F. A list of 15 examples of additional expenses has been drawn up with a recommendation whether to allow such expenses under Rule F or not, based on fairness. The list has been prepared by the GA Sub Committee under the wings of the Advisory Committee of the AAA and included in Opinion G24b dated January 2022. 16

The CMA CGM Libra (2021) The second case that I would like to say something about is CMA CGM Libra. The Supreme Court upheld the lower courts’ decisions that a defective passage plan may render a vessel unseaworthy. This was the first case in 60 years where the Supreme Court had to give a ruling on the extent of an owner’s obligation to provide a seaworthy vessel under the Hague Rules, which is relevant for GA cases and cargo damages in general. In May 2011, whilst leaving Xiamen, the CMA CGM Libra grounded outside the buoyed fairway. According to the passage plan, the vessel was never meant to leave the buoyed fairway, but the master still left the dredged fairway resulting in the grounding of the vessel. The vessel was refloated by salvors and owners declared GA and claimed a sum of USD 13mln in GA. A minority of cargo interests refused to pay their GA contribution, because owners had committed an actionable fault resulting in the grounding by failing to exercise due diligence to make the ship seaworthy at commencement of the voyage. The master and officers made two errors. They did not follow the IMO Guidelines for Voyage Planning, which required the notification in the chart of the presence of numerous depths less than those charted outside the fairway as per the Notice to Mariners. This made the passage plan defective. The second error was made when the vessel left the planned route and navigated outside the fairway, resulting in the grounding. Owners were found liable for the first error happening prior to commencement of the voyage (Article III Hague Rules) and could not exclude liability for the second error in navigation during the voyage (Article IV Hague Rules). Although the preparation of the passage plan concerned a matter of navigation, the nautical fault exception could not be relied on, where the Owners had breached the vessel’s seaworthiness obligation. Owners were of the opinion that, provided a carrier has equipped the vessel with all necessary and workable equipment for her safe navigation, including charts and a competent crew with experience and training how to prepare a passage plan, the crew’s subsequent failure to safely navigate the ship did not affect vessel’s seaworthiness at commencement of the voyage as per Article III and owners could rely on the nautical fault defence of Article IV HR. Considering that 92% of cargo interests paid their GA contributions without objections, this was also the opinion of the vast majority of the cargo interests. It was the first time that the Supreme Court ruled that a defective passage plan, which was causative to the grounding, made the vessel unseaworthy. It was based on the established principle that owners have a non delegable obligation to exercise due diligence to make the vessel seaworthy before and at the beginning of the voyage. The defective passage planning of the crew fell within the responsibility of owners. Owners will have to make sure that the crew not only knows how but has actually prepared a sound passage plan as per the IMO Guidelines before commencement of the voyage. This case might have of course a bigger impact on shipowners than adjusters. Adjusters still have to prepare the adjustment as per the contractual York Antwerp Rules and the only consequence could be that cargo’s contribution to the adjusted GA will be recovered from the P&I Club, as must have happened in this case. This concerns the post adjustment stage. Shipowners will have to get to grips that seaworthiness requires more than making the vessel physically fit in respect of her hull, machinery and equipment, man her with a competent crew and make her cargo worthy at commencement of the voyage. The article IV HVR defences which could involve crew negligence, like the error in navigation or management of the vessel and fire can then not always be relied on. Cargo interests still have to establish in court that the crew error caused the accident. In this case, the master presented this evidence on a silver plate, when he confessed that he would not have deviated from the buoyed fairway, if the Notice to Mariners with warnings of uncharted depths outside the fairway had been included in the chart.

On a personal note, with my shipowner’s cap on, I find this decision somewhat harsh to digest based on the facts, because the intended route via the buoyed fairway was correctly planned and plotted in the chart and did not include any dangers to navigation. Had the plotted route included an insufficient depth for vessel’s draft or even a depth less than the charted depth on which the vessel grounded, then I would follow the court’s reasoning that this was a defective passage plan resulting in the vessel’s grounding However, the dangers to navigation existed outside the planned route and were not detailed on the chart. The Notice to Mariners which was missed contained the following general warning: “Numerous depths less than the charted exist within and in the approaches to Xiamen Gang”. The Notice did not include any specific locations to be avoided. It was just a general warning, which could be interpreted that even within the buoyed fairway it was not safe for navigation. The grounding happened during the subsequent negligent execution of the voyage plan, where the master, for unknown reasons, decided to deviate from the intended route and then grounded outside the fairway. Had the vessel remained on the intended route as specified in the passage plan, which was signed off by the master himself, the vessel would likely not have grounded. The IMO Guidelines for Voyage Planning also require under para 4.1 that the voyage should be executed in accordance with the plan. Was this unjustified deviation from the route in the passage plan not a new act of negligence by the master during the voyage in not following the IMO Guidelines which led to the grounding? I am sure that my successor Sir Nigel Teare does not agree, since he was the judge at the High Court, whose decision has been confirmed by the Supreme Court. I hope this does not put you off being the next Chairman, Sir Nigel. I am not speaking on behalf of the adjusters, but as a shipowner. Now we get to the main part of my address and that is the Paris Agreement in 2015. Mr. Trump did not agree with it, but he is no longer in office.

Paris Agreement 2015 The Paris Climate Agreement is the United Nations framework convention on climate change. It aims to substantially reduce global greenhouse gas emissions in an effort to limit the global temperature increase in this century to 2 degrees Celsius above preindustrial levels, while pursuing the means to limit the increase to 1.5 degrees. The nearly 200 countries who have endorsed the Paris Agreement must report their greenhouse gas inventories and progress relative to their targets. Countries are also expected to put forward progressively stronger targets every five years, with the goal of further driving down emissions. The European Union has been at the forefront of international efforts to fight climate change. In December 2020, the EU submitted its updated target to reduce greenhouse gas emissions by at least 55% by 2030 from 1990 levels.

Decarbonisation in shipping The International Maritime Organisation has adopted measures that require ships to combine a technical and an operational approach to reduce their carbon output. These will enter into force by 2023 and will be reviewed in 2026.

The energy efficiency index (EEXI) is a technical index which establishes a vessel’s energy efficiency from its design. The vessel can improve its efficiency through technical modifications to the engine, bow or propeller and/or installing energy efficient technology. The Carbon Intensity Indicator (CII) establishes the operational carbon intensity of the vessel by either measuring the vessel’s annual carbon emissions on the basis of its deadweight or on the cargo being carried. The IMO will categorise vessels into an A, B, C, D or E rating, with A being the best rating. Vessels with a D rating for three consecutive years and E rating for one year must submit a corrective action plan to improve their performance. 18

Future steps include a possible levy of USD 100 per ton CO2 emitted in order to promote the uptake of alternative fuels and the potential establishment of an International Maritime Research Board which will be funded by a mandatory R&D contribution of USD 2 per ton fuel oil consumed to fund and accelerate R&D of low and zero carbon technologies. The IMO aims to reduce carbon intensity to 11% by 2026, which leaves a considerable gap between 2026 and 2030 to reach an overall reduction of 40%.

The impact of the EU regulations with a 55% reduction by 2030 is more ambitious and I will focus in my Address on the EU Commission’s proposal of 14 July 2021 to extend the EU Emission Trading Scheme (ETS) to shipping. This proposal is still under review by the European Parliament and requires approval by each EU member state, so it is subject to change. For the hard Brexiteers here who think, “I can now nod off”, no, the UK has established its own emission trading scheme which is similar to the ETS. The EU Fit for 55 package The EU has set an ultimate target of zero emissions by 2050. As an intermediate step towards this climate neutrality, it has set a 55% greenhouse gas reduction target by 2030. This package targets shipping as follows and I will only study the first item hereafter: 1) Emissions Trading System for shipping as from 2023 2) Tax on bunkers as from 2023 3) Fuel EU Maritime Initiative to promote low carbon fuels as from 2026. The European Union Emission Trading System (ETS) It was launched in 2005, and it compels manufacturers, power companies and airlines to buy permits to cover each tonne of CO2 emission. The ETS is the largest multi country, multi sector greenhouse gas emissions trading system in the world. It applies not only to EU member states, but also to Norway and Iceland (and the UK prior to Brexit). The ETS works on a ‘cap and trade’ basis, so there is a ‘cap’ or limit set on the total greenhouse gas emissions allowed by all participants covered by the system and this cap is converted into tradable emission permits. The cap is reduced each year, so that total emissions fall in line with the EU objectives. One permit gives the holder the right to emit 1 ton of CO2. Participants covered by the ETS must monitor and report their emissions each year and surrender enough permits to cover their annual emissions. Participants who are likely to emit more than their allocation have a choice between taking measures to reduce their emissions or buying additional permits. The European Commission has proposed to add ships over 5,000 GT to the ETS system as from 2023, whereby the shipping company would need to buy carbon permits covering 100% of the emissions from voyages inside the EU and 50% of the emissions from international voyages starting or ending in the EU. The shipping company is the entity that is responsible for the choice of fuel, route and speed of the vessel. This will likely be the shipowner under a voyage charter and time charterer under a time charter. The ultimate goal is that the maritime industry will invest in energy efficiency measures and switch to cleaner fuels with less emissions. If the shipping company (shipowner or charterer it is not clear) does not surrender the right number of permits by April 30 of the following year, it will be fined 100 euro per ton of CO2 not accounted for. Ships can be denied entry to EU ports where the responsible shipping company has failed to surrender the necessary permits for two consecutive years.

If the vessel’s flag is an EU member state, that will be the administering authority for the distribution of permits and fines. For non EU vessels, this will likely be the member state where the vessel had the highest number of port calls in the previous two years. Legal basis of ETS What is the legal basis of ETS? The legal basis of the ETS system can be found in Article 191 of the Treaty on the Functioning of the European Union, which sets out the EU policy on the environment: 1. Contribute to pursuit of the following objectives: • preserving, protecting and improving the quality of the environment, • protecting human health, • promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change. 2. Based on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay. Carbon permits in GA The relevance for adjusters of these future carbon levies (the ETS permit/fine or the IMO levy of US$ 100 per ton CO2 ) as direct consequence of fuel consumed could arise when a vessel is removed for repairs under Rule of Practice D1 or when GA allowances are made for fuel consumed during deviation to, detention at a port of refuge until regaining position on course under the applicable York Antwerp Rules and I will only focus on the GA scenario hereafter.

The EU tax on fuel will be a direct charge on the price of fuel and I do not foresee any problems in allowing the gross fuel price, including this EU tax, where we now allow the net fuel price under the York Antwerp Rules.

More problematic would be the ETS carbon permits. Let’s assume that a vessel consumes a quantity of 100 tonnes bunkers during a deviation to a European port of refuge, detention there to carry out repairs to the vessel for the safe prosecution of the voyage and whilst regaining position on course. The bunker consumption during this GA deviation/detention would produce about 250 tons CO2 depending on the type of fuel (and carbon content) consumed. Such emission was always free of charge and did not need to be compensated by the shipping company, but this free ride is about to end as from 1 January 2023. The EU carbon price of CO2 fluctuates daily and the price at the beginning of this year was about €80 per ton. Above deviation would then necessitate the purchase of 250 carbon permits @ €80 = €20,000 to compensate for the CO2 emission arising from this deviation to and detention at the port of refuge. This ETS system for shipping will be introduced under a sliding scale as follows: 2023 - 20% x € 20,000 = € 4,000; 2024 - 45% x € 20,000 = € 9,000; 2025 - 70% x € 20,000 = € 14,000; 2026 - 100% = € 20,000 will have to be paid by the shipping company to the EU member state. Can the shipowner (or time charterer) recover these additional costs in GA as a direct consequence of fuel consumed and allowed in GA?

Rule C York-Antwerp Rules Rule C of the York Antwerp Rules stipulates that any losses, damages or expenses which are the direct consequence of the GA act shall be allowed in GA, but this allowance does not include “losses, damages

or expenses incurred in respect of damage to the environment or in consequence of the escape or release of pollutant substances from the property involved in the common maritime adventure”. The exclusion was introduced as from the 1994 York Antwerp Rules. The principle to exclude pollution liabilities but allow costs of preventing pollution was adopted at the CMI Sydney Conference in October 1994. The exclusion was laid down in Rule C and the costs of preventing and minimising pollution were included as allowances under Rule VI and XI(d).

Damage to the environment Reference to the words “damage to the environment” can be found in above legal basis of ETS and Rule C, VI(a) and XI(d) of the York Antwerp Rules as from 1994. These words are not defined in any of these rules, but Rule VI(a) makes reference to article 13 of the International Convention on Salvage 1989, which includes a definition of “damage to the environment” as follows:

“substantial physical damage to human health or to marine life or resources in coastal or inland waters or areas adjacent thereto, caused by pollution, contamination, fire, explosion or similar major incidents”. Human health The global average atmospheric CO2 is currently around 415 parts per million, which is 13% higher than the level in 2000. It is now as high as it was 3 million years ago, when temperatures were 2 to 3 degrees higher than during the pre industrial era and the sea level was 15 to 25 metres higher than today. For a Dutchman, that looks like a continued challenge in the historical battle against the sea. My house lies two metres below sea level, like 25% of the rest of the Netherlands, including Amsterdam, Rotterdam and The Hague. This battle will eventually be lost if the sea rises to these levels. In the long term this increase of sea levels would have a devastating effect on human health especially in the low lying countries in the world. However, the relevant question for the above definition (damage to the environment) is whether CO2 levels of 415 ppm in the atmosphere can cause substantial physical damage to human health? Evidence suggests that elevations of CO2 may pose direct risks for human health, but these studies have mainly focused on indoor air concentrations at 1,000 ppm, but not on atmospheric air concentrations. The answer to the question appears to be negative. Marine life Increased levels of CO2 in the atmosphere have a negative effect on marine life, since it reduces the PH value of sea water, which causes acidification of the oceans. This is a very slow process when CO2 is dissolved in the seawater. Although this effect should not be ignored, it does not in my opinion activate the above “damage to the environment” definition, which implicates that the damage must be caused by a sudden major incident, which is different from the mid to long term deterioration of the environment by CO2 emissions. The definition also limits the impact to coastal or inland waters, which is different to the global impact arising from CO2 emissions. The reference to “damage to the environment” in Rule C does therefore not appear to exclude carbon levies in GA.

Pollutant substances Could such carbon levies still be caught by the second exclusion of Rule C: the escape or release of pollutant substances from the ship? The word “escape” implies an accidental emission, which is not the case with CO2

emissions which are more like a constant emission, but the word “release” seems to be more in line with the constant emission of CO2, so we are not yet high and dry. What is considered pollutant substances from the ship in international maritime legislation?

MARPOL

The International Convention for the Prevention of Pollution from Ships (MARPOL) is the main international convention covering prevention of pollution of the marine environment by ships from operational or accidental causes. Over the decades, various regulations have been issued dealing with oil pollution (Annex I 1983), noxious liquid substances in bulk (Annex II 1983), harmful substances in packaged form (Annex III 1992), sewage (Annex IV 2003), garbage (Annex V 1988) and air pollution (Annex VI 2005). Annex VI sets limits on sulphur oxide and nitrogen oxide emissions and prohibits ozone depleting substances. Regulation 2 of Annex VI stipulates that the word emission means any release of substances from ships into the atmosphere or sea. However, Resolution 8 to Annex VI confirms that CO2 emissions, being greenhouse gases, have an adverse effect on the environment, but that Annex VI does not address CO2 emissions from ships. In other words, the release of CO2 has an adverse effect on the environment but is not considered an air pollutant substance under Annex VI MARPOL. The carbon levies under ETS or IMO would in my opinion therefore neither be caught by the Rule C exclusion “release of pollutant substances from the ship”. Bunkers allowed in GA

Now that Rule C does not appear to exclude the carbon levies as direct consequence of bunkers consumed during a deviation and detention at/to a port of refuge, let’s have a look at the numbered Rules of the York Antwerp Rules, where the costs of replacing bunkers are allowed in GA. I am aware that I am doing it in the wrong order because an adjuster should first look at the numbered Rules before the lettered Rules in line with the Rule of Interpretation, but the end result is the same for the purpose of my address. Rule XI(a) York Antwerp Rules Fuel and stores consumed during the prolongation of the voyage occasioned by a ship entering a port or place of refuge shall be admitted as GA, when the expenses of entering such port or place are allowable in GA per Rule X(a). Rule X(a) allows the expenses of entering a port of place of refuge in consequence of accident, sacrifice or other extraordinary circumstances in GA, when this is necessary for the common safety. Rule XI(b) York Antwerp Rules Fuel and stores consumed during the extra period of detention (in such port or place until the ship shall or should have been made ready to proceed upon her voyage) shall be admitted as GA, except such fuel and stores as are consumed solely by reason of repairs not allowable in GA. Rule XI(d), measures to prevent or minimise damage to the environment Now that we know that bunkers are allowable in GA per Rule XI (a) and (b) and that Rule C does not appear to block carbon levies as a direct consequence of the GA act, could Rule XI(d) still be the last hurdle to exclude or limit such allowances in GA? This sub Rule is the mirror of Rule C for the changes proposed and accepted at the CMI Sydney Conference 1994. It allows the costs of measures undertaken to prevent or minimise damage to the environment in GA: “As a condition of remaining at any port or place in the circumstances prescribed in Rule X(b) provided that when there is an actual escape or release of pollutant substances the 22

cost of any additional measures required on that account to prevent or minimise pollution or environmental damage shall not be allowed as General Average.” Although the intention of Rule XI(d) is to clearly limit GA allowances arising from measures undertaken to prevent or minimise damage to the environment, we must by reference to the above deliberations conclude that these limitations do not apply to carbon levies in GA. The CO2 emissions do by definition not cause damage to the environment, so the resulting carbon levies are not caught by the limiting provisions of Rule XI(d), which only deals which measures preventing or minimising damage to the environment. Conclusion

Based on cross references of existing and future maritime legislation, I am of the opinion that carbon levies under ETS and IMO can be allowed in GA as a direct consequence of bunkers consumed and allowed in GA. I realise that my conclusion might be interpreted by some of you as an opportunistic attempt to increase GA allowances in the future by interpreting the wording used in the York Antwerp Rules and maritime conventions in a natural meaning, when the intention might be wider. I hope those people will find comfort by the lessons learned from the Supreme Court in The Longchamp case, where Lord Sumption instructed the adjusters’ community that it will rarely if ever be appropriate for adjusters to imply matter into the York Antwerp Rules which is not apparent from the natural meaning of the words. Or where Lord Neuberger stated that it would be “particularly difficult to justify the notion that a specific allowance in a numbered rule should impliedly rule out such an allowance in a lettered rule”. Or in the reverse, that it would be difficult to justify that a specific disallowance in a numbered rule should exclude a general allowance under a lettered rule. I hope this last topic was an awareness exercise of what levies and charges the shipping industry will face in the global battle against climate change. Considering that the climate costs will rise year on year due to the lowering of the emission cap, in combination with the rising costs of purchasing carbon levies, it is not unforeseeable that these levies might eventually exceed the costs of bunkers for vessels who have not switched to alternative low carbon fuels. I hope my address might at best be a starting point for an Opinion of the Advisory Committee of the AAA in the future, after the EU and IMO legislation has been finalised and adjusters will be faced for the first time with these emission levies. Thank you very much for your attention. (Applause) THE SECRETARY: Thank you, Michiel, for delivering your address on such important issues. Before I take questions and comments from the floor, Michiel, do I have your permission to publish your address on the website?

THE CHAIRMAN: Yes.

THE SECRETARY: I now invite any questions or comments. I have a microphone here. Could I ask you to state your name and Association if relevant if you have anything to say. Would anyone like to say anything? Any comments? MR. JOERN GRONINGER (Verein Deutscher Dispacheure ) I am here as the President of the German Association of Average Adjusters. I want to thank you, Michiel, for this address. It was very interesting indeed. Your remarks about the CMA CGM LIBRA (easier in French I would agree) reminded me of a case we dealt with long, long ago. It was an approach in Finland where the port approach was a channel going in a zigzag between the islands and somebody on the vessel decided to rather take an alternative route which came to a halt when they hit a lighthouse, which I am sure was properly marked on the chart. This was not a GA case. At least it was a case where, in the end, the pilot was found to be guilty, and the state had to pay 23

damage liabilities. Yes, apart from this anecdotal reference, I would like to thank you for the address again which certainly did bring some light, at least for me, into what we have to expect in the future. And also to thank you for the brilliant evening we spent yesterday. It was really a pleasure to not only have your company but that of the other distinguished guests as well. Thank you. (Applause) MS. MELIS OTMAR (Associate of the AAA): A humble broker. Do you think in future not being green enough as a vessel could deem it unseaworthy with the current legislation going onwards? In a case such as yours, could the cargo use it as an excuse not to pay the GA saying that the vessel was not green enough hence these expenses could not be part of the GA? THE CHAIRMAN: That is an interesting question. The charterers and the shipowners will of course negotiate higher freight rates to comply fully with these green technologies. If charterers are not prepared to pay the higher freight rates, they could contract with vessels without these technologies and pay the emission allowances on top. It is not yet mandatory to do all this additional work to make ships greener. The shipowner should not be penalised for not doing it. Good question. THE SECRETARY: Anyone else? MR. JOE GRASSO (Chairman of the Association of Average Adjusters of the United States and Canada): I would like to congratulate you on your tenure and on your excellent address. Certainly, it has given us food for thought on the very important topic of climate change and the environment. I, too, would like to thank you for a wonderful evening last night at the Restaurant of Fools, or as we might say in the United States the Nut House, including the bottomless glasses of wine of course. Finally, I would like to congratulate Sir Nigel on his election as Chairman and look forward to continuing our discussion about US Supreme Court jurisprudence, hopefully, on topics of maritime and General Average rather than more boring subjects. Thank you. (Applause) MS. BARBARA HOLLAND (President of the United States Maritime Law Association): I bring you greetings from the MLA. Mr. Chairman, thank you again for your hospitality last night. Thank you for your comments this morning. They were very insightful comments on recoverability, particularly of the ETS costs in GA. Very interesting. I have to tell you I particularly enjoy the image of you and Michael J Fox in the DeLorean Back to the Future. Thank you. Sir Nigel, again congratulations, and congratulations on your tenure, Mr. Chairman. (Applause) MR. STEFANO CAVALLO (President Associazione Liquidatori Avarie Marittime): I wish to congratulate you for your very interesting and stimulating address today and also wish to thank you for the kind invitation yesterday to dinner. The Manicomio restaurant in Chelsea, it was a very nice evening. It was great food great hospitality and a very friendly and relaxed atmosphere. Thank you very much. As President of the Italian Association, I have also been requested by the members to send you and all the members our greetings. Thank you very much. (Applause) MR. ESTEBAN VIVANCO (President Association Mondiale de Dispacheurs): Mr. Chairman, just to thank you for the warm welcome as President of the AMD and the great dinner we enjoyed yesterday, even being inside the Manicomio. Thank you very much. It was a very, very nice night. MR. DAVID CLANCEY (Fellow): I just would like on behalf of all the Fellows to congratulate you on your address which will give us all something to think about. I have to say I do not think I will be on the Advisory Committee when it comes to us to deal with. Thank you very much. (Applause) THE CHAIRMAN: I did not know you were going to step down. It is 2023, David. 24

THE SECRETARY: Any other questions or comments? If not, is there any other business? I am sure they would have already raised it. Before Michiel formally closes the meeting, may I ask the new Fellows, Senior Associates and Georgio to stay behind for a photo? Otherwise I will pass over to Michiel to close the meeting. THE CHAIRMAN: It was quite a long meeting so I hope the hot starters are still hot, Ann! I therefore very quickly close this meeting. Thank you very much for coming. Of course I would love to see you all tonight at dinner in The Savoy. I really look forward to seeing you there. (Applause)