General average and maritime risk management in the Southern Low Countries between the Fifteenth and Sixteenth centuries

by Gijs Dreijer (University of Exeter & Vrije Universiteit Brussel). This blog is based on the author’s presentation to the Economic History Society’s annual conference 2021 (session NRIE)

Frank Knight and Douglass North famously portrayed marine insurance as an innovation that enabled merchants to move from ‘uncertainty to risk’.  Insurance has subsequently received  considerable attention in the literature, whilst other instruments for maritime risk management have been neglected.  One such instrument is General Average (GA), which underpins maritime trade by redistributing extraordinary costs across all parties engaged in the business venture, for example, the York-Antwerp Rules (YAR). Based on legal documents (notarial archives, court records and legislative documents), my research seeks to highlight the importance of GA in maritime risk management in the Southern Low Countries during the fifteenth and sixteenth centuries, focusing on Bruges and Antwerp. The Southern Low Countries demonstrates  the importance of the maritime sector to economic development, and offers a blueprint for developments later found in Amsterdam and London.

The concept of GA existed in Roman law and it was incorporated in medieval compilations of maritime law such as the Judgements of Oléron. Jettison was the most commonly cited example. The development of GA in the Low Countries gained momentum from the sixteenth century, as efforts to regulate the maritime sector accelerated. Four trends can be observed. First, the freedom of action of the shipmaster was broadened but his liability also became stricter in case of preventable damages. Second, new causes for GA were allowed besides jettison and mast cutting, for example, uninsurable expenses for wounded seamen fighting pirates, as well as those to prevent greater damages — extraordinary pilotage or voluntarily running aground. Additionally, lawyers gradually started to distinguish between various forms of averages, such as General, Small (also known as Common), and Particular Average (averij-grosse, averij-commune, and simpele averij), moving from largely rules of thumb to actual legal principles, as enshrined, for example, in the 1551 Ordonnance of the Habsburg sovereign Charles V. Finally, legal practice in Antwerp pushed towards the liability of insurers to pay for GA claims. My research indicates that an operationally efficient set of risk management institutions came into existence. Whereas insurance allowed merchants ex ante to transfer risk before the venture, GA allowed merchants to share risks ex post (Figure 2). Furthermore, my research establishes that this development was not facilitated by considerations of efficiency, but was primarily the result of power struggles between the many interested parties.

Increasingly, parties engaged in the business venture agreed to cover foreseeable, operational costs (e.g. ordinary pilotage or port duties) in freight contracts (Figure 2). A distinction was made between freight, a fixed fee, and Small or Common Average (SA), denoting the common operational costs of the venture. In sixteenth-century Antwerp, protection costs such as artillery were covered in addition to common operational costs. The Castilian and Biscayer nationes, the organisational vehicles of those foreign merchant communities, moreover established non-contractual compulsory contributions (the avería de nación and the avería(s) to cover maritime protection costs, primarily artillery and convoy ships. This raised protection costs, but lowered the eventual risk of damages and diminished the moral hazard associated with insurance.

The conclusions from my research are threefold. First, there was no lex maritima in north-western Europe, even if some general trends could be recognized. Rather than accept the simplified narratives of an autonomous mercantile and maritime law, economic historians should instead recognise and accept the murky, complex, and pluralistic nature of law and legal institutions. Second, we should acknowledge that maritime risk management was a complex business which developed in tandem with the other risk management practices. Finally, GA and other averages had ambivalent consequences for both transaction and protection costs. Overall, my research demonstrates that an operationally efficient set of risk management institutions was created almost by chance.

To contact the author: gd334@exeter.ac.uk