The plaintiff was the owner of the barge Pointe Levy. The defendants were the insurers of the cargo and hull of the Pointe Levy and of the plaintiff's third-party liabilities.

The Pointe Levy, laden with the plaintiff's oil, grounded off Matane, Quebec, where it was damaged and some of its oil cargo spilled. The plaintiff engaged the services of Smit American Salvage Inc (Smit) to remove the ship and its cargo from the beach and bring it to a place of safety. The ultimate cost of the services was USD 2,000,000.

In addition, the plaintiff agreed to take immediate steps to clean up the pollution on the beach. The clean-up costs ultimately exceeded USD 3,000,000. It cost another USD 818,000 to remove the cargo from the Pointe Levy.

An underwater survey in dry dock revealed that the Pointe Levy was a constructive total loss. The ship was subsequently sold for USD 206,602. A few days after the stranding of the vessel, the plaintiff declared general average. An adjustment was prepared which allocated 'excess general average (sue and labour) expenses' between ship and cargo on the basis of values estimated by the plaintiff's marine manager.

As a result of the casualty, the defendants had paid, or would pay, over USD 7,000,000 to the plaintiff, subject to the Court’s determination of the issue before it. The plaintiff brought proceedings against the defendants for appropriate declarations. The question to be determined was how these expenses were to be allocated amongst the various parties, namely:

1. The defendant Royal Insurance Co of America in its capacity as the insurer of the hull and machinery of the Pointe Levy (hull underwriter);

2. The defendant Mutual Marine Office Inc in its capacity as the lead insurer of the cargo of fuel oil laden aboard the barge at the time of the grounding (cargo underwriter);

3. The defendant Standard Steamship Owners' Protection and Indemnity Association (Bermuda) Ltd (P&I Club); and,

4. The plaintiff in its capacity as owner of the Pointe Levy.

Held: The net sums due and owing under the insurance policies were: cargo underwriter, USD 331,254.99; hull underwriter USD 423,512.91.

A general average act was defined in r A of the York-Antwerp Rules 1950 as follows:

Rule A

There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.

General average exists quite independently of marine insurance. The obligation to contribute in general average does not depend upon any contract between the parties. Nevertheless, it is customary for parties to a maritime venture to insure against liability for general average contributions. Normally a marine insurance policy will provide for indemnity against general average losses and contributions, subject to the actual provisions of the policy.

There was no dispute between the parties in the present case that the stranding of the Pointe Levy gave rise to general average expenses. It was agreed that by engaging the services of Smit to lighten the barge and remove it from the strand, the plaintiff incurred an expenditure for the common benefit of all interests. Accordingly, the defendants' respective liability for those expenses was properly determined in accordance with the principles of the law of general average. The question was whether they were fully recoverable from the insurers pursuant to the principles of the law of general average and/or the insurance policies, or whether a portion of them must be borne by the plaintiff.

With respect to the extent of the cargo underwriter's liability for the expenses incurred in general average, a cargo underwriter's liability is limited to its properly calculated contributory value. The evidence demonstrated that this was the practice followed by average adjusters around the world. The expert evidence was to the effect that properties saved are only liable in general average up to their contributory values. In addition, the deduction of special charges for the purposes of calculating the cargo's contributory value is required by r 17 of the York-Antwerp Rules 1950, which provides that:

Rule 17 Contributory Values

The contribution to a general average shall be made upon the actual net values of the property at the termination of the adventure ... deduction being also made from the value of the property of all charges incurred in respect thereof subsequently to the general average act, except such charges as are allowed in general average.

The purpose of this deduction is to ensure the contribution was made only on the 'net' value of the property saved. All expert witnesses agreed that this deduction should have been made in the present case. Therefore, the Court found that the liability of the cargo underwriter was USD 331,254.99.

Having paid the insured value of the hull in the amount of USD 3,000,000, the hull underwriter had discharged its liability to indemnify the plaintiff for a general average contribution. The plaintiff therefore had no recourse against its hull underwriter unless the latter had assumed greater liabilities in its policy of insurance than those imposed by law. The Court found that the hull underwriter was liable under the sue and labour clause to pay excess general average expenses in the amount of USD 423,512.91.

The terms of the P&I Club cover provided that it could only be resorted to should the Court find that the salvage expenses were incurred solely for pollution prevention, or there was compulsory wreck removal. There was no compulsory wreck removal in the present case, and although the threat of pollution was a predominant concern, it was neither the primary nor sole motivating factor underlying the decision to engage the services of a professional salvor. The P&I Club had paid its contribution under the adjustment, and had no further liability for the general average expenses incurred.

It followed that, apart from the portion to be paid by the hull underwriter, the remaining cost of the Smit contract had to be borne by the plaintiff.

Finally, the Court awarded interest at the rate prescribed by r 21 of the York-Antwerp Rules 1950 of 5% per annum from the date of the revised adjustment.