The vessel S/T Mobil Apex was chartered to carry a cargo of gasoline and naphtha. Shortly after loading the cargo, the crew discovered that naphtha was leaking into the engine room through a bulkhead penetration through which the bilge pump shaft passed from the engine room to the pump room. Loading of the cargo ceased immediately. Nevertheless, sparks from machinery in the engine room ignited the leaking naphtha, causing an explosion and fire. Initial efforts to extinguish the fire were unsuccessful. With the consent of the vessel's master, two tugs towed the vessel away from the dock. Coast Guard personnel were then able to extinguish the fire.

In this admiralty action against the vessel and its owner, the charterer sought to recover damages for the loss of a portion of the cargo, and the tugs' owners and charterers demanded payment for the salvage services provided by their tugs. The shipowner denied liability and counterclaimed for a general average contribution under the terms of the charterparty. Prior to trial, the shipowner settled the claim for salvage services by paying USD 40,000 to the tugs' owners and charterers, without prejudice to its claim that this amount should be included in general average.

The District Court for the Southern District of New York held that the shipowner did not breach the warranty of seaworthiness and thus should be exonerated from liability for damage to the cargo. The Court also found that the shipowner should recover in general average against the charterer, but excluded from general average the amount paid in settlement of the salvage claim.

Both the shipowner and the charterer appealed. The charterer conceded that the naphtha initially flooded the pump room because of the negligence of shipboard personnel, who were under its control as the charterer. It contended, however, that the leakage of naphtha from the pump room to the engine room resulted from the unseaworthiness of the vessel.

Held: The finding of no liability of the vessel is affirmed. The matter is remanded for recalculation of damages in general average in accordance with this opinion.

Section 3(1)(a) of the Carriage of Goods by Sea Act 46 USCA § 1300 (COGSA) [based on art 3.1.a of the Hague Rules] imposes on a shipowner a duty to exercise due diligence to make the vessel seaworthy.

The standard of seaworthiness requires that the ship be reasonably fit for its intended use. When a vessel is chartered to carry liquid cargo, it must be equipped to store and transport the fluid safely.

Application of the seaworthiness standard to this case required that the stuffing boxes possess the 'latent liquid-tight integrity'. The purpose for the requirement of latent liquid-tightness was to prevent leakage when the pumps were inoperative and the crew was away from the pump room. This could be accomplished if the crew tightened the stuffing box before leaving the pump room unattended. The standard of seaworthiness did not require that the stuffing box be designed to prevent leakage where the crew failed to take this precaution, if in fact such a design would be possible. The District Court did not err in concluding that the standard had been met.

The shipowner's cross-appeal presented the question whether an expenditure incurred for salvage services performed without a written contract, but with the consent of the vessel's master, should be included in general average. The concept of general average 'is simply stated - when one who partakes in a maritime venture incurs loss for the common benefit, it should be shared rateably by all who participate in the venture'. Sea-Land Service Inc v Aetna Insurance Co 545 F 2d 1313 (2nd Cir 1976) (CMI2666). The contract of carriage between the shipowner and charterer incorporated the York-Antwerp Rules 1950, r A of which provides:

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.

Rule A appeared to encompass the expenditure at issue in this case. The vessel's master intentionally incurred the obligation by consenting to the towage. The charterer did not contend that it was unreasonable to settle the claim for salvage services for USD 40,000. And the towage was for the common safety of the vessel and cargo.

The charterer argued that the salvage services performed by a volunteer not under contract, can never satisfy r A. This formulation accurately stated the law as to 'salvage charges', which result from the voluntary act on the part of a total stranger to the adventure and without a contract of any kind, as for example, when a derelict vessel is picked up by another vessel and towed into port. In such a case, the charges are not 'intentionally … made or incurred' by anyone associated with the voyage and thus cannot constitute general average. However, the tugs' owners and charterers could hardly be termed 'volunteers', although they performed without a written contract. The vessel's master intentionally and voluntarily agreed to accept their towage services. Thus, reasonable compensation for the services provided came within the terms of r A and the principle set forth in r E of the York-Antwerp Rules 1950.

In the absence of any precedent interpreting r A to exclude such expenses, the Court of Appeal follows the straightforward language of the Rule. Therefore, the amount paid in settlement of the salvage claim should have been included in the calculation of general average.