The plaintiff was the owner of cargo shipped from Inchon, Korea, on board the defendant vessel SS Export Champion. Eight minutes after the vessel's departure, light smoke was noticed from the No 2 hatch exhaust fans. The captain sounded the fire alarm and ordered the crew to secure all ventilation to hatch No 2 and to close the exhaust vents from the hatch and the engine room to supply water pressure to the deck. The crew assembled on the deck and brought hoses to the No 2 hatch. The hatch cover was opened, but, due to heavy noxious smoke, the crew was unable to direct water onto the fire. Consequently, the hatch cover was closed, outside ventilation was secured, and the crew inserted rags between the hatch cover and hatch opening in order to form a seal. Several bottles of carbon dioxide were discharged into the No 2 lower hold and orlop deck.

During the firefighting operation, the captain remained on the bridge, reduced the vessel's speed, and manoeuvred the ship into an anchorage clear of all traffic lanes. After the ship anchored, the captain examined the cargo plan and boat notes and concluded there was no immediate danger since the fire in the No 2 hold was apparently contained and under control. He determined that the ship should continue to its next scheduled port in Pusan, Korea. In Pusan, the No 2 hatch was opened. Upon exposure to air, the fire in the No 2 orlop deck cargo regenerated. The crew sprayed the fire with hoses and successfully extinguished the fire in 20 minutes.

The question before the Court was whether the damage to the plaintiff’s cargo, caused by the means used to extinguish the fire, was a general average loss which should have been shared rateably by the vessel and by surviving cargo and freight interests.

The parties were contractually bound to adjustment of general average claims according to the York-Antwerp Rules 1950, which were incorporated by reference into the defendant's bills of lading. The post-trial briefs focused on a question involving the interplay of the following provisions of the York-Antwerp Rules 1950:

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.

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.

Rule III - Extinguishing Fire on Shipboard

Damage done to a ship and cargo, or either of them, by water or otherwise, including damage by breaching or scuttling a burning ship, in extinguishing a fire on board the ship, shall be made good as general average; except that no compensation shall be made for damage to such portions of the ship and bulk cargo, as have been on fire.

The plaintiff contended that the effect of the Rule of Interpretation is to make the numbered Rules paramount to the lettered Rules. Thus, since the facts of the instant case are squarely within r 3, they need not prove that the ship and cargo were in peril, as is required by r A and by commonly accepted principles of general average law. The defendant argued that r 3 is to be read in the context of r A except where the two rules are found to be inconsistent as applied to a particular case. Rule 3 is silent on the need to establish peril because r A consistently incorporates this requirement into r 3.

Held: The defendant must compensate the plaintiff for the contribution they would have received had a general average been declared.

In support of the plaintiff's position, one could argue that r 3 embodies a conclusive presumption that every hostile fire aboard ship is a peril; or that by incorporating the York-Antwerp Rules 1950, into the contract, the parties have agreed that losses described by the numbered rules are to be treated as though they resulted from a general average act; or that the Rules of Interpretation clearly establishes the supremacy of the numbered rules. On the other hand, the law of general average has required a finding of perils at least since the time of the Roman Empire. Additionally, the York-Antwerp rules, although contractually binding on the parties, do not have the force of law. Therefore, the numbered rules do not eliminate the requirement that the ship be in a position of peril before the law of general average applies.

The defendant, referring among other things to the captain's conclusions, argued that the ship and cargo were never in peril. The defendant missed the point when they argued that the ship and cargo were never in peril because their efforts neutralised the danger. It was conceded that the crew's efforts preserved the safety of other property in the venture. What was disputed was whether there was a real and substantial danger to the ship and cargo before the crew acted. The fire on board the vessel and the regeneration of the fire presented the real and substantial danger that these fires would spread to other cargo or to the ship itself. Peril was conclusively established. The cargo untouched by fire, which was damaged by the successful efforts to extinguish the fires, was sacrificed to the common interest in order that the peril be eliminated. The act of sealing the No 2 hatch, inserting carbon dioxide, and spraying water into the hatch were general average acts according to r A of the York Antwerp Rules 1950.