Canadian Pacific Forest Products Ltd (the plaintiff) entered into a freight agreement dated 6 October 1988 with Forest Product Carriers (International) Ltd (the first defendant) to transport packaged lumber from ports in British Columbia to the United Kingdom and Northern Europe for the calendar year 1989. The first defendant agreed to provide vessels for monthly sailings. The first defendant time chartered the Serafin Topic from Termar Navigation Co (the second defendant) on 23 December 1988. The plaintiff's cargo was to be carried under bills of lading issued on or about 27 January 1989 and stated to be between the plaintiff and the second defendant (cl 4).

The cargo was loaded on board the Serafin Topic at Western Canadian ports in January 1989. There was no issue as to the proper loading of the cargo. On 28 January 1989, the Serafin Topic set sail for Liverpool and Newport in the United Kingdom via the Panama Canal.

On 26 February 1989, the Serafin Topic was hit by a large wave in rough North Atlantic seas. This caused the lumber to shift on the deck. There was damage to lashings and other equipment, and the lumber was no longer secured. Some cargo was lost. There was no evidence that the cargo that remained was damaged.

The Serafin Topic diverted to Lisbon to discharge and restow the deck cargo which was necessary for the voyage to continue. The defendants instructed local agents at Lisbon. The cost of discharging and restowing was apportioned approximately equally between them. The defendants incurred expenses totaling USD 551,556.29 at Lisbon and claimed USD 527,593.44 from the plaintiff. The discharge and restowing operations were completed on 13 March 1989 and the Serafin Topic only departed for Lisbon on 20 March 1989. The voyage was subsequently completed and the plaintiff's cargo was discharged at Liverpool and Newport as originally intended.

The average adjuster relied on cl 12(f) of the bill of lading to qualify the expenses involving the discharging and restowing of the plaintiff's cargo at Lisbon as special charges on deck cargo and assigned the costs of discharge and restowage at Lisbon to the plaintiff's account. These expenses were inadmissible as general average (r 10.b of the York-Antwerp Rules 1974).

The plaintiff commenced an action for a negative declaration of liability.

The defendants responded with a counterclaim seeking to recover the costs of discharging and restowing the plaintiffs' cargo. The defendants relied on the terms of the bill of lading and the freight agreement or, in the alternative, on principles of bailment, agency of necessity or restitution. The defendants submitted that 'adverse weather' or 'orders or directions by any government or authority' were two possible events that triggered the application of cl 19 of the bill of lading. For the latter, the Port of Lisbon Authority was said not to have permitted the Serafin Topic to leave unless the deck cargo had been properly restowed.

The plaintiffs submitted that they were not responsible for costs en route which were incurred by the defendants to transport the plaintiffs' cargo. The cargo was in the custody of the defendants whose responsibility it was, in consideration of the freight paid, to transport the lumber from Canada to the United Kingdom. The plaintiff argued that the counterclaims by the first defendant were premature and hypothetical because the claims asserted depended on the outcome of arbitration proceedings between the first and second defendants. The plaintiff also argued that the second defendant was only entitled to claim under the bill of lading, and the first defendant was only entitled to claim under the freight agreement.

Held: Counterclaim dismissed.

The plaintiff was not liable to the defendants under any provision of the bill of lading. The defendants had not demonstrated that they were entitled to recover the costs of discharging and restowing at Lisbon from the plaintiff.

Clause 19(c) entitled the defendants to compensation for services rendered under cl 19(a). The entitlement was contingent on the services performed being a service 'herein provided' ie provided in cl 19(a), but neither restowage nor discharge in the circumstances was such a service; and the discharge at Lisbon did not constitute complete delivery and performance under the contract of carriage. There was, accordingly, no right to extra compensation under cl 19(c) for discharge and restowage.

Assuming that the defendants could invoke cl 19 on the basis of adverse weather and/or directions of an authority, the defendants did not exercise any of the options made available under cl 19(a). The options included: (1) cancel the contract in whole or in part; (2) discharge, tranship, land or deliver the goods at any convenient port or place; and (3) forward the goods at the sole risk and expense of the cargo interests.

The defendants could also not rely upon bailment, quantum meruit, agency of necessity, or unjust enrichment. The costs incurred at Lisbon were necessary for the performance of the second defendant's contractual obligations and so must be treated as expenses of the voyage, and not as incurred for the benefit of the cargo interests. Similarly, agency of necessity did not arise and the discharge and restowage at Lisbon and the costs incurred by the defendants were not incurred in any capacity as agents of the plaintiff. There was also no understanding on the plaintiff's part that the defendants intended to be compensated, nor any request by the plaintiff that the work should be performed.

The special clause on the front of the bill of lading constituted an exemption from claims by cargo interests but neither conferred a right on the defendants to claim extra costs incurred in the course of a voyage from the plaintiff, nor released the defendants from the responsibility of performing the freight contract.

Finally, it was not open to the plaintiff to argue that the defendants' arguments to the contrary were premature, as it was the plaintiff who commenced this action for a negative declaration that the plaintiff was not liable for the costs incurred by the defendants.