The facts and proceedings below are summarised in Hong Kong Islands Shipping Co Ltd v Castle Insurance Co Ltd [1981] HKCA 150 (CMI1172). The parties appealed to the Judicial Committee of the Privy Council. The defendants appealed against the joinder of the shipowners as additional plaintiffs in the claims against the cargo insurers. The plaintiffs cross-appealed against the refusal of the Court of Appeal of Hong Kong (HKCA) to join the shipowners as plaintiffs in the claim against the consignees. The HKCA found that as against the consignees the shipowners' claims were barred by the expiry of the six-year limitation period; whereas as against the cargo insurers the shipowners' claims were not.

Held: Appeal dismissed, cross-appeal allowed, matter remitted to the HKCA.

The claims were not time-barred at the date of the application of 19 July 1979 to join the shipowners as second plaintiffs. As for the appeal, by the letters of guarantee the insurers assumed a primary liability to pay a sum of money upon completion of the general average (GA) statement by the adjusters. This was a primary liability given that the word 'guarantee' was used loosely. As for the cross-appeal, the GA bonds indicated that parties intended for the consignees to pay a liquidated sum upon publication of the GA statement at the earliest. 31 August 1977 was the earliest date at which the shipowners' cause of action against the consignees under the GA bond for payment of GA contribution arose.

At common law, a cause of action for a GA contribution accrues at the time of the GA act: Tate & Lyle Ltd v Hain Steamship Co Ltd (1936) 55 Ll L Rep 159 (HL). The limitation period runs from the date of the GA act in respect of which the contribution was claimed: Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd's Rep 65 (Chandris). The GA clause in the bills of lading does not have the effect of postponing the accrual of the cause of action or of creating or substituting another cause of action accruing at some later date: Chandris. The GA clause in the bills of lading creates a contractual liability on the part of the consignee as indorsee of the bill to pay GA contribution, irrespective of the identity of the owner of the goods at the time when a GA sacrifice took place or a liability for a GA expenditure was incurred. Such contractual liability has a limitation period of six years from the accrual of the cause of action. The GA clause is intended to regulate, and to transfer to whoever acquires title to the consignment of cargo under the bill of lading, what would otherwise be a common law GA liability.

The actions in Chandris were commenced more than six years after the GA acts in respect of which the liability to GA contributions arose, but less than six years after publication of the GA statement. The question in Chandris was: when does a shipowner become liable to pay a GA contribution to a consignee of cargo under a contract of affreightment which provides for adjustment of GA according to York-Antwerp Rules (Y-AR) 1890 or 1924? It was argued in Chandris that since the contract of affreightment contemplated that there would be an adjustment of GA according to the Y-AR, and since the Y-AR contemplate that the adjustment will lead to the making by average adjusters of a GA statement, this statement, the argument goes, will for the first time quantify the GA contribution due, which up to that time had been only an unliquidated and unascertained sum, so a fresh cause of action thereupon arises for recovery of the amount so quantified. But a GA statement under the Y-AR prepared by average adjusters appointed by shipowners is not binding upon cargo owners either as respects any net GA contribution or any net GA claim: Wavertree Sailing Ship Co Ltd v Love [1897] AC 373 (PC). Cargo owners can still dispute liability and quantum in the proper forum. The GA statement cannot give rise to any fresh cause of action or postpone the accrual of an existing cause of action for an unliquidated sum. Causes of action for unliquidated sums that will only become quantified by the judgment of a court (or the award of an arbitrator) accrue at the time that the events occur which give rise to the liability to pay to the plaintiff compensation in an amount to be subsequently ascertained. Chandris rightly decided that claims for contributions in GA under contractual provisions which do no more than require GA to be adjusted according to Y-AR fall within this class. Accordingly, the cause of action under such a contractual provision in a bill of lading accrues at the time when each GA sacrifice was made or GA expense incurred.

No distinction could be drawn between the more common form of GA clause in bills of lading which refers only to GA being 'adjusted' according to Y-AR and the GA clause in bills of lading in the instant case which refers to GA being 'adjusted, stated and settled' according to Y-AR 1950. The words 'stated and settled' makes no difference. The Y-AR do not make the average adjuster's assessments of liability to contribute contained in the GA statement binding upon cargo owners nor do the Y-AR impose any legal obligation on cargo owners to settle GA claims by paying the amount so assessed; so in the context the additional words add nothing to what would already be comprehended in 'adjusted according to York-Antwerp Rules'.

Nevertheless, the almost invariable use of GA bonds eliminates the need to rely directly on the GA clause in the contract of affreightment.

The GA bonds gave rise to a fresh cause of action which did not accrue until the contribution amount had been published in a GA statement prepared by an average adjuster. Parties implicitly intended that there should be an average adjustment undertaken by professional average adjusters. As respects the bonds providing for cash deposits, the provisions relating to the cash deposit deal with interim payments on account out of the deposit of sums certified to be proper 'by the adjuster or adjusters who may be employed to adjust the said … general average'. The consignee had promised that it 'will pay' its proper GA contribution. This is a promise to make a payment of a liquidated sum at some date in the future which cannot arrive until the proper GA contribution has been ascertained.

The GA bond provided that the consignees' GA contributions should be adjusted in the usual manner, which meant according to Y-AR. The usual practice is for the shipowner to employ a professional average adjuster to publish in a GA statement a determination of the sums payable as a contribution from each party to the adventure who is liable to contribute to GA and sums recoverable in respect of GA sacrifices or expenditures. The usual practice is for actual payment of contributions to be deferred until completion of the GA statement, unless, as did not happen in the instant case, the average adjuster certified for some interim reimbursement to be made to a claimant for a general loss without prejudice to ultimate liability. Since GA contributions were adjusted according to the Y-AR, the consignees were not thereby deprived of any defence they might have on the ground that the statement had not been drawn up according to the Y-AR, as for instance that they were excused from liability owing to the unseaworthiness of the ship resulting from the failure of the shipowners to exercise due diligence.

Contrary to Schothorst and Schuitema v Franz Dauter GmbH (The Nimrod) [1973] 2 Lloyd's Rep 91, 97, the reasoning in Chandris does not apply to an GA bond in Lloyd's usual form. Chandris applies to claims for GA contributions between parties to the adventure where such claims are based upon either the liability at common law or contractual liability under a GA clause in the usual terms contained in the contract of affreightment. A GA bond is a new and entirely different contract. The GA bond is a fresh standalone agreement where both parties provide fresh consideration. The shipowner relinquishes any possessory lien for a GA contribution it may have on the consignment, while the consignee assumes a personal liability to pay such GA contribution which may have been payable, at common law, someone other than the consignee.