The Warschau, chartered by MacMillan Bloedel Ltd (the plaintiff), was forced to unload a cargo of coal during a refueling stop because the coal had overheated and there was a risk of fire. The master of the ship declared general average. The cargo was discharged and trucked to an unused airfield for the purpose of permitting it to cool. After the cargo had cooled, it was reloaded to another ship that was chartered by the plaintiff. The plaintiff claimed against John Richard Ludbrooke Youell (the defendant) for the full amount of the losses incurred by it from the unloading, storing and reloading of the cargo.

The first instance Court upheld the plaintiff's claim. The defendant appealed.

The question before the Court was: did the defendant, under the policies, promise to reimburse the plaintiff for expenditures made by it, having been reasonably incurred to prevent the ship from either being lost or damaged more than it was ultimately found to be, and which expenditures may have protected the defendant from being liable for a much more serious loss?

Held: Appeal allowed.

At common law a general average expenditure, in contrast to a general average sacrifice, was recoverable, not under the insurance for loss or partial loss, but under the suing and labouring clause. This proposition was founded on the simple fact that, if there had been an expenditure which saved the subject-matter of the insurance, the subject-matter had not been lost.

The policies in question here were in part insurance on freight. If there had been a general average expenditure which protected the freight, the plaintiff would have been entitled to recover its portion under the suing and labouring clause from its underwriters. If there had been a general average sacrifice, eg throwing cargo overboard to save the ship, the loss of freight by the charterer, assuming that under the charterer's contract with the cargo owner the freight was not recoverable, would have fallen upon the underwriters' obligation.

Nevertheless, the Court found that the plaintiff's liability for discharging, storing and reloading costs was not 'legal liability for a loss of or damage to the chartered vessel'. Thus, the plaintiff was unable to invoke the suing and labouring clause on the ground that the losses were not proximately caused by the perils insured against so as to be within the insurance cover.