A collision occurred between the Greystoke Castle and the Cheldale. The liability for the collision was apportioned 75/25 in favour of the Cheldale. The Greystoke Castle had to put into port for repairs and discharge and reload its cargo, whereby a general average expenditure was incurred.

The owners of cargo on the Greystoke Castle paid their contribution towards the general average expenditure of the Greystoke Castle and brought a direct action against the owners of the Cheldale for, among other things, one-quarter of this contribution. The Registrar held that in principle the Greystoke Castle cargo owners were entitled to recover from the owners of the Cheldale the sums they had paid as contribution in general average. This was confirmed by the judgment of Lord Merriman P. From this judgment an appeal was taken to the Court of Appeal and dismissed. The shipowner appealed to the House of Lords.

The owners of the Cheldale argued that the owners of the Greystoke Castle could not have recovered the general average contribution from the Greystoke Castle cargo owners at common law. They could only recover because the bills of lading contained a clause incorporating the York-Antwerp Rules 1924 and exempting them from liability for the master's negligence under the Hague Rules. Thus, this expenditure by the Greystoke Castle cargo owners was not traceable directly to the collision. Consequently, the general average contribution paid by cargo to the carrying ship was not directly recoverable by the cargo owners from the colliding non-carrying ship.

The Greystoke Castle cargo owners argued that the general average obligation did not arise out of contract at all. Rather, it arose out of the joint adventure of ship and cargo subjected to a common danger and damage caused by the negligence of the wrongdoing ship. Further, the negligence clause of the Hague Rules incorporated in the bills of lading did not break the chain of causation on which the liability of the appellants depended. The Rules were now virtually of universal application and did not represent a special arrangement of the parties.

Held: Appeal dismissed by a majority (Viscount Simon and Lord Simonds dissenting).

Lord Porter: The bills of lading under which the cargo was being carried on board the Greystoke Castle followed the provisions of the Carriage of Goods by Sea Act 1924 (UK) (embodying the Hague Rules), containing a clause exempting the ship from liability for the master's negligence and incorporating the York-Antwerp Rules 1924. Admittedly, these rules imposed a liability to contribute in general average which differed somewhat from that which would have been imposed without them, and r D provided:

Rights to contribute in general average shall not be affected though the event which gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure.

Therefore, the owners of the Greystoke Castle were entitled to a contribution from the cargo owners in respect of the incurred general average expenditure.

Lord Uthwatt: Under the York-Antwerp Rules 1924, the circumstances in which liability to general average is to attach and the extent of the liability differ somewhat from the provisions of the general maritime law. The incorporation of these rules arises no new question of principle. For the purpose in hand the Rules merely define the extent of the interest of cargo in the venture in which ship and cargo are jointly engaged. The quantum of the colliding ship's liability is not affected.

The majority held that the cargo owners thus had a direct claim against the owners of the Cheldale for the proportion of their general average contribution, on the ground that their obligation was to share in the expenditure from the outset, even though that responsibility might be divested or diminished by the subsequent chances of the voyage, and was not merely an obligation to contribute by way of indemnity towards the expenditure of the owners of the carrying ship. The Greystoke Castle cargo owners, being thus under a primary liability for their share of the expenses, had a direct claim against the shipowners of the Cheldale, rather than a derivative claim by way of subrogation.

Lord Simonds (dissenting): The loss arises from the obligation, whether contractual or imposed by the general law, to indemnify another from loss sustained by it. The contributor has no property in, or possession of, the damaged ship. In respect of that damage, it has no independent right. In respect of its own loss, it can have no action against the wrongdoer. It is irrelevant that the latter might reasonably have foreseen that, if its negligence caused a collision, cargo owners on the injured ship would probably be called on to make general average contribution. The damage suffered by the cargo owners in respect of general average contribution is damage which the law does not recognise as flowing from the offending act.