This dispute arose from a collision between the Frontpage, owned by Front Saga Inc (Front Saga), and the Changhang Xianfeng in waters near Ningbo, PRC. After the collision, Front Saga declared general average and appointed an adjustment institution to carry out the adjustment. According to the adjustment report, Sinochem, as consignee of the cargo, and Ping An, as cargo insurer, were required to contribute to general average. As Sinochem and Ping An did not pay the relevant contribution, Front Saga brought proceedings to the Shanghai Maritime Court, seeking payment of the general average contributions. The Shanghai Maritime Court allowed Front Saga’s claim in part, ordering Sinochem and Ping An to pay part of the general average contribution. All three parties appealed to Shanghai High Court. Front Saga argued that the Court of first instance had failed to give sufficient effect to the adjustment report and had wrongly excluded certain expenses. Sinochem and Ping An argued that Front Saga’s claim was time-barred, and also disputed the applicable adjustment rules, the effect of the adjustment report, and whether the relevant expenses should be included in general average.

Held: Appeal dismissed.

As to the applicable law, the Court first held that the charterparty clause providing for the application of the York-Antwerp Rules 1994 could not automatically bind Sinochem as a bill of lading holder. Only one of the bills of lading contained a clause incorporating the charterparty, and the incorporated charterparty was not clearly identified. The Court held that the governing law remained Ch X of the Maritime Code of the PRC (the Maritime Code). However, Ch X of the Maritime Code does not provide complete rules on all technical matters of adjustment. The Court therefore relied on art 268.2 of the Maritime Code, which provides that ‘[i]nternational practice may be applied to matters for which neither the relevant laws of the People’s Republic of China nor any international treaty concluded or acceded to by the People’s Republic of China contain any relevant provisions’, and referred to international practice, namely the York-Antwerp Rules 1994.

The Court discussed two categories of expenses. The first concerned the anchorage lightering fee. Front Saga argued that the lightering of cargo was carried out to release the ship and cargo from a common peril, and should be treated as general average based on r X of the York-Antwerp Rules 1994. The Court, however, held that the place of the accident was already close to the port of destination. After the vessel had safely anchored, continued discharge of cargo by lightering overlapped with delivery at the destination. The lightering expenses therefore could not be treated as expenses incurred for common safety. The second category concerned expenses for the prevention of the pollution. Front Saga relied on r VI of the York-Antwerp Rules 1994, together with art 13.1.b of the Salvage Convention 1989, and argued that the expenses should be included in general average. The Court did not deny the relevance of those rules, but emphasised the basic premise reflected in r 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.' Since there was insufficient evidence that the purpose of the measures was to release the ship and cargo from a common peril, the Court refused to include those expenses in general average.

This case also concerned the effect of a general average adjustment report. The Court held that, even though the parties had agreed to use the adjustment report as the basis for contribution, Sinochem and Ping An were still entitled to object to specific items. The Court therefore examined the relevant expenses item by item and did not adopt the adjustment report in full. The Court did not adopt the adjustment report in full. At the retrial stage, the Supreme People's Court upheld the lower Courts' approach and dismissed the retrial application.