This case arose out of a collision between the Panamanian vessel Sapai and the Houyo in the waters near the Yangtze River. The Sapai was carrying a cargo of hot briquetted iron in bulk from Labuan, Malaysia, to Zhangjiagang, China. Jiangsu Shagang International Trade Co Ltd was the consignee under the bill of lading, and PICC Property & Casualty Co Ltd Zhangjiagang Branch was the cargo insurer. The collision caused damage to the Sapai. The vessel, cargo, and bunkers were exposed to a common danger. After the accident, the vessel was intentionally grounded, cargo was lightered, temporary repairs were carried out, and guarding and escort services were arranged. The owner, Carlton Navigation SA, declared general average (GA) and appointed Richards Hogg Lindley to adjust the GA under the York-Antwerp Rules 1974 (the Rules).

The GA clause on the reverse side of the bill provided that, unless otherwise provided in the charterparty, GA was to be adjusted, stated and settled in London under the Rules. After the accident, the consignee and the cargo insurer issued a GA agreement and a GA guarantee to the owner. Richards Hogg Lindley later issued an adjustment and, after making adjustments on the basis of relevant effective judgments, found that the cargo interest was liable for the outstanding GA contribution. The consignee and the cargo insurer refused to pay, and the owner brought proceedings before the Shanghai Maritime Court.

The owner argued that the measures taken after the collision were intentionally and reasonably taken for the common safety, and therefore satisfied the requirements of GA. The owner also argued that the bill expressly provided for the Rules to apply, and that the consignee and the cargo insurer had issued a GA agreement and a GA guarantee. The adjustment issued by Richards Hogg Lindley should therefore be used to determine the amount of GA contribution.

The consignee and the cargo insurer argued that the compass and navigation equipment of the Sapai had been defective before the voyage, and that the accident was caused by unseaworthiness and by the carrier's actionable fault. The cargo interest was therefore entitled to refuse GA contribution. The defendants also argued that the GA clause on the reverse side of the bill was a standard term drafted by the carrier, and that the parties had not agreed on the adjuster, the place of adjustment, or the person carrying out the adjustment. They further argued that the adjustment had not in fact been made in London and should not be binding. In addition, the defendants challenged the salvage expenses, pollution prevention costs, vessel value, repair costs and interest calculation.

Held: The owner's claim is allowed in part.

The Court held that this was a foreign-related GA dispute. The parties had chosen PRC law as the applicable law and had confirmed that the Rules applied as the GA adjustment rules. The collision exposed the Sapai and its cargo to a common danger of sinking. The measures were taken for the common safety, and involved necessary and reasonable losses and expenses which could be allowed in GA. The Court held that the adjustment issued by Richards Hogg Lindley was valid, but that the Court still had to examine each item. The Court ordered the consignee to pay the outstanding GA contribution and interest, and held that the cargo insurer was jointly and severally liable for that payment.

As to seaworthiness, the Court held that even if the accident may have been caused by the fault of one party to the voyage, this did not automatically prevent that party from claiming GA contribution. The party not at fault may bring a separate claim or raise a defence based on that fault. The accident investigation report issued by the Wusong Maritime Safety Administration recorded compass reading errors on the Sapai, but did not find that the vessel was unseaworthy before or at the commencement of the voyage, nor that the defect directly caused the collision. The main cause of the accident was found to be improper handling by the master after weighing anchor and a failure to take sufficient account of the effect of strong currents on the vessel's turning. The defendants failed to provide evidence sufficient to displace the findings in the maritime investigation report. The Court therefore rejected their defence that GA contribution could be refused on the ground of unseaworthiness.

As to the application of the Rules, the Court held that the GA clause in the bill clearly provided for the place and rules of adjustment. The clause was workable and consistent with shipping practice, and was valid. After the accident, the consignee and the cargo insurer also issued GA agreements and guarantees, confirming that the GA sacrifices and expenses should be adjusted in accordance with the contract of carriage.The shipowner's appointment of Richards Hogg Lindley to conduct the GA adjustment was therefore lawful and valid. Although Ansheng Average Adjusters & Surveyors Co Ltd in Taiwan was involved in communications and drafting, it acted only as Richards Hogg Lindley's representative. The final adjustment report was issued and confirmed by Richards Hogg Lindley in London, so this did not affect the validity of the London adjustment.

As to salvage expenses, the Court held, relying on r 6 of the Rules, that salvage expenses could in principle be allowed in GA, whether the salvage was carried out under contract or otherwise, provided that the salvage was performed to preserve the property involved in the same maritime adventure from danger. The Court also noted that the later York-Antwerp Rules 1990 and York-Antwerp Rules 1994 made it clearer that salvage remuneration could include the salvor's skill and efforts in preventing or minimising environmental damage, except for special compensation. The Rules did not automatically exclude expenses connected with preventing or minimising environmental damage. The Court therefore rejected the defendants' argument that pollution prevention expenses had to be deducted from the salvage expenses.