Two consignments of cargo were carried from New York, USA, to Bilbao, Spain, on the vessel SS Motomar pursuant to the terms of bills of lading. After arrival at Bilbao, a fire endangered the ship and its cargo. One of the consignments was jettisoned and the other was damaged by water in a successful attempt to put out the fire.

The shipowner took cash deposits in Spanish pesetas (ESP) from the consignees of both shipments as security for their general average contributions. The general average was adjusted at the port of discharge. The adjustment showed the consignees to be net creditors.

The insurer of the cargo reimbursed the consignees for their general average deposits and became their subrogee. The credit balance was in a special deposit in the name of the shipowner in a bank in Madrid. The insurer would have been paid the credit balance in ESP. This money could not be transferred out of Spain or used to buy free currency without the permission of Spanish authorities.

Instead of seeking payment from the bank, the insurer demanded payment from the general average adjuster to be made to it in New York. The demand was not complied with, and the insurer brought a libel against the ship and its owner to recover, as subrogee of its insureds, the damages they sustained because of the fire.

The shipowner relied, among other things, on § 1304(2)(b) of the Carriage of Goods by Sea Act, 46 USCA, which provided a complete defence to the fire loss. Since the parties had stipulated that the fire was not caused by the carrier's design, actual fault, neglect, or privity, this defence was established. The sole issue to be tried was the insurer's right to judgment for the amount of the credit balances on deposit in the Spanish bank.

The District Court for the Southern District of New York dismissed the libel upon merits. John W Clancy J held that the shipowner was under no obligation to pay the credit balances to the appellant in the USA. The insurer appealed.

Held: Judgment affirmed.

The bills of lading provided that 'General average shall be adjusted according to York-Antwerp Rules of 1924 and as to matters not therein provided for according to usage at port of adjustment'. Rule 23 of the York-Antwerp Rules dealt with the disposition of general average deposits, and required their payment into a special account in the names of two trustees, one nominated by the shipowner and the other by the depositors, in a bank approved by such trustees. They were there to be held in trust for payment to the parties shown entitled thereto by the general average adjustment. That was the obligation imposed upon the shipowner by its receipt of the general average deposits. Its liability in this suit depended upon whether it had discharged that obligation by, at least, substantial compliance with the bill of lading provisions. Even though its general average obligation did not arise from any of the terms of the contract of carriage but instead came into being as a result of sacrifices made for the common benefit and its receipt of the general average deposits, each bill of lading, by appropriate reference to the York-Antwerp Rules 1924, made those Rules the yard-stick by which such obligations are to be measured. The obvious purpose of these provisions was to ensure that general average deposits would be available for payment to those whose right to payment was established by the adjustment and, to those, if any, who might be shown to have over-contributed and to have credit balances in their favour.

Even if the bank deposit had been made in the name of two trustees in strict compliance with the rules, the insurer could take payment of the credit balance in exactly the same way and with exactly the same governmental restrictions. Therefore, no damage to the insurer had been shown. The selection of a depository bank without approval by such trustees had not been shown to jeopardise the safety of the deposit. The bank had at all times been ready to pay the credit balances to whomever was entitled to them as established by the general average adjustment. As a consequence, there was a departure from the York-Antwerp Rules only if the trustees had not approved any Spanish bank as the depository. The record was silent as to whether the trustees had approved a Spanish bank, but as the deposits were received in ESP, in Spain, and the adjustment was to be made in that country, the inference was that some bank in Spain would have been the approved depository. Having made the balances available for payment in ESP in Spain, the shipowner had substantially complied with its general average obligations.

Whether the credit balances were held in the bank in trust or not was immaterial under these circumstances.