SALVAGE, GENERAL AVERAGE AND SUE AND LABOUR
Salvage charges, general average and sue and labour are all forms of loss incurred at a time of emergency; though somewhat closely interwoven, they also remain distinct and separate in so far as their recoverability under a policy of marine insurance is concerned. They all come under the umbrella of ‘partial loss’.1 And, though a ‘particular average loss’ is also partial loss, the Act has not included all forms of partial losses within the realm of ‘particular average’. This is made clear by s 64(1), which declares that: ‘A particular average loss is a partial loss of the subject matter insured, caused by a peril insured against, and which is not a general average loss’, and by s 64(2), which states that: ‘Particular charges are not included in particular average.’ Thus, though general average and particular charges are partial losses, they are not particular average losses.2 Salvage charges are also partial losses, but as they have not been expressly excluded from the province of ‘particular average’, they are particular average losses.3
Warranted free from particular average
The above categorisation is significant should a policy contain a ‘warranted free from particular average’ clause (sometimes referred to simply as the fpa clause), which is, in fact, an exception clause and not a promissory ‘warranty’ in the true marine insurance sense of the term. Though the expression ‘particular average’ is used, it is commonly understood to mean that all partial losses are not covered by the policy.4 The question which thus arises is, are salvage charges, general average and particular charges (sue and labour) recoverable under a policy containing a ‘warranted from free particular average’ clause? If the words ‘particular average’ in the warranty are given a broad construction to mean partial losses, then, salvage, general average and particular charges (which are all partial losses) should not be recoverable under a policy containing such a warranty. But, if ‘particular average’ is given its strict meaning, then, only salvage charges are caught by the warranty, and are, therefore, not recoverable under such a policy.
Though ‘salvage charges’ were considered by the common law as irrecoverable in a policy containing a free from particular average warranty,5 the position under the Act is different, for s 76(2) of the Act states that:
Where the subject matter insured is warranted free from particular average, either wholly or under a certain percentage, the insurer is nevertheless liable for salvage charges, and for particular charges and other expenses properly incurred pursuant to the provisions of the suing and labouring clause in order to avert a loss insured against.
As a ‘particular charge’ is not a particular average loss (as is made clear by s 64(2)), there is no real need for the above section to reiterate that the insurer is liable for ‘particular charges’ in a policy containing such a warranty. As such a loss is clearly not a particular average loss, it does not come within the purview of the warranty.
In relation to general average, the Act has, through s 76(1), expressly declared that: ‘Where the subject matter of insurance is warranted free from particular average, the assured cannot recover for a loss of part, other than a loss incurred by a general average sacrifice…’ Such a declaration, save for the purpose of clarification, is also unnecessary, as a general average loss has been expressly excluded from the definition of ‘particular average’ by s 64(1), and is, therefore, not affected by warranty.
To sum up, when a policy is warranted ‘free from particular average’, the assured is prohibited from claiming for a particular average loss. It does not, however, prevent him from claiming other expenses, such as general average and sue and labour (neither of which is a particular average loss), and salvage charges, which, by s 76(2), are expressly said to be recoverable from the insurer.
In relation to sue and labour, the case of Kidston v Empire Marine Insurance Co Ltd (1866) LR 1 CP 535 may be cited to illustrate the point. On this occasion, the assured successfully claimed under the head of sue and labour, even though the policy on freight was warranted free from particular average. After the ship was badly damaged, the assured incurred costs for chartering a substitute vessel to transport the cargo to the UK.
Willes J: [p 546] …In our opinion, quite apart from usage, the true construction of the policy, as reconciling and giving effect to all its provisions, is, that the warranty against particular average, does no more than limit the insurance to total loss of the freight by the perils insured against, without reference to extraordinary labour or expense which may be incurred by the assured in preserving the freight from loss, or rather from never becoming due, by reason of the operation of perils insured against; and that the latter expenses are specially provided for by the suing and labouring clause, and may be recovered thereunder.
The philosophy behind this concept was adequately summed up as long ago as 1793 by Lord Eyre CJ, in Nicholson v Chapman, below, where the court had to differentiate between salvage and a claim for preserving mislaid property.
Nicholson v Chapman (1793) 2 H B1 254
A considerable quantity of timber, owned by the plaintiff, was placed in a dock on the bank of the Thames. However, the fastenings gave way, and the timber was carried by the tide to Putney, where it was recovered by the defendant. The defendant then refused to hand over the timber to the plaintiff until a suitable salvage award had been made by the plaintiff. The plaintiff refused such payment.
The court ruled that this was not a case of salvage, and then went on to show why it was not.
Lord Eyre CJ: [p 257] …The taking of goods left by the tide upon the banks of a navigable river, communicating with the sea, may in a vulgar sense be said to be salvage; but it has none of the qualities of salvage, in respect of which the laws of all civilised nations, the laws of Oleron, and our own laws in particular, have provided that a recompense is due for the saving, and that our law has also provided that this recompense should be a lien upon the goods which have been saved. Goods carried by sea are necessarily and unavoidably exposed to the perils which storms, tempest and accidents (far beyond the reach of human foresight to prevent) are hourly creating, and against which, it too often happens that the greatest diligence and the most strenuous exertions of the marine cannot protect them. When good are thus in imminent danger of being lost, it is most frequently at the hazard of the lives of those who save them, that they are saved. Principles of public policy dictate to civilised and commercial countries, not only the property, but even the absolute necessity of establishing a liberal recompense for the encouragement of those who engage in so dangerous a service.
Such are the grounds upon which salvage stands…but see how very unlike salvage is to the case now under consideration…the timber is found lying upon the banks of the rivers, and is taken into the possession, and under the care of the defendants, without any extraordinary exertions, without the least personal risk, and in truth, with very little trouble. It is therefore a case of mere finding, and taking care of the thing found…for the owner.
Definition of salvage charges
The term ‘salvage charges’ is defined in s 65(2) of the Act thus:
‘Salvage charges’ means the charges recoverable under maritime law by a salvor independently of contract. They do not include the expenses of services in the nature of salvage rendered by the assured or his agents, or any person employed for hire by them, for the purpose of averting a peril insured against. Such expenses, where properly incurred, may be recovered as particular charges or as a general average loss, according to the circumstances under which they were incurred.
That salvage charges are recoverable under a policy of insurance is confirmed by cl 10.1 of the ITCH(95), which states:
This insurance covers the Vessel’s proportion of salvage, salvage charges… reduced in respect of any under-insurance…6
A similar provision is made with respect to goods in cl 2 of the ICC (A), (B) and (C), which affirm that:
This insurance covers general average and salvage charges, adjusted or determined according to the contract of affreightment and/or governing law and practice, incurred to avoid or in connection with the avoidance of loss from any cause except those excluded in cll 4, 5, 6 and 7 [the exclusion clauses] or elsewhere in this insurance.
Section 65(1) of the Act clearly places salvage charges as an integral part of any particular average loss when it states:
Subject to any express provision in the policy, salvage charges incurred in preventing a loss by perils insured against may be recovered as a loss by those perils.
Thus, salvage charges are recoverable as part of the claim for the particular average loss.
Meaning of independently of contract
Section 65(2) of the Act defines ‘salvage charges’ as ‘charges recoverable under the maritime law by a salvor independently of contract’. In so stating, the Act is differentiating between what may be termed as true salvage and the hiring of assistance in time of need.
When the Act employs the term ‘independently of contract’, it is referring to an agreement of salvage which has its roots in maritime law and not in contract. The principle behind this concept is clearly illustrated by Lowndes and Rudolf, who suggests that:
Where the Marine Insurance Act defines ‘salvage charges’ as meaning ‘…the charges recoverable under maritime law by a salvor independently of contract’, it does not require that the salvage services should be performed without a contract, but is simply restating the far more fundamental concept that the right to an award of salvage is independent of whether there was a contract or not.7
The LOF salvage agreement
To this end, Lloyd’s Open Form (LOF) 19958 specifically describes itself as an ‘agreement’, rather than a contract, and, as it operates in accordance with the principles of the law maritimes on a ‘no cure—no pay’ basis, it is presumed that such an agreement would fall within the definition of ‘salvage charges’ as contained within the Act.
Some indirect confirmation that salvage under a Lloyd’s Open Form would be construed as ‘salvage charges’ can be found in the case of ‘Raisby’, below. Although this was not an insurance case, it is, nevertheless, relevant, in that it involved salvage under a voluntary agreement which was not unlike the terms contained within a Lloyd’s Salvage Agreement.
The Raisby (1885) 10 PD 114
The defendants were the owners of the steamship Raisby which, on a voyage from Bombay to Dunkirk, became disabled in the Bay of Biscay. The plaintiffs’ steamer Gironde went to her assistance, and the following document was signed by the two captains: ‘At my request, the captain of the steamship Gironde, of Cardiff, will tow my ship, the steamship Raisby, of London, to St Nazaire, that being the nearest port, for repairs. The matter of compensation to be left to arbitrators at home, to be appointed by the respective owners.’ Thereupon, Gironde towed Raisby to St Nazaire, where she was repaired, before continuing to Dunkirk and delivering her cargo. Having succeeded in claiming a salvage award against the ship and freight, the plaintiffs were unsuccessful in their action in the French courts against the cargo-owners. Thus, the present action against the defendant owners of Raisby was for the unresolved salvage award owed by the cargo-owners for which the plaintiffs considered them responsible under the salvage agreement.
The court ruled that the agreement amounted to salvage proper and not to contractual salvage as such. Therefore, there could be no question of general average contributions by the cargo-owners, and the shipowner was not liable for any salvage award which was directly owed by the cargo-owners.
Sir James Hannen: [p 116] …It seems to me that no primary liability rests on the ship or its owners to pay for the salvage of the cargo. It is laid down in Abbott on Shipping, title Salvage: ‘With respect to the parties liable to pay salvage, and the interest in respect of which it is payable, the rule is that the property actually benefited is alone chargeable with the salvage recovered.’ … The so called agreement, however, does not purport to extend the liability of the shipowners, or, indeed, to fix any liability on any one, except in so far as such liability may be created by the acknowledgment which it contains that the captain of Raisby had requested the captain of Gironde to tow his ship to St Nazaire. This part of the document in no way alters the position of the matter from what it would have been if the captain of Raisby had simply accepted the services of Gironde, in which case it has not been contended that a claim would have been maintained against the ship or its owners for salvage of the cargo… It appears to me, therefore, that the plaintiffs altogether fail to show any liability on the part of the defendants to pay for the salvage of the cargo.
Thus, only expenses for salvage which are incurred independently of contract are recoverable under the denomination of ‘salvage charges’ under the Act.9 Typically, these would include salvage services rendered on a ‘no cure, no pay’ basis. Any salvage which is contractual and amounts to the ‘hiring’ of assistance is not a ‘salvage charge’, but may constitute a particular charge (which may be recouped under the auspices of sue and labour), or general average, according to the circumstances under which they were incurred.
True salvage, namely, salvage which arises independently of contract, is only applicable to maritime property, and this would include a ship, her apparel or cargo. For such salvage to be earned, the efforts of the salvor must be voluntary and successful. Furthermore, true salvage establishes a lien on the property salved. The whole concept of salvage is to encourage the preservation of maritime property, including life, and any remuneration for such services is dependent on those services being given voluntarily, leading to a successful salving of the property.
Traditionally, an award for life salvage was not provided for under the common law, until the Merchant Shipping Act of 1854 made suitable provision. That provision remains in force under s 544 of the Merchant Shipping Act 1894, which states:
Where services are rendered wholly or in part within British waters in saving life from any British or foreign vessel, or elsewhere in saving life from any British vessel, there shall be payable to the salvor by the owner of the vessel, cargo, or apparel saved, a reasonable amount of salvage, to be determined in case of dispute in manner hereinafter mentioned.
Although, at first sight, s 544 still appears to link life salvage with the salvage of property, this is not, in fact, the case. Under statute, an award can be made for life salvage, even when it is made independently of salvage services to property. This was made abundantly clear by Lord Esher MR, in Nourse v Liverpool Sailing Ship Owners Mutual Protection and Indemnity Association, below. It is further emphasised that the statutory provision places the liability for life salvage upon the owner of the ship or the cargo saved, and not the insurer; a policy of insurance is a separate matter. As regards insurance, the court concluded that an insurer bore no liability for life salvage.
Nourse v Liverpool Sailing Ship Owners Mutual Protection and Indemnity Association (1879) 4 App Cas 755, CA
In March 1895, the sailing vessel Arno was in grave peril in mid-Atlantic when the master and crew were rescued by the steamer Normannia; Arno herself being salved later by another vessel. In due course, the Admiralty granted an award of life salvage to the owner, master and crew of Normannia, and the plaintiff owner of Arno paid the award before attempting to recover the amount so paid from their P & I Association. The defendant P & I Association rejected the claim, on the basis that, under cl 18 of their rules, they were not liable for any payment ‘…in respect of any loss which is capable of being insured against by the usual form of Lloyd’s policy…’ and that, under the clause, life salvage was the liability of the hull insurer, and not the P & I Association.
The Court of Appeal affirmed the decision of the trial judge, and ruled that a Lloyd’s policy did not cover life salvage. Furthermore, Lord Esher MR was of the opinion that an award for life salvage under statute did not have to be accompanied by the salvage of property.
Lord Esher MR: [p 22] …The reward given by the statute for saving life is independent of any salvage services rendered in respect of property, whereas, under the maritime law, salvors never could recover anything in respect of life saved unless they had also rendered salvage services in respect of property. Although it is called salvage, the reward given by statute is not like ordinary salvage. It is a new head of salvage altogether. The statute can have no effect, as it appears to me, on the meaning of the ordinary form of Lloyd’s policy, because the life salvage for which it provides is a new head of salvage altogether, which was not in existence when the form first came into use, and could not have been in the contemplation of its framers. For these reasons, I think that the loss for which the plaintiff claims is not within the meaning, as it is not within the terms, of an ordinary Lloyd’s policy, and therefore is not within r 18 of the defendants’ rules. In my opinion, the judgment of Matthew I was right, and should be affirmed.
However, in the much later case of Bosworth (No 3), below, where the crew were saved at the same time as the ship and cargo were saved, but by another vessel, the court was of the opinion that the life salvage could be included within the meaning of s 65(1) of the Act, even though it involved ‘a little stretching of the language’. Whether a court would take a similar wide view where life salvage stood entirely alone is much more debatable.
Grand Union Shipping Limited v London SS Owners’ Mutual Insurance Association Ltd, ‘Bosworth’ (No 3)  1 Lloyd’s Rep 483
On a voyage from Edinburgh to Norway, The Bosworth encountered severe weather and was in danger of sinking. Two trawlers and a merchant ship came to her aid, and she was eventually towed into Aberdeen. However, one of the trawlers, Wolverhampton Wanderers, was damaged whilst saving the entire crew, and her owners successfully claimed a life salvage award from the Admiralty Court. Having paid out this salvage award, the owners of Bosworth then sought to recoup this expenditure from their insurers, who denied liability for the life salvage and suggested that the whole salvage award for the ship and cargo should have been apportioned between the three salving vessels.
The court ruled against any such apportionment, and decided that Wolverhampton Wanderers was entitled to recover for the ‘enhanced’ award of saving life under the Lloyd’s policy because she had been involved in the saving of the ship and cargo.
McNair J: [p 490] …It needs possibly a little stretching of the language to say that a salvage award in so far as it reflects an element of life salvage gives rise to a charge incurred in preventing a loss by perils insured against. I think the answer to that is that by the practice of the Admiralty Court an award made in these circumstances is treated as being, and is in fact, an award for services rendered to the ship and cargo.
The matter, I think, however, is made quite plain by the decision of the Court of Appeal in the case of Nourse v Liverpool Sailing Ship Owners’ Mutual Protection and Indemnity Association  2 QB 16. In that case, the sailing vessel Arno, which was entered in the defendants’ association, had been in great peril in the mid-Atlantic, and her master and crew were rescued by the steamship Normannia. Later, quite independently of that operation, Arno herself was picked up by another vessel, Merrimac, and brought into Liverpool by a salvage crew. The owners of Normannia recovered against the ship an award for true life salvage under the Merchant Shipping Act 1894. That is all they could recover, because they had not helped to save the ship or cargo at all. The question at issue in the case was whether such an award was payable under a Lloyd’s policy in the usual form, because, if it was, the liability was excluded from the club cover. It was held by Matthew J that it was not, on the ground that the award in that case was not a true maritime salvage award, but was a special award under the terms of the Merchant Shipping Act 1894…I think it is clearly implicit in his judgment that if the award in that case had been, like Wolverhampton Wanderers’ award in this case, a true maritime salvage award for saving ship and cargo, enhanced by consideration of life salvage, he would have held that was recoverable under a Lloyd’s policy.
An enhanced award for preventing or minimising environmental damage
Clause 10.5 of the ITCH(95) categorically allows recovery from the insurer for the Vessel’s proportion of salvage charges. However, it fails to mention whether any additional sum included in the salvage award apportioned for preventing or minimising damage to the environment under Art 13(1)(b) of the International Convention on Salvage 1989 may be included in the claim. The position is clarified in cl 10.6 as follows:
Clause 10.5 shall not however exclude any sum which the Assured shall pay to salvors for or in respect of salvage remuneration in which the skill and efforts of the salvors in preventing or minimising damage to the environment as is referred to in Art 13(1)(b) of the International Convention on Salvage 1989 have been taken into account.
Thus, any enhancement of the award made under Art 13 is recoverable by the assured.
Incurred in preventing a loss by perils insured against
Like all forms of partial loss, salvage charges are only recoverable if, to quote s 65(1) of the Act, they are ‘…incurred in preventing a loss by perils insured against…’. This principle is reinforced by cl 10.4 of the ITCH(95), which states:
No claim under this cl 10 shall in any case be allowed where the loss was not incurred to avoid or in connection with the avoidance of a peril insured against.10
The principle that salvage charges are recoverable provided that they are incurred in preventing a loss by a peril insured against was confirmed by Lord Blackburn in Aitchison v Lohre (1879) 4 App Cas, HL, who said that: [p 765] ‘…The amount of such salvage occasioned by a peril has always been recovered, without dispute, under an averment that there was a loss by that peril…’
That salvage is not recoverable when it does not arise from a peril insured against was clearly illustrated in Ballantyne v Mackinnon, below.
Ballantyne v Mackinnon (1896) 2 QB 455, CA
The plaintiff was the owner of the steamship Progress, which was insured with the defendants under a time policy of insurance. On a voyage from Hamburg to Sunderland, Progress ran short of coal, and was towed into port by a trawler which was later granted a salvage award of £350. The plaintiffs paid the award, and then sought to recover the sum from their insurers.
The Court of Appeal upheld the decision of the trial judge, and ruled that the underwriters were not liable for the salvage charges, as they had not arisen from a peril insured against.
AL Smith LJ: [p 459] …The Lord Chief Justice says [in the court of first instance]:
It was admitted by the plaintiff that there was no weather which rendered salvage assistance necessary, and that the need of assistance of the trawler and the tug was occasioned by the want of coal…Can it be said on the facts here stated that the salvage services were at all rendered necessary, or the salvage expenses incurred by reason of any peril insured against? In my judgment it cannot…that condition arose directly from the absence of fuel, and no damage or peril of the sea supervened. In other words, it was the unseaworthiness of the ship which caused the need—if need there were— of salvage aid, and no peril of the sea caused or contributed to the necessity for the aid.
[p 461] …As before stated, we agree with the Lord Chief Justice when he held upon the evidence before him that the loss sustained was not occasioned by a peril of the sea, for in our judgment the loss complained of arose solely by reason of the inherent vice of the subject matter insured: we mean the insufficiency of coal with which the ship started upon her voyage…
The same criterion was applied in Pyman Steamship Co v Lords Commissioners of the Admiralty  1 KB 49, CA. Although this was not an insurance case, the issue of salvage was raised with respect to a wartime requisition charter. On this occasion, the vessel in question broke her propeller shaft in severe weather close to a minefield. Salvage services were needed so that she could be towed to safety, away from the adjacent minefield, as well as to avert further damage by perils of the seas. Under the charterparty, the Admiralty were liable for ‘the consequences of hostilities or warlike operations’, but not sea risks; they were obliged to pay only for the proportion of salvage consequent on the war risk.
Warrington LJ: [p 54] …Payments made to avert a peril may be recovered as a loss by the peril.
Scrutton LJ: [p 55] …Ever since the decision in Aitchison v Lohre, and long before that, it has been a commonplace in mercantile law that sums paid to avert a peril may be recovered as upon a loss by that peril, and as soon as it is established that this sum of £3,000 was paid partly to avert a sea peril and partly to avert a peril from enemy mines, it follows that there has been one loss by sea perils and another by war perils. The parties have agreed that the appellants shall not be liable for loss by sea perils, and shall be liable for loss by war perils.
Clause 10.1 of the ITCH(95) states that:
This insurance covers the Vessel’s proportion of salvage, salvage charges and/or general average, reduced in respect of any under-insurance…11
But the ITCH(95) then goes on to affirm, in cl 10.5, that:
No claim under this cl 10 shall in any case be allowed for or in respect of:
10.5.1 special compensation payable to a salvor under Art 14 of the International Convention on Salvage 1989 or under any other provision in any statute, rule, law or contract which is similar in substance;
10.5.2 expenses or liabilities incurred in respect of damage to the environment, or the threat of such damage, or as a consequence of the escape or release of pollutant substances from the Vessel, or the threat of such escape or release.12
Thus, the policy excludes the insurer from liability for environmental damage, but no such exclusion applies to salvage efforts made in order to prevent or minimise such environmental damage. This is clarified in cl 10.6,13 which has been discussed earlier.14
Salvage charges and sue and labour compared
The line between salvage charges, sue and labour, and general average is subtle, but distinct, and, to this effect, s 65(2) of the Act states that salvage charges do not:
…include the expenses of services in the nature of salvage rendered by the assured or his agents, or any person employed for hire by them, for the purpose of averting a peril insured against. Such expenses, where properly incurred, may be recovered as particular charges or as a general average loss, according to the circumstances under which they were incurred.
Section 65(2) is included in the Act following the ruling in Aitchison v Lohre, below, where it was held that salvage could not be included within the concept of sue and labour. The reasoning behind the decision was that the sue and labour clause within the policy is not intended to encompass true salvage. The sue and labour clause has been inserted for the benefit of the insurer in so far as it is intended to encourage the shipowner to avert or minimise losses and then be recompensed for such expenses incurred. Sue and labour, therefore, is distinct from true salvage, and usually takes the form of the hiring of assistance, which is then recoverable by way of particular charges.
Aitchison v Lohre (1879) 4 App Cas 755
The plaintiffs’ vessel Crimea was insured with the defendants for £1,200, her value being £2,600. The policy contained the usual sue and labour clause. After running into difficulties, Crimea was rescued by the steamship Texas which was later granted a salvage award by the Irish Court of Admiralty amounting to £800. Because the measure of indemnity, including the cost of repairs and the salvage award, was limited by the insured value of £1,200, less one-third new for old, the owners sought to recover the £800 salvage award as sue and labour, as the latter was recoverable over and above the insured value.
The House of Lords ruled that the £800 award was salvage and not sue and labour. Therefore, the insurers were only liable for the cost of repairs, and any salvage expenses, up to the insured value of the vessel. The court then considered the whole relationship between salvage and sue and labour.
Lord Blackburn: [p 764] …With great deference to the judges of the Court of Appeal, I think that general average and salvage do not come within either the words or the object of the suing and labouring clause, and that there is no authority for saying that they do. The words of the clause are that in case of any misfortune it shall be lawful ‘for the assured, their factors, servants, and assigns, to sue, labour, and travel for, in, and about the defence, safeguard, and recovery of the subject of insurance, ‘without prejudice to this insurance, to the charges whereof we the insurers will contribute’. And, the object of this is to encourage and induce the insured to exert themselves, and, therefore, the insurers bind themselves to pay in proportion any expense incurred, whenever such expense is reasonably incurred for the preservation of the thing from loss, in consequence of the efforts of the assured or their agents. It is all one whether the labour is by the assured or their agents themselves, or by persons whom they have hired for the purpose, but the object was to encourage exertion on the part of the assured; not to provide an additional remedy for the recovery, by the assured, of indemnity for a loss which was, by the maritime law, a consequence of the peril.
[p 765] …The owners of Texas did the labour here, not as agents of the assured, and being paid by them wages for their labour, but as salvors acting on the maritime law.
Lord Cairns LC: [p 766] …I will only make one observation with regard to salvage expenses. It appears to me to be quite clear that if any expenses were to be recoverable under the suing and labouring clause, they must be expenses assessed upon the quantum meruit principle. Now salvage expenses are not assessed upon the quantum meruit principle; they are assessed upon the general principle of maritime law, which gives to the persons who bring in the ship a sum quite out of proportion to the actual expense incurred and the actual service rendered, the largeness of the sum being based upon this consideration —that if the effort to save the ship (however laborious in itself, and dangerous in its circumstances) had not been successful, nothing whatever would have been paid. If the payment were to be assessed and made under the suing and labouring clause, it would be payment for service rendered, whether the service had succeeded in bringing the ship into port or not.
Lord Hatherley: [p 768] …it is equally clear, as it seems to me, that the suing and labouring clause was inserted by the underwriters for the purpose of securing the benefit of any pains that the shipowner might be inclined to take in preserving, for their benefit, as much as he possibly could preserve. But that does not apply to a case like the present, where the salvage seems to have been an ordinary sort of salvage, namely, a ship perceiving another at a distance and in a state of distress comes to the rescue, no bargain being made. We were expressly told in the case that no bargain was made as to any remuneration which should be given, but it was rescued upon the simple and common principle of salvage.
However, one year later, in Dixon v Whitworth, below, a claim for salvage was again pursued as sue and labour because the policy of insurance was warranted ‘free from particular average’. Because salvage is a form of particular average loss, any claim for such would, under the common law, have been negated by the said clause.
Dixon v Whitworth (1880) 4 Asp MLC 326, CA
The appellants constructed a barge to transport an obelisk from Alexandria to London, and then insured both with the defendant underwriters against total loss only. Because of severe weather conditions in the Bay of Biscay, the barge was cast loose by the towing vessel, but was later rescued by another vessel. The salving vessel was awarded £2,000 by the Admiralty Court, which was duly paid by the appellants, who then sought to recover that sum from their insurers under the sue and labour clause in the policy. The underwriters denied liability, contending that the award had been for salvage, which, being a form of particular average, was not covered by the policy, which only insured the vessel against a total loss.
The Court of Appeal ruled that the rescue amounted to salvage charges, and not sue and labour, and, as the salvage charges were a type of particular average loss, the appellants could not recover, as, under the policy, only total losses were insured.
It is to be noted that Dixon v Whitworth was decided before the Act, and, therefore, has now to be read in the light of s 76(2), where salvage charges, though they are particular average losses, are, nevertheless, recoverable even in a policy containing a free from particular average warranty.
As distinct from true salvage, which is the award made by the court for salvage services rendered as a voluntary act on the basis of ‘no cure, no pay’, sue and labour is an extraordinary expenditure incurred to prevent or minimise loss. It is quite separate from salvage and, because those who sue and labour do so as the agents of the assured, it cannot be said to be voluntary.
Primarily, sue and labour is a duty placed upon the assured under a policy of marine insurance to act in a responsible manner by ensuring that loss or damage to the subject matter insured is averted or minimised and, by so doing, lessens the liability of the insurer. Thus, any claim for sue and labour represents an expenditure which has taken place for the benefit of the underwriter, and such a claim may be recovered separately and independently from other partial losses under the head of particular charges.
Expenses incurred for suing and labouring are recoverable in addition to other claims for damage or loss, and, because of this, such a claim may be added to the primary claim, even though the insured value of the policy may then be surpassed.
Salvage charges and general average compared
When a salvor acts voluntarily and independently of contract on a ‘no cure, no pay’ basis, the award granted is known as salvage charges. In such an event, the shipowner and cargo are then directly and severally liable to the salvor for any salvage award granted.15
But, where assistance is hired under contract, the remuneration is on a quantum meruit basis, and is quite separate from true salvage. That is, when assistance is hired, there is a general average expenditure made by the ship for which all the other parties to the adventure are liable to make a contribution by way of general average.
Lowndes and Rudolf (The Law of General Average and the York-Antwerp Rules, 11th edn, 1990) clearly illustrate the difference between salvage and general average by way of citing an example:
It is also to be noted that in engaging the services of the tugs on a salvage basis, the master was not performing a general average act, for he was not thereby sacrificing or committing the property or purses of just one or a few of the parties to the adventure to suffer an immediate loss which would then be shared by all the parties benefited on a pro rata basis via the general average distribution system. In engaging the tugs on a salvage basis, the master was committing each and every one of the parties to the adventure with a liability to settle directly with the salvors for their own individual proportion of any award, and the general average distribution system does not need to be called in aid for any re-allocation of the award.
In The Raisby, cited in full above,16 the whole claim was based on whether the services rendered amounted to true salvage or a general average expenditure. If it was a general average expenditure, the shipowner would have been liable to the salvor for the general average contribution of the cargo-owner, but if it was true salvage, the cargo-owner was independently liable for his portion of the salvage award and the shipowner had no responsibility for such. Thus, it was shown that, with salvage, the interested parties are separately and directly liable to the salvor; there is no ‘common fund’, as is the case with general average, from which the salvor may draw his remuneration.
Sir James Hannen: [p 118] …Here, the defendants [the shipowners] have not paid anything in respect of the salvage of the cargo, nor have they entered into any agreement to pay it. As I have pointed out, the liability both as to the parties responsible and as to the amount is left at large, to be determined in due course of law, and that is, as it appears to me, that the plaintiffs must seek their remedy for salvage of cargo, as distinct from ship, from those who have had the benefit of that salvage.
However, in Anderson, Tritton and Co v Ocean SS Co (1884) 5 Asp MLC 401, there was an agreement between shipowners that all vessels running into danger on the Yangtze River paid a fixed sum for assistance, regardless of success or failure. In this instance, it was agreed that the cost of the assistance amounted to a general average expenditure, and the owners of both the ship and the cargo were liable to contribute.
Lord Blackburn: [p 404] …The master has, I think, authority to make for his owners all disbursements which are proper for the general purposes of the voyage…I think that the disbursement, in so far as it is a disbursement for the salvation of the whole adventure from a common imminent peril, may properly be charged to general average.
Salvage and general average under the York-Antwerp Rules
The subtle differences between salvage and general average, which exist under the common law and the Marine Insurance Act 1906, are removed when the York-Antwerp Rules are incorporated into the contract of affreightment.17 To that end, Rule VI(a), which applies to all salvage, contractual or otherwise, states:
Expenditure incurred by the parties to the adventure in the nature of salvage, whether under contract or otherwise, shall be allowed in general average provided that the salvage operations were carried out for the purpose of preserving from peril the property involved in the common maritime adventure.
The concept of general average is an ancient one, and is totally independent of other branches of the law. This is because, historically, it has grown up in its own right under the common law of the sea, with its roots dating back to classical Greece and probably earlier, to the Phoenician traders.
The rationale behind general average is logical. A loss may take the form of physical damage or expenditure, which may be accidental or intentional. Where it is accidental, it is only right that the loss should lie where it falls, but where the loss, whether in the nature of an expenditure or sacrifice, is incurred intentionally, and such a loss is beneficial to others, then those who have benefited should share that loss. Thus, where parts of a ship or cargo are sacrificed, or expenses are incurred by a ship in order to preserve the property of others who are parties to the common adventure, then that act is said to be a general average act, and the loss incurred is then spread ‘generally’ amongst the beneficiaries. It, therefore, stands to reason that general average can only exist when there is more than one interested party in the marine adventure.
General average is a unique concept, and the property of a participant in a marine adventure may, at any time, become liable for a contribution for such, should he derive benefit from the general average act. Although this liability is insurable, it is emphasised that the parties to a marine adventure remain bound by the principles of general average, regardless of whether they are, or are not, insured. This was clearly illustrated in The Brigella (1893) PD 189, the full details of which are cited later in the chapter.21
Gorrell Barnes J: [p 195] …Whichever way it is looked at, the obligation to contribute in general average exists between the parties to the adventure, whether they are insured or not. The circumstance of a party being insured can have no influence upon the adjustment of general average, the rules of which, as I have in effect shown above, are entirely independent of insurance. If a contributing party is insured, he can claim an indemnity against his underwriter in respect of the contribution which he has been compelled to pay in general average, but that is all.
That insurance cover against liability in general average does not alter that liability, but only provides an indemnity, for it was illustrated long ago by Abbott CJ in Simonds v White (1824) 2 B&C 805, where a ship lost her anchor cable whilst endeavouring to free herself from a reef. When the ship reached her destination, the cargo-owner had a general average charge levied against him for part of the cost of replacing the anchor cable.
Abbott CJ: [p 811] …The principle of general average, namely, that all whose property has been saved by the sacrifice of the property of another shall contribute to make good his loss, is of very ancient date, and of universal reception among commercial nations. The obligation to contribute, therefore, depends not so much upon the terms of any particular instrument, as upon a general rule of maritime law.
Since the introduction of the Marine Insurance Act 1906, the liability for general average, under the common law of the sea, has been replaced by statute. The Act, in s 66, in no way changes the situation regarding insurance; any insurance remains nothing more than indemnity for such.
This was summed up by Bailhache J in Brandeis Goldschmidt and Co v Economic Insurance Co Ltd (1922) 38 TLR 609, where a cargo-owner was unable to recover under a policy of insurance covering general average contributions, because there had been no average adjustment as expressly required by the policy. Bailhache J observed that: [p 610] ‘…The liability in general average before 1906 arose at common law, and since the Act of 1906 by statute. It did not arise under the policy, but the policy might contain express provisions, modifying or excluding it.’
Definition of general average loss
Although the whole concept of general average has its origins in the common law of the sea, the insurance of such losses is regulated by both statute and the contract of insurance itself. Thus, where insurance is concerned, the statutory umbrella is provided by s 66 of the Act, but the contract of insurance, be it hull22 or cargo,23 may then incorporate the York-Antwerp Rules 1994. The said Rules will only apply to the contract of insurance if they are incorporated into the contract of affreightment. The Act, in s 66(1), defines a ‘general average loss’ as:
Section 66(2) then provides the statutory definition of a ‘general average act’:
There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred in time of peril for the purpose of preserving the property imperilled in the common adventure.
Thus, for there to be a general average act, certain criteria must be met. The act must be:
(b) ‘voluntarily and reasonably’ made;
(c) ‘in time of peril’; and
(d) for the purpose of preserving property imperilled in the ‘common adventure’.
The statutory definition is, in itself, a codification of the principles laid down in past cases, of which Birkley v Presgrave, below, is particularly noteworthy.
Birkley v Presgrave (1801) 1 East 220
The plaintiffs’ vessel was entering Sunderland harbour with a cargo of the defendant’s corn on board when she was hit by a violent squall. In order to save the ship and cargo, the master endeavoured to tie her up to the south pier. In this, he was successful but, during the process of manoeuvring the ship and saving the cargo, extra personnel were required for assistance. An anchor and its cable were deliberately sacrificed for safety reasons, and some hawsers were also lost. The owners claimed a general average contribution from the defendant cargo-owner.
The court ruled that the actions of the master amounted to general average acts, for which the defendant was liable by way of a contribution.
Lord Kenyon CJ: [p 227] …With respect to the other question, all ordinary losses and damage sustained by the ship happening immediately from the storm or perils of the sea must be borne by the shipowners. But, all those articles which were made use of by the master and crew upon the particular emergency, and out of the usual course, for the benefit of the whole concern, and the other expenses incurred, must be paid proportionately by the defendant as general average.
Lawrence J: [p 228] All loss which arises in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo come within general average, and must be borne proportionately by all who are interested. Natural justice requires this.
A more comprehensive definition of general average was provided by Blackburn J, in Kemp v Halliday (1865) 34 LJQB 233,24 a case which concerned a ship, loaded with cargo, which put into Falmouth for repairs, but which later sank in a squall. The ship was later raised, and both ship and cargo were salved. The court was then faced with deciding who was liable in general average. Thus, the issue of general average was analysed in some depth.
Blackburn J: [p 242] …In order to give rise to a charge as general average, it is essential that there should be a voluntary sacrifice to preserve more subjects than one exposed to a common jeopardy; but an extraordinary expenditure incurred for that purpose is as much a sacrifice as if, instead of money being expended for the purpose, money’s worth were thrown away. It is immaterial whether the shipowner sacrifices a cable or an anchor to get the ship off a shoal, or pays the worth of it to hire those extra services which get her off. It is quite true, that so long as the expenditure by the shipowner is merely such as he should incur in the fulfilment of his ordinary duties as shipowner, it cannot be general average; but the expenditure in raising a submerged vessel with cargo is extraordinary expenditure, and is, if incurred to save the cargo as well as the ship (which, prima facie, is the object of such an expenditure), chargeable against all the subjects in jeopardy saved by this expenditure.
With respect to general average and the definitions contained within the Act, Roche J summed up the application of the different sub-sections briefly, but succinctly, in Green Star Shipping Co Ltd v London Assurance  1 KB 378, where the vessel suffered a fire and then sank after a collision. The court was of the opinion that general average expenses had been incurred.
Roche J: [p 387] …s 66 has some bearing upon the matter. Sub-sections 1–3 define or formulate the rules of general average as between the parties to the contract of affreightment. The rest of the sub-sections deal with the rights of the assured or liabilities of the insurers. Sub-sections 6 and 7 call for no comment. Sub-section 5 deals with the case where the assured has not made an expenditure, but has paid or is liable to pay a contribution to another party’s expenditure. Sub-section 4 deals with two cases: general average expenditure and general average sacrifice.
The Act, however, cannot be considered in isolation, because the York-Antwerp Rules 1994 also provide a definition in Rule A:
There is a general average act 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.
Although the phraseology is slightly different in that, in particular, the word ‘voluntary’, as used in the Act, is replaced by the word ‘intentionally’, the principles embodied in both are not in conflict.
Lord Denning MR: [p 355] …We so rarely have to consider the law of general average that it is as well to remind ourselves of it. It arises when a ship, laden with cargo, is in peril on the sea, such peril indeed that the whole adventure, both ship and cargo, is in danger of being lost. If the master then, for the sake of all, throws overboard some of the cargo, so as to lighten the ship, it is unjust that the owner of the goods so jettisoned should be left to bear all the loss of it himself. He is entitled to a contribution from the shipowner and the other cargo-owners in proportion to their interests. See the exposition by Lord Tenterden quoted in Hallett v Wigram and Burton v English. Likewise, if the master, for the sake of all, at the height of a storm, cuts away part of the ship’s tackle (as in Birkley v Presgrave), or cuts away a mast (as in Atwood v Sellar and Co), or, having sprung a leak, puts into a port of refuge for repairs and spends money on them (as in Svendsen v Wallace Bros), it is unfair that the loss should fall on the shipowner alone. He is entitled to contribution from the cargo-owners for the loss or expenditure to which he has been put. In all such cases, the act done by the master is called a ‘general average act’, and the loss incurred is called a ‘general average loss’.
General average sacrifice and general average expenditure
There are two distinct forms of general average loss, and this is emphasised by the wording in s 66(1), which states that: ‘A general average loss…includes a general average expenditure as well as a general average sacrifice.’ This is confirmed in Rule A of the York-Antwerp Rules 1994, in the following terms: ‘There is a general average act when any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred…’
Thus, the casting away of cargo or a portion of a ship in time of peril would constitute a general average sacrifice, whilst the engaging of assistance, such as a tow, in order to avert a loss by a peril insured against, would amount to a general average expenditure. Both are general average losses, but brought about in different ways.
Caused by or directly consequential on
The Act, in s 66(1), refers to a general average loss as a loss which is ‘caused by’ or is ‘directly consequential on’ a general average act. In similar vein, Rule C of the York-Antwerp Rules26 states that general average losses, damages or expenses must be as ‘the direct consequence of the general average act. The implication of the words ‘directly consequential on’ was clarified by Lord Denning MR, in Australian Coastal Shipping Commission v Green, below.
Australian Coastal Shipping Commission v Green and Others  1 All ER 353, CA
Two separate cases, involving similar issues, came before the Court of Appeal. Both were claims for general average losses against the same underwriter, but under different policies.
(a) Bulwarra was in port in New South Wales when a storm struck and put the ship in imminent danger. A tug was engaged to tow Bulwarra to safety, but, during the operation, a tow rope broke and wrapped itself around the tug’s propeller. Although Bulwarra reached safety, the tug drifted aground and became a total loss. The tug’s owners unsuccessfully claimed against Bulwarra’s owners under the contact of towage (UKSTC), but, in putting up a defence, legal costs were incurred. Bulwarra’s owners then claimed those legal costs from their insurers as a general average expenditure.
(b) Wangara stranded on a voyage from Melbourne to Auckland, and two tugs were engaged to tow her to safety. During the operation, a tow rope parted and fouled a tug’s propeller. Both Wangara and the stricken tug were successfully rescued, the latter being towed by a local pilot vessel, which was then granted a salvage award. The tug’s owners then claimed to be indemnified by Wangara’s owners under the terms of the contract of towage (UKSTC). Wangara was held liable, and her owners then claimed for this loss to be indemnified by their underwriters as a general average loss.
The Court of Appeal ruled that, in both instances, the losses were general average losses. The towage contracts amounted to general average acts, and the expenses incurred were in direct consequence of those general average acts.
Lord Denning MR: [p 357] …The ‘general average act’ was, I think, the contract made by the plaintiffs with the tug. In each case, the vessel was in dire peril and the plaintiffs called on the tug for help…The next question is: what was the general average loss? If the towline had not parted, and the tug had completed her task in safety, the hiring charge would certainly have been a general average expenditure. But the towline did part. It wrapped itself round the propeller of the tug. The result was that, in the case of Bulwarra, the tug became a total loss; and, in the case of Wangara, the tug was salved at great expense. The plaintiffs have become bound under the indemnity clause to indemnify the tugowners. Is this expenditure, under the indemnity clause, a ‘general average loss’?
[p 358] …In these circumstances, I propose to go back to the concept, as I understand it, in 1924, when the York-Antwerp Rules were made. ‘Direct consequences’ denote those consequences which flow in an unbroken sequence from the act; whereas ‘indirect consequences’ are those in which the sequence is broken by an intervening or extraneous cause…If the master, when he does the ‘general average act’, ought reasonably to have foreseen that a subsequent accident of the kind might occur—or even that there was a distinct possibility of it—then the subsequent accident does not break the chain of causation. The loss or damage is the direct consequence of the original general average act. A good instance was given by Lord Tenterden in his book on Shipping:
So, if, to avoid an impending danger, or to repair the damage occasioned by a storm, the ship be compelled to take refuge in a port to which it was not destined, and into which it cannot enter without taking out a part of her cargo, and the part taken out to lighten the ship on this occasion happen to be lost in the barges employed to convey it to the shore, this loss also, being occasioned by the removal of the goods for the general benefit, must be repaired by general contribution.
If, however, there is a subsequent incident which was only a remote possibility, it would be different. Thus, Lowndes gave the illustration of a sailing vessel, where the master cuts away the mast and thus reduces her speed; and afterwards she is captured by the enemy. Her loss is not the direct consequence of the general average act. It is due to the intervening capture. In both cases before us, the master, when he engaged the tug, should have envisaged that it was distinctly possible that the towline might break and foul the propeller. When it happened, therefore, it did not break the chain of causation.
General average contribution
The whole concept of a loss by general average is based upon the fact that the other parties to the common adventure who have benefited from the general average act will contribute towards that loss. This liability to contribute is confirmed by s 66(3) of the Act, which states:
Where there is a general average loss, the party on whom it falls is entitled, subject to the conditions imposed by maritime law, to a rateable contribution from the other parties interested, and such contribution is called a general average contribution.
Sacrifice or expenditure must be ‘extraordinary’
For there to be a general average loss, there must be an ‘extraordinary’ sacrifice or expenditure which is made for the benefit of all the parties to the common adventure. The former is a physical act, whilst the latter is a financial outlay, but both are losses in general average. The sacrifice may take the form of cargo or ship’s apparel being deliberately cast away for the benefit of the whole venture.
In Birkley v Presgrave (1801) 1 East 220, the deliberate act of the master of a vessel cutting the cable of his bow anchor in a storm, in order to avert danger, was adjudged to be an ‘extraordinary’ sacrifice.
Lord Kenyon CJ: [p 227] …all ordinary losses and damage sustained by the ship happening immediately from the storm or perils of the sea must be borne by the shipowners. But all those articles which were made use of by the master and crew upon the particular emergency, and out of the usual course, for the benefit of the whole concern, and the other expenses incurred, must be paid proportionately by the defendant as general average.
However, unlike a physical sacrifice, it is often much more difficult to determine what, in general average, may be considered to be a relevant extraordinary expenditure. On this very point, in the Exchequer Chamber, Erie CJ raised the issue in Kemp v Halliday (1866) LR 1 QB 520, where a vessel which sank in Falmouth harbour was later salved and the issue of general average was foremost.
Erie CJ: [p 527] …We infer from the statement in the case that there was a common peril of destruction imminent over ship and cargo as they lay submerged; that the most convenient mode of saving either ship or cargo, or both, was by raising the ship together with the cargo; that the expense required for such raising would be an extraordinary expense for the common benefit of both; that the cargo would be liable to a general average contribution towards the expense; and the shipowner would have a lien on the cargo to secure the payment of that general average.
One year later, in Wilson v Bank of Victoria, below, the issue of what constituted an extraordinary expenditure arose again.
Wilson and Another v Bank of Victoria (1867) LR 2 QB 203
The plaintiffs’ vessel Royal Standard, whilst on a voyage from Australia to England, hit an iceberg in the southern ocean and her masts and rigging were so damaged that she had to continue to Rio de Janeiro under steam alone and, in so doing, exhausted her stocks of coal. Because of the cost of permanent repairs in Rio de Janeiro, the master carried out temporary repairs, replenished the bunkers and continued the voyage to England under steam alone. The Royal Standard’s owners then sought to recover some of the cost of the coal from the cargo-owners by way of a general average contribution.
The court ruled that the expenditure on coal was not an extraordinary expenditure, but was really an expenditure which could have been envisaged as part of the operation of a vessel equipped with auxiliary power.
Blackburn J: [p 212] …The shipowners, by their contract with the freighters, are bound to give the services of their crew and their ship, and to make all disbursements necessary for this purpose. In the case of such a vessel as this, which is equipped with an auxiliary screw, their contract (1) includes the use of that screw, and consequently the disbursements necessary for fuel for the steam engine. Now, the disaster which occurred in this case, no doubt, caused the engine to be used to a much greater extent than would generally occur on such a voyage, and so caused the disbursement for coals to be extraordinarily heavy; but it did not render it an extraordinary disbursement. The case is similar to that of an ordinary sailing vessel, in which, owing to disasters, the voyage is unusually protracted, and consequently the owner’s disbursements for provisions, and for the wages of his crew, if they are paid by the month, are extraordinarily heavy. It is not similar to that of the master hiring extra hands to pump when his crew are unable to keep the vessel afloat, or any other expenditure which is not only extraordinary in its amount, but is incurred to procure some service extraordinary in its nature. We think, therefore, that there is no right to charge this item to general average, and, consequently, that the rule to enter the verdict for the defendants must be made absolute.
In Société Nouvelle d’Armement v Spillers and Bakers Ltd, below, Sankey J reflected on what amounts to a general average expenditure. He was also of the opinion that: ‘…there must be expenditure abnormal in kind or degree, and it must have been incurred on an abnormal occasion for the preservation of property.’27
Société Nouvelle d’Armement v Spillers and Bakers Ltd  1 KB 865
The plaintiffs were the owners of the French sailing vessel Ernest Legouve, which was chartered by the defendants to carry a cargo of barley from San Francisco to Sharpness in the Bristol Channel. On arriving off Queenstown on the south coast of Ireland, where Lusitania had recently been lost, and because the weather was calm and there was the constant threat of enemy submarines in the area, the master hired a tug to tow the vessel all the way to Sharpness. The Ernest Legouve’s owners then sought to recover part of the cost of the tow by way of a general average contribution from the cargo-owners.
The court ruled that the loss was not a general average loss. The risk of being attacked by enemy submarines was not an extraordinary and abnormal peril that would be encountered during a war.
Sankey J: [p 870] …Extraordinary expenditure must to some extent be connected with an extraordinary occasion. For example, an abnormal user of the engines and an abnormal consumption of coal in endeavouring to refloat a steamship stranded in a position of peril is an extraordinary sacrifice and an extraordinary expenditure: see The Bona. A mere extra user of coal, however, in order to accelerate the speed of a vessel would not be a general average act. Again, suppose the master, instead of hiring a tug, had purchased guns and hired a crew of gunners at Queenstown on the chance that he might be attacked by a submarine. I doubt if the expenses of the guns and gunners could have been recovered as a general average expenditure: see Taylor v Curtis…It is not sufficient to say that the expenditure was incurred to benefit the property; it must be proved that it was abnormal in kind or degree and incurred to preserve the property.
For there to be a general average loss caused by an extraordinary sacrifice or expenditure, that sacrifice or expenditure must be for the benefit of the whole adventure, and not just for the benefit of one interest.
In Hingston v Wendt (1876) 1 QBD 367, where the cargo was salved from the sunken wreck of a sailing vessel by an agent of the master, the court held that, although the agent held a lien on the cargo, the act of saving the cargo alone, though analogous to general average, was not in fact so.
Blackburn J: [p 370] …The plaintiff, a ship agent at Dartmouth, was put in possession of the wrecked vessel and cargo by the captain, with, as we understand the case, authority from the captain to do, as his agent, what was for the benefit of all concerned. The plaintiff did the work, and expended the money sued for in discharging the cargo, and he brought it to a place of safety, where he kept possession of it. The hull remained on shore, and ultimately broke up. And was sold as a wreck. We think we must take it on the statement to be the fact, that this expenditure was not incurred on behalf of the master as agent of the shipowner, performing on his contract to carry on the cargo to its destination and earn freight, but was an extraordinary expenditure for the purpose of saving the property at risk; and had the expenditure been for the purpose of saving the whole venture, ship as well as cargo, it would have constituted a general average, to which the owners of each part of the property saved must have contributed rateably, and the captain, and the plaintiff, as his agent, would have had a lien or right to retain each part of the property saved till the amount of the contribution due in respect of it was paid or secured.
Voluntarily and reasonably made
Section 66(2) of the Act affirms that ‘there is a general average act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made in time of peril…’. However, Rule A of the York-Antwerp Rules 1994 states that ‘there is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made…’.
The Act, in s 66(2), qualifies both a general average sacrifice and a general average expenditure being ‘reasonably made’. Presumably, this infers that the master of a vessel must act reasonably when making a sacrifice for which others will eventually be partly liable. Similarly, any expense incurred must be governed by the same criteria of reasonableness. The issue of excessive or unreasonable expenditure was raised in Anderson, Tritton and Co v Ocean Steamship Co, below.
An arrangement existed between two shipping companies, the Ocean Steamship Company and the China Navigation Company, both of whom operated up the Yangtze River. This arrangement was such that, should either company’s vessels need assistance, the other company would provide that assistance for a fixed fee of £2,500. Thus, when the steamship Achilles ran aground in the river, Shanghai came to her assistance and towed her off for the fixed sum previously agreed. When the Ocean Steamship Company, the owners of Achilles, sought to recover from the cargo-owners in general average, the cargo-owners objected to the payment, as they contended that the price had been fixed by the owners and not the master, and that the fee was unreasonable.
The House of Lords reversed the decision of the Court of Appeal and ruled that, although the assistance amounted to general average, the sum charged was unreasonable and, with respect to the cargo-owners, should be reduced.
Lord Blackburn: [p 404] …I have come to the conclusion that, on the evidence given at the trial, it was not a simple issue whether the whole sum actually paid by the shipowners to the owners of Shanghai was chargeable to general average, and, if that was not made out, that nothing was to be recovered. I do not think that it would follow merely from the shipowner having become liable to pay and having paid that sum, that the whole of it was chargeable to general average. I think it might well be that, on this evidence, the proper conclusion was that something differing from that sum might be chargeable, and I think that, till it is ascertained whether any sum was chargeable, and what that sum was, the case is not ripe for decision.
…And though I quite agree that there is some evidence here that Achilles and her cargo were both in danger, and were both saved by the services of Shanghai, and though I also agree that it is not a question of law whether the amount of the sum charged as a disbursement was exorbitant or not, still I cannot find that any question as to the amount was submitted to the jury. It seems to me that if such a question had been submitted to a jury, there is much in the evidence that might make it very doubtful whether the jury would think this sum properly chargeable against the owners of the goods if uninsured.
Reasonableness under the York-Antwerp Rules 1994
Rule A of the York-Antwerp Rules 1994 uses the words ‘intentionally and reasonably made’ to qualify a general average act,28 and the Rule Paramount states, in no uncertain terms, that: In no case shall there be any allowance for sacrifice or expenditure unless reasonably made or incurred.’ Read with the Rule of Interpretation, the position is now clear, that even the numbered Rules are now also subject to the test of reasonableness.29 The above clarification was rendered necessary because of the decision in Corfu Navigation Co and Bain Clarkson Ltd v Mobil Shipping Co Ltd, ‘Alpha’  2 Lloyd’s Rep 515, in which Hobhouse J held that, unlike the lettered Rules, the numbered Rules (in this case, Rule VII)30 were not subject to the test of reasonableness. The position now is that all the Rules, lettered and numbered, are governed by the test of reasonableness.
Despite the difference in wording between the Act and the York-Antwerp Rules, it is suggested that the principle behind general average remains fundamentally unchanged, but there is little authority in insurance law to confirm this. However, in Papayanni and Jeromia v Grampian Steamship Co Ltd, below, where a vessel was intentionally scuttled on the orders of a harbour master, the court still decided that it amounted to a general average sacrifice. The insurers’ argument that it could not be general average, as the scuttling was not voluntary, was disregarded on the basis that the scuttling had still been for the benefit of the whole adventure. Although this was not an insurance case, it is suggested that it is still relevant.
Papayanni and Jeromia v Grampian Steamship Co Ltd (1896) 1 Com Cas 448
The plaintiffs shipped a consignment of cargo with the defendants in their vessel Birkhall under bills of lading which incorporated the York-Antwerp Rules 1890; Rule III of which stated: ‘Extinguishing fire on shipboard: Damage done to ship and cargo, or either of them, by water or otherwise…in extinguishing a fire on board the ship, shall be made good as general average.’ During the voyage, a fire developed in Birkhall’s bunkers and she was, in the interests of all concerned, put into a nearby port for assistance. However, the harbour master ordered Birkhall to be scuttled in the interest of safety, and the plaintiffs’ consignment of goods were effectively destroyed. The plaintiffs then claimed a general average contribution from the defendants.
The court ruled that, although the scuttling was intentional, it still amounted to a voluntary act for the benefit of all, and, therefore, the plaintiffs were entitled to recover in general average.
Mathew J: [p 452] …The evidence shows that what was done was in the interest of ship and cargo. There is no evidence that there was any other motive for scuttling the ship. The captain, who had not parted with the possession of his ship, did not object. There seems to be clear evidence that he sanctioned what was done. The loss must be adjusted as a general average sacrifice.
In time of peril