Judgments

[1995] 1 F.C. 341

T-2535-88

Ultramar Canada Inc. (Plaintiff)

v.

Mutual Marine Office Inc., New York Marine Managers Inc., Highlands Insurance Company, Navigators Insurance Company, Trinity Associates Inc., Underwriters at Lloyds, Royal Insurance Company of America, The Standard Steamship Owners’ Protection and Indemnity Association (Bermuda) Limited, Alexander & Alexander of New York Inc., and Alexander & Alexander Inc., and Arkwright Mutual Insurance Group, formerly known as Arkwright-Boston Manufacturers Mutual Insurance Company, Midland Insurance Company, Republic Insurance Company, Pennsylvania Lumberman’s Insurance Company, The Lumbermen’s Insurance Company, Northeastern Insurance Company, Ranger Insurance Company, Reinsurance Corporation of North America, Progressive Casualty Insurance Company, Angelina Casualty Company, Americas Insurance Company, English and American Group, Phoenix Assurance PLC, British Law Insurance Company Limited, Insurance Company of North America and Marine Insurance Company and Kenneth Henry Edmond Boden (Defendants)

Indexed as: Ultramar Canada Inc. v. Mutual Marine Office Inc. (T.D.)

Trial Division, Rouleau J.—Montréal, February 9; Ottawa, June 30, 1994.

Maritime law — Insurance — General average — Action for apportionment of damages amongst insurance policies — Plaintiff’s barge damaged, spilling part of oil cargo — Costing over $2,000,000 to salvage barge, cargo; $3,000,000 for pollution clean-up — Barge deemed total constructive loss — Liability of cargo, hull and machinery, pollution insurers, plaintiff, under law of general average for costs incurred in excess of $2,000,000 to salvage barge — Salvage expenses incurred to save cargo, hull and to prevent pollution disaster — Cargo, hull underwriters liable under law of general average as preservation of property one reason for expenditure — Cargo underwriter’s liability limited to properly calculated contributory value — Excess general average expenses falling on shipowner, subject to collection under insurance policies — No further recourse against hull underwriters, having paid insured value of hull — P & I Club covering pollution risks, liability of owner to compensate salvors for work done to prevent, reduce pollution — Pollution threat neither primary nor sole motivating factor in decision to engage salvor — Plaintiff fully compensated for expenses to prevent, reduce pollution — Ultramar to pay remaining cost of salvage contract.

Maritime law — Salvage — Barge with oil cargo grounded — Pollution disaster risk — Salvor engaged to prevent pollution catastrophe, save hull and cargo — When salvor engaged, no party aware barge damaged to extent of constructive total loss — Hiring of salvor general average act — Extent of cargo, hull underwriters’ liability for salvage costs.

This was an action for a declaration for judgment against seven of the defendants, or for an assessment of the plaintiff’s damages and an apportionment of those damages amongst the policies of insurance of all the defendants.

The defendants are engaged in the business of marine insurance. Highlands Insurance Company, Navigators Insurance Company, and certain underwriters at Lloyds, collectively referred to as the “cargo underwriters,” were the insurers of the plaintiff’s cargo carried on board its barge, the Pointe Levy. The defendants Mutual Marine Office Inc., New York Marine Managers Inc. and Trinity Associates Inc. acted as agents on behalf of some of the cargo underwriters. The defendant Royal Insurance Company of America insured the hull and machinery of the Pointe Levy and the defendant the Standard Steamship Owners’ Protection and Indemnity Association (Bermuda) Limited (P& I Club), provided insurance coverage for pollution. The defendants, Alexander & Alexander, were the plaintiff’s insurance brokers. The Pointe Levy, laden with the plaintiff’s oil, grounded on December 3, 1985 off the shore of Matane, Quebec, sustaining damage and causing some of the oil cargo to spill. Later that day the Coast Guard advised Ultramar it would have to act or action would be taken on its behalf. On December 5, Ultramar engaged the services of Smit American Salvage Inc. to remove the vessel and its cargo from the strand and bring it to a place of safety. The ultimate cost of the contract was nearly $2,000,000. Pollution clean-up commenced on December 6, and ultimately cost in excess of $3,000,000. It cost another $818,000 to heat and remove the cargo from the Pointe Levy. As the cost of repairing the vessel substantially exceeded the barge’s sound value, a formal declaration of abandonment was sent by the plaintiff to its hull underwriters. The voyage was insured as follows: (1) hull and machinery: $3,000,000; (2) cargo: $999,332; and (3) pollution liability: up to $300,000,000. Two to three days after the stranding of the barge, Ultramar declared general average. An adjustment was prepared which allocated “excess general average (sue and labour) expenses” between ship and cargo on the basis of estimates made by Mr. Airey. As a result of the casualty the defendant underwriters have paid or will pay to the plaintiff, subject to the Court’s determination of the issue before it, over $7,000,000 apportioned as follows: hull underwriters, $3,276,995.80; cargo underwriters, $950,000; P & I Club $3,000,000. The issue herein was how the costs in excess of $2,000,000 which were incurred under the Smit contract in order to salvage the Pointe Levy and its cargo were to be allocated amongst the various insurers.

Held, it was declared that the net sums due and owing under the insurance policies were: cargo underwriters—$331,254.99; hull underwriters $423,512.91.

“Canadian maritime law”, as defined in section 2 of Federal Court Act, encompasses the principles of English maritime law as they were in 1934, including the common law principles of tort and contract. Therefore the U.K. Marine Insurance Act, 1906 forms part of Canadian maritime law, but there is no difference between the principles enunciated in that Act and the Canadian Marine Insurance Act, which came into force during the course of the trial.

The law of general average, which is part of the law of carriage of goods by sea, arises when expenditures are intentionally incurred in time of peril, most often by the shipowner, for the benefit of all parties concerned, namely ship, cargo and freight. General average is based on the equitable principle that whatever expenses were incurred for the benefit of all parties to a common maritime adventure must be shared by all in proportion to the interests which benefitted. It exists independently of marine insurance. The obligation to contribute in general average does not depend upon any contract between the parties, but arises out of the perils encountered in carrying out the contract. Nevertheless, it is customary for parties to a maritime venture to insure against liability for general average contributions. Normally a marine insurance policy provides for indemnity against general average losses and contributions, subject to the actual provisions of the policy. The Marine Insurance Act, 1906 sets out the rules as to general average contribution and the liability of the insurers. Section 66 provides that where there is a general average loss, the party on whom it falls is entitled to a rateable contribution from the other parties interested. Subject to any express provision in the policy, where the assured has incurred a general average expenditure, he may recover from the insurer in respect of the proportion of the loss which falls upon him; subject to any express provision in the policy where the assured has paid or is liable to pay a general average contribution in respect of the subject insured, he may recover therefor from the insurer. Expenses incurred for the general safety are to be contributed for, but expenses incurred on behalf of a particular interest are to be borne as particular charges upon such interest.

By engaging the services of Smit, the plaintiff incurred an expenditure for the common benefit of all interests. The defendants’ respective liability for those expenses is properly determined in accordance with the principles of the law of general average. Some of those expenses were recoverable under the relevant insurance policies. The question was whether they were fully recoverable from the insurers pursuant to the principles of the law of general average and/or the insurance policies or whether a portion of them must be borne by Ultramar.

The Smit contract, the general averaging act, was undertaken both to save cargo and hull, and to prevent a pollution disaster. As the preservation of their property from peril was one of the underlying reasons for the expenditures, the cargo and hull underwriters bore a liability under the law of general average.

The cargo underwriter’s liability was limited to its properly calculated contributory value. To the extent that there are “excess” general average expenses after contributory values are exhausted, those expenses fall on the shipowner, who may have insurance coverage for them under its various policies. There was neither precedent nor practice to support the apportionment of excess general average expenses between hull and cargo insurers.

Clause 26B of the cargo policy provided that “General Average contributions, salvage and Special Charges and Sue and Labour charges will be payable in full irrespective of insured and contributory values.” Clause 26B did not render the cargo underwriters liable for general average “in full” and accordingly in excess of its contributory value. The sole purpose of clause 26B was to protect the assured against the consequences of an underinsurance situation which would arise by virtue of section 73 of the Marine Insurance Act, 1906. Concerning the difference between the contributory value of the cargo and the insured value, cargo owners are co-insurers with their underwriters. When read in context and in conjunction with Marine Insurance Act, 1906, section 73, clause 26B clearly indicated that it was the general average contribution which was payable in full; that is, the cargo underwriter’s contribution to general average, calculated in accordance with general average law and practice.

The special charges on cargo which were incurred to discharge the cargo had to be deducted under Rule XVII of the York-Antwerp Rules to determine the true value of the cargo for the purposes of contribution to general average. The purpose of this deduction is to ensure the contribution was made only on the “net” value of the property saved. The special charges on cargo amounted to $818,097.62.

Having paid the insured value of the hull in the amount of $3,000,000, the hull underwriters had discharged their liability to indemnify Ultramar for general average contribution. The plaintiff had no recourse against its hull underwriters unless they had assumed greater liabilities in the insurance policy than those imposed by law. Excess general average falls on the shipowner alone, subject to collection under its various policies of insurance. The hull and machinery policy was subject to the American Institute Hull clauses which contained a sue and labour clause, providing that where a total loss claim is admitted and sue and labour expenses were incurred in excess of any proceeds, the amount payable would be the proportion of such excess that the amount insured bears to the sound value of the vessel at the time of the accident. In the allocation of the excess general average under the sue and labour clause, the proper valuation of the barge involved the use of actual, as opposed to estimated, values which existed when the expenditure was incurred. There was no reason not to defer the assessment of the barge’s value on the strand until the survey at the dry dock. The actual value of the Pointe Levy, whether on the strand prior to the engagement of Smit’s services or in the drydock at the end of the adventure was zero, for she was at all relevant times a constructive total loss. The appropriate value to be employed in calculating Royal’s liability for those expenses was the amount made good, which consisted of the value of the diesel oil taken from the barge and consumed in her refloating. For the purposes of calculating the amount made good only that quantity of diesel oil consumed in the refloating operation was considered, i.e. $8,000.

As to the liability of the Standard P & I Club, the Standard Club is a mutual association such as are recognized in Marine Insurance Act, 1906, section 85. Under Club Rule 20(14), the P & I Club covered pollution risks as well as any liability of an owner under a salvage agreement to compensate salvors for work done to prevent or reduce pollution. The P & I cover should only be resorted to should the Court find the salvage expenses were incurred solely for pollution prevention or there was compulsory wreck removal through an order by the Coast Guard to put the vessel into dry dock while she was on the strand. The Pointe Levy was not a wreck nor was there any wreck removal order. Although the threat of pollution was a predominant concern, it was neither the primary nor sole motivating factor underlying the decision to engage the services of a professional salvor. The salvors were not contracted for the sole purposes of, nor did they specifically do anything to prevent or reduce pollution. Although the acts they were contracted to perform had as their incidental result the prevention of further pollution, it was Ultramar which did everything necessary to prevent or reduce pollution. The plaintiff has been fully compensated for those expenses by the P & I Club.

The remaining cost of the Smit contract must be borne by Ultramar. The general average act was undertaken to save hull and cargo, and they were therefore required to pay their proportionate share of those expenses. But the other reason for entering into the contract, the prevention of a pollution disaster, was clearly in Ultramar’s best interests. The plaintiff’s potential liability, had the situation deteriorated into a massive oil spill would have been very substantial. There was no injustice in requiring Ultramar to bear the cost of averting a major liability as compared to necessitating the property insurers to pay for expenses which did not result in the saving of property.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Federal Court Act, R.S.C., 1985, c. F-7, s. 2 “Canadian maritime law”.

Marine Insurance Act, 1906 (U.K.), 6 Edw. 7, c. 41, ss. 66(3),(4),(5), 73, 85.

Marine Insurance Act, S.C. 1993, c. 22.

York-Antwerp Rules 1950, Rules A, XVll, XXl.

CASES JUDICIALLY CONSIDERED

APPLIED:

Triglav, Zavarovalna Skupnost, (Insurance Community Triglav Ltd.) v. Terrasses Jewellers Inc. et al., [1983] 1 S.C.R. 283; [1983] I.L.R. 1-1627; (1983), 54 N.R. 321; ITO—International Terminal Operators Ltd. v. Miida Electronics Inc. et al., [1986] 1 S.C.R. 752; (1986), 28 D.L.R. (4th) 641; 34 B.L.R. 251; 68 N.R. 241; Evje, The, [1973] 1 Lloyd’s Rep. 509 (C.A.); Green Star Shipping Co., Ld. v. London Assurance, [1933] 1 K.B. 378.

CONSIDERED:

Chellew v. Royal Commission on the Sugar Supply, [1922] 1 K.B. 12 (C.A.).

AUTHORS CITED

Arnould, Sir Joseph. Arnould’s Law of Marine Insurance and Average, 16th ed. by Sir Michael J. Mustill and Jonathan C. B. Gilman. Stevens and Sons, 1981.

Ivamy, E. R. Hardy. Marine Insurance, 4th ed. London: Butterworths, 1985.

Lowndes, R. and G. R. Rudolf. The Law of General Average and the York-Antwerp Rules, 10th ed. by Sir John Donaldson et al. London: Stevens & Sons, 1975.

Lowndes, R. and G. R. Rudolf. The Law of General Average and the York-Antwerp Rules, 11th ed. by D. J. Wilson and J. H. S. Cooke. London: Sweet & Maxwell, 1990.

Parks, Alex Leon: The Law and Practice of Marine Insurance and Average. Centreville, Md.: Cornell Maritime Press, 1987.

ACTION for apportionment of damages amongst various insurance policies and according to the law of general average as a result of the grounding of the plaintiff’s barge, resulting in a total constructive loss of the barge, loss of the cargo of oil, and pollution clean-up expenses. It was declared that the net sums due and owing under the insurance policies were: cargo underwriters—$331,254.99; hull underwriters $423,512.91.

COUNSEL:

David L. D. Beard and Antonin Pribetic for plaintiff.

George R. Strathy for defendant Mutual Marine Office Inc. et al (The Cargo Underwriters).

George J. Pollack for defendant Royal Insurance Co. of America.

Sean J. Harrington for defendant The Standard Steamship Owners’ Protection & Indemnity Ass. (Bermuda) Ltd.

Peter F. M. Jones for defendants Alexander & Alexander of N.Y. Inc. and Alexander & Alexander Inc.

SOLICITORS:

Beard, Winter, Toronto, for plaintiff.

George R. Strathy, Toronto, for defendant Mutual Marine Office Inc. et al (The Cargo Underwriters).

Marler, Sproule, Castonguay, Montréal, for defendant Royal Insurance Co. of America.

McMaster Meighen, Montréal, for defendant The Standard Steamship Owners’ Protection & Indemnity Ass. (Bermuda) Ltd.

Paterson, MacDougall, Toronto, for defendants Alexander & Alexander of N.Y. Inc. and Alexander & Alexander Inc.

The following are the reasons for judgment rendered in English by

Rouleau J.: This is an action by the plaintiff for a declaration for judgment in the amount of $2,707,102.91 against seven of the defendants or in the alternative an assessment of the plaintiff’s damages and an apportionment of those damages amongst the policies of insurance of all the defendants. The plaintiff also seeks interest on those sums from date of loss to date of judgment, together with costs of this action.

Ultramar has filed a notice of discontinuance against the defendant Alexander & Alexander, on the basis that having reviewed the evidence at trial, a claim against that defendant for negligence or breach of contract in the placement of the insurance, or for errors in the preparation or collection of the adjustment, is not maintainable. In addition, the plaintiff has withdrawn its allegations concerning punitive damages against the other defendants.

FACTS

The plaintiff oil company, incorporated pursuant to the laws of Canada, maintains its head office and principal place of business in Montréal, Quebec. It is a wholly owned subsidiary of Ultramar plc., a United Kingdom corporation and at all material times the owner of the barge Pointe Levy.

The defendants are engaged in the business of marine insurance. Highlands Insurance Company, Navigators Insurance Company, and certain Underwriters at Lloyds, collectively referred to as the “cargo underwriters,” are the insurers of the plaintiff’s cargo carried on board its barge the Pointe Levy pursuant to open marine cargo policy No. A & A C-81018, dated January 21, 1988. The defendants Mutual Marine Office Inc., New York Marine Managers Inc. and Trinity Associates Inc., were not themselves insurers of the plaintiff’s cargo but did, during the course of events leading to this litigation, act as agents on behalf of some of the cargo underwriters. The defendant Royal Insurance Company of America insured the hull and machinery of the Pointe Levy, and the defendant The Standard Steamship Owners’ Protection and Indemnity Association (Bermuda) Limited (P & I Club), provided insurance coverage for pollution as well as other benefits. The defendants, Alexander & Alexander of New York Inc. and Alexander & Alexander Inc. have acted as the plaintiff’s insurance brokers since 1981.

The unmanned barge Pointe Levy, had a gross registered tonnage of 3,642 tons. In May of 1985, the plaintiff entered into a towage charter-party agreement with Atlantic Towing Limited for the charter of its tug Irving Teak to tow cargoes of Ultramar’s oil laden on board the Pointe Levy from Montréal to Bathurst, New Brunswick. The plaintiff’s cargo of 5,263 metric tons of No. 6 oil was laden on board during November of 1985. The Pointe Levy departed from Montréal for Bathurst early in the morning of December 1, 1985, under tow by the tug Irving Teak. The defendant Alexander & Alexander of New York Inc., acting as the plaintiff’s insurance broker, placed hull, cargo and protection & indemnity (P & I) insurance for the voyage as follows:

1. Hull & Machinery Policy with the defendant Royal Insurance Company of America insuring hull and machinery of the barge for the sum of $3,000,000.00;

2. Marine Open Cargo Policy with the defendant cargo underwriters insuring cargo on board for the sum of $999,332.00; and

3. The Standard Club Protection & Indemnity Insurance and Standard Club Rules providing coverage for pollution liability up to $300,000,000.00 and other benefits.

At three o’clock in the morning of December 3, 1985, heavy weather caused the tow line to snap. The tug captain dropped anchor and used the emergency tow line in an attempt to prevent the Pointe Levy from going aground. When the emergency tow line parted, the Pointe Levy dragged anchor and grounded off Matane, Quebec, in the St. Lawrence River, where she was damaged and some of her oil cargo spilled. The weather conditions—high winds of sixty kilometres per hour gusting to eighty to one-hundred kilometres per hour with fifteen to twenty foot waves “hindered all attempts to board the stranded vessel. The weather remained severe throughout the early morning hours of December 3 and the barge was driven and pushed by the strong north and northwest winds and tide, eventually coming to rest with the starboard side parallel to the shoreline.

Later that day the Canadian Coast Guard advised Ultramar it was responsible for taking action. The telex stated that “Depending on the reaction of the owner, the Canadian Coast Guard will take its own proper initiative to address the situation.” On December 4, 1985, a morning aerial inspection of the barge showed pollution and leakage of the bunker oil cargo which was drifting easterly onto the shoreline and collecting at the Matane Marine Dock breakwater. High winds and seas continued to hinder all investigatory work until the afternoon, at which time Mr. Mario Rossi, a surveyor with Salvage Association, together with pumpmen from the Irving Teak, boarded the Pointe Levy from a Coast Guard landing craft. On a preliminary basis it was discovered that three of the ten cargo tanks were open to the sea, that all double bottom tanks beneath the cargo tanks were flooded with sea water, that two of the six double bottoms contained signs of cargo and that the engine room, the pump room and the cofferdam were tidal with their water levels equal to that of the sea.

The first plan of action, as set out by Mr. Rossi during the evening of December 4, 1985, was to carry out a diver’s inspection, to fit a boom around the Pointe Levy to contain further oil spillage, and to helicopter Canadian Coast Guard pumps on to the Pointe Levy to skim oil from breached tanks and pump it into sound tanks. A diver’s inspection of the barge was initiated on December 5, 1985, but had to be aborted due to weather conditions and poor visibility.

The same day, December 5, Ultramar engaged the services of Smit American Salvage Inc., out of Galveston, Texas, to supply the necessary salvage gear to remove the vessel and its cargo from the strand and bring it to a place of safety. The contract was “To lighten, as required, patch if necessary, re-float and deliver to a mutually-agreed port of refuge—client responsible for disposal of lightered cargo and obtaining C.C.D. [sic] approval to enter/delivery of barge to safe port of refuge.” Under the terms of the contract, Smit was to be paid the sum of US $350,000 plus all its costs, plus 15% provided the barge was brought to a place of safety. In the end, the ultimate cost of the contract was nearly C $2,000,000.

For the duration of the time the Pointe Levy was on the strand, and in fact until it was drydocked on December 17, 1985, the severe prevailing weather conditions were such that no proper diver’s inspection could be carried out. However, Mr. Anthony Airey, a principal of Amacan Maritime, Inc., a company which acted as marine manager of the Pointe Levy for Ultramar, did make certain estimates of damage prior to an underwater inspection of the barge. The following estimates were made by him from his office in Montréal, on the basis of information provided by individuals at the scene of the mishap:

December 4, 1985—$160,000.00 covering Coast Guard, tugs, divers, technician and other surveys, exclusive of hull damage, dry dock, etc.

December 9, 1985—$600,000.00 for hull and machinery repairs to the barge.

December 16, 1985—$700,000.00 for docking, cargo disposal, clean and gas-free—dispose slops—make permanent repairs (known damages only). Mr. Airey stated “This could be even more if bottom damage is extensive.”

Pollution clean up commenced on December 6, 1985. Equipment from Sanivan Ltd. worked around the clock to remove contaminated ice, sand and gravel material from the marina breakwater entrance. By mid-day, fifteen transport trucks were on site with two crane clams, two bulldozers and four pressure vacuum trucks all working around the clock. A ramp was constructed joining the elevated roadside with the breakwater shoreline beach area in order to allow heavy machinery to accumulate the polluted material into trucks during low tide for disposal at a nearby temporary dumpsite.

At a meeting held the same day, it was agreed that Ultramar would take immediate steps to clean the pollution on various sections of the beach east of Matane as identified and specified by the Ministry of the Environment. On December 7, 1985, representatives of Ultramar, the Canadian Coast Guard, Environment Quebec and other concerned parties, attended the various clean-up operations on the shorelines and at the Matane Marina dock. The ultimate cost of cleaning up the cargo which had spilled was in excess of $3,000,000.

During December 15 and 16, 1985, efforts by Smit American Salvage Inc. to refloat the barge proved unsuccessful. On December 17, 1985, the salvors discharged approximately 800 tons of cargo into the barge Sillery and the Pointe Levy was refloated and towed to Les Méchins, Quebec. While in dry dock, the balance of the cargo of oil was removed from the barge, with great difficulty and at considerable cost, in view of the fact it had almost solidified in the cold weather. Special equipment and facilities had to be employed in order to heat and remove the cargo, at a cost of approximately $818,000.

On January 15, 1986, an underwater survey was conducted in the dry dock at Les Méchins. The damage seen at that time by Mr. Airey and Mr. Rossi convinced them the Pointe Levy was in all probability a constructive total loss. A formal declaration of abandonment of the vessel was sent by the plaintiff to its hull underwriters, the defendant Royal Insurance Company of America, on March 11, 1986, after various bids received from a number of ship repairmen revealed the cost of repairing the damage substantially exceeded the barge’s sound value which had been determined to be $2,120,000. Thereafter, offers to purchase the damaged barge on an “as is where is” basis were invited and on April 29, 1986, the vessel was sold and subsequently delivered to Messrs. McAsphalt Industries Ltd. for the sum of C $206,602.

ISSUE

Two to three days after the stranding of the barge, Ultramar declared general average and Mr. John Tull of Alexander & Alexander was appointed as the plaintiff’s average adjuster for the purpose of adjusting the loss. He prepared the adjustment which apportioned expenses amongst the defendant insurers. The claims arising out of the grounding of the Pointe Levy were characterized in the adjustment as follows:

(a) salvage charges;

(b) sue and labour expenses;

(c) loss of vessel;

(d) loss of cargo;

(e) general average expenses;

(f) expenses to clean up and avoid pollution

(g) surveyors expenses;

(h) legal expenses.

Mr. Tull prepared an original adjustment dated April 30, 1987, to which there were a number of objections by the various underwriters. He then prepared a revised adjustment, dated April 7, 1988, which reallocated some of the expenses in question, largely from the P & I side of the ledger to the hull and cargo. These “excess general average (sue and labour) expenses” were allocated between ship and cargo on the basis of the values estimated by Mr. Airey, and their recovery claimed under the hull and cargo insurance policies.

As a result of the casualty the defendant underwriters have paid or will pay to the plaintiff, subject to this Court’s determination of the issue before it, over $7,000,000 apportioned as follows:

Hull Underwriters     $3,276,995.80

Cargo Underwriters $   950,000       (approximate)

P & I Club                $3,000,000

The issue between the parties in this action is the liability for the costs of in excess of $2,000,000 which were incurred under the Smit contract in order to salvage the Pointe Levy and its cargo. The question to be determined is how these expenses are to be allocated amongst the various parties, namely:

1. the defendant Royal Insurance Company of America (Royal) in its capacity as the insurer of the hull and machinery of the Pointe Levy;

2. the defendant Mutual Marine Office, Inc. (Mutual) in its capacity as the lead insurer of the cargo of fuel oil laden aboard the barge at the time of the grounding;

3. the defendant The Standard Steamship Owners’ Protection and Indemnity Association (Bermuda) Ltd. (Standard); and,

4. the plaintiff in its capacity as owner of the Pointe Levy.

PLAINTIFF’S ARGUMENT

The plaintiff’s position is that general average is a means to effect an equitable sharing of expenses incurred for the benefit of all interests in a common adventure. If the excess expenses at issue in the present case cannot be recovered in keeping with general average principles, the plaintiff maintains they are recoverable under various clauses of the insurance policies such as the sue and labour clauses. Ultramar argues it had an obligation to minimize its losses, to protect its assets, to safeguard against exposure to liability and to protect the environment. Had it not acted to save the barge and cargo, it would have faced the allegation it had not sued and laboured on behalf of the insurers as it was obligated to do.

In contracting for salvage, the plaintiff maintains it acted reasonably under the circumstances and should not be penalized for incurring expenses in order to save insured property. It believes the revised adjustment prepared by Mr. Tull provides for an equitable sharing of what can be termed as “excess general average” expenses. These expenses, it is argued, should be allowed and paid for by the hull and cargo underwriters as set forth in the revised adjustment prepared by Mr. Tull, not because they should be allowed in general average, but because the insurance policies provide for them and to do otherwise would render the sue and labour clauses in the policies meaningless.

DEFENDANTS’ ARGUMENT

There is no dispute by the defendant cargo underwriters that the expenses in issue are general average expenses. It is submitted however, that as a matter of law and adjusting practice, the liability of cargo in general average is limited to its contributory value. The cargo underwriters maintain that to the extent there is excess general average expenses after contributory values are exhausted, those expenses fall on the shipowner, subject to collection from its hull and P & I underwriters, in accordance with the practice followed by average adjusters around the world. In the present case, there is neither precedent nor practice to support the approach taken by Mr. Tull as regards cargo and it is, in fact, contrary to the well-established and accepted practice which limits cargo’s contribution to its contributory value. Nor is there any clause in the cargo policy, it is argued, which would render the cargo underwriters liable for the expenses in issue.

The defendant Royal, the hull underwriter, submits the estimates of repair costs and the Pointe Levy‘s value made by Mr. Airey before the barge was examined in dry dock, are incompetent to prove a value for the purpose of calculating Royal’s contribution to excess general average expenses under the sue and labour clause of the hull and machinery insurance policy. As of the grounding, it is argued, the Pointe Levy was a constructive total loss and had no value. Accordingly, it cannot be said the excess general average expenses were incurred in respect of the barge thereby engaging Royal’s liability under the sue and labour clause.

In the alternative, Royal argues that if it has any obligation to contribute to the excess general average expenses, the only value available for determining Royal’s liability is the amount made good for the barge. On this basis, Royal’s liability for excess general average cannot exceed the sum of $236,294.87. Finally, it is submitted by this defendant that the predominant purpose of the contract with Smit American Salvage Inc. was the prevention of pollution. Viewed in this context, Royal maintains the resulting excess general average expenses are not recoverable under the policies issued by the cargo and hull underwriters, but are recoverable from the Standard P & I Club.

The defendant Standard maintains the plaintiff is entitled to recover some of the cost of the Smit contract from its cargo underwriters, some from its hull underwriters and must bear the rest itself since the contract was for salvage services in saving the hull and cargo. The cost is a general average expense which is supported by the property saved up to the limit of their contributory values. P & I itself, it is argued, which only insures if there is no other coverage, did not insure with respect to general average expenses incurred in excess of contributory values and accordingly, is not liable to cover any of the expenses in question.

ANALYSIS

The perils against which Ultramar insured itself are classic marine perils. In accordance with the Supreme Court of Canada decision in Triglav, Zavarovalna Skupnost, (Insurance Community Triglav Ltd.) v. Terrasses Jewellers Inc. et al., [1983] 1 S.C.R. 283, marine insurance falls within the legislative class of subject of navigation and shipping and thus into the federal realm of jurisdiction. The Supreme Court also held in ITO—International Terminal Operators Ltd. v. Miida Electronics Inc. et al., [1986] 1 S.C.R. 752 that “Canadian maritime law” as defined in section 2 of Federal Court Act, R.S.C., 1985, c. F-7, as amended, encompasses the principles of English maritime law as they were in 1934, including the common law principles of tort and contract. It follows from this that the Marine Insurance Act, 1906 (U.K.) [6 Edw. 7, c. 41] forms part of Canadian maritime law. In any event, there is no difference in the principles enunciated in that Act and our own Marine Insurance Act, Bill C-97 [S.C. 1993, c. 22], which came into force during the course of the trial.

The law of general average, which is part of the law of carriage of goods by sea, originated in equity and was practised long before marine insurance developed. It arises when expenditures are intentionally incurred in time of peril, most often by the shipowner, for the benefit of all parties concerned, namely ship, cargo and freight. General average is based on the equitable principle that whatever expenses were incurred for the benefit of all parties to a common maritime adventure must be shared by all in proportion to the interests which benefited. A general average act is defined in Rule A of the York-Antwerp Rules 1950, as follows:

Rule 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.

General average exists quite independently of marine insurance. The obligation to contribute in general average does not depend upon any contract between the parties. As stated by Lord Denning in Evje, The, [1973] l Lloyd’s Rep. 509 (C.A.), at page 513:

… a claim by shipowners against a cargo owner for general average contribution does not arise “out of” the contract. It arises “in the course of it”. It arises in the course of the voyage. It arises out of the perils encountered in carrying out the contract, and not out of the contract itself. That was clearly the view of Lord Esher, M.R. in Burton& Co. v. English & Co., (1883) 12 Q.B.D. 218, at p. 220 and 221:

… it does not arise from any contract at all, but from the old Rhodian laws, and has become incorporated into the law of England as the law of the ocean. It is not as a matter of contract, but in consequence of a common danger, where natural justice requires that all should contribute to indemnify for the loss of property which is sacrificed by one in order that the whole adventure may be saved. If this be so, the liability to contribute does not arise out of any contract at all, and is not covered by the stipulation in the charterparty … 

Nevertheless, it is customary for parties to a maritime venture to insure against liability for general average contributions. Normally a marine insurance policy will provide for indemnity against general average losses and contributions, subject to the actual provisions of the policy. The Marine Insurance Act, 1906 sets out the rules as to general average contribution and the liability of the insurers in respect of general average losses. Subsections 66(3), (4) and (5) provide as follows:

66. …

(3) 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.

(4) Subject to any express provision in the policy, where the assured has incurred a general average expenditure, he may recover from the insurer in respect of the proportion of the loss which falls upon him; and, in the case of a general average sacrifice, he may recover from the insurer in respect of the whole loss without having enforced his right of contribution from the other parties liable to contribute.

(5) Subject to any express provision in the policy, where the assured has paid, or is liable to pay, a general average contribution in respect of the subject insured, he may recover therefor from the insurer.

In cases involving complex salvage operations however, it is often difficult to determine if the shipowner’s act or acts are taken for the benefit of the common adventure, or for a specific interest. As stated in Arnould’s Law of Marine Insurance and Average, 16th ed., at page 847:

Difficult questions have arisen as to how the expenses of what Lowndes calls complex salvage operations should be born and apportioned. Operations of this nature are most common in cases of stranding. Thus, where a vessel strands on a beach with cargo on board, and a series of separate operations is necessary, it often happens that the cargo or part of it is put into a position of safety in the first instance, the ship with perhaps the rest of the cargo remaining in danger from which they are only saved by the continuance of the operations. The questions for consideration then are, first, are the expenses of the earlier operations general average, or a particular charge on the cargo saved? and secondly, are the subsequent operations, which save the ship and the rest of the cargo, general average, to the expense of which the cargo originally saved contributes, or is such expense to be borne merely by the interests to which the operations directly relate? This appears to be another of those cases, which are so common in questions of marine insurance, where there is little difficultly in the enunciation of the principle to be applied, but great difficulty as to its actual application to particular circumstances. The principle is simply that laid down generally in Svendsen v. Wallace (1885) 10 App. Cas. 404 … that expenses incurred for the general safety are to be contributed for, but expenses incurred on behalf of a particular interest are to be borne as particular charges upon such interest. [Emphasis added.]

There is no longer any dispute between the parties in the present case that the stranding of the Pointe Levy gave rise to general average expenses. It is agreed that by engaging the services of Smit to lighten the barge, remove it from the strand, and tow it to Les Méchins, the plaintiff incurred an expenditure for the common benefit of all interests. Accordingly, the defendants’ respective liability for those expenses is properly determined in accordance with the principles of the law of general average. Some of those expenses are recoverable under the relevant insurance policies. The question is whether they are fully recoverable from the insurers pursuant to the principles of the law of general average and/or the insurance policies or whether a portion of them must be borne by Ultramar.

There was considerable argument before me concerning whether the plaintiff’s act in engaging the services of a professional salvor were motivated primarily, even solely, by the concern over the pollution hazard which was created by the stranding. These submissions were based on the fact that oil leakage from the barge had already resulted in some pollution to a sensitive local environment which featured a shrimp and salmon fishery and tourism industry. The Canadian Coast Guard advised Ultramar it would have to act or action would be taken on its behalf.

However, the facts of this case do not support a finding that pollution prevention was the sole reason for engaging the services of a professional salvor. Clearly, the plaintiff oil company had a grave situation on its hands which had to be brought under control, in austere weather conditions, and in the swiftest and most efficient manner possible. There is no question the general average act was undertaken by Ultramar for the purpose of preventing a pollution catastrophe. But neither is there any doubt that saving the hull and cargo was also a predominant consideration. The evidence shows that at the time the Smit contract was entered into, none of the parties involved were aware the damage to the Pointe Levy was so extensive as to render her a constructive total loss. Accordingly, the salvaging efforts must also be seen as having been undertaken by the plaintiff for the purpose of attempting to save the ship and cargo, as it was certainly obliged to do.

Indeed, the unique circumstances of this case make it impossible to point to any one single factor as the motivating force behind the general average act. The reality is the Smit contract, the general average act, was undertaken for a variety of reasons and in order to protect various interests. In my view, the expenses were incurred both for the purpose of saving cargo and hull, and in order to prevent a pollution disaster. As the preservation of their property from peril was one of the underlying reasons for the expenditures, the cargo and hull underwriters bear a liability under the law of general average. The only question before this Court is the extent of that liability.

LIABILITY OF THE CARGO UNDERWRITERS

There is no dispute concerning the insurance of the lost cargo and expenses incidental thereto. That claim, in the amount of $131,639.23, has been paid in full and forms no part of this action.

With respect to the extent of cargo’s liability for the expenses incurred in the general average act, I am satisfied cargo’s liability is limited to its properly calculated contributory value. The evidence before the Court demonstrates this is the practice followed by average adjusters around the world. The testimony of all the expert average adjusters called on behalf of the defendant underwriters was that properties saved are only liable in general average up to their contributory values. Furthermore, the learned treatises on the subject matter support the conclusion this is a well- established principle. The editors of the most recent edition of Lowndes & Rudolf, The Law of General Average and the York-Antwerp Rules (11th edition, 1990, paragraphs 17.95-17.98) now acknowledge the virtually universal acceptance of the proposition that “a general average contribution cannot exceed the contributory value.” The same principle is stated in The Law and Practice of Marine Insurance and Average (Vol. 1) 1987 by Alex L. Parks, at page 624:

As noted, when general average expenditure exceeds the total arrived values of ship and cargo, cargo is liable for general average only up to its contributory value.

In Chellew v. Royal Commission on the Sugar Supply, [1922] 1 K.B. 12, the Court of Appeal, affirming the Trial Division, held that if no cargo survived, there was no liability on cargo underwriters in general average.

To the extent there are “excess” general average expenses after contributory values are exhausted, those expenses fall on the shipowner, who may or may not have insurance coverage for them under its various policies, depending on the policies taken out and the wording thereof. In Green Star Shipping Co., Ld. v. London Assurance, [1933] 1 K.B. 378, Mr. Justice Roche stated, at page 391:

Accordingly, if a shipowner, being the assured under a policy in the present form, incurs expenditure for general average, and the cargo’s contribution falls short of what is hoped or expected by reason of the diminution or extinction of its value before the adventure terminates, then I think the loss falls into the category of the proportion of the loss which falls upon the assured, the shipowner, and is within the meaning of those words in the Marine Insurance Act … 

However, in the case at bar, Alexander & Alexander apportioned the excess general average expenses between ship and cargo on the basis of the values estimated by Mr. Airey. In doing so, A & A was inspired by the report of the Association Internationale de Dispacheurs Europeens (AIDE) dealing with “general average in excess of contributory values.” The AIDE report considered a theory regarding the allocation of excess general average which had been proposed and rejected at a conference held in Stockholm prior to the adoption of the 1924 version of the York-Antwerp Rules. A similar theory had been considered but not adopted in the York Rules of 1864. Indeed, the AIDE group itself concluded that general average in excess of contributory values creates great practical problems, and although it listed various possible solutions, it made no recommendations. To this day there is neither a rule of general average nor a practice among average adjusters providing for the apportionment of excess general average between cargo and hull insurers.

Accordingly, there is neither precedent nor practice to support the approach taken by Alexander & Alexander as regards cargo. In fact, it is blatantly contrary to the well-established and accepted practice which limits cargo’s contribution to its contributory value.

The plaintiff further argues that clause 26B of the cargo policy extends coverage where general average rules do not provide for the amounts to be paid due to the low “net contributory values of the hull and cargo.” Clauses 26A and 26B of the policy read as follows:

26A General Average, Salvage and Special Charges, as per foreign custom, payable according to foreign statement, and/or per York-Antwerp Rules and/or in accordance with the contract of affreightment, if and as required; or, failing any provision in or there being no contract of affreightment, payable in accordance with the Laws and Usages of the Port of New York.

26B General Average Contributions, salvage and Special Charges and Sue and Labour Charges will be payable in full, irrespective of insured and contributory values.

I cannot accept the plaintiff’s submissions in this regard. The overwhelming weight of expert evidence offered at trial supports the conclusion that the sole purpose of clause 26B is to protect the assured against the consequences of an underinsurance situation which would arise by virtue of section 73 of the Marine Insurance Act, 1906. That section, which provides for co-insurance in the case of a difference between insured and contributory values, reads as follows:

73. (1) Subject to any express provision in the policy, where the assured has paid, or is liable for, any general average contribution, the measure of indemnity is the full amount of such contribution, if the subject-matter liable to contribution is insured for its full contributory value; … or if only part of it be insured, the indemnity payable by the insurer must be reduced in proportion to the under insurance, and where there has been a particular average loss which constitutes a deduction from the contributory value, and for which the insurer is liable, that amount must be deducted from the insured value in order to ascertain what the insurer is liable to contribute.

(2) Where the insurer is liable for salvage charges the extent of his liability must be determined on the like principle.

Indeed, Mr. Barstow, testifying as an expert on behalf of the defendant P& I Club, stated that “to someone in the insurance industry, the clause could only possibly have one meaning” and authorities on the subject confirm it is common to include such a clause in the policy to avoid the effects of section 73. In Parks, The Law and Practice of Marine Insurance and Average, Vol. 1, the author states, at page 627:

… American law is to the effect that cargo underwriters are liable only for the full general average contribution payable by the assured, if the insured value of the cargo is equal to or exceeds the sound value on which the contributory value of the cargo was based. Thus, concerning the difference between the contributory value of the cargo and the insured value, cargo owners are co-insurers with their underwriters.

It is not surprising that an experienced marine insurance broker such as Alexander & Alexander included clause 26B in the cargo policy so as to protect its client against the consequences of this well-recognized principle. It is significant that both Mr. Barstow and Mr. Fitzgerald, testifying as experts on behalf of the defendant P & I Club, which had nothing to gain and in fact something to lose by reducing cargo’s liability in this case, stated the clearly understood meaning of this common clause in the marine insurance market, is to protect the assured against underinsurance.

The interpretation of the clause put forward by the plaintiff is not only unsupported by the commercial experts who testified at trial, it was not even advanced by Alexander & Alexander, the broker who prepared the policy and who was being sued for negligence for failing to have obtained proper insurance coverage for the plaintiff. It is significant the clause is a “broker’s clause,” inserted in a manuscript policy prepared by the broker, acting as agent on behalf of the assured. In a case such as this, where the broker was being sued for negligence, had there been any other reasonable interpretation of the clause, one would have expected the broker to proffer expert evidence to support its intent. However, no such evidence was adduced on behalf of Alexander & Alexander. Nor was underwriting evidence called by A & A to support the contention the clause had some secondary meaning, other than its clear and commonly understood meaning. In fact, at no time has Alexander & Alexander suggested the claim against the cargo underwriters was based on clause 26B.

Mr. Wight and Mr. Cantello, brokers called on behalf of the plaintiff, admitted the clause deals with underinsurance but suggested it might be capable of a different interpretation. However, they could point to no authority for their proposition.

Nor can I accept the plaintiff’s argument that the contra proferentem rule of interpretation should be applied to the clause. That rule is designed to resolve an ambiguity and I cannot see that one exists here. As stated in Marine Insurance, 4th ed. by E. R. Hardy Ivamy, at page 324:

Unless it can be shown that some special meaning is attached to the words either by judicial decisions, by usage, or by special circumstances or terms of the contract, the words of the policy are to be construed in their ordinary and popular sense.

In my view, the clause is clear and unambiguous. When read in context and in conjunction with section 73 of the Marine Insurance Act, 1906, it is clear that it is the “general average contribution” which is payable in full; that is, cargo’s contribution to general average, calculated in accordance with general average law and practice. The word “full” comes from section 73—“the measure of indemnity is the full amount of such contribution” [underlining added]—and the words “irrespective … ” refer to the words “full amount.” I am unable to accept the plaintiff’s argument therefore that clause 26B renders the cargo underwriters liable for general average “in full” and accordingly in excess of its contributory value.

The remaining issue with respect to cargo’s liability involves the special charges on cargo. Mr. Tull has conceded he erred by failing to deduct from the arrived value of the cargo, the “special charges on cargo” which were incurred for the purpose of discharging the cargo from the vessel. These charges must be deducted in order to determine the true value of the cargo for the purposes of contribution to general average.

The deduction of special charges for the purposes of calculating cargo’s contributory value is required by Rule XVII of the York-Antwerp Rules 1950, which provides, in part, as follows:

RULE XVII. CONTRIBUTORY VALUES

The contribution to a general average shall be made upon the actual net values of the property at the termination of the adventure … deduction being also made from the value of the property of all charges incurred in respect thereof subsequently to the general average act, except such charges as are allowed in general average.

The purpose of this deduction is to ensure the contribution is made only on the “net” value of the property saved. All expert witnesses agreed the deduction should have been made in the present case, although they were not unanimous on the exact contributory value to be used for the purpose of determining cargo’s general average liability. Mr. Hicks, Mr. Tull, Mr. Fitzgerald and Mr. Barstow agreed the special charges on cargo amount to $818,097.62. Using the net cargo value of $848,615.99 shown on page 66 of the revised adjustment, Mr. Hicks, Mr. Fitzgerald and Mr. Tull appear to be in agreement that cargo’s contributory value is $30,518.37 ($848,615.99—$818,097.62). This figure then is cargo’s liability in general average. Mr. Barstow arrives at a slightly different figure, and would add interest to the contributory value, but overall the difference in his calculation is not significant and I am satisfied that the figure of $30,518.37 is an accurate calculation of cargo’s liability in general average.

For these reasons therefore the liability of the cargo underwriters is the sum of $331,254.99 calculated as follows:

Special Charges on Cargo	$818,097.62
General Average	30,518.37
Sub-total	$848,615.99
Paid on Account (including interest)	$517,361.00
Balance Owing	$331,254.99

LIABILITY OF THE HULL UNDERWRITERS

I turn now to the liability of the hull and machinery underwriters. Having paid the insured value of the hull in the amount of $3,000,000, the hull underwriters have discharged their liability to indemnify Ultramar for general average contribution. The plaintiff therefore has no recourse against its hull underwriters unless the latter has assumed greater liabilities in its policy of insurance than those imposed by law. As stated above, it is well settled that excess general average falls on the shipowner alone, subject to collection under its various policies of insurance.

The hull and machinery policy issued by the defendant Royal to Ultramar in respect of the Pointe Levy was subject to the American Institute Hull Clauses which contained a sue and labour clause providing as follows:

If claim for Total Loss is admitted under this policy and sue and labour expenses have been reasonably incurred in excess of any proceeds realized or value recovered, the amount payable under this policy will be the proportion of such excess that the amount insured hereunder (without deduction for loss or damage) bears to the Agreed value or to the sound value of that Vessel at the time of the accident, whichever value was greater; provided always that Underwriters’ liability for such expenses shall not exceed their proportionate part of the Agreed Value. The foregoing shall also apply to expenses reasonably incurred in salving or attempting to salve the Vessel and other property to the extent that such expenses shall be regarded as having been incurred in respect of the Vessel.

On the basis of this clause and relying on the estimate of the barge’s value given on December 16, 1985, by Ultramar’s representative Mr. Airey, Mr. Tull concluded in his adjustment that Royal was obliged to pay $1,305,837.45 on account of excess general average.

In defining the scope of Royal’s liability, the issue is how one values a ship in circumstances such as those in which the Pointe Levy was found as a result of the grounding. There are three possibilities:

1. The relative values of hull and cargo at the commencement of the voyage in the amounts of $1,120,000 and $999,568.20 respectively;

2. Their values on the strand as estimated by Mr. Airey, and as used by Alexander & Alexander of $1,420,000 and $949,345.42; or

3. The contributory values in general average, the hull’s being approximately $8,000 and the cargo’s approximately $30,000.

I agree with the defendant that the estimates made by Mr. Airey before the Pointe Levy was examined in dry dock are inappropriate to establish a value for the purpose of calculating its contribution to excess general average under the sue and labour clause. At the time the Smit contract was entered into, none of the attending surveyors had ventured any opinions as to the monetary extent of the damage to the barge for the simple reason it was impossible to do so. In fact, on December 4, 1985, Mr. Airey advised his principals by telex of his estimate of ongoing expenses but specifically excluded “hull damages, dry dock etc.”

The first actual attempt to calculate barge damage costs was made by Mr. Airey on December 9, 1985, which was four days after Smit had been hired. On the same date, Mr. Airey estimated the cost of repairing the hull damage at $600,000. On December 16, limiting himself to “known damages only,” he estimated the cost of the hull repairs to be $700,000 and advised the plaintiff that the “possible total” of all expenses arising out of the grounding was $3,450,000. It was this estimate to which Mr. Tull and his superior at Alexander & Alexander, Mr. Leo Walsh, attached so much importance later on.

It is noteworthy that Carlos Laguna, Amacan’s on-site representative in Matane, had not given Mr. Airey any estimates as to the extent of bottom damage while the Pointe Levy was on the strand. It is also significant that when pressed by Mr. Airey to agree to the estimate of $600,000 given on December 9, 1985, Mr. Rossi refused to do so as he did not believe there was sufficient information at hand regarding the extent of the damage to the barge to permit a reasonable assessment of the cost of repairs. Mr. Airey confirmed during his testimony at trial that Mr. Rossi did not participate in the formulation of the estimates nor had he ever signified his agreement with them.

Mr. Rossi’s testimony was that as far as he was concerned, the knowledge that certain tanks were leaking was of little assistance in evaluating the bottom damage because he could not assess whether that meant the replacement of “three pounds or three hundred pounds” of steel. He stated, “was it a hole of a foot, three feet, three yards, three miles, I didn’t know.” He also emphasized the caution to be exercised by a hull surveyor when providing estimates as to the extent of vessel damage and the cost of repairing it and was adamant that repair costs could only be developed once the vessel was in dry dock. Had he been asked by Royal to provide an estimate of the damages, he would have indicated he was unable to do so.

In fairness to Mr. Airey, however, he did, during his testimony at trial, express concern that the estimates which he had given to Ultramar were subsequently adopted and employed for a purpose entirely different from that which he had intended at the time he made them. Furthermore, it was clear from his testimony he never considered his estimates to be a reliable benchmark for the purpose of assessing the surviving value of the Pointe Levy. In this regard, Mr. Airey characterized his estimates as “brave”; a “hipshoot”; “qualified … [as to the existence of] extensive bottom damage”; and, “not an estimate or description of damages.” On one occasion during the course of his testimony, he commented “I have to say this really can’t be called an estimate because it’s far from being accurate.” In fact, he acknowledged he had spent no more than ten to fifteen minutes estimating the cost of repairs to the barge.

Finally, he conceded that as of December 5, 1985, he foresaw the magnitude of the damages, especially with respect to the double bottoms, although he could not confirm his suspicion. However, he knew on December 16, 1985, when he made the estimate which was to play such a crucial role in this case, that a genuine possibility existed the damage to the Pointe Levy could be far more serious than estimated.

In light of all this, it is difficult to conceive how those estimates of December 9 and 16, 1985, could have been adopted by Alexander & Alexander as a rational and fair basis for determining the extent of Royal’s liability under the sue and labour clause. Nevertheless, they were to serve as the cornerstone of Mr. Tull’s adjustment to the excess general average expenses and formed the basis for his decision to attribute liability to Royal of $1.3 million worth of these expenses.

I am convinced Alexander & Alexander was motivated in acting as it did because it was the broker which had bound the insurance coverage for Ultramar. It was, therefore, in a delicate position and was understandably concerned with maintaining good relations with its customer. When doubts concerning Ultramar’s ability to recover all of its expenses from its insurers began surfacing at a very early stage, Alexander & Alexander steadfastly maintained the position there was full insurance coverage and gave ongoing reassurances to the plaintiff to this effect. In this business context, I have no doubt that Alexander & Alexander was also aware of the potential for litigation in the event Ultramar was not fully insured.

Nevertheless, this does not change the fact the general average adjuster must credibly establish his valuations on the strength of prevailing factual realities and not on the basis of theories crafted with a view to attaining a preferred outcome. Mr. Airey’s estimates cannot stand as a credible basis for the determination of Royal’s obligations under the sue and labour clause. I accept Royal’s argument therefore that those estimates should not be the basis on which its contribution to the excess general average expenses should be calculated. Under the circumstances, those estimates cannot be seen as anything more than speculation. The situation was such that it was impossible to ascertain the extent of the damage or the cost of repairs until the Pointe Levy was in dry dock.

What then is the correct basis for determining Royal’s obligation to contribute to the excess general average expenses under the sue and labour clause? Once again, there is no ambiguity in the wording of the clause such as would require the application of the contra proferentem rule of interpretation. Furthermore, the notion of equity on which the plaintiff so heavily relies is not a factor which plays a role in the determination. Over $7,000,000 has or will be paid by the defendant underwriters as a result of a casualty involving a combined value at risk in terms of hull and cargo of $3,100,000 and Ultramar was far from being in a position of relative economic weakness or disadvantage in relation to its insurers. While the absence of meaningful surviving values may have unintended consequences for an assured, this is not to be confused with or mistaken for an inequity.

There can be little doubt that the extensive damage noted after the Pointe Levy had been brought to dry dock existed at the time she was refloated on December 16, 1985. The evidence also suggests on a clear balance of probabilities that the vessel was in the same condition prior to the engagement of Smit’s services. The movement of the Pointe Levy which precipitated the escape of oil and led to the engagement of Smit occurred on the night of December 3, 1985. On the night of December 6, 1985, there was a further movement of the barge 300 to 400 feet downstream on a course parallel to the shoreline. No further escape of oil was noted suggesting that no material damage had occurred as a result. In any event, there is no indication that whatever damage may have occurred at that time created or contributed to the total loss situation. The barge was therefore a constructive total loss virtually from December 4 onwards.

In the allocation of the excess general average under the sue and labour clause, scholarly authority and the testimony of Mr. Raymond Hicks indicates the proper solution to the valuation of the barge is to be found in the use of values which existed when the expenditure was incurred. While there is little in the way of either case law or legal commentary dealing with the valuation of a ship for the purposes of the sue and labour clause, credible authority for the proposition that actual as opposed to estimated values are to be employed is found in Lowndes and Rudolf, The Law of General Average and the York-Antwerp Rules, 10th ed., wherein the authors state, at page 430:

The insurers are to pay such proportion of the expenses in that class “as may reasonably be regarded as having been incurred in respect of the vessel.” How is the apportionment to be made? It cannot be on arrived values, since ex hypothesi the vessel has none, or almost none. The choice lies between sound values, and actual values at the time when the expenditure was incurred (but without discount for the contingency that the interests would be lost). It is submitted that the latter is the more plausible solution.

In the eleventh and most recent edition of the text the authors acknowledge, at page 610 that:

 … although the clause gives no precise guide, it is submitted that the abortive expenses—(or the excess over any proceeds)—should be apportioned over approximate values of the property sought to be saved, and in the condition it was likely to be saved; [Emphasis added.]

In the present case, the actual value of the Pointe Levy in the condition in which she was likely to be saved when the contract with Smit was concluded was zero. There is no logical reason why the assessment of the barge’s value on the strand for any meaningful purpose, including the establishment of Royal’s contribution to excess general average, should not have been deferred until the time of the survey of the vessel at the dry dock in Les Méchins. This is particularly true when one considers that the condition of the barge did not change after December 16, 1985, and in all probability, did not change in any material way between December 5, 1985, and the time when the inspections were carried out in dry dock.

Even Mr. Tull conceded he would have used the barge’s “real value” on the strand for the purpose of calculating Royal’s contribution to excess general average had Mr. Airey’s estimates not existed. The following passages from Mr. Tull’s cross-examination of May 25, 1993, are particularly relevant:

Q. Let’s assume he [Mr. Airey] gave no estimates either on the 11th or the 16th. Keep all other facts unchanged, how would you have addressed that, or what possibilities were there open for you?

A. Obviously, if the vessel was a total loss at the time, we would have been looking at the P & I Club for wreck removal expenses. And the GA expenses, if any, incurred up to that time, presumably, there would have been absolutely no contributory values on the ship and the cargo.

Q. Now, I want you to go as it happened here, the vessel went to the dry dock. And you’ve adjusted as you’ve explained it in your adjustment on the basis of the real values for the purposes of the excess general average because you had Mr. Airey’s estimate of the 16th.

A. Yes.

Q. Now, in that scenario, had Mr. Airey not given you any estimate. So this case less Mr. Airey’s estimates.

A. Well, I think in that case, if we had no estimates and the circumstances were exactly the same as we have, in all probability we would have been looking at the values that were used for the general average.

Q. The real values.

A. The real values.

Q. So you are saying if Mr. Airey doesn’t give you an estimate on the 11th or 16th you would have used the real values?

A. Yes, they would have been the only values we would have had. [Emphasis added.]

The real value of the Pointe Levy, whether on the strand prior to the engagement of Smit’s services or in the dry dock at the end of the adventure was zero, for she was at all relevant times a constructive total loss, a state of fact that cannot be altered by any argument put forward by Ultramar or Alexander & Alexander.

In my view, the appropriate value to be employed in calculating Royal’s liability for those expenses is the amount made good which consisted of the value of the diesel oil taken from the barge and consumed in her refloating. The evidence now shows that the amount made good of $17,214, used by Mr. Tull in calculating the value of the Pointe Levy for purposes of general average, was incorrect. He mistakenly believed that two lots of diesel oil, 5,000 and 4,600 gallons respectively, had been removed from the barge and employed in the salvage operation. However, the 5,000-gallon quantity had, as it turned out, been received from a shore facility at Matane, not from the barge, and only a portion of the 4,600-gallon quantity taken for the Pointe Levy was used in the refloating operation. The balance was used in order to facilitate the discharge of the fuel oil cargo from the barge while she was in dry dock.

It is undisputed that for the purposes of calculating the amount made good only that quantity of diesel oil consumed in the refloating operation is to be considered. Unfortunately, no one could quantify that amount with any degree of certainty and the plaintiff put forward no evidence which would be of any assistance in the least, although in my view, the burden of accurately calculating and proving the amount made good lay upon Ultramar and/or Alexander& Alexander. What evidence there was on this point, indicates that the amount of $8,000 is a relatively accurate representation of the value of diesel consumed in connection with the refloating operation.

I conclude therefore that Royal is liable under the sue and labour clause to pay excess general average expenses in the amount of $423,512.91, apportioned on the basis of the amount made good and the net surviving cargo value. This sum is arrived at by dividing the total values considered to have survived, $8,000 for the barge plus $30,518.37 for the cargo for a total of $38,518.37, into the amount made good of $8,000 and multiplying the result by the excess general average amount of $2,039,128.46.

LIABILITY OF THE P & I CLUB

I turn now to the liability of the defendant Standard P & I Club. The Standard Club is a mutual association such as are recognized in section 85 of the Marine Insurance Act, 1906. The cover taken out by Alexander & Alexander on behalf of Ultramar excluded some of the risks otherwise covered under the Club’s rules. The only one germane to this case was “excluding liabilities to cargo” found in the cover note. However, even without that exclusion, the liabilities to cargo interests are inapplicable in that the Club rules provide liability cover, and do not insure a member against loss or damage to its own property.

Under rule 19 the Club did not cover

… salvage or other services in the nature of salvage and any costs in connection therewith in relation to an entered ship—provided always that the following exceptions shall not apply to claims under the following paragraphs of Rule 20: paragraph (14)(e)—relating to salvors’ expenses—paragraph (23)—relating to Cargo’s proportion of General Average and—paragraph (24)—relating to Ship’s proportion of General Average.

Rules 20(23) and (24) have no application in that, as regards cargo, coverage was only for general average “which is not legally recoverable solely by reason of a breach of the Contract of carriage” and, as regards the ship, coverage was only for liability arising “by reason of the value of the entered ship being assessed for contribution to General Average or Salvage at a sound value in excess of the insured value under the Hull Policies.” There was no contract of carriage in this case, and even if there were, there is no evidence of any breach. The grounding of the Pointe Levy was an accident, pure and simple. The insured value under the hull policy exceeded the sound market value.

Under rule 20(14) the P & I Club covered pollution risks as well as

PROVIDED ALWAYS that such expenses or liabilities are not recoverable under the Hull Policy or any other insurance;

(e) Any liability of an Owner under a salvage agreement to compensate salvors for work done or measures taken to prevent or reduce pollution or the risk thereof by the escape from the entered ship of oil or any other substance;

(f) Any liability of an Owner incurred after the entered ship has become a wreck arising from the discharge or escape from such wreck of oil or any other substance; [Emphasis added.]

I am satisfied that as a liability policy, the P & I cover should only be resorted to should this Court find the salvage expenses were incurred solely for pollution prevention or there was compulsory wreck removal through an order by the Coast Guard to put the vessel into dry dock while she was on the strand. It has always been clear the Pointe Levy was not a wreck nor was there was any wreck removal order.

As previously stated, although the threat of pollution of the St. Lawrence River and the shoreline was a predominant concern, it was neither the primary nor sole motivating factor underlying the decision to engage the services of a professional salvor. The fact is the salvors were not contracted for the sole purpose of, nor did they specifically do anything, to prevent or reduce pollution. Although the acts they were contracted to perform—lightering the cargo, refloating the vessel, and delivering her to a point of refuge—had as their incidental result, the prevention of further pollution, it was Ultramar, through its contracts with the Canadian Coast Guard and Sanivan, which did everything necessary to prevent or reduce pollution. The plaintiff has been fully compensated for those expenses by the P & I Club.

The Standard Club has paid its contribution under the revised adjustment and has no further liability for the general average expenses incurred.

LIABILITY OF ULTRAMAR

In my view, aside from the portion to be paid by the hull and cargo underwriters, the remaining cost of the Smit contract must be borne by Ultramar.

Plaintiff’s counsel made a number of comments during the trial concerning the equities, the reasonable expectations of the parties and the conduct of the parties. To begin with, this is not an equity case. In looking at the various interests which the general average act was to benefit two things are clear. It was undertaken to save hull and cargo, and they are therefore required to pay their proportionate share of those expenses.

But the other reason for entering into the contract, the prevention of a pollution disaster, was clearly in Ultramar’s best interests. The possibility of a major oil spill was a significant factor from the outset of the stranding. Ultramar dispatched its own pollution-response team to the site and from the very beginning worked with the Canadian Coast Guard to clean up the spill that had occurred and to prevent further pollution. Indeed, Mr. Airey testified that estimates of pollution liability if the barge broke up were in the range of $30,000,000. The sensitive nature of the local environment, its reliance on tourism, the $3,000,000 cost incurred in cleaning up the limited spill which did occur, and the watchful eye of environmental groups and the press, leave no doubt that it was in Ultramar’s direct interest to take action to prevent a pollution disaster. There is no question the plaintiff’s potential liability, had the situation deteriorated into a massive oil spill, would have been very substantial.

The ultimate result in this case, that Ultramar itself must bear part of the cost of the Smit salvage contract, cannot be seen as inequitable. There is seldom such a thing as full insurance. It is not inequitable that in a major oil pollution casualty, involving complex issues of fact and law, some of the loss is uninsured and falls on the international oil company which owned the vessel and its cargo. If equity is to play a role in this determination, it is well to keep in mind the plaintiff has been paid approximately $7 million by its various insurers, including payment of approximately $900,000 in excess of the value of the hull itself. I see no injustice in requiring Ultramar to bear the cost of averting a major liability as compared to necessitating the property insurers to pay for expenses which did not result in the saving of property.

As Mr. Hicks pointed out during cross-examination, the hull of the Pointe Levy was insured for $3,000,000, which was more than $900,000 in excess of its fair market value. There is nothing wrong or “inequitable” about this. A shipowner may have many reasons to protect itself against contingencies, one being the possibility that it will incur expenses or losses which are not fully covered under its insurance policies. One such contingency is excess general average expenses which are not recoverable under the various insurance policies.

The plaintiff further contends the Court should give effect to the reasonable expectations of the parties. However, Ultramar is a major oil company, with a substantial and experienced risk management department. It is a sophisticated buyer of insurance. Alexander & Alexander is one of the largest insurance brokers in the world. It prepared the cargo policy on behalf of Ultramar, undoubtedly an extremely important and valuable client. Based on these facts, I am satisfied the reasonable expectations of the plaintiff are to be found in the clear and commercially well-understood language of the policies prepared by its broker.

CONCLUSION

For the foregoing reasons, the net sums due and owing to plaintiff under the insurance policies are as follows:

Cargo underwriters	$ 331,254.99
Hull underwriters	$ 423,512.91

The balance of the expenses are to be borne by the plaintiff.

Under the circumstances and given the very serious errors in the revised adjustment, I am awarding interest at the rate prescribed by Rule XXI of the York-Antwerp Rules 1950, at the rate of 5% per annum from the date of the revised adjustment. The plaintiff has not brought forth any circumstance which would justify compounding interest.

As the amount found owing by the defendants represents but a modest measure of the amount claimed by the plaintiff, and in view of the heavy expenses the defendants have incurred in defending this action, there will be no order as to costs.