Compagnie de Commerce et de Navigation D'Extreme Orient vs. Hamburg Amerika Packetfacht Actien Gesellschaft

A shipmaster who reasonably apprehends that his vessel is in danger of seizure by a public enemy of the flag may deviate to a neutral port of refuge, and the shipowner is relieved of liability for resulting loss of cargo under the “King’s enemies” exception in the charter party and under general maritime law. General average contribution requires a voluntary sacrifice or extraordinary expenditure to avert a peril common to both ship and cargo; a peril that threatens the vessel alone does not support a claim for general average. Freight payable on delivery is not earned unless the cargo is actually delivered at the stipulated destination.

In June 1914, the German-owned steamship Sambia was chartered by the Compagnie de Commerce et de Navigation D’Extreme Orient, a French corporation, to carry a full cargo of rice, rice bran, and cargo meal from Saigon to Dunkirk and Hamburg via the Suez Canal. The charter party, executed in London, contained a standard “King’s enemies” exception, a clause requiring delivery “or so near thereunto as she may safely get,” and a provision that freight was payable upon right and true delivery. While the vessel was loading at Saigon in early August 1914, war between Germany and France erupted, placing the German-flagged steamship in an enemy French port.

• The Charter Party: On June 17, 1914, the defendant German shipowner chartered the steamship Sambia to the plaintiff French corporation for a voyage from Saigon to Dunkirk and Hamburg via the Suez Canal to carry a full cargo of rice, rice bran, and cargo meal. The charter party provided that freight was payable upon right and true delivery at destination, contained an exception for “the act of God, the King’s enemies, arrests and restraints of princes, rulers and people,” and stipulated that general average should be adjusted according to the York-Antwerp Rules of 1890.

• Loading and Outbreak of War: Loading commenced at Saigon. On August 2, 1914, rumors of impending war between Germany and France surfaced. The master received an order from the vessel’s owner to proceed at once to a neutral port. The plaintiff insisted that loading be completed according to the charter party; the master complied, and loading was finished on the night of August 3, 1914.

• Plaintiff’s Efforts to Detain the Vessel: The plaintiff sought the compulsory detention of the vessel through the judicial authorities at Saigon but was unsuccessful. The French Governor of Saigon refused to issue a safe-conduct to the master because he had not been officially notified of a declaration of war.

• Flight to Manila: On August 4, 1914, the Sambia sailed from Saigon, having cleared officially for Dunkirk and Hamburg, but the master and agent also obtained from the United States consul a bill of health for Manila. The vessel proceeded directly to Manila, arriving on August 8, 1914, and remained there indefinitely owing to the state of war between Germany and France, Great Britain, and Russia.

• Attempts at Communication and Condition of Cargo: Upon arrival, the ship’s agent attempted to cable the plaintiff with an offer to purchase the cargo, but the messages were not received. A letter was sent on September 7, 1914, informing the plaintiff of the cargo’s condition. A marine survey conducted on September 10, 1914, found the cargo heating and infested with weevils; the surveyor recommended immediate sale.

• Judicial Sale: On September 10, 1914, the master petitioned the Court of First Instance of Manila for authority to sell the cargo. The court granted the petition, and the cargo was sold for P182,591.46. After expenses, P135,766.01 was deposited in court. A portion of the cargo that was putrid and unfit for sale was dumped into the sea by port authorities.

• Plaintiff’s Response: On October 1, 1914, the plaintiff’s Saigon representative wrote to the ship’s agent in Manila stating that it had received none of the cables, had no instructions to interfere, and would abstain from doing so without exact orders.

• Undisputed Material Facts: The trial court found, and the parties did not genuinely dispute, that the plaintiff was the sole owner of the cargo, the invoice value of the cargo at Saigon was P266,930, the freight under the charter party amounted to P60,841.32, the cargo was not transhipped, the vessel remained in Manila, and the defendant claimed liens for freight, general average, and expenses.

• Jurisdiction: Whether the trial court had jurisdiction over the action despite a charter party clause providing for arbitration in London.

• Justification for Deviation: Whether the master’s flight from Saigon to Manila, and the consequent abandonment of the voyage, was justified by a reasonable apprehension of seizure by the French authorities as enemies of the German flag.

• Duty to Tranship: Whether the shipowner was liable for failure to tranship the perishable cargo to the destination ports from Manila.

• Liability for Deterioration: Whether the shipowner was responsible for the deterioration of the cargo during the period between the vessel’s arrival in Manila and the judicial sale.

• Freight: Whether the shipowner was entitled to freight despite non-delivery at the designated ports.

• General Average: Whether the expenses incurred by the vessel in fleeing to and staying at the port of refuge gave rise to a valid claim for general average contribution against the cargo.

• Damages: Whether the plaintiff was entitled to recover damages for the lost cargo beyond the net proceeds of the sale, and if so, whether the penal clause limited the recovery.

• Jurisdiction: The objection to jurisdiction, raised for the first time on appeal, was waived. The defendant had voluntarily appeared, answered, and sought affirmative relief in the trial court without objection.

• Justification for Deviation: The master’s deviation was justified. At the time of the flight, there existed no universally recognized and imperative rule of international law requiring France to grant days of grace or a safe-conduct to an enemy merchant vessel in its port. The Sixth Hague Convention of 1907 had merely expressed a “pious wish” that such vessels be allowed to depart; the practice among nations was unsettled and recent developments had shown a tendency to restrict or deny the privilege. The master therefore had reasonable grounds to apprehend a real danger of seizure, not a merely imaginary one. The danger from an “enemy of the King” justified putting into a neutral port for safety; under the express “King’s enemies” exception in the charter party and under general maritime law, the shipowner was relieved of liability for the resultant loss.

• Duty to Tranship: The master was not at fault for selling the cargo rather than transhipping it. The cargo was perishable and had already begun to heat and become infested with weevils. There was no evidence that a suitable neutral vessel could have been promptly secured under the abnormal wartime shipping conditions. The decision to sell under judicial authority, following the recommendation of a marine surveyor and after unsuccessful efforts to obtain instructions from the cargo owner, was a prudent exercise of the master’s discretion in the interest of all concerned.

• Liability for Deterioration: The shipowner was not liable for the deterioration that occurred while the vessel lay at anchor in Manila. The master was allowed a reasonable time to ascertain the facts, attempt communication with the cargo owner, and decide on the proper course. The delay of thirty-three days between arrival and the application for judicial sale was not unreasonable given the wartime disruption of communications. The loss due to heating and weevils was a consequence of the original justified deviation and the necessary detention in a tropical port under conditions of impaired ventilation.

• Freight: The claim for freight was denied. Under the charter party, freight was payable only upon delivery at the designated destination. The voyage was never completed, and delivery was never made. A partial carriage to Manila did not constitute a partial performance that earned freight, nor was there any agreement, express or implied, to pay freight pro rata on delivery at a port of refuge.

• General Average: The claim for general average contribution could not be sustained. Under the York-Antwerp Rules and settled maritime law, general average requires a voluntary sacrifice or extraordinary expenditure made to avert a common imminent peril threatening ship and cargo together. The French cargo was absolutely safe in the French port of Saigon; the flight to Manila was undertaken solely to preserve the German vessel from the danger of seizure. The peril was not common to both ship and cargo, and therefore the expenses incurred in the port of refuge were for the exclusive benefit of the ship.

• Damages: The plaintiff’s claim for damages beyond the net proceeds of the sale was necessarily rejected because the master’s deviation and the abandonment of the voyage were found to have been justified. The shipowner incurred no liability for the loss of the cargo. The question of whether the penal clause of the charter party limited recovery was thus rendered moot.

• King’s Enemies Exception in Contracts of Affreightment — The “King’s enemies” exception excuses the shipowner from liability for loss or damage caused by acts of states or peoples with which the vessel’s sovereign is at war. It covers not only actual seizure but also delays and deviations reasonably undertaken to avoid a real and imminent danger of capture. The master is justified in putting into a neutral port for safety when he has a reasonable apprehension of danger from enemy forces. The exception originally stemmed from the bailee’s inability to obtain a remedy against enemies of the sovereign.

• General Average: Common Peril Requirement — General average is an equitable doctrine of maritime law that requires contribution from all interests in a maritime adventure when a part is voluntarily sacrificed or extraordinary expenses are incurred for the common safety to avert an imminent peril that threatens the whole adventure. The three requisites are: (1) a common danger that is imminent and apparently inevitable; (2) a voluntary sacrifice of a portion of the associated interests or the incurring of extraordinary expenses to avert that peril; and (3) the success of the attempt to save the remaining interests. The peril must be common to ship, cargo, and crew; a danger that threatens only the vessel does not give rise to a claim for general average against cargo.

• Freight Payable on Delivery — When freight is made payable only upon delivery of the cargo at the designated port of destination, no part of the freight is earned unless the cargo is actually delivered. An abandonment of the voyage by the master forfeits the entire freight. Partial performance, such as carriage to an intermediate port of refuge, does not give rise to a pro rata freight claim absent an express or implied agreement to that effect, and no such agreement is implied unless the cargo owner had the option to accept delivery at the intermediate port or require onward carriage.

• Master’s Authority to Sell Cargo in a Port of Refuge — When a voyage is justifiably interrupted and the cargo is perishable, the master has the duty and authority to sell the cargo for the account of its owner if transhipment is impracticable and if the owner’s instructions cannot be obtained within a reasonable time. The master must exercise sound discretion, act prudently, and, where local law provides, seek judicial authority. A reasonable period of delay to ascertain facts, attempt communication, and decide on the proper course is permitted; beyond that, the master must act promptly.

• “The shipowner is bound to be careful to avoid the acts of such enemies; but where he has been so, he is not liable for losses occasioned by them. For example, for the destruction or capture of the goods by enemies' cruisers; or for a delay where the master has properly put into a neutral port for safety. The master is justified in putting in, and delaying, where he has a reasonable apprehension of danger from capture.” — The Court quoted Carver on Carriage of Goods by Sea to define the scope of the “King’s enemies” exception.

• “The result of the principles above stated … may be summed up as follows: The law of general average is part of the maritime law, and not of the municipal law, and applies to maritime adventures only. To constitute a general average loss, there must be a voluntary sacrifice of part of the maritime adventure, for the purpose, and with the effect of saving the other parts of the adventure from an imminent peril impending over the whole. The interests so saved must be the sole object of the sacrifice, and those interests only can be required to contribute to the loss. The safety of property not included in the common adventure can neither be an object of the sacrifice, nor a ground of contribution.” — This passage from Ralli v. Troop was adopted to articulate the strict common-peril requirement for general average.

• “The French cargo was absolutely secure from danger of seizure or confiscation so long as it remained in the port of Saigon, and there can be no question that the flight of the Sambia was a measure of precaution adopted solely and exclusively for the preservation of the vessel from danger of seizure or capture.” — The factual basis for denying general average.

• “The word ‘necessity,’ when applied to mercantile affairs, where the judgment must in the nature of things be exercised, cannot, of course, mean an irresistible compelling power. What is meant by it in such cases is the force of circumstances which determine the course a man ought to take.” — The Court cited Australian Steam Nav. Co. v. Morse to define the standard of necessity that justified the master’s decision.

• The Buena Ventura, 175 U.S. 384 (1899) — The Court noted that this United States Supreme Court decision had recognized a practice of granting days of grace to enemy merchant vessels at the outbreak of war, but distinguished it by showing that the practice was not universally binding and had been eroded by the Hague Convention of 1907.

• The Star of Hope v. Annan, 76 U.S. 203 (1869) — Relied upon for the tripartite test of general average: common imminent danger, voluntary sacrifice, and success in saving the remaining property.

• Ralli v. Troop, 157 U.S. 386 (1895) — Provided the authoritative summation of the law of general average, emphasizing that the sacrifice must be for the common safety of the maritime adventure and that only the interests saved may be called upon to contribute.

• Columbian Insurance Co. v. Ashby and Stribling, 38 U.S. 330 (1839) — The earliest U.S. Supreme Court case stating the three requisites of general average, cited as the foundational American authority on the subject.

• Australian Steam Navigation Co. v. Morse, L.R. 4 P.C. 222 — Adopted for the definition of “necessity” in mercantile affairs as the force of circumstances that determine the course a prudent person ought to take, applied to justify the master’s decision to flee.

• The Niagara v. Cordes, 62 U.S. 7 (1858) — Cited for the principle that when a shipment cannot be completed, the master must make an advantageous disposition of the cargo for the owner, including sale when appropriate.

• York-Antwerp Rules of 1890, Rules X, XI, and XVIII — Incorporated into the charter party by reference. The Court interpreted the phrase “common safety” in Rules X and XI to require that expenses at a port of refuge be incurred for the benefit of both ship and cargo to qualify for general average. Rule XVIII provided that matters not covered by the Rules should be governed by the law and practice that would have applied had the clause not been inserted.

• Sixth Hague Convention of 1907 (Status of Enemy Merchant Ships at the Outbreak of Hostilities) — The Court examined Article 1, which stated that it is “desirable” that enemy merchant ships in a belligerent’s port be allowed to depart freely. It held that this language expressed merely a “pious wish” and did not establish a binding rule of international law, thus the master could not rely on it as an assurance of safe-conduct.

• Philippine Code of Commerce, Section II, Chapter III — Referred to with approval as the local statutory framework under which the master sought and obtained judicial authority to sell the deteriorating cargo, a procedure that the Court found substantially complied with.

Justices Torres, Moreland, Trent, and Araullo concurred with the majority opinion. (In the subsequent resolution denying rehearing, Chief Justice Arellano, and Justices Torres, Araullo, and Street concurred; Justice Johnson reserved his vote.)

• Justice Malcolm — Dissented, stating that his mind failed to follow the majority decisions in their discussion of “reasonable” or “due diligence” and other interrelated questions. No further reasoning was elaborated.