International Harvester Company in Russia vs. Hamburg-American Line

Neutral cargo is not liable to general average contribution when a vessel enters a port of refuge solely for its own protection, as there is no common danger to ship and cargo. A carrier’s contractual duty to forward through goods to destination at its own expense is not dissolved by an outbreak of war that merely prevents carriage on the original vessel, and the carrier remains liable for the shipper’s forwarding costs where the carrier neither discharges the goods nor elects to terminate the venture. An agreement selecting a foreign forum and foreign law does not oust the local court of jurisdiction, and foreign law must be pleaded and proved; otherwise it is presumed to be the same as local law.

In the spring of 1914, the International Harvester Company in Russia, an American corporation, shipped a large consignment of agricultural machinery from Baltimore, Maryland, to Vladivostock, Russia, aboard the Bulgaria, a vessel of the Hamburg-American Line. The through bill of lading issued at Baltimore provided for carriage to Hamburg and forwarding from Hamburg to Vladivostock at the steamer’s expense but at the owner’s risk. Freight was prepaid for the entire route. At Hamburg, the cargo was transshipped to the Suevia, another vessel of the same line, and a second bill of lading was issued. While the Suevia was en route across the China Sea, World War I broke out. Because the Suevia was a German vessel, its master took refuge in Manila, a neutral port, arriving on August 6, 1914. The vessel remained there indefinitely.

• The Shipment and Through Bill of Lading: In spring 1914, plaintiff International Harvester Company in Russia shipped 852 boxes, crates, and parcels of agricultural machinery from Baltimore to Vladivostock, Russia, via the defendant’s steamer Bulgaria. Freight charges were prepaid to final destination. The original bill of lading stipulated that goods would be forwarded from Hamburg to Vladivostock at the steamer’s expense but at the risk of the owner, and subject to the terms of the bill of lading used by the onward carrier. At Hamburg, the cargo was transshipped to the Suevia, also owned by defendant, and defendant issued a second bill of lading in the customary Hamburg form.

• Outbreak of War and Refuge in Manila: While the Suevia was in the China Sea, World War I broke out. The Suevia being German, the master sought refuge in Manila, a neutral port, on August 6, 1914, solely to protect the vessel. The ship remained in Manila indefinitely.

• Demand and Carrier’s Conditions: In January 1915, the plaintiff demanded that defendant forward the cargo to Vladivostock, if not by the Suevia then by another steamer. Defendant refused unless plaintiff agreed to subject the cargo to general average liability for the costs and expenses of the Suevia’s stay in Manila, amounting to P63,024.50 (port charges, repairs, crew wages and maintenance). Plaintiff did not assent and demanded immediate delivery of the cargo in Manila. Defendant offered delivery on condition that plaintiff deposit a sum equal to 20% of the cargo’s value as security for general average adjustments. Plaintiff refused.

• Lower Court Proceedings: Plaintiff sued for recovery of possession and damages. It obtained delivery via replevin and forwarded the goods to Vladivostock at a cost of P5,421.28. The trial court upheld plaintiff’s right to possession and awarded P5,421.28 in damages.

(On appeal, the defendant Hamburg-American Line was the appellant; the plaintiff International Harvester Company in Russia was the appellee. The arguments below are drawn from the decision’s characterization of the appeal.)

• General Average: The appellant maintained that the cargo was liable to contribute to general average for the costs and expenses incurred by the Suevia during its internment in Manila.

• Non-Liability for Forwarding Expenses: The appellant argued that due to the outbreak of war and the master’s decision to seek a neutral harbor, all obligations under the contract of affreightment had been fulfilled, and the carrier was absolved from bearing the expense of forwarding the goods to Vladivostock.

• Jurisdiction and Foreign Law: The appellant invoked a bill of lading clause providing that all disputes were to be decided according to German law and exclusively by the Hamburg courts, asserting that the Court of First Instance lacked jurisdiction and that the case should have been decided under German law.

• No Common Danger: The respondent countered that the cargo was neutral, not contraband, and that the master’s decision to seek refuge was taken exclusively for the ship’s protection. There was no common danger to ship and cargo, precluding general average.

• Breach of Forwarding Obligation: The respondent argued that the original bill of lading required forwarding at the steamer’s expense, and the war did not excuse performance of that obligation entirely. The carrier’s refusal to forward or deliver without security constituted breach, entitling the shipper to recover the costs of completing carriage.

• General Average: Whether the neutral cargo was liable for general average contribution for expenses of the Suevia’s internment in Manila.

• Liability for Forwarding Expenses: Whether the defendant carrier was liable to the plaintiff for the expenses of transshipping and forwarding the cargo to Vladivostock.

• Jurisdiction and Foreign Law: Whether the bill of lading clause selecting German law and exclusive Hamburg court jurisdiction ousted Philippine jurisdiction or required application of German law.

• General Average: No general average arose because the master took refuge solely to preserve the vessel; there was no common peril to ship and cargo. The cargo, being neutral and not contraband of war, faced no risk of forfeiture by the enemies of the ship’s flag. The decision invoked the York-Antwerp Rules, section 10, which admits expenses of entering a port of refuge as general average only when entry is necessary “for the common safety.” The point was already resolved against the carrier’s contention in Compagnie de Commerce et de Navigation D’Extreme Orient vs. Hamburg Amerika Packetfacht Actien Gesselschaft, 36 Phil., 590.

• Liability for Forwarding Expenses: The defendant remained liable for the forwarding costs. The original bill of lading explicitly provided that goods were to be forwarded from Hamburg to Vladivostock at the steamer’s expense. Although war absolved defendant from the duty to carry the goods on the Suevia itself, it did not dissolve the separate obligation to forward the cargo at the carrier’s expense by other means. Under the bills of lading, the master had an election to discharge goods at another port if war prevented completion, but he never exercised that election; instead, he refused to discharge and elected to retain the cargo. The carrier thus kept the forwarding obligation intact. Exemption clauses in a bill of lading are strictly construed against the shipowner, particularly where the bill was issued by the carrier to itself. The contract of affreightment was not rendered entirely illegal between a German carrier and an American shipper, and equity required the carrier to restore the unearned portion of prepaid freight, which corresponded roughly to the forwarding costs incurred. The clause stating that prepaid freight would not be returned, goods lost or not lost, contemplated loss of goods, not voluntary abandonment of the voyage for the ship’s protection.

• Jurisdiction and Foreign Law: The contractual provision selecting German law and Hamburg courts could not oust the Philippine court of jurisdiction. An agreement tending to deprive a court of jurisdiction conferred by law is void, as held in Molina vs. De la Riva, 6 Phil., 12. Moreover, defendant waived the benefit of the clause by appearing and answering without objecting to jurisdiction. As to German law, it was never pleaded or proved; in the absence of such proof, foreign law is presumed to be the same as Philippine law.

• Doctrine of General Average — Common Danger Requirement — General average arises only where there is a sacrifice or expense voluntarily incurred for the common safety of ship and cargo. A vessel’s entry into a port of refuge solely to protect the ship, where the cargo is neutral and faces no threat of capture or condemnation, does not create a common danger; thus the cargo is not liable to contribute.

• Strict Construction of Exemption Clauses in Bills of Lading — Stipulations exempting a shipowner from liability otherwise imposed by law are strictly construed against the carrier, especially where the bill of lading was issued by the carrier to itself. This principle, drawn from Cia. de Navigacion La Flecha vs. Brauer, 168 U.S. 104, was applied to limit the effect of clauses purporting to discharge obligations upon the carrier’s election.

• Effect of War on Contract of Affreightment — Substantial Performance Possible — The outbreak of war does not entirely dissolve a contract of affreightment between a neutral shipper and a belligerent carrier if the contract can by any reasonable construction still be performed in substance. The contract remains valid with respect to obligations that are not directly illegal, such as bearing the expense of forwarding goods by alternative means. (Citing The Teutonia, L.R. 4 P.C. 171.)

• Partially Earned Freight and Restitution — Where freight has been prepaid and the carrier voluntarily breaks the voyage for the ship’s protection, equity requires the carrier to restore the portion of freight representing the unaccomplished distance, or to bear the shipper’s consequent forwarding costs as a surrogate for the unearned freight.

• Forum Selection and Proof of Foreign Law — A contractual provision designating a foreign forum and foreign law does not oust the jurisdiction of local courts over an otherwise properly filed action. The benefit of such a clause is waivable. Foreign law must be pleaded and proved as a fact; absent such proof, the court presumes the foreign law is the same as the law of the forum.

• “When the master of the Suevia decided to take refuge in the port of Manila, he acted exclusively with a view to the protection of his vessel. There was no common danger to the ship and cargo; and therefore it was not a case for a general average.” — This passage encapsulates the ratio decidendi on general average and the absence of common peril.

• “It should be remembered that stipulations, in a bill of lading exempting a shipowner from the liability which would ordinarily attach to him under the law are to be strictly construed against him. This rule should be unhesitatingly applied in a case such as this where the bill of lading under which the exemption is claimed was issued by the defendant company to itself.” — Establishes the strict construction rule against carriers.

• “The outbreak of the war between Germany and Russia undoubtedly absolved the defendant company from so much of the contract of affreightment as required the defendant company to convey the goods to Vladivostock upon the ship on which it was embarked; . . . But by the terms of the contract of affreightment the defendant company was bound to forward the cargo to Vladivostock at the steamer’s expense, not necessarily by a steamer belonging to the defendant company; and it does not by any means follow that it is not liable for the expense incurred by the owner in completing the unfinished portion of the voyage in another ship.” — Distinguishes between the duty to carry on a specific vessel (excused by war) and the broader forwarding obligation (which survived).

• “An express agreement tending to deprive a court of jurisdiction conferred on it by law is of no effect.” — The rule on ouster of jurisdiction, citing Molina vs. De la Riva.

• “When it is proposed to invoke the law of a foreign country as supplying the proper rules for the solution of a case, the existence of such law must be pleaded and proved. Defendant has done neither. In such a case it is to be presumed that the law prevailing in the foreign country is the same as that which prevails in our own.” — The standard doctrine on proof of foreign law.

• Compagnie de Commerce et de Navigation D’Extreme Orient vs. Hamburg Amerika Packetfacht Actien Gesselschaft, 36 Phil., 590 — Followed; the same general average issue, on similar facts, had already been resolved against the same carrier, confirming that refuge taken solely for the ship’s preservation does not give rise to general average.

• Cia. de Navigacion La Flecha vs. Brauer, 168 U.S. 104 — Applied; authority for the rule that stipulations exempting a shipowner from liability are strictly construed against the carrier.

• The Teutonia (1872), L.R. 4 P.C. 171 — Relied upon; held that a contract of affreightment was not completely dissolved by war and that the carrier could hold goods for freight pro rata itineris peracti, supporting the principle that a contract survives if capable of substantial performance.

• Molina vs. De la Riva, 6 Phil., 12 — Applied; an express agreement ousting a court of jurisdiction conferred by law is void.

• York-Antwerp Rules, section 10 — The rule states that expenses of entering a port of refuge are admitted as general average when the entry is necessary “for the common safety.” The provision was decisive: the Suevia’s refuge was taken exclusively for the ship’s safety; no common danger to the neutral cargo existed.

• Bill of Lading Provisions — The original Baltimore bill of lading (forwarding at steamer’s expense) and the Hamburg bill of lading (paragraph X and Special Condition to Rule X), granting the master liberty to discharge at another port in case of war disturbances. The master’s failure to exercise that election kept the carrier’s forwarding obligation alive.

• General Principle of International Law on the Effect of War on Contracts — Recognized that war did not render the entire contract illegal between a neutral shipper and a belligerent carrier, allowing continued enforceability of non-warlike obligations such as paying forwarding expenses.

Torres, Johnson, Malcolm, Avanceña and Fisher, JJ., concurred.