In our article of 1 July 2009, we reported the Court of Appeal decision Tasman Orient Line CV v New Zealand China Clays Ltd & Ors, concerning the interpretation of the exemption of liability in Article 4 Rule 2(a) of the Hague Visby Rules. For further details and an outline of the facts, see [link]. By judgment of 16 April 2010, the Supreme Court, New Zealand’s highest Court, unanimously overturned the majority decision of the Court of Appeal.
Facts
The appellant carrier, Tasman Orient Line CV, chartered the Tasman Pioneer and issued bills of lading to the respondent shippers for carriage of their cargo from Auckland, New Zealand, to Busan, Korea, subject to the Hague Visby Rules. The respondent shippers claimed the loss of their respective cargoes stowed on deck. The cargo was lost after the grounding of the vessel, which occurred after the vessel took a short cut route. The master attempted to conceal the shortcut and the grounding. He continued to steam for some hours after the grounding, falsified the course plot on the chart and did not inform the coastguard in a timely or truthful manner. The High Court, in first instance, found on the evidence that the deck cargo would have been saved, if the master had complied with his duties and reported the grounding immediately.
The plaintiffs pleaded that the master’s conduct was intended to allow him to misrepresent the true circumstances of the casualty so as to absolve himself from blame and, in particular, to hide his reckless decision to take a short cut route. The carrier admitted this allegation.
The High Court and Court of Appeal decisions
Article IV Rule 2(a) of the Hague Visby Rules provides:
2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from
(a) Act, neglect or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship.
The High Court held that the master’s post-grounding conduct was conduct either in the navigation or in the management of the ship. However, the Judge took the view that the Hague Visby Rules contain an implication that, regardless of the category into which the master’s action falls (management, navigation or other), any actions must have been undertaken in furtherance of the master’s paramount duty of safely caring for the ship, cargo and crew. On that basis, the High Court read into the exception an implicit requirement that the act, neglect or default of the master must be in the bona fide navigation or management of the ship. Because the master’s actions were not bona fide, the carrier could not rely on the exemption.
The majority of the Court of Appeal took the view that the Hague Visby Rules display a plain intent to strike a fair balance between the competing interests of the shipper and the carrier. They read Article IV Rule 2 (a) in the light of the purpose of the Rules so identified, and held that it was appropriate to read down the broad language of Article IV Rule 2(a) so as not to include the master’s selfish acts in “acts for the navigation and management of the ship”. Accordingly, the carrier could not rely on the exemption.
The Supreme Court
The Supreme Court rejected the approach of both the High Court and the Court of Appeal.
The Court held that the scheme and the purpose of the Rules were clear, in that carriers are responsible for loss caused by matters within their direct control, but not otherwise. Disagreeing with the Court of Appeal, the Supreme Court also found that the common law authorities remain relevant for the interpretation of the Rules. The Court then held that giving full effect to the ordinary meaning of the words of Article IV Rule 2(a) was consistent with the purpose of the Rules. The words were sufficiently wide to encompass all acts or omissions of master or crew, however culpable the conduct and whether or not intentional, subject only to barratry.
Although the barratry qualification arose as a matter of common ground between the parties (that the exemption does not apply in the event of barratry), the Court considered that the concession was rightly made. This position appears to have been reached because the travaux preparatoires to the Rules record that barratry was initially included in a draft of Article IV(2) in the exemption from liability, but later removed as a condition of cargo interests’ support for the Article.
In answering the question what constitutes barratry for the purpose of the Rules, the Court referred to Article IV Rule 5(e) and Article IVbis Rule 4 which provide that the carrier, including the servants and agents of the carrier, cannot rely on the limitation of quantum, if loss is caused with their intent or recklessly with knowledge that damage would probably result. The Court held that actual or imputed intent is the essence of barratry and concluded that the test for establishing barratry as an implicit qualification to the exemption in Article IV Rule 2(a) is whether damage has resulted from an act or omission of the master or crew done with intent to cause damage [to the ship or the cargo], or recklessly, with knowledge that such damage would probably result.
In conclusion, the Court held that the master’s actions did not amount to barratry. The master’s intent, as pleaded, had been to derive benefit for himself. An essential element of barratry, namely the intention to cause loss to the cargo or recklessness with knowledge of the likelihood of damage, had not been pleaded or made out. Accordingly, the carrier was entitled to rely on the exemption from liability under Article IV Rule 2(a).
Comment
In contrast to the lower court decisions, the Supreme Court found the purpose of the Rules by looking at the Rules themselves. It held that their purpose is clear (to make carriers responsible for loss or damage caused by matters within their direct control but not otherwise) and concluded that it is consistent with that purpose to give full effect to the ordinary meaning of the words of Article IV Rule 2(a).
The Supreme Court considered the meaning of barratry, solely as an implied exception to a liability exclusion in the Hague Visby Rules. Although the term is common in the context of marine insurance, the Court primarily drew on other provisions of the Rules, not expressly concerned with barratry, in settling the scope of the term in that context.
The Supreme Court Rules on the Tasman Pioneer — A version of this article appears in the International Law Office - Shipping & Transport Newsletter - 5 May 2010
byA specialist litigation firm