In April 2009 the Court of Appeal ruled on the interpretation of the exemption of liability in Article IV, Rule 2(a) of the Hague-Visby Rules in Tasman Orient Line CV v New Zealand China Clays Ltd (for further details please see "Is Master's Outrageous Conduct an Act in the Navigation and Management of a Ship?"). Just over one year later, the Supreme Court unanimously overturned the Court of Appeal's majority decision.

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 rules. The respondent shippers claimed the loss of their respective cargoes, which had been stowed on deck.

The cargo was lost after the grounding of the vessel, which occurred after it took a shortcut. The master attempted to conceal his choice of route and the grounding. He continued to steam for some hours after the grounding, falsified the course plotted on the chart and failed to inform the coastguard in a timely or truthful manner. At first instance the High Court 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 circumstances of the casualty in order to absolve himself from blame and, in particular, to hide his reckless decision to take a shortcut. The carrier admitted to this allegation.

Rule 2(a) provides that:

"[n]either 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."

High Court and Court of Appeal decisions

The High Court held that the master's post-grounding conduct was conduct in either the navigation or the management of the ship. However, the judge considered that the rules imply that any actions must have been undertaken in furtherance of the master's paramount duty of safely caring for the ship, cargo and crew, regardless of the category into which the master's action falls (ie, management, navigation or something else). On that basis, the court read into the exception an implicit requirement that the master's act, neglect or default must be in the good-faith navigation or management of the ship. As the master's actions were not in good faith, the carrier could not rely on the exemption.

On appeal, the majority considered that the rules display a plain intent to strike a fair balance between the competing interests of shipper and carrier. The Court of Appeal read Article IV, Rule 2 (a) in light of the purpose of the rules thus identified, and held that it was appropriate to read down the broad language of the provision to exclude the master's selfish acts from "acts for the navigation and management of the ship". Accordingly, the carrier could not rely on the exemption.

Supreme Court decision

The Supreme Court rejected the approach of both the High Court and the Court of Appeal.

The Supreme Court held that the scheme and the purpose of the rules are clear: carriers are responsible for loss caused by matters within their direct control, but not otherwise.

Disagreeing with the Court of Appeal, it also found that common law authorities remain relevant for the interpretation of the rules. The Supreme Court 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. It found that the words are wide enough to encompass all acts or omissions of a master or crew, however culpable the conduct and whether intentional or not, subject only to barratry.

Although the barratry qualification arose as a matter of common ground between the parties (ie, that the exemption does not apply in the event of barratry), the court considered that the concession had been rightly made. This position appears to have been reached because the travaux préparatoires (ie, preparatory work) 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 of what constitutes barratry for the purpose of the rules, the court referred to Article IV, Rule 5(e) and Article IV(bis), Rule 4, which provide that the carrier and its servants and agents 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 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 cargo), or recklessly and with knowledge that such damage would probably result.

The court concluded 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 - that is, 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 courts, the Supreme Court determined 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. Moreover, the court found 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 court considered the meaning of the term 'barratry' solely as an implied exception to a liability exclusion in the 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.