560. Glencore Energy UK Ltd v Freeport Holdings Ltd “ the Lady M” [2017] EWHC 3348 Comm; [2019] EWCA Civ 388

Hague Visby rules – excepted perils under Article IV – fire exception open to owners in spite of arson by chief engineer

The facts

Fire broke out in the engine room of the vessel en route to Houston, USA from Taman, Russia. The vessel was carrying fuel oil. The fire was put out and salvors were engaged to tow the vessel to Las Palmas.

General average was declared. Salvors claimed remuneration from both cargo interests and vessel owners in arbitration proceedings.

Cargo sought to recover salvage and legal costs from the vessel owners.

It was assumed for the purposes of deciding two preliminary points that the fire was started deliberately by the chief engineer while he may have been suffering from an unknown mental condition.

The questions were: whether the chief engineer’s actions amounted to barratry, and if so, whether Article IV 2(b) (Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from fire unless caused by the actual fault or privity of the carrier) and 2(q) (Any other cause arising without the actual fault or privity of the carrier or without the fault or neglect of the agents or servants of the carrier…) protected the owners from Iiability.

Findings

Popplewell J concluded as follows: barratry was a criminal act, wilfully carried out by master or crew inimical to the interests of the ship owner; in English criminal law, insanity is a defence where the mental condition in question either caused the sufferer to be unaware of what he was doing or to be unable to differentiate between right and wrong (the McNaghten test); the assumed fact that the engineer may have been suffering from an unknown mental condition was inconclusive as to whether this test was satisfied.

Implicit in his reasoning was that if facts were produced to satisfy the McNaghten test, barratry could not be shown.

He held further that even if barratry were shown, Article IV 2(b) would still be open to the owners: fire was fire, however caused.

As far as 2(q) was concerned, owners had argued that the engineer’s behaviour was bizarre and he could therefore not be said to have been acting in the course and scope of his employment for the purposes of vicarious liability.

Popplewell J doubted whether English law principles of vicarious liability were applicable to the Rules but even if they did apply, the vicarious liability test was satisfied because there was a sufficiently close connection between the engineer’s duties and the wrongful act.

The Court of Appeal (per Simon LJ) upheld the determinative point on the interpretation of 2(b).

Domestic cases referred to by owners where general exceptions (“thieves” in two cases and “perils of the sea” in another) did not avail shipowners where malicious acts by the crew caused the damage, were held to be of no assistance.

Recourse should not have been had to the travaux because the first of the two requirements laid down by Lord Steyn in Effort Shipping (ambiguity) had not been met (the other requirement was a “bullseye”).

The judge was wrong to embark on an examination of the effect of insanity on the question of barratry because this was not covered by the terms of reference of the stated case.

Discussion

Cargo, represented by Thomas QC, tried to capitalise on the recent UKSC case of Volcafe v CSAV where Lord Sumption held the domestic law would determine the question of onus in the Hague Rules exceptions. Simon LJ held that this was not an invitation to ignore the accepted approach to the interpretation of international conventions laid down in Stag Line v Foscolo, Mango which was not to have regard to domestic law. There is therefore a  distinction between procedural and substantive issues.

This case is an example of the literal approach to interpretation. Another recent example is the B Atlantic where a general exception of customs evasion was not neutralised by a malicious act.

The spirit of  the Hague Rules could be said to be that general exceptions such as fire are subject to the limitation that they are not caused deliberately by the servants of the shipowner: it is a salutary principle that an employer should be held accountable for wrongs committed its employees.

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