Who feels the burn?

Introduction

Norton Rose Fulbright recently represented Freeport Holdings Ltd (and Atlas Maritime Limited), Owners of the vessel, the “LADY M” in Glencore Energy UL Ltd & Anr v Freeport Holdings Ltd (The Lady M) [2019] EWCA Civ 388 in the Court of Appeal (CoA). The CoA considered as preliminary issues the interpretation of the Hague/Visby Rules, the framework of rights and obligations for the carriage of goods by sea. The CoA decision gives much needed guidance on the interpretation of the fire defense in the Hague/Visby Rules (HVR) and is relevant for all parties that regularly contract under the HVR, especially carriers.

Background

On May 14, 2015, the Lady M was on a voyage from Russia to the US when a fire started in the engine room. The owners engaged salvors and the vessel was towed to Las Palmas, Spain, where general average was declared.

Glencore, as owners of a cargo of approximately 62,250mt of fuel oil carried on board the vessel, brought proceedings in the Commercial Court claiming the sums incurred to the salvors, as well as the costs of defending the salvage arbitration proceedings from the owners. Its claim was founded on alleged breaches of the contracts of carriage contained in four bills of lading issued for the cargo, or alternatively in bailment.

The contracts of carriage were subject to the Hague-Visby Rules (HVR). Glencore alleged that the owners had failed to comply with Article III, Rules 1 and 2 of the HVR.

It was an agreed and assumed fact that the fire was started by a member of the crew. Glencore argued that this was an act of barratry and that the owners could not rely either on Article IV Rule 2(b) of the HVR which sets out a fire exception where “caused by the actual fault or privity of the carrier”, or on Article IV Rule 2(q) which provides an exception for “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.”

The owners pleaded that the fire had been started by the vessel’s chief engineer, who was suffering from extreme emotional stress or anxiety due to the illness of his mother or from an undiagnosed mental illness. They argued that they did not know and could not have known the chief engineer’s motive for starting the fire deliberately. Accordingly, they argued that they were entitled to rely on the exemptions under Article IV Rules 2(b) and/or (q).

The parties also presented different definitions of barratry with the owners arguing, inter alia, that barratry included a criminal or fraudulent intention and that, on the agreed and assumed facts, the necessary intent to commit a crime would be absent if the mental state of the chief engineer would afford him a defense of insanity.

The Commercial Court decision

The Commercial Court ordered the hearing of two preliminary issues (on the basis of the agreed and assumed facts that, inter alia, the fire was started deliberately with the intent to cause damage by the chief engineer, acting alone, for the motives described above). The issues were

• Whether, on the basis of the agreed and assumed facts, the conduct of the chief engineer constituted barratry
• If so, whether the owners were precluded from relying on Article IV.2 (B) and/or 2 (q) of the Hague Visby Rules

The judge concluded that whether the conduct of the chief engineer constituted barratry depended on further determinations that would need to be found as to his state of mind. Although the owners had not positively pleaded insanity at that point, it would not be right to shut it out as a pleading point which could be cured by amendment. This issue, however, was not determinative of whether the owners were exempt from liability for the fire under Article IV.2 (b) or (q). The judge found that Article IV.2 (b) was capable of exempting the owners from liability if the fire was caused deliberately or barratrously but that the owners were not exempt from liability for the fire under Article IV.2 (q). Glencore appealed.

The Court of Appeal decision

The main questions addressed by the CoA were

• Issue 1- whether the provisions of Article IV.2 (b) are capable of exempting owners from liability for damage caused by the fire if that fire were caused deliberately or barratrously by the chief engineer.

The CoA engaged in a full and detailed analysis of the interpretation of the phrase “Fire, unless caused by the actual fault or privity of the owners” in the HVR in order to see whether it operated to exclude the liability of carriers for fire caused deliberately or barratrously by a crew member.

Owners argued that the wording of Article IV.2(b) is clear and emphatic. It sets out an exception for all loss and damage arising or resulting from fire, unless the fire is caused with the actual fault or privity of the carrier. Glencore’s intended interpretation would require a further implied proviso to be added, “or the barratry of master or crew.”

The CoA agreed with earlier jurisprudence that “if a word or expression had acquired a universally accepted meaning, there is reasonable assumption that it was used in the Rules with that meaning; but beyond that, the language must be taken to speak for itself.”

Glencore put forward arguments on the meaning of “fire” by reference to pre-existing case law, common law principles and the travaux preparatoires but such arguments only convinced the CoA that “fire” was to be given its plain meaning. There was no judicial interpretation prior to the HVR that showed fire excluded fire caused by the crew. Glencore’s argument needed the court to imply an additional qualification to the phrase and the CoA could find no basis for implying such words neither as matter of ordinary meaning, nor on any of the supplementary arguments advanced by Glencore.

The CoA further indicated that Article IV.2 (b) of the HVR would apply to any fire howsoever caused provided that (1) there was no causative breach of Article III (1) of the HVR and (2) the fire was not caused by the actual fault or privity of the carrier.

• Issue 2-whether or not the conduct of the chief engineer necessarily constituted barratry on the assumed facts.

The CoA held that the first instance judge had been wrong to allow the owners to raise the issue of insanity in the way that they did as there was no factual basis upon which the judge could consider the question. There is a clear analytical distinction to be drawn between mental illness (which was pleaded) and insanity (which was not). To allow such a departure from the agreed and assumed facts so as to introduce a matter that was not, and could not be pleaded, was undesirable.

In any event, it became unnecessary to decide whether or not the chief engineer’s conduct constituted barratry following the CoA’s decision in respect of Issue 1.

Summary

This final CoA decision, which cannot be appealed, clarifies the position, generally, that, where words used have a plain meaning, undue reliance should not be given to HVR drafting intentions or to previous HVR case-law. It also provides a good illustration of the importance of closely defining the ambit of preliminary issues before the trial of those issues.

The owners were represented by John Liberopoulos, partner, Athens, assisted by Peter Glover, partner, Hong Kong.