Can Master's Behaviour Disentitle Carriers from Relying on Hague-Visby Defence?

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This article has been written and published by Neil Beadle,Special Counsel at DLA Phillips Fox, Auckland, and is reproduced here with kind permission:  

The Carrier's Navigation and Management Exception of Liability under the Hague-Visby Rules: Does Misconduct of the Master disentitle the Carrier?

On 3 May 2001 the “Tasman Pioneer” grounded in Japanese waters on a dark and stormy night and much cargo was lost. Controversy arose from the post-grounding conduct of the master, which was variously described in the judgments of the New Zealand courts as "selfish", "outrageous" and "reprehensible" and said to have caused the loss of deck cargo. Cargo interests asserted that such conduct disentitled the carrier from reliance upon the defence under Article 4 rule 2(a) of the Hague-Visby Rules namely:

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 Supreme Court of New Zealand has found[1] in favour of the carrier and in doing so confirmed that the ordinary meaning of the words in the exception apply, save that carriers are to be denied the defence in the event of barratrous conduct. 

Following the grounding, two of the vessel's holds were open to the sea. At first instance in the High Court cargo interests alleged that the vessel was unseaworthy. It was said seawater flowed from the holds to other tanks within the vessel (independent of the grounding damage) so as to cause her to go down by the head quicker than she should otherwise have done. That allegation failed. 

The remaining issue was whether the defence under Art 4.2(a) was available to the carrier when the master having grounded the vessel while steaming through a narrow channel at 15 knots, failed properly to assess the rapid ingress of water into two holds of the vessel, notify the coastguard or owners, slow down, or seek to beach the vessel. Instead he steamed on for a couple of hours to a point where he would have rejoined an alternative route, falsified charts and had the crew lie to conceal what had happened to suggest the ship had struck an unidentified object in open water. 

Cargo interests asserted that the misconduct by the master was sufficient to deny application of the Art 4.2(a) defence. Specifically, it was said that his conduct “intended to allow him to misrepresent and lie about the true circumstances of the casualty so as to absolve himself from blame”. The carrier admitted that intention.

The High Court found that the Article 4 rule 2(a) defence was not available because the master's conduct after the grounding was not “bona fide” in the navigation or in the management of the ship. That was the position advocated by cargo interests in reliance upon the House of Lords in the “Hill Harmony”[2]. 

The finding of seaworthiness of the vessel was not appealed. On appeal, the High Court's characterisation of the Art 4.2(a) defence was rejected but, by majority, the Court of Appeal found that the carrier should be denied the defence on other grounds. In substance, because the master's conduct was "outrageous" it was not in the navigation or in the management of the ship. The Court said Art 4.2(a) was designed to change the prior common law position and that the result was justified by a purposive approach to interpretation of the Rules.

The Supreme Court rejected the approach of both the High Court and the Court of Appeal, identifying in summary that "the text of Art 4.2(a), the scheme of the Rules, the common law authorities, the travaux, cases on the Hague Rules, cognate definitions and the views of eminent textbook writers all support the exemption of owners from liability for the acts or omissions of masters and crew in the navigation and management of the ship unless their actions amount to barratry".

As to the scheme of the Rules the Court observed:

Carriers are responsible for loss or damage caused by matters within their direct control (sometimes called “commercial fault”), such as the seaworthiness and manning of the ship at the commencement of the voyage. They are not however responsible for loss or damage due to other causes, including the acts or omissions of the master and crew during the voyage (“nautical fault”). This allocation of risk is confirmed by art 3.2 being made subject to art 4 and by the inapplicability of the art 4.2(b) and (q) exemptions in the event of “actual fault or privity” of the carrier. The allocation of responsibility between the carrier and the ship on the one hand and the cargo interests on the other promotes certainty and provides a clear basis on which the parties can make their insurance arrangements and their insurers can set premiums. 

The carrier argued that motive of the master is irrelevant in determining whether his conduct is an act, neglect or default in the navigation or in the management of the ship under Art 4.2(a). However, the exception is not available to the carrier if the master's conduct is barratrous.  That is because an exception for barratry had formerly appeared in bills of lading and was proposed by ship owners at the Hague conference in 1921, but rejected as part of the negotiated compromise. What amounts to barratry for the purpose of the Rules is apparent from a review of those parts of the Rules themselves which are directed to damage with actual or imputed intent, which is the essence of barratry[3], ie whether the master intended or was reckless with knowledge that damage to cargo would probably result. That also reflected the test applied to conduct barring limitation under the Convention on Limitation of Liability for Maritime Claims 1976[4].    

The Supreme Court agreed. It found that English decisions addressing the construction of the Rules and decisions of superior Courts in Germany and the Netherlands directed specifically to the issue, were consistent with that approach. 

As to the master's alleged post-grounding conduct, the carrier said it fell well short of an allegation the master intended or was reckless with knowledge that the damage to the deck cargo would probably result. 

The Supreme Court found that the pleading point was not merely a technical one. The carrier did not call the master to give evidence at the trial and it was entitled to adopt that course because it had admitted the master's intention alleged and it was not alleged the master had been actuated by any intent to damage the ship or the cargo. The cargo claims therefore failed.

The Art 4.2(a) defence has long been viewed as controversial but it remains to be construed by reference to the ordinary meaning of the words in the exception, the scheme of the Rules and in light of the negotiations at the Hague in 1921. Of course the Rotterdam Rules do not include the exception, but while the Hague-Visby Rules continue to apply, this decision provides a useful structural analysis of them and the application of this exception in particular.

DLA Phillips Fox represented the carrier, Tasman Orient Line CV. 

 

[1] Tasman Orient Line CV v New Zealand China Clays Limited & Ors [2010] NZSC 37

[2] Whistler International Ltd v Kawasaki Kisen Kaisha Ltd (the “Hill Harmony”) [2000] UKHL 62, [2001] 1 AC 638

[3] Article 4.5(e) dealing with limitation, which employs the same formula and Article 4bis (4) does likewise

[4] Enacted as Part VII of the Maritime Transport Act 1994 in New Zealand, in particular section 85(2)