Introduction

In the recent case of Glencore Energy UK Ltd v Freeport Holdings Ltd [2017] EWHC 3348 (Comm), the English Commercial Court clarified the meaning of barratry and the application of exemptions under Article IV(2)(b) and (2)(q) of the Hague-Visby Rules.

Under the Hague-Visby Rules, subject to the provisions of Article IV thereof, ship owners are obliged to properly and carefully carry, keep and care for the goods carried. Article IV(2)(b) provides that the carrier shall not be responsible for loss or damage arising or resulting from fire, unless caused by the actual fault or privity of the carrier. Similarly, under Article IV(2)(q), the carrier shall not be responsible for loss or damage arising or resulting from 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.

Facts

A fire started inside the engine control room of the vessel “Lady M” while cargo was being shipped, causing damage to the cargo. The purported owners of a cargo (the “Claimant”) claimed against the owner (the “Ship Owner”) of the vessel (the “Vessel”) for breach of contracts of carriage contained in bills of lading, alternatively in bailment. The contracts of carriage were subject to the Hague-Visby Rules. The Ship Owner denied liability and relied on the defence under Article IV(2)(b) and/or Article IV(2)(q) of the Hague-Visby Rules.

This case is a hearing for preliminary issues. For the purpose of determining the preliminary issues, it was agreed and assumed that the fire was started deliberately by the Chief Engineer, who was a member of the crew, with the intent to cause damage. It is also agreed and assumed that, at the time of starting the fire, the Chief Engineer might or might not be under extreme emotional stress or suffering from an unknown and undiagnosed personality disorder and/or mental illness. Based on these agreed facts, the Court had to determine two preliminary issues, namely (1) whether the conduct of the Chief Engineer constituted barratry based on the agreed and assumed facts; and (2) if so, whether the Ship Owner could rely on Article IV(2)(b) and Article (2)(q) as defence.

Issues

For determining the preliminary issues, the following issues were discussed by the Court:

1.       Did the conduct of the Chief Engineer constitute barratry?

2.       Was Article IV(2)(b) capable of exempting the Ship Owner from liability if the fire was deliberately or barratrously caused by the Chief Engineer?

3.       Was the Ship Owner exempted from liability under Article IV(2)(q)?

Judgment

Barratry

In relation to whether the conduct of the Chief Engineer constituted barratry, the Ship Owner argued that an intentionally committed crime or fraud is an essential ingredient of barratry while the Claimant argued that the ingredient of barratry is simply wrongdoing and does not require the mens rea of intention to commit a crime.  

The Court noted that a fraud is sufficient to constitute the wrongdoing for proving barratry and one must know or believe that he is acting in breach of duty, or is reckless in that regard, to commit a fraud. Therefore, the Court defined barratry as “(i) a deliberate act or omission by the master, crew or other servant of the owners (ii) which is a wrongful act or omission (iii) to the prejudice of the interests of the owner of the ship or goods (whether or not such prejudice is intended) (iv) without the privity of the owner”. Such wrongful act or omission must be “(a) what is generally recognised as a crime, including the mental element necessary to make the conduct criminal; or (b) a serious breach of duty owed by the person in question to the ship owner, committed by him knowing it to be a breach of duty or reckless whether that be so”.

In gist, in order to prove barratry, it is necessary for the wrongdoer to have the necessary knowledge or intent that what he is doing is either a crime or a serious breach of duty owed towards the ship owner, or at least recklessness in that regard.

In this case, the state of mind of the Chief Engineer was outside agreed and assumed facts for determination of the preliminary issues, thus, the Court was not able to determine whether the conduct of the Chief Engineer constituted barratry.

Article IV(2)(b) applies even if the fire
was deliberately or barratrously caused

Article IV(2)(b) of the Hague-Visby Rules affords protection to ship owners against loss resulting from “fire, unless caused by the actual fault or privity of the carrier”. The Court had to determine whether such protection covers fire that was deliberately or barratrously caused.

First, the Court looked at the natural meaning of the words in Article IV(2)(b). The Court stated that the word “fire” in Article IV(2)(b) did not contain any qualification as to how the fire was started, regardless of whether the fire was started intentionally, negligently or accidentally. This is supported by the fact that Article IV(2)(b) itself contains an specific proviso of “unless caused by the actual fault or privity of the carrier”.

Second, the Court compared the wording of Article IV(2)(b) and Article IV(2)(q). Article IV(2)(q) expressly carved out of the protection afforded to the carrier losses contributed to by the neglect or default of servants or agents of the carrier while Article IV(2)(b) did not. Therefore, it further supported that Article IV(2)(b) did not contain any implied qualification as to how the fire was started.

In light of the above, the Court held that Article IV(2)(b) is capable of exempting the Ship Owner from liability even if the fire was deliberately or barratrously caused.

Article IV(2)(q) could not exempt
the Ship Owner from liability

The Ship Owner would not be exempted from liability under Article IV(2)(q) of the Hague-Visby Rules if the act of the Chief Engineer falls within the proviso of “fault or neglect of the agents or servants of the carrier [which] contributed to the loss or damage”. Therefore, in order to determine whether the Ship Owner could be exempted from liability under Article IV(2)(q), the Court had to determine whether the act of the Chief Engineer could be regarded as the act of “a servant”.

Without deciding whether the Court was bound to adopt the English law principle of vicarious liability, where ship owner would only be exempted from liability if the servant had been acting outside the scope of his employment, the Court held that the Chief Engineer was acting as a servant of the Ship Owner when setting fire to the engine control room.

On the assumption that the Court was bound by the English law principle of vicarious liability, the Court stated that the Chief Engineer had authority to access the engine control room at any time to perform his duties, his access to the control room arose directly from the field of activities entrusted to him by the Ship Owner. When he set fire to the control room, with intent to cause damage, he was misusing his position in the field of activities for which he was employed. Therefore, the Court held that the Chief Engineer was acting within the scope of his employment.

Alternatively, assuming the Court was not bound by the English law principle of vicarious liability, the Court applied the test of whether the Chief Engineer had set the fire in the course of performing a function on behalf of the Ship Owners under the authority of his contract of employment. The Court noted that the Chief Engineer was employed by the Ship Owner to manage the main engines, which include the engine control room, and to care for the Vessel and the cargo on the Vessel within his field of responsibility which included the engine control room. When he set fire to the engine control room, he was misperforming his duties to the Ship Owner to look after the Vessel and to care for the cargo on the Vessel within his field of responsibility on the Vessel. Therefore, the Court held that the Chief Engineer was acting as a servant of the Ship Owner when setting fire to the engine control room.

In light of the above, the Court held that the Ship Owner could not be exempted from liability under Article IV(2)(q).

Conclusion

This decision has clarified the definition of barratry and provided helpful guidance to ship owners on when they could rely on Article IV(2)(b) or (2)(q) of the Hague-Visby Rules to exempt their liabilities.  For ship owners, it should be noted that they might rely on Article IV(2)(b) to exempt their liabilities if the loss was resulted from fire deliberately and/or barratrously caused by their servants. However, in the absence of fire, they might not be able to rely on Article IV(2)(q) to exempt their liabilities if the loss resulted from other cause arising with fault or neglect of their servants.  For cargo owners, it is advisable to obtain insurance in relation to their cargoes as the ship owners may always rely on the Hague-Visby Rules to attempt exempting and/or limiting their liabilities. 

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.