In its judgment handed down just before Christmas 2017 (Glencore Energy UK Ltd v Freeport Holdings Ltd), the Commercial Court offered some clarification on the concept of barratry and also made some important findings as to the correct approach to construction of the exceptions contained in Article 4 Rule 2 of the Hague-Visby Rules.
The case concerned a fire which broke out inside the main electrical switchboard in the engine room of the Lady M in May 2015. The circumstances of this case were unfortunate in that the fire was said to have been started deliberately by the chief engineer.
At the time, the vessel was carrying a cargo of fuel oil from Russia to the United States. As a result of the fire, Freeport Holdings Ltd (the owner of the vessel) engaged salvors, the vessel was towed and it declared general average. Salvage services were eventually terminated a month later and the vessel was then redelivered to Freeport Holdings Ltd.
The salvors commenced Lloyd's Open Form arbitration against Freeport Holdings Ltd and Glencore (the owner of the cargo). Glencore eventually settled the salvors claim for $3.8 million and sought to recover this amount from the owner of the vessel for alleged breach of the contract of carriage contained in four bills of lading. They also sought a declaration of non-liability for general average contribution.
However, Freeport Holdings Ltd denied liability and counterclaimed a general average contribution of $560,000.
The bills of lading were subject to the Hague-Visby Rules and so Freeport Holdings Ltd relied in particular upon defences under Article 4 Rules 2(b) and/or (q) of the Hague-Visby Rules (ie, fire and any other cause without fault or privity of the owners).
This judgment resulted from a trial of three preliminary issues namely:
- whether the chief engineer's actions amounted to barratry (an archaic term for gross negligence of a ship's master or crew, at the expense of the owner);
- if so, whether Freeport Holdings Ltd was precluded from relying on the fire exemption under Article IV Rule 2(b) of the Hague-Visby Rules if the fire was caused deliberately; and
- if so, whether Freeport Holdings Ltd was precluded from relying on the 'any other cause' exemption under Articles IV Rule 2(q).
For the purposes of determination of the preliminary issues, it was agreed between the parties that the fire was started deliberately by the chief engineer with the intent to cause damage. It was also assumed that at the time of starting the fire, the chief engineer was under extreme emotional stress and anxiety due to the illness of his mother or alternatively was suffering from an unknown and undiagnosed personality disorder and/or mental health illness.
Each preliminary issue will be addressed in turn.
Did the conduct of the chief engineer constitute barratry? Having considered previous authority on barratry and the definition in the Marine Insurance Act 1906, Justice Popplewell defined 'barratry' as:
- A deliberate wrongful act or omission by the master, crew or other servant of the Owners
- To the prejudice of the interests of the Owner of the ship or the good (whether prejudice was intended or not) and finally
- Without the knowledge (privity) of the Owners.
However, in order for the act or omission to qualify as wrongful (for the purposes of (ii)), it had to either be:
- something which would generally be considered a crime with the necessary mental component; or
- a serious breach of the duty owed by the person to Freeport Holdings Ltd knowing that it is a breach of duty or recklessly.
Popplewell therefore held that it was not necessary for the wrongful act to amount to a crime and a fraud was sufficient to constitute the relevant wrongdoing. If the chief engineer was suffering from a clinical mental illness and was unable to differentiate between right and wrong, he would not be found guilty of his act. In other words, if he did not realise he was acting in breach of duty, he was not committing a fraud on the owner. Whether his actions amounted to barratry therefore depended on his mental state at the time.
On this basis and given that Freeport Holdings Ltd's case had changed into what was effectively a defence of insanity of the chief engineer, the judge went on to hold that he could not determine the preliminary issue on the basis of the agreed or assumed facts.
The more important aspect of this case was Popplewell's approach to the interpretation of the two Hague-Visby exemptions being relied on by Freeport Holdings Ltd, namely fire under Rule 2(b) and any other cause without fault or privity of the owners under Rule 2(q):
Neither the carrier nor the ship will be responsible for loss or damage arising or resulting from:
- fire unless caused by actual fault or privity of the carrier.
- any other cause arising without the actual fault or privity of the carrier or, without the fault, neglect of the agents or servants of the carrier.
In relation to the fire defence, Glencore argued that barratrous fire did not fall within the scope of Rule 2(b) and so Freeport Holdings Ltd could not rely on this exception. The judge held that Freeport Holdings Ltd could rely on the fire defence under Rule 2(b), regardless of whether the fire was caused by barratry. He preferred Freeport Holdings Ltd's construction and gave the word 'fire' its plain and natural meaning. He therefore considered that 'fire' under the rule simply meant fire, without qualification as to how it was started, whether accidentally, deliberately, negligently or barratrously by servants or agents of the carrier.
This interpretation was reinforced by the addition of "unless caused by the actual fault or privity of the carrier" at Rule 2(b). This brought in a limited qualification to the exception. This interpretation was also supported by the contrast with the wording of Rule 2(q) which expressly carved out the protection afforded to the carrier for losses caused by the neglect or default of servants or agents of the carrier. Rule 2(b) does not.
Finally, the judge considered the scope of the exception at Rule 2(q) (ie, "any other causes arising without the actual fault or privity of the carrier, his agents or servants"). Did the chief engineer's actions amount to an act of an agent or servant?
Applying the test set out in the Global Santosh, the court held that the chief engineer was acting as a servant when setting fire to the engine room. He was performing the functions of Freeport Holdings Ltd to look after the vessel, and carry and care for the cargo, within his field of responsibility on the vessel, which included the engine control room. He derived his authority to perform those functions on behalf of Freeport Holdings Ltd directly or indirectly through contacts of agency or employment and it was irrelevant that his conduct was misconduct. In any event, the chief engineer was acting within the scope of his employment duties, which also gave rise to vicarious liability. The judge had no hesitation in finding that Glencore Energy UK could not rely on the exemption for fire under Rule 2(q) for the cargo claim.
This case helpfully confirms that there is no qualification to fire when seeking to rely on the fire defence under the Hague or Hague-Visby Rules (assuming that the vessel is seaworthy and that the fire was not caused by the actual fault or privity of the owner). However, Freeport Holdings Ltd would not have been able to avoid liability under the Hamburg or Rotterdam Rules as the fire exception in those rules does not apply where the fire is caused by a crew member.
This case also confirms that, absent fire, an owner cannot escape liability for deliberate wrongful acts of the crew under the Hague or Hague-Visby Rules even if there is no actual fault or privity on its part.
Glencore have been granted leave to appeal and it will be confirmed whether the Court of Appeal agrees with Popplewell's findings in this case.
For further information on this topic please contact Baptiste Weijburg at Wikborg Rein by telephone (+65 6438 4498) or email ([email protected]). The Wikborg Rein website can be accessed at www.wr.no.
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