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Sabotage at sea - The LADY M

13 February 2018. Published by John Butler, Senior Associate

In The LADY M, the English Commercial Court held that shipowners could rely on the Hague-Visby Rules fire defence even when the fire was set by the crew (without owners’ knowledge). In so doing, the admiralty concept of barratry received rare consideration by the Courts.

Background

The LADY M was damaged by fire in May 2015 during a voyage from Russia to the USA. Defendant shipowners engaged salvors, and later declared General Average.

Cargo claimants denied a liability to contribute to GA, and claimed for breach of owners’ obligation under Article III of the Hague-Visby Rules to “carefully load, handle, stow, carry, keep, care for, and discharge the goods carried”.

The Court assumed, for the purposes of determining various preliminary issues, that the fire had been started by the Chief Engineer acting alone.

Preliminary Issues

  • Did the conduct of the Chief Engineer constitute barratry?
  • Is Article IV Rule 2(b) capable of exempting the owners from liability if the fire was deliberately or barratrously caused?
  • Are the owners exempt from liability under the "any other cause" exception in Article IV Rule 2(q)?

Barratry definition

Barratry was helpfully defined by the Court (at paragraph 22 of the Judgment) as:

  • A deliberate act or omission by the master, crew or other servant of the owners
  • Which is a wrongful act or omission
  • To the prejudice of the interests of the owner of the ship or goods
  • Without the knowledge or privity of the owners

Because barratry is an international admiralty law concept, the definition of a “wrongful” act is necessarily broad, and not restricted by reference to English law.

In recognition of this, the Court noted that the wrongful act or omission must be either:

  • Generally recognised as a crime, including the mental element necessary to make the conduct criminal; or
  • A serious breach of duty owed by the person in question to the owners, committed by him knowing it to be a breach of duty or reckless whether that be so. 

Judgment

Article IV Rule 2(b)

The first preliminary issue (whether the conduct of the Chief Engineer was barratry) was necessarily fact-specific, and in any event did not need to be finally determined by the Court.

This is because the Court held that that Article IV Rule 2(b) applied even if there was barratry. That rule excludes “Fire, unless caused by the actual fault or privity of the carrier.”

As a matter of construction, the interpretation of treaties (as with statues and contractual clauses) starts with the ordinary meaning of the words used. Although the Court did examine the various authorities, as well as the travaux préparatoires to the Hague-Visby Rules, it was arguably unnecessary to do so, as the Court held that the ordinary meaning of Rule 2(b) was clear.

In that regard, the Court noted that:

  • The reference to ”fire” in Rule 2(b) is unqualified, without any consideration of how the fire started;
  • The inclusion of the phrase "unless caused by the actual fault or privity of the carrier" in the Rule implies that that fire is otherwise unqualified;
  • By contrast, the general exception under Rule 2(q) expressly excludes losses contributed to by the neglect or default of servants or agents of the carrier.

The Court further stated that there was no policy reason for reading "fire" in a restrictive way, given that the “essence of barratry” was the crew acting against the shipowner's interests (paragraph 44).

Article IV Rule 2(q)

In the alternative, owners relied on Article IV Rule 2(q), which excludes liability for loss caused by “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…”.

Although strictly obiter, the Court held that Rule 2(q) did not apply to barratry.

The Court drew on the principles of English law governing vicarious liability in tort, in deciding that the Chief Engineer was a “servant” of the shipowners at the relevant time, regardless of whether he was on duty or performing his duties properly.

Comment

The Judgment in The LADY M is a helpful fresh look at the concept of barratry.  There is a high threshold to demonstrate that it would apply, but this will be dictated by the evidence.

It seems to the writer that the Court’s obiter comments on the general exceptions Rule 2(q) may prove to be just as helpful as Court’s decision on Rule 2(b).

In that regard, there will no doubt be some sympathy with cargo claimants, whose losses were incurred as a result of the actions of an individual employed by shipowners. It seems somewhat unfair that, as between ship and cargo owners, the latter should bear any responsibility for a crew member's actions.

However, as the Court held, it is clear that this is the effect of the Hague Rules (as Rule 2 survives intact from the original text, unamended by the Visby protocol).

That said, the original Hague Rules may perhaps be starting to show their age, at over 90 years old. In that regard, there may have been good historical reasons for fire onboard a vessel to be treated so differently, but it is perhaps questionable that this special treatment should continue today.

By way of comparison, shipowners in this case would not have been able to avoid liability under the Hamburg or Rotterdam Rules.  Both retain a fire exception, but it does not apply where the fire is caused by a crew member.