Glencore Energy UK Ltd and Glencore Ltd -v- Freeport Holdings Ltd [2017] EWHC 3348 (comm)

This recent case concerns cargo owners’ claim for salvage costs from ship owners for alleged breach of the contract(s) of carriage. The court had to determine two preliminary issues relating to the meaning of barratry and the application of exemptions under Article IV of the Hague-Visby Rules.

Factual background

The claimants brought a claim as the purported owners of a cargo of about 62,250 m.t. of fuel oil against the defendant as owners of the vessel “LADY M”. There was a fire in the engine control room of the vessel around 01:00 on 14 May 2015, while the vessel was on her voyage from Russia to USA. The defendant engaged salvors and declared general average. The claimants incurred liability to the vessel’s salvors and costs of defending arbitration proceedings which they sought to recover from the defendant. The claimants alleged breach of the contract(s) of carriage contained under four bills of lading or alternatively in bailment and a declaration that they were not liable to make a general average contribution. The defendant denied liability and counterclaimed a general average contribution.

The contract(s) of carriage were subject to the Hague-Visby Rules.

On 16 June 2017, two preliminary issues were ordered.

For the purposes of the preliminary issues only, it was assumed that the perpetrator of the fire was the chief engineer who at the time of starting the fire deliberately and with intent to cause damage he was: (a) under extreme emotional stress and/or anxiety; (b) alternatively, suffering from an unknown and undiagnosed personality disorder and/or mental illness; or (c) alternatively, neither a nor b above.

On the basis of the agreed and assumed facts the preliminary issues were: 

1. whether the conduct of the chief engineer constituted barratry, and
2. if so, whether the defendant was precluded from relying upon Article IV rule 2(b) and/or 2(q) of the Hague-Visby Rules [NB: for the text of the relevant Articles refer to the end of the article].

Legal issues

Mr Justice Popplewell addressed the preliminary issues as follows:

Issue 1- did the conduct of the chief engineer constitute barratry?

The judge noted that preliminary issues which were to be determined upon agreed and/or assumed facts were in principle capable of being answered in three ways, namely ‘yes’, ‘no’, or ‘it depends on further facts which are outside those which have been agreed and assumed’.

In this case, the critical difference between the parties’ proposed definition of barratry was that the defendants contended that there had to be an intentional crime or fraud.

The judge held that although it was not necessary for the wrongful act to amount to a crime, and a ‘fraud’ was sufficient to constitute the relevant wrongdoing, in order prove barratry there had to be a knowing breach of the duty owed to owners (or at least recklessness). If the crew member did not know or believe that he was acting in breach of duty, or was not reckless in that regard, he was not in any sense committing a fraud on the owner.

It was not necessary for the purposes of this case to decide whether recklessness would be sufficient, but the judge saw no good reason why it should not. Recklessness was essentially concerned with unjustified risk taking.

The judge defined barratry as: (i) a deliberate act or omission by the master, crew or other servant of the owner (ii) which was a wrongful act or omission (iii) to the prejudice of the interests of the owner of the ship or goods (iv)without the privity of the owner. In order for it to qualify as wrongful act or omission, it had to be: (a) 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 owner, committed by him knowing it to be a breach of duty or reckless whether that be so.

The judge held that he could not dispose of this issue: the assumed/agreed acts of the chief engineer might or might not have constituted barratry, depending upon further facts as to his state of mind which had not been agreed or assumed.

Issue 2 – was Article IV rule 2(b) capable of exempting the defendant from liability if the fire was deliberately or barratrously caused?

Regarding the context in which the rules fell to be interpreted, if a word or expression had acquired a universally accepted meaning, there was a reasonable presumption that it was used in the rules with that meaning; but beyond that, the language used had to be taken to speak for itself.

The judge held that the language of rule 2(b) strongly supported the argument (of the defendant) that fire simply meant fire, without any qualification about how the fire started, whether intentionally negligently or accidentally, or any qualification as to who might have been responsible for it. This was reinforced by the addition of the words which followed ‘unless caused by the actual fault or privity of the carrier’.

Further, this interpretation was even more strongly supported by the contrast with the wording of rule 2(q), which expressly carved out the protection afforded to the carrier of losses contributed to by the neglect or default of servants or agents of the carrier.

That this was the natural meaning of the word fire was confirmed by its interpretation as an insured peril in policies of insurance and further confirmed by the travaux préparatoires.

Therefore, Article IV rule 2(b) exempted the owners from liability from fire even if it had been set deliberately or barratrously.

Issue 3 – was the defendant exempt from liability under the ‘any other cause’ exemption in Article IV rule 2(q)?

The main question under this issue was whether the act of the chief engineer was properly to be regarded as the act of a servant so as to come within the proviso of ‘fault or neglect of the agents or servants of the carrier [which] contributed to the loss or damage’.

The defendant submitted that the judge was bound by the Court of Appeal decision in the “CHYEBASSA” [1966] 1 Lloyd’s Rep 450 and must hold that the rule did not apply if the servant was acting outside the scope of his employment.

The judge said assuming, without deciding, that he was bound by this case and he had to apply English law principles of vicarious liability, he would have had little hesitation in holding that the chief engineer was acting within the scope of his employment. The relevant field of activities which fell within the scope of his employment included both the care of the ship and the carriage and care of the cargo. By his function as chief engineer he would necessarily have authorised access to the engine control room at any time, whether or not he was on the engineering watch at the time.

The judge went on to say that if he were free to decide the relevant test for himself he would have regarded an agency analysis as preferable. The test should be whether the conduct in question occurred in the course of the servant or agent performing a function in dealing with the ship or cargo which he was performing on behalf of the ship owners, deriving his authority to perform that function on behalf of the owners directly or indirectly through contracts of agency or employment The judge held that, in applying such test, the chief engineer was acting as a servant of the owners when setting fire to the engine control room. 

Therefore the defendant was not exempt from liability for the fire under Article IV rule 2(q).

Case comment

This case illustrates that caution should be exercised by the parties when formulating preliminary issues and agreed and/or assumed facts. As the judge held, preliminary issues are capable of being answered in three ways: yes, no, or it depends on further facts. Ordering an issue (or number of issues) to be heard as preliminary issues, does not necessarily mean that those issues are capable of being resolved on the facts that have already been agreed and/or assumed.

Further, the case contains a useful reminder of the correct approach to the construction of the Hague-Visby Rules which is to ascertain the ordinary meaning of the words used and construe them on broad principles of interpretation in accordance with Articles 31 and 32 of the 1969 Vienna Convention on the Law of Treaties rather than rules of construction particular to English law. 

Wording of relevant articles

‘Article III

[…] 2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

Article IV

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
(b) Fire, unless caused by the actual fault or privity of the carrier
(c) Perils, dangers and accidents of the sea or other navigable waters. […]
(q) 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, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.’

This article originally appeared in the February 2018 edition of shipping case digest. Other articles include:

Lukoil Asia Pacific PTE Limited -v- Ocean Tankers (PTE) Limited [2018] EWHC 163 (Comm)

Phones 4U Limited -v- EE Limited: sailing away from typical contractual termination principles