The Court of Appeal’s judgment in the “LADY M”, handed down today, provides definitive guidance on the scope of the ‘fire’ defence in Article IV Rule 2(b) of the Hague Rules, and the proper approach to the construction of the Article IV defences more generally. Robert Thomas QC and Benjamin Coffer appeared for the cargo interests, instructed by Andrew Nicholas and Cameron Boyd of Clyde & Co LLP.
The Court has held that the carrier can rely on the fire defence even where the fire is caused intentionally by the crew, unless the vessel was causatively unseaworthy in breach of Article III.1, or the fire was caused with the actual fault or privity of the carrier. In construing the fire defence, the Court took a restrictive view of the relevance of the pre-existing common law prior to the Hague Rules, and the relevance of thetravaux preparatoires, instead concentrating on the literal wording of the Rules.
The case concerned a fire in the engine room of “LADY M” while she was carrying a cargo of 62,250 mt of fuel oil from Russia to the US. The fire did not take hold but was said to have been sufficient to immobilise the vessel such that salvage services were required and cargo interests incurred a substantial liability to the salvors. In these proceedings, cargo interests sought to claim that sum (together with associated costs and expenses) from Owners, together with a declaration of non-liability for general average. Owners counterclaimed a general average contribution.
The cargo interests relied on the fire as a breach of Article III Rule 1. In Owners’ defence, it was admitted that the fire had been started deliberately by a member of the crew with the intent to cause damage. Owners’ case was that the culprit was the Chief Engineer and that at the time that he set the fire he was under extreme emotional stress and/or anxiety due to the illness of his mother, alternatively suffering from an unknown and undiagnosed personality order and/or mental illness.
Cargo interests argued that the fire defence was not applicable to fires caused by acts of barratry. They relied principally on pre-existing common law cases in which it had been held that contractual defences in bills of lading (even when apparently clearly worded) were inapplicable when the excluded peril was caused by deliberate conduct on the part of the crew.
At first instance, Popplewell J determined as a preliminary issue that the fire defence was capable of applying even if the fire was caused by barratry on the part of the crew, but rejected the owners reliance on Article IV Rule 2(q). He also held that there could be no barratry if the Chief Engineer was insane: for an act to constitute barratry, it required the mental element necessary to make the conduct criminal, which would not be present in a case of insanity.
The Judge’s decision that the carrier could rely on Article IV.2(b) was upheld on appeal. The Court of Appeal held that it was not permissible to refer to the pre-existing case law, because the words of Article IV.2(b) were clear. The Court endorsed the Judge’s view that it was only permissible to make reference to prior authorities where they established that a particular word or phrase already had a judicially settled meaning. It held that there was no settled meaning of ‘fire’ prior to the enactment of the Rules. In reaching that view, the Court declined to follow the decision of the New Zealand Supreme Court inThe Tasman Pioneer [2010] 2 Lloyd’s Rep 13 that the Article IV defences are not applicable to acts of barratry.
The Court of Appeal went on to consider the Judge’s analysis of the requirements for an act to constitute ‘barratry’. The Court held that the Judge should not have determined whether the assumed insanity of the Chief Engineer would prevent his conduct constituting barratry, because insanity had not been pleaded by the shipowners. All three judges were critical of the shipowners for asking the Court to determine the preliminary issue on the basis of a hypothetical and unpleaded assumption (“the Owners were acting as if they were conducting a tutorial group”).
