30/11/2018

The Lady M: case review

The Appeal from Popplewell J’s decision in Glencore Energy UK v Freeport Holdings (“The Lady M”) [2017] EWHC 3348 (Comm); [2018] 2 All ER (Comm) 219 is due to be heard in December. In anticipation of that hearing, Timothy Hill QC and Andrew Feld, who act for the defendant owners, review the points of law established by the case, in particular: (i) that the definition of barratry includes a subjective, mental element; and (ii) that the fire exception in Art. IV(2)(b) of the Hague/Hague-Visby Rules applies to fires caused by barratry. The judgment also contains further interesting observations on the nature of the “catch all” exception in Art. IV(2)(q) and the role of preliminary issues.

Background

The dispute arose out of a fire in the engine control room of the vessel during her loaded voyage from Taman, Russia to Houston, USA. It was common ground that the fire was started by a member of the crew. As a result of the fire the defendant owners (“Owners”) engaged salvors and declared general average, and the vessel was towed to Las Palmas. The claimant cargo interests (“Glencore”) incurred liability to the vessel’s salvors of around US$3.8m. Glencore sought to recover its loss from Owners by way of a claim under four bills of lading subject to the Hague-Visby Rules (“the Rules”). Owners denied liability and counterclaimed for a general average contribution of around US$560,000.

The preliminary issues

Part of Glencore’s case was that the Owners had failed to care for the cargo in breach of Art. III(2) of the Rules. In response, the Owners relied on the exceptions in Arts. IV(2)(b) and (q). Glencore asserted that neither of those exceptions was available to the Owners because: (1) the fire was caused by barratry; and (2) neither of the exceptions was capable of applying in cases of barratry.

The parties agreed a series of preliminary issues designed to test this aspect of Glencore’s case. It was assumed for the purpose of the preliminary issues that: (a) the fire was started by the deliberate act of the Chief Engineer; and (b) the Chief Engineer was suffering from a personality disorder or mental illness. Against that background, the preliminary issues were: (1) whether the assumed conduct of the Chief Engineer constituted barratry; (2) whether Art. IV(2)(b) of the Rules was capable of exempting the Owners if the fire was caused by barratry; (3) whether the Owners were exempt from liability under Art. IV(2)(q).

The definition of barratry

Popplewell J held that barratry was defined as follows: “(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.”

He added a clarification as to what is meant by “a wrongful act or omission” for these purposes: “In order for the act or omission to qualify as wrongful for the purpose of (ii) it 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 shipowner, committed by him knowing it to be a breach of duty or reckless whether that be so.”

The Judge therefore held that there is a subjective, mental element in the definition of barratry requiring a degree of culpability on the part of the crew member. As the Judge observed, this requirement for subjective culpability is evident in the older authorities (in particular Earle v Rowcroft (1806) 8 East 126 at 138-9 and Mentz Decker v Maritime Insurance (1909) 15 Comm Cas 17 at 24) as well as the latest edition of Arnould on Marine Insurance. Moreover, there is no conflict between this subjective requirement and the long-established principle that it does not matter whether the barratrous crew member intended to prejudice or advance the owner’s interests by his wrongful act. The former is a question of culpability, whereas the latter is one of motivation.

Applying this definition to the assumed facts, the Judge held that he could not finally determine whether the Chief Engineer’s conduct constituted barratry. The Owners’ pleaded case that he was suffering from a personality disorder or mental illness left the point open: “If he were suffering from a clinical mental disorder, such that he could not distinguish between right and wrong, he would not be guilty of the kind of knowing wrongdoing which would be sufficient. He would not be committing a crime, being legally insane under generally accepted concepts of criminal liability, and he would not knowingly be acting in breach of his duty to the owners. If, for example, by reason of a mental illness (which is an assumed fact as one possibility), he was in a psychotic state in which he heard voices telling him that the owners wished him to act as he did, he would not have been knowingly committing any wrongful act.”

The scope of the fire exception

The Judge restated the principles governing the construction of the Rules, and accepted the Owners’ submission that Art. IV(2)(b) was capable of applying to fires that were deliberately or barratrously started. First, that was the ordinary meaning of the word “fire”, which contained no express or implied qualification as to how the fire was started. That was particularly so when Art. IV(2)(b) was compared with Art. IV(2)(q), the latter containing an express carve-out for the “fault or neglect of the agents or servants”. The more limited proviso in Art. IV(2)(b) for “the actual fault or privity of the carrier” strongly suggested that fault on the part of the crew was within the fire exception. Secondly, the Judge found a requisite “bulls-eye” in the travaux préparatoires of the Rules. The travaux showed that a proposed amendment to the fire exception which would have carved out fires caused by the carrier’s “agents or servants” was considered and rejected. Thirdly, that interpretation of the fire exception was supported by most of the leading textbook writers. Fourthly, there was no policy reason why barratrous fires should not fall within the exception, since the hallmark of barratry was wrongdoing against, rather than on behalf of, the carrier.

The Judge also rejected Glencore’s submission to the effect that there was an established common law meaning of “fire”, carried over into the Rules, which excluded negligent fires and a fortiori barratrous fires. First, a review of the authorities showed that there was no such settled meaning. To the contrary, “fire” at common law included negligent fires. Secondly, even if there had been such a settled meaning, the express words of Art. IV(2)(b), which on any view included barratrous fires, showed that the drafters of the Rules had departed from that meaning. Thirdly, Glencore’s submission, insofar as it relied on a common law rule of construction that clear words were required to exclude negligence, offended the proper approach to the interpretation of the Rules.

Glencore also argued that, because blanket exception for barratry was omitted from the Rules, the fire exception should be read down so as not to apply to barratry. The Judge rightly dismissed that argument as a non-sequitur. The fact that the drafters did not intend to exclude all forms of barratry did not imply that individ
ual exceptions were not intended to apply to some forms of barratry.

The test under Art. IV(2)(q)

In relation to Art. IV(2)(q), the Owners submitted that: (1) the Judge was bound by the Court of Appeal’s decision in The Chyebassa [1967] 2 QB 250 to hold that there was no “fault or neglect of the agents or servants of the carrier” if the servant in question was acting outside the scope of his employment applying English rules of vicarious liability; and (2) the Chief Engineer was, or might have been, acting outside the scope of his employment.

Popplewell J held that he did not need to decide point (1) because the Chief Engineer was acting within the scope of his employment if that was indeed the test. However, he also remarked, obiter, that he was instinctively hostile to bringing such a test into Art. IV(2)(q) and that, if he were free to decide, he would apply the agency analysis laid down in The Global Santosh [2016] 1 WLR 1853, namely whether the conduct occurred in the course of the servant or agent preforming a function in respect of the ship or cargo that he is performing on behalf of the shipowners. Popplewell J’s views are likely to be persuasive on this point. However, whether a first instance court is free to adopt his proposed test in light of the Chyebassa is a question that will have to be determined another day.

The role of preliminary issues

The judgment is also of interest as a reminder of the role that preliminary issues on assumed facts can play in litigation. Glencore attempted to shut out the Owners’ case on the definition of barratry with the argument that, by agreeing to preliminary issues, the Owners had impliedly undertaken that the issues could be and would be determined finally one way or the other on the assumed facts. The Judge rejected that submission, reminding the parties that preliminary issues on assumed facts are generally capable of being answered “yes” “no” or “it depends of further facts to be found at trial”.

It is of course often desirable that preliminary issues and assumed facts are framed in a way that will allow either a “yes” or a “no” answer. However, it is also the case that a preliminary issue is not necessarily useless just because it results in the answer “it depends”. In The Lady M, the preliminary issues were of utility because they performed a role functionally equivalent to a strike out or summary judgment application by Glencore. The assumed facts adopted the Owners’ pleaded case at its highest, and the preliminary issues were such that, if Glencore could succeed positively on each of the issues, the Owners’ Art. IV(2) defence must be bad in law. Had Glencore’s arguments succeeded, the preliminary issues would therefore have achieved a saving in time and costs at trial.

Conclusions

Glencore was granted permission to appeal on both the definition of barratry and the construction of Art. IV(2)(b). That appeal will be heard in December and is likely to generate further authoritative reasoning on issues such as: (i) the parameters of the subjective mental element in barratry; (ii) the correct approach to the construction of the Rules in general; and (iii) the applicability of the fire exception in particular. The Owners did not cross-appeal the Judge’s decision on Art. IV(2)(q).