Tasman Orient Line CV v New Zealand China Clays Ltd and Others SC

• Jurisdiction: New Zealand
• Judge: Wilson J
• Judgment Date: 16 April 2010
• Neutral Citation: [2010] NZSC 37
• Court: Supreme Court
• Docket Number: SC 39/2009
• Date: 16 April 2010

BETWEEN

Tasman Orient Line CV

Appellant

and

New Zealand China Clays Limited and Others

Respondents

[2010] NZSC 37

Court:

Elias CJ, Blanchard, Tipping, McGrath and Wilson JJ

SC 39/2009

IN THE SUPREME COURT OF NEW ZEALAND

Appeal against decision that Tasman Orient had breached its carriage contract to the respondents, whose goods were lost as a result of a shipping accident — whether the Hague-Visby Rules, contained in the Fifth Schedule of the Maritime Transport Act 1994, should be interpreted and applied to allow the respondents to recover its losses from Tasman Orient, due to conduct of the ship's master and crew — whether art 4.2(a) the Hague-Visby Rules (exceptions to the carrier's obligations) applied to protect Tasman Orient — whether barratry (conduct of the master or crew of a vessel intended to prejudice the owners of the vessel or its cargo) was pleaded.

Counsel:

B D Gray QC and N A Beadle for Appellant

P R Rzepecky and M A Flynn for Respondents

• A The appeal is allowed.

• B Judgment is entered for the appellant against all the respondents.

• C The respondents jointly are ordered to pay the appellant costs of $30,000 and reasonable disbursements in this Court, together with costs in the High Court and the Court of Appeal.

JUDGMENT OF THE COURT

REASONS

(Given by Wilson J)

Introduction

1 On 3 May 2001 the Tasman Pioneer, a Cypriot-registered vessel of 16,748 gross tonnes under sub-charter to the appellant, was on a voyage from Yokohama in Japan to Busan 1 in South Korea. Because he was behind schedule, the Master (Captain Hernandez) decided to pass through a narrow channel between Biro Shima Island and the mainland of southern Japan, rather than going around the island.

2 In poor weather, the Tasman Pioneer struck rocks on the island side of the channel while steaming at about 15 knots. The Master should have immediately ascertained what, if any, damage had resulted. Had he done so, he would have discovered that the hull had been holed and sea water was entering. He should then have notified the nearby Japanese coastguard and the owners of the vessel. In all probability, the ready availability of salvage services would in that event have ensured that there was no damage to the respondents’ cargo on the Tasman Pioneer, said by them to have a total value of in excess of 20 million New Zealand dollars.

3 What the Master actually did, apparently motivated by a concern for his own position if the truth emerged, was to attempt to conceal what had occurred from the authorities and the owners. To that end, he steamed for some hours towards a point where he would have rejoined the course he would have taken had he gone outside Biro Shima Island. Meanwhile, the flooding of the vessel by sea water continued and was increased by the ship's passage through the water. Captain Hernandez also falsified the course plot on the relevant chart and, when he did report to the coastguard and the owners, downplayed the extent of the damage and incorrectly stated that it had been caused by collision with a semi-submerged object, probably a container. Captain Hernandez also attempted, necessarily but unsuccessfully, to involve deck officers and crew in a conspiracy to conceal what had actually occurred. By the time salvage assistance was finally sought the respondents’ cargo

was a total loss. In the present proceedings, the respondents seek to recover that loss from the appellant

4 The cargo was being carried under contracts of carriage between the appellant and the respondents governed by New Zealand law. Section 209(1) of the Maritime Transport Act 1994 confers the “force of law” in this country on the Hague-Visby Rules, as set out in the Fifth Schedule to the Act. Whether the respondents can recover from the appellant turns on the interpretation and application of those Rules, which resulted from significant amendments in 1968 and 1979 to rules previously known as the Hague Rules.

Hague-Visby Rules

5 Article 1 of the Rules defines the “carrier” as including “the owner or the charterer who enters into a contract of carriage with a shipper”. The appellant is therefore a “carrier” for the purposes of the Rules.

6 Article 3.1 and 3.2 then impose the following, among other, obligations on the carrier:

• (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to:

• (a) Make the ship seaworthy;

• (b) Properly man, equip and supply the ship;

• (c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.

• (2) Subject to the provisions of Article 4, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

7 In return, art 4 confers certain exemptions on the carrier, including those set out as follows in art 4.2:

Paragraph (q) is a general provision which applies to “other” causes not addressed specifically in the preceding paragraphs.

• (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;

  …

• (i) Act or omission of the shipper or owner of the goods, his agent or representative;

  …

• (p) Latent defects not discoverable by due diligence;

• (q) Any other cause arising without the actual fault or privity of the carrier, or without the actual 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.

8 The scheme of the Rules is clear. Carriers are responsible for loss or damage caused by matters within their direct control (sometimes called “commercial fault”), such as the seaworthiness and manning of the ship at the commencement of the voyage. They are not however responsible for loss or damage due to other causes, including the acts or omissions of the master and crew during the voyage (“nautical fault”). This allocation of risk is confirmed by art 3.2 being made subject to art 4 and by the inapplicability of the art 4.2(b) and (q) exemptions in the event of “actual fault or privity” of the carrier. The allocation of responsibility between the carrier and the ship on the one hand and the cargo interests on the other promotes certainty and provides a clear basis on which the parties can make their insurance arrangements and their insurers can set premiums. 2

9 Mr Gray QC, for the appellant carrier, and Mr Rzepecky, for the respondent cargo interests, agreed that the exemption conferred by art 4(2)(a) should be read down to some extent, but differed as to that extent. Mr Gray submitted that the exemption should apply in the absence of barratry, which is, in general terms, conduct of the master or crew of a vessel intended to prejudice the owners of the vessel or its cargo. Mr Rzepecky however sought to extend the qualification to include not only barratry but also acts of gross negligence and actions which, because they were not undertaken in good faith, could not be said to be “in the navigation or in the management of the ship”.

10 Accordingly it is common ground between the parties, we think rightly, that the art 4.2(a) exemption does not apply in the event of barratry. It is therefore necessary to ascertain what is barratry for the purposes of the Rules. Fortunately, the Rules themselves provide a ready answer to that question.

11 Paragraph 4.5(e), as inserted into the Rules in 1968, limits the availability of the limitation of quantum otherwise conferred by art 4.5 by stating that:

Neither the carrier nor the ship shall be entitled to the benefit of the limitation of liability provided for in this paragraph if it is proved that the damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result.

12 To like effect, art 4bis.4, which was also inserted in 1968, limits the protection which art 4bis confers on the employees or agents of a carrier by providing that:

Nevertheless, a servant or agent of the carrier shall not be entitled to avail himself of the provisions of this Article, if it is proved that the damage resulted from an act or omission of the servant or agent done with intent to cause damage or recklessly and with knowledge that damage would probably result.

13 Although neither art 4.5(e) nor art 4bis.4 uses the term “barratry”, both are directed to damage with actual or imputed intent, which is the essence of barratry. 3 The words of these paragraphs should therefore be adopted as the definition of barratry for the purposes of another provision in the same Rules, art 4.2(a). 4 It follows that the test for establishing barratry as an implicit qualification to the exemption conferred by that paragraph is whether damage has resulted from an act or omission of the master or crew done with intent to cause damage, or recklessly and with knowledge that damage would probably result.

High Court and Court of Appeal

14 The appellant pleaded, and the respondents admitted, that the appellant had provided a competent master and crew. In the High Court, Hugh Williams J rejected the allegations of the respondents that the Tasman Pioneer was unseaworthy at the commencement of the voyage 5 and that the actions of the Master, before and after the grounding, were not in the navigation or management of the ship. 6 However the Judge upheld the respondents’ claim in breach of contract and breach of bailment because he found that...