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

JurisdictionNew Zealand
CourtSupreme Court
JudgeWilson J
Judgment Date16 April 2010
Neutral Citation[2010] NZSC 37
Date16 April 2010
Docket NumberSC 39/2009

[2010] NZSC 37

IN THE SUPREME COURT OF NEW ZEALAND

Court:

Elias CJ, Blanchard, Tipping, McGrath and Wilson JJ

SC 39/2009

BETWEEN
Tasman Orient Line CV
Appellant
and
New Zealand China Clays Limited and Others
Respondents
Counsel:

B D Gray QC and N A Beadle for Appellant

P R Rzepecky and M A Flynn for Respondents

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.

Held: It was undisputed that TOL was a “carrier” for the purposes of the Rules. The scheme of the Rules provided that carriers were responsible for loss or damage caused by matters within their direct control, known as “commercial fault”. Carriers were not responsible for loss or damage due to other causes, such as the acts or omissions of the master and crew during the voyage, known as “nautical fault”.

Article 4.2 contained a list of exemptions to the carrier's obligations, of which (a) stated there was no liability for damage resulting from an “act, neglect or default of the master…” It was undisputed that the art 4.2(a) exemption did not apply in the event of barratry. Article 4.5(e) and art 4bis.4 indirectly defined “barratry” which involved the intent to cause damage. The test for establishing barratry as an implicit qualification to the exemption was whether damage had 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. Article 4.2(a) had no application where a master or crew had acted in bad faith. It also did not apply in the event of “outrageous” behaviour, and did not apply where good faith was lacking, or the master or crew acted with gross negligence. Article 4.2(a) applied to exempt a ship owner from liability for the actions of master and crew unless the damage was intentional or was the consequence of subjective recklessness. The actions of the Master were reprehensible, but were actions in the navigation or management of the vessel. The respondent's claims were defeated by art 4.2(a), unless they could establish barratry. The respondents did not plead that the master's actions amounted to barratry. Appeal allowed. Judgment entered for TOL.

JUDGMENT OF THE COURT
  • 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.

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:

  • (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.

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

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...

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