17/03/2020

Glencore Energy UK Ltd v Freeport Holdings Ltd (the “Lady M”) [2019] 2 Lloyd’s Rep 109

Glencore Energy UK Ltd v Freeport Holdings Ltd (the “Lady M”) [2019] 2 Lloyd’s Rep 109

Summary

The Court of Appeal held the fire exception in Art. IV rule (2)(b) of the Hague/Hague-Visby Rules applied to fires however caused, including fires started deliberately or barratrously by the crew, provided that: (i) the fire was not caused by the actual fault or privity of the carrier; and (ii) the fire was not caused by a breach of the carrier’s overriding obligations in Art. 3 rule III(1).

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$560,00.

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. On a trial of three preliminary issues formulated to test Glencore’s case, it was assumed 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.

Popplewell J held that: (1) the Art. IV(2)(b) was capable of applying to fires that were deliberately or barratrously started the crew; and (2) he could not determine whether the chief engineer’s conduct constituted barratry without further findings of fact as to the chief engineer’s state of mind. Glencore appealed to the Court of Appeal.

Held

After restating the principles governing the construction of the Rules, the Court of Appeal held that Art. IV rule (2)(b) was capable of applying to fires howsoever caused, including those deliberately or intentionally started by the crew, provided only that the fire is not caused (1) with the actual fault or privity of the carrier or (2) in breach of the carrier’s obligations in Art. III rule 1. The words of the Rules in this regard were clear and Glencore’s arguments for a contrary construction were flawed. In particular: (1) there was nothing in the Supreme Court’s decision in Volcafe v Compania Sud Americana de Vapores [2019] 1 Lloyd’s Rep 21 that led to any different conclusion; (2) it was impermissible, in the light of the authorities on the interpretation of the Rules to embark upon an “exercise in forensic archaeology” by looking at the meaning that had been judicially imputed to the word “fire” prior to the Rules; and in any event the pre-Rules authorities were of little assistance; and (3) it was doubtful whether the high threshold for consideration of the travaux préparatoires was met; but it any event, the travaux favoured the Owners, not Glencore.

As regards the question of barratry, the Court of Appeal held that Popplewell J should not have decided the preliminary issue. The argument, and the Judge’s decision, had proceeded on the on the basis that it might have been open to the Owners to argue that the chief engineer was legally insane, and that proof of such a fact was capable of preventing the chief engineer’s conduct from being barratry. However, the factual issue of legal insanity was not raised on the pleadings. It was therefore wrong for the Judge to attempt to decide the issue in the abstract and on an essentially academic basis.

Popplewell J’s learned and thorough consideration of the definition of barratry at first instance has therefore formally been reversed. However, the Court of Appeal made no criticism of the Judge’s analysis, which may well become the starting point for a consideration of the limits of the concept of barratry in the future.