Is the ship owner liable for losses to cargo interests even if the crew deliberately lights the fire – the “Lady M”

A fire onboard a ship can inevitably cause significant losses to cargo.  In the case of the Lady M [2019] EWCA CIV388 cargo interests became liable for significant salvage and general average costs as a result of a fire on board a ship which was found to have been caused deliberately by the chief engineer with the intent to cause damage.  The motive behind the these actions remained unknown, but it was found on the balance of probabilities to have been either as a result of extreme emotional stress and/or anxiety or an unknown and undiagnosed personality disorder and/or mental illness.

The cargo interests, Glencore, brought proceedings against the carrier as it had incurred significant costs to salvors, who had successfully salvaged the vessel following a fire, as well as the costs of defending the salvage arbitration proceedings.  It claimed these costs under the bill of lading, potentially on the grounds that the ship owners should be liable to indemnify them for the costs they had incurred.  It contended that the fire was a result of an act or omission of the master and/or the crew done with intent to cause damage or recklessly and with the knowledge that damage would probably result.  They argued that this constitutes barratry and that barratry constitutes a breach of the owner’s obligations in the Hague-Visby Rules. It therefore provides no defence for the owners including a defence of fire in Article 4.2(b) of the Rules.  The Commercial Court Judge did not accept that argument.  He found that Article 4.2(b) was capable of exempting the owners from liability even if the fire was caused deliberately or barratrously by the crew.  Cargo Interests appealed. They argued that the Court should have found that Article 4.2(b) defence was not available where the fire was caused by the barratrous act of the master or the crew.

The Court of Appeal framed this issue as:

• Whether the provisions of Article 4.2(b) are capable of exempting owners from fire caused deliberately by the chief engineer.

The difficulty for cargo interests was this was not what Article 4.2(b) states.  It states:

• Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from:
  (b) fire, unless caused the actual fault or privity of the carrier.

In short, Glencore’s interpretation would require a further implied proviso to be added “or the barratry of master or crew”.  Glencore argued that it followed as a matter of English law that the meaning and effect of words used in such standard clauses should inform the operation and effect of Article 4.2 defences. At common law a term which excluded “liability for fire” would not have provided a defence if it were caused by the negligence or barratry of the crew.

The Court of Appeal was in effect being asked to find that there were implied terms to be added to express words used in Article 4.2(b).  There is a very helpful summary of the principles to be applied to the interpretation of the Hague-Visby Rules.  The Court of Appeal stressed the importance that the language of the Rules should be construed on broad principles of general acceptance. It found an accurate statement of the correct legal approach to the construction of the Hague-Visby Rules was as ruled by Lord Steyn in the Giannis NK as follows:

In summary, the context in which the Rules fall to be interpreted was one of trade off and compromise.  If a word or expression has acquired a universally accepted meaning, there is a reasonable presumption that it was used in the Rules with that meaning; but beyond that the language used must be taken to speak for itself.

Using that principle, they found that the words “fire, unless caused by the actual fault or privity of the carrier” is a phrase whose natural and ordinary meaning is clear.  The words exclude the carrier from liability for fire however caused, provided it is not caused with the actual fault or privity of the carrier or in breach of its obligations set out in Article 3.1.  It does not matter whether the fire was caused accidentally or deliberately, negligently or who may be responsible for the fire.  The only express qualification is “unless caused by the actual fault or privity of the carrier”.

Glencore argued strongly that there were good grounds to extend the definition by reference to earlier decisions, and existing law.  The Court of Appeal favoured the straightforward and accepted approach of actually relying simply on what the words that were used meant.  In answering Glencore’s submission that there is necessarily an implied additional qualification to the words, the Court could see no proper basis for implying them either as a matter of ordinary meaning or any of the other arguments submissions advanced by Glencore.  Therefore, unless the fire was caused by the actual fault or privity of the carrier the defence of “fire” was intended to cover any other event of fire howsoever caused. It would cover fire caused deliberately and intended to cause damage by one of the vessel’s crew.

On that basis it was not necessary for the Court to consider arguments raised as to what was the meaning of “barratry”.  The case reinforces the wide ambit of the fire exception. It confirms that the carrier is exempt from liability for cargo damage unless the fire was caused by its personal negligence and interference, i.e. that of the directing mind and will of the ship owning company or the chartering company which promised to carry the cargo.

As it had been accepted for the purpose of the trial that it was the deliberate actions of the chief engineer which has caused the fire, issues of were not material.  In dealing with the burden of proof, the Court reiterated that if the carrier has failed to comply with its obligations under Article 3.1 to exercise due diligence before and at the commencement of the voyage (a) to make the ship seaworthy or (b) to properly man the ship, it would not be able to rely on the fire exemption if the negligent or deliberate act of the crew has caused the fire.  However, where there has been no prior causative breach of the carrier’s obligations under Clause 3.1 its liability for loss by fire is excluded by Article 4.2(b) unless caused by the actual fault or privity of the owner.

This recent decision clarifies that the fire exception remains available without significant alteration to its current standing.  The situations in which a fire is caused by the actual fault or privity of the carrier are likely to be exceptional.  If the fire was caused by an undeclared dangerous cargo or cargo with some inherent vice so serious as to cause fire or explosion on board unknown to the carrier, then the carrier will still remain protected by Article 2.4(b).  The case also stresses the importance of all Courts looking at the interpretation of the Hague-Visby Rules to apply an approach where the words used speak for themselves.  The fire exception remains a wide and effective defence for carriers.