This is an appeal from the Court of Appeal decision in Tasman Orient Line CV v New Zealand China Clays Ltd (CMI636).

The basic facts of the case were that the master of the vessel Tasman Pioneer deliberately fabricated a false story and route (and commanded his crew to lie to that effect) to preserve his reputation after the ship grounded between Japan and Korea. The master had taken the ship through a narrow passage separate from the usual route to save time on the voyage. The damage to the ship from the grounding caused loss to cargo owned by the respondent shippers, Imerys Minerals Japan KK and New Zealand China Clays Ltd, and potentially also the New Zealand Dairy Board (NZDB). The master's deception and stalling led to further damage to the vessel and it was eventually salvaged several hours later than it could have been.

The appeal of the carrier, Tasman Orient Line CV (TOL), from the initial High Court decision in favour of the respondent shippers was dismissed and the cross-appeal of NZDB was allowed in the Court of Appeal. TOL appealed to the Supreme Court.

Held: Appeal allowed.

The decision in this case turned on the interpretation and application of the Hague-Visby Rules (the Rules) as adopted in New Zealand, most importantly art 4.2.a. This article contains one of several exemptions to carrier liability for loss or damage to cargo, which obligations are laid out in arts 3.1 and 3.2 of the Rules. As art 4.2.a makes clear, carriers are not responsible for any 'act, neglect or default of the master' as long as it is done 'in the navigation or in the management of the ship', but are generally only liable for acts directly within their control.

The Court turned to considering the application of the Rules to barratry, that is, the deliberate acts of a master or crew to cause harm to either the cargo or the owner of the vessel. Article 4.5.e of the Rules prevents limitation of liability for carriers who have caused intentional damage or acted recklessly and in a manner likely to cause damage, and art 4bis.4 limits the application of art 4bis protections to employees and agents of carriers when they have acted with intent to cause damage, or have acted recklessly and with knowledge that damage would likely result. The Court held that the language of both arts 4.5.e and 4bis.4 encapsulated the nature of barratry and therefore provided an appropriate definition of the act. It was important to distinguish acts of crew and master that might qualify as barratry from the type of 'act, neglect or default' that art 4.2.a addressed.

Taking into consideration the decision of the Court of Appeal, and that art 4.2.a did not extend to barratry, the Court here identified four possible interpretations of art 4.2.a. First, the article should be given its ordinary meaning, as per the interpretation of Fogarty J in the Court of Appeal. Second, art 4.2.a does not apply when the crew or master has acted in bad faith, which was the approach taken by Hugh Williams J in the earlier High Court decision. Third, consistent with the decision of the Court of Appeal, the conduct of the master of the Tasman Pioneer was so extreme that it could not have been in the course of navigation or management of the ship. Finally, art 4.2.a has no application when the master or crew has acted without good faith or has been grossly negligent.

The Court denounced the possibility that there was an implied good faith term anywhere in art 4.2.a, and did not believe there were any authorities supporting such an interpretation. Further, the Court disagreed with the majority's conclusion in the Court of Appeal that the Rules were meant to alter the common law. The Court reasoned that bills of lading prior to the creation of the Hague Rules in 1924 used terms with very similar phrasing to that used in the Rules, and these were not therefore doing something new. Shipowners' representatives at the Hague Conference were insistent on retaining a protection like that which art 4.2.a now provides. This was agreed to by the cargo interests, provided that such a protection would not extend to barratry. For these reasons the Court agreed that common law authorities should continue to be consulted and were still relevant to interpreting the Rules.

Taking these points into consideration, Article 4.2.a should be read as it was intended, exempting carriers from all liability for the actions of master or crew unless it constituted barratry. That is its ordinary meaning, as well as being the article's purpose, which is to avoid making carriers responsible for acts outside their direct control, as the discussions from the Hague Conference indicate. The Court believed this to be a more apt usage of the purposive approach to statutory interpretation. The culpability and intention of the master or crew were also irrelevant to applying art 4.2.a, provided that the behaviour did not amount to barratry.

The master's behaviour in this specific insistence, while selfish and extraordinary, was in the view of the Court nonetheless in the navigation or management of the vessel. The owner and charterers of the Tasman Pioneer also did not endorse or acquiesce the master's deviation or actions, so were not directly responsible for it. There was no evidence for barratry, so the art 4.2.a protection applied to TOL.

Further, the respondents did not plead barratry in this case, either explicitly, or by reference to its elements. The master's acts were calculated to preserve his reputation, not to wilfully cause loss or damage to cargo, or to act recklessly and in a manner likely to cause damage. This was essential to substantiating a barratry claim so in the absence of this element the claim could not be made out.

The Court also reversed the Court of Appeal's finding in favour of NZDB. The Court agreed with the overall conclusion in the Court of Appeal that the loss to NZDB's cargo probably occurred during the salvage operation. This made it a direct result of the master's act, which had caused the damage to the vessel. The Court of Appeal had held that the art 4.2.a defence did not apply to the carrier in that case because the master's actions were not in the navigation or management of the vessel, but as the Supreme Court reached the opposite conclusion about the master's behaviour, the art 4.2.a exception did apply and NZDB could not claim against TOL.

Ultimately the art 4.2.a defence therefore protected TOL against claims from all respondents.