The Lady Gwendolen, the plaintiffs' vessel, collided with and sank the defendants' vessel, the Freshfield, which was lying at anchor while navigating up the Crosby channel towards Liverpool. It was common cause that the collision was caused by the negligence of the Lady Gwendolen's master. Despite the dense fog that resulted in poor visibility from the bridge, the master of the Lady Gwendolen navigated the vessel at full speed up the channel, relying on the radar with which it was equipped. The vessel was also not continuously crewed. Although the master admitted that he would not have entered the buoyed channel without the use of the radar and would have anchored outside, he did not effectively use the radar, as he was merely glancing at it occasionally. The plaintiffs admitted liability and sought a decree limiting their liability under s 503 of the Merchant Shipping Act 1894 (the 1894 Act).

The plaintiffs were a brewing company which also engaged in shipowning activities ancillary to their main business. Their main business was run by a managing director who was assisted by three assistant managing directors, each responsible for specific departments.

The defendants argued that the faults in navigation which led to the collision were at least partly attributable to the failure of the plaintiffs' management to exercise proper control over the master and the ships. They argued that this failure of management persisted at all levels and that up to the time when the collision occurred, there was no effective managerial control whatsoever over the way in which the plaintiffs' ships were navigated by their masters. Therefore it was impossible for the plaintiffs to show that the collision occurred without their actual fault or privity.

Held: Appeal dismissed.

The Court determined that the defendants were correct in their assertion that there was a serious failure in the plaintiffs' management which contributed to the collision. Specifically, the marine superintendent was found to bear a significant portion of the blame for failing to pay more attention to how the master navigated in fog and for failing to bring it to the owner’s attention. The Court then had to consider whether the fault of the managers and particularly the superintendent, established the plaintiffs' actual fault or privity as owners of the Lady Gwendolen.

To prove that the failure in management was due to the plaintiffs' actual fault or privity as owners, the defendants, citing Standard Oil Co of New York v Clan Line Steamers Ltd [1924] AC 100, argued that when a statute or common law imposes on an employer a duty that is personal to them, meaning that responsibility for its performance cannot be avoided by delegation, if it is breached, the employer must be held guilty of actual fault. Therefore, it was argued, the plaintiffs as owners were under such a duty at common law because of the importance of securing safe navigation in fog, which is well known to shipowners. Furthermore, they argued that s 419 of the 1894 Act imposed on the plaintiffs and the masters of their vessels a statutory duty to obey R 16 of the Collision Regulations 1953. Thus, both the plaintiffs and the master were obligated to adhere to the Collision Regulations, and a violation of this article constituted personal fault on the part of the plaintiffs. However, they later limited the scope of their argument by stating that Standard Oil Co demonstrated that 'there can be a duty laid upon shipowners which is so important that they cannot, by delegating performance of it, escape being held guilty of actual fault if the duty is not performed'. 

The Court rejected both interpretations and held that Standard Oil Co illustrated that when shipowners delegate the performance of non-delegable duties, they will be held constructively guilty of fault for their non-performance. This means that the shipowners would not be able to escape liability; however, such fault falls short of what is meant by 'actual fault' within the meaning of s 503 of the 1894 Act. The Court held that '[c]onstructive fault goes only to liability, and leaves untouched the question whether there is such actual fault on the part of the shipowners themselves as will defeat their right to limitation.' The Court held that this was in line with Lennard’s Carrying Co v Asiatic Petroleum Co Ltd [1915] AC 705 which held that '[t]he words actual fault or privity in my judgment infer something personal to the owner, something blameworthy in him, as distinguished from constructive fault or privity such as the fault or privity of his servants or agents'. Consequently, it was necessary to carefully examine the details of each particular case to see what, in fact, the shipowners did or did not do, which could be fairly said to constitute actual fault or privity on their part.

Furthermore, where the shipowners are a limited company, as in this case, it is necessary to closely examine the organisation of the company to determine the individual whose act or omission is that of the company itself. It is not necessary that the person whose actual fault would be the company's actual fault must be a director. In cases where a company has a separate traffic department that assumes responsibility for running the company's ships, the head of that department, even though not a director, can be regarded as someone whose action represents the action of the company itself. The Court, therefore, concluded that the head of the traffic department, the ship's registered manager, and all concerned, from the members of the board downwards, were guilty of actual fault. This was because they shared responsibility for the failure of management which the facts disclosed.

The Court accepted that the test to determine whether shipowners are guilty of actual fault must be an objective test. It also held that a company which owns ships as part of its ancillary activities cannot be in a better position than one that owns ships as its main business. Thus, any company that undertakes the business of shipowning is obliged to ensure efficient management of its ships if it is to enjoy the substantial benefits provided by the statutory right to limitation. The Court accordingly held that the facts revealed a lack of good management and as a result, the plaintiffs failed to discharge the burden of proving that the collision occurred without their actual fault or privity.