On 3 May 2001, the ship Tasman Pioneer ran aground in Japanese waters on a voyage to Busan, Korea, after the ship's master elected to use a different (and riskier) route to regain lost time. The master failed to contact the Japanese Coastguard after the incident and continued the voyage. Meanwhile the damage to the ship and to the cargo (as holds nos 1 and 2 flooded) worsened. The master also instructed his crew to lie about the cause of the damage and to fabricate a false route in lieu of the real one to conceal his own error and preserve his reputation. Once the master's conduct and damage to cargo came to light, the cargo interests (the plaintiffs) brought an action against the carrier Tasman Orient Line CV (TOL). The plaintiffs argued that had the master taken action immediately, their cargo could have been successfully salvaged. These claims were therefore for breach of bailment and contract under the various bills of lading issued by TOL.

The Court considered the case of the New Zealand Dairy Board (NZDB) separately, which involved heat damage to dairy products when the refrigerated containers (reefers) the goods were in lost power. It was up for debate whether the power outage occurred before the incident or after it during the salvage operation.

TOL relied on the defence to carrier responsibility contained in art 4.2.a of the Hague-Visby Rules (the Rules), which is given effect under New Zealand law.

Held: Plaintiffs succeed against the defendant for breach of contract and bailment. NZDB's claim for damages is unsuccessful.

The Court affirmed that, had the master acted with expediency and according to his training, it was highly likely that the cargo could have been saved from water damage.

The key question before the Court was whether the master's 'act, neglect or default', in accordance with art 4.2.a of the Rules, was performed 'in the navigation or in the management of the ship'. If so, then TOL could avail itself of the defence. To answer this inquiry, the Court separated the master's choice to take the alternative route from the decisions made after the grounding, which both played a part in what happened to the cargo. The master's actions damaged both the ship and cargo in a situation that would usually exempt the carrier from blame under art 4.2.a.

Whether the master's actions fell precisely under the umbrella of either 'navigation' or 'management' was deemed an unimportant distinction, especially as acts by masters usually stretch across both categories. TOL was prima facie entitled to rely on the art 4.2.a defence.

The Court considered whether there was an implied term in art 4.2.a that actions performed 'in the navigation or in the management of the ship' must be bona fide. Certainly there is no express good faith term in the Rules. However, the Court thought that there was an implied term evidenced by the use of wording like 'exercise due diligence' in art 3.1.a, and the duty on carriers to 'properly and carefully' manage cargo in art 3.2. There was an expectation that every act by the carrier would be performed in furtherance of its obligations.

The Court regarded there to be both 'logic and authority' in support of the good faith argument, including from older common law authorities.

By reading this good faith requirement into art 4.2.a, the Court was able to conclude that the initial acts of the master to choose the alternate route were performed bona fide, in an effort to stick to schedule and meet the demands of the ship's managers. What happened after the grounding, however, was a different story. At that stage, the master went against common sense, good conscience, and his training and obligations, to defend himself from repercussions. This caused the loss of cargo and was not done in the bona fide navigation or management of the ship, which was an implied requirement to satisfy art 4.2.a.

As the master's actions did not fulfil the requirements in art 4.2.a, TOL could not rely on the defence. The plaintiffs were entitled to damages for breach of contract and breach of bailment.

The Court dealt briefly with the topic of the Tasman Pioneer's seaworthiness under art 3.1 of the Rules. The conclusion was that the vessel was not unseaworthy either when the voyage commenced or when the grounding occurred. Nor was this an important query to the overall conclusion.

Finally, the Court considered NZDB's case against TOL. As noted earlier, NZDB's goods suffered heat damage when the Tasman Pioneer's reefers lost power. When this happened was unclear, but the master's daily telexes prior to the grounding mentioned occasional issues with the generator. During the salvage operation, the salvage crew removed and restored the generator at various points. 

The Court considered the issue to be speculative, to the point that it would be unwise to draw any conclusions. More evidence was required. Due to this, NZDB's claim could not be made out and was unsuccessful.

[For TOL's unsuccessful appeal and NZDB's successful cross-appeal to the Court of Appeal, see Tasman Orient Line CV v New Zealand China Clays Ltd​ (CMI636). For TOL's successful appeal from that decision to the Supreme Court, see Tasman Orient Line CV v New Zealand China Clays Ltd​ (CMI642).]