In May 2001, the appellant carrier, Tasman Orient Line CV (TOL), contracted with the respondent shippers, New Zealand China Clays Ltd and Imerys Minerals Japan KK, to transport cargo aboard the Tasman Pioneer from Auckland, New Zealand, to Busan, South Korea. That journey took the Tasman Pioneer through Japanese waters. The ship's master, Captain Hernandez, elected due to lost time to vary the usual route taken by ships to Busan, and to take the ship through a narrow passage that, bar on one occasion, he had only navigated with much smaller vessels. The ship grounded on Biro Shima island while attempting the passage at around 0300 hours. Significant damage was done to the ship, and cargo holds nos 1 and 2 flooded.

Rather than alert the Japanese Coastguard about the grounding, Captain Hernandez continued on the same route until eventually anchoring the ship two-and-a-half hours later. The owners' agents were then informed. However, the Tasman Pioneer's crew were instructed to lie about the circumstances of the damage to the ship. The second mate was told to fabricate a course on the ship's chart to indicate that the Tasman Pioneer had in fact taken the normal route, and to erase the real route.

After the Japanese Coastguard learned about the casualty, and discovered the damage to the vessel, a Lloyd's Open Form 'no pay no cure' salvage agreement was made between Nippon Salvage and the Swedish P&I Club.

The shippers claimed against the carrier in respect of the loss and damage to the cargo. That claim was allowed in the New Zealand High Court (see New Zealand China Clays Ltd v Tasman Orient Line CV​ (CMI643)). The carrier appealed from that decision, and the New Zealand Dairy Board (NZDB; the third respondent) cross-appealed against the dismissal of its claim for damages in the High Court.

Held: Appeal dismissed; cross-appeal allowed.

Baragwanath J: The conduct of the master following the grounding of the ship was not 'in the navigation or in the management of the ship' so as to bring it under the definition in art 4.2 of the Hague-Visby Rules (the Rules), which had been adopted in New Zealand.

The relevant articles of the Rules for this case were arts 3.1, 3.2, 4.2, and 4.4. In terms of art 4.2.a, neither shipowner nor ship were responsible for the master's conduct or decision to take the narrow passage rather than the regular route, and the other decisions made before the ship grounded.

In the High Court, Hugh Williams J concluded that the Rules imply a duty to act in good faith, in the use of phrasing like 'exercise due diligence' in art 3.1.a and 'want of due diligence' in art 4.1. Baragwanath J reproduced several paragraphs of Hugh Williams J's reasoning. This included the conclusion that not only was it necessary for the master's 'act, neglect or default' to be performed 'in the navigation or in the management of the ship', but for the act, neglect, or default to be bona fide. All of Captain Hernandez's actions up to the grounding of the ship were in good faith, in an attempt to reduce the length of the journey and comply with the ship's schedule. The actions that the master took after the grounding, however, went completely against the usual duties and responsibilities of masters in such events, as well as in general. Hugh Williams J concluded that all of the master's actions before and after the grounding, taken as a whole, were performed 'in the navigation and management of the ship' but were overwhelmed by the bad faith of the secondary acts, and breached an implied good faith term in art 4.2.a.

Baragwanath J then turned to a careful consideration and construction of the Rules, in order to decide whether the carrier was, in fact, protected by art 4.2.a from liability for the master's acts. The view in Great China Metal Industries Co Ltd v Malaysian International Shipping Corp, Berhad ('The Bunga Seroja') (1998) CLR 161 ('Great China Metal') that the Rules are to be 'read as a whole', and as a 'set of rules devised by international agreement as regulating contracts governed by several quite different legal systems', was condoned. However, Baragwanath J thought the notion of reading the Rules in light of the history of their creation was more complex than the two other rules.

His Honour discerned that the Rules should be read as 'a comprehensive international convention, unfettered by any antecedent domestic law', and free from any ideas imparted by the old English common law. The 1924 Hague Rules and its later iterations intentionally and meaningfully departed from older approaches, including by enacting a prohibition on excessive exemption clauses. The case of Marriott v Yeoward Bros [1909] 2 KB 987, where it was held that carriers could be exempted from responsibility for even criminal behaviour of their servants, was used as an example of the old common law approach to carrier liability.

Baragwanath J considered it necessary, also, not to read the text of statutes and Conventions strictly and divorced from their context. Moreover, the purpose and consequence of statutes should be treated as more significant than the text alone (that is, the purposive approach to statutory construction should be adopted). Finally, since the Rules have been given effect through domestic legislation, it was - in accordance with Kirby J's view in Great China Metal ​at [137] - appropriate to interpret the Rules through the eyes of other jurisdictions that implement the Rules, and to aim for uniformity in interpretation as far as possible. The Rules should be approached separately from individual countries' own legal traditions and should be treated with gravity. Baragwanath J's preference was to 'bury the pre-Hague Rules authorities' for the more co-operative and consistent approach that the Rules enable.

In the Rules, a reasonable amount of responsibility regarding the carriage of goods is cast onto the carrier through art 3.2, and this is then subject to art 4 to avoid carrier liability in certain cases. For the purpose of this case, the most vital of those exemptions is obviously art 4.2.a. Baragwanath J referred to art 4.4, which exempts carriers from liability for reasonable deviations or deviations to save life or property, which lead to loss or damage. It is apparent that a non-reasonable deviation would still be an infringement or breach of the contract of carriage or of the Rules. That non-reasonable deviation could be the act of a servant. Therefore art 4.2.a, while it exempts carriers from an 'act, neglect, or default' in the navigation or management of a ship, does not grant total immunity.

Here the conduct of the master up until the grounding, including choosing the alternate course, did not infringe art 4.2.a of the Rules, and the exemption it created to carrier liability under art 3.2 was important. The master's conduct was still, for the purposes of art 4.2.a, done 'in the navigation or in the management of the ship'. The absurd and unreasonable conduct that followed the grounding, however, went against the master's purpose, role, the contract of carriage, and the entire legislative regime operating over the interests involved. The master's acts were, in Baragwanath J's view, not even performed 'in the navigation or in the management of the ship', such was their nature and the self-interest of the master which motivated them.

His Honour disagreed with Hugh Williams J's conclusion that good faith was implied in the Rules. However, he accepted that the existence of good faith was relevant to whether a carrier had acted outside its statutory or contractual obligations.

Chambers J: Baragwanath J's conclusion that the appeal should be dismissed should be accepted. Chambers J stated, moreover, that the context of the Rules nowadays are completely different from that which influenced their creation in the 1920s, especially since most countries that now apply the Rules were not involved during those debates.

Chambers J also considered NZDB's cross-appeal in this matter. Hugh Williams J had denied NZDB's claim for damages for loss of cargo in the High Court.

The Tasman Pioneer was carrying cargo belonging to the NZDB at the time of the grounding, which was damaged when the refrigerated containers (reefers) aboard lost power. NZDB argued that the loss happened when a generator malfunctioned prior to the grounding, while TOL argued that the salvors were responsible for cutting off power to the reefers.

It was accepted that it was TOL's responsibility to establish a defence to liability for loss or damage to cargo, by establishing some exception under art 4 of the Rules to its standard obligations under art 3.2. Naturally, there would be no defence available to the carrier under art 4.2.a if NZDB's loss happened prior to the master's acts, which were the cause of the events causing loss and damage to cargo.

Ultimately, Chambers J concluded that the damage probably occurred after the grounding, for a number of reasons, including that the salvage master's log showed that power supply to the reefers during the salvage operation was inconsistent. The generators on the ship could not be used either. Further evidence showed that the generator was at some point taken off the deck of the ship by the salvors for some reason, when it was still functional. In addition, there was evidence indicating that power to the reefers was turned off for a number of days, and not apparently due to the salvors' demanding it. While the master had recorded prior to the grounding that the generator was occasionally failing, there was more evidence to suggest the power disruption happened after the grounding. The generator was then removed, probably because the generator's cables were then submerged in water due to the flooding below and up to the deck.

Since the cause of the loss was likely to be the master's conduct, and as Baragwanath J established, the master was not in fact acting in connection with the navigation or management of the ship, the art 4.2.a defence was nonetheless unavailable to TOL and NZDB's cross-appeal should succeed. TOL could not succeed whether the loss to NZDB occurred before or after the master's conduct, since the defence (which was the only defence it raised) was unavailable either way.

Fogarty J, dissenting: The appeal should be allowed and the cross-appeal dismissed. His Honour referred to the proceedings of the Hague Conference in August 1921, and noted how art 4.2.a of the Rules takes a 'common law' approach by laying out exceptions to the rule rather than a solid principle. In the course of its drafting, the idea that the shipowner should be responsible for the consequences of the master's choices was rejected. These observations, and more, constituted the context and purpose that Fogarty J had regard to when interpreting the Rules, in accordance with art 31 of the Vienna Convention on the Law of Treaties.

Turning to the phrase 'act, neglect or default of the master' from art 4.2.a of the Rules, Fogarty J stated that the motive of the master did not altogether matter in its interpretation. Therefore, even intentional acts could fall within its ambit, as long as they were still 'in the navigation or in the management of the ship'. Article 4.2.a should not be restricted to meaning negligence only. Further, the phrasing 'act, neglect or default' was used in English bills of lading before the 1920s, which influenced the drafting of the 1924 Hague Rules. Fogarty J also considered Marriott v Yeoward Bros concerning an exemption clause, the wording of which resembled art 4.2.a of the Rules. One key difference was that the exemption clause in that case used the wording 'any act neglect or default whatsoever'. The words 'any' and 'whatsoever' render the phrase unqualified, compared to art 4.2.a which adds 'in the navigation or in the management of the ship'.

Fogarty J also found against the idea that art 4.2.a required the master's decisions to be made in good faith, or that the cases that Hugh Williams J cited in the High Court supported that conclusion.

Ultimately, his Honour disagreed with interpreting art 4.2.a of the Rules as making the purpose of the act committed important. This interpretation could easily breed uncertainty. Captain Hernandez's journey was used as an example, as the journey prior to the grounding and the journey after the grounding were being approached as different events based on the purpose of them, when they actually followed the same trajectory in the end. Fogarty J thought that interpreting art 4.2.a according to motive or purpose would lead to other adjudicators over-analysing the properness of the acts of mariners, in circumstances of less severity than the evident, wilful misconduct of Captain Hernandez.

The quality and motive of an 'act' under art 4.2.a should therefore remain irrelevant. It was sufficient that, in this case, the master's act caused the loss or damage to the cargo.

In addition, Fogarty J thought there was no evident connection between arts 4.2.a and 4.4, and that there was nothing inherently wrong with relying on older common law authorities to interpret art 4.2 of the Rules, since the common law was a strong influence on its inception and many meanings from the common law were carried across into the Rules.

Fogarty J also disagreed with Chambers J's conclusion regarding the cross-appeal, arguing that the salvors chose to turn off the generator 'in management of the ship', not the cargo, and that the defence in art 4.2.a therefore applied to TOL as carrier in respect of NZDB's claim as well.

[For the subsequent successful appeal to the Supreme Court, see Tasman Orient Line CV v New Zealand China Clays Ltd (CMI642).]