What makes a guarantee a primary as opposed to a secondary obligation

Ship fires are an issue of grave concern for ship owners, operators and those who insure them. We touched on this subject in one of our recent postings where we looked the recent spate of container ship fires.

Ship fires are also a concern for cargo interests and those who insure them and, in this context, it was interesting to read the Court of Appeal’s judgment in a recent case where cargo interests challenged the ship owners’ right to rely on the fire defence in the Hague Rules.

Those who follow our blog may recall that back in February of 2018 we commented on Popplewell J’s decision on the Lady ‘M’ (1) case in the Commercial Court. Click here to go to that blog posting. The Court of Appeal has now confirmed that Article IV Rule 2 (b) “the fire defence” exempts owners from liability if the fire was caused deliberately or barratrously, subject only to either (i) a causative breach of Article III rule 1, or (ii) the actual fault or privity of the owners. A number of ingenious arguments were put to the contrary which included a trawl through the pre Hague Rules case law and the travaux preparatoires but those arguments were resoundingly dismissed. Interestingly, the Court of Appeal did allow Glencore’s appeal on the issue of whether the conduct of the Chief Engineer necessarily constituted barratry on the assumed facts but that point seems to go nowhere as it was not determinative of whether the owners could rely on Article IV rule 2 (b) to exempt their liability for the fire in such circumstances.

This case provided a helpful overview of the leading authorities on the extent of the “fire defence” even where the fire was caused deliberately by the crew. It will be interesting to see how the case develops as Glencore still have the option of pursuing their claim based on a causative breach of Article III rule 1 and there is of course also the issue of the burden of proof when it comes to the owners’ reliance on the fire defence which we now know is on the ship owners following the recent decision of the Supreme Court in The Volcafe case (3).

(1) Glencore Energy Uhttp://to httpsK Ltd and Another v Freeport Holdings Ltd (The “Lady M”) – QBD (Comm Ct) (Popplewell J) [2017] EWHC 3348 (Comm)

(2) Glencore Energy UK Ltd & Anor v Freeport Holdings Ltd (The ‘Lady M’) [2019] EWCA Civ 388 (14 March 2019)

(3) Volcafe Ltd & Ors v Compania Sud Americana De Vapores SA [2018] UKSC 61

We are involved in most of the recent ship fire cases usually for owners, slot charterers and their respective insurers and so we have specialist knowledge when advising clients on the cargo claims that can arise as well as for claims for salvage and GA indemnity.

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