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Captain Vere has picked up a new master-at-arms for the voyage, a man named John Claggart. No one knows where Claggart came from but, like Billy, he looks too noble and strong to be stuck aboard a ship. Claggart doesn't say anything about his origins, and so gossip flourishes.
One day when Billy is below deck, the ship lurches, causing him to spill his soup just as Claggart is walking by.
Claggart cracks a joke about it and Billy and all the men crack up.
The narrator notices, though, that as Claggart moves on he has a mean and distorted expression on his face. It's hard for the narrator to explain why Claggart doesn't like Billy Budd. He just doesn't.
Claggart takes Billy spilling his soup as a sign of disrespect, and he begins to employ an underling, Squeak, to report to him on Billy's doings. Squeak is clever and knows Claggart doesn't like Billy, so he exaggerates every thing Billy says to make it seem like he dislikes Claggart. The master-at-arms doesn't doubt it for a second.
A few days later, Claggart approaches Vere and begins to allude to some problems among the crew. Vere is very suspicious of Claggart, but he can't understand why he would make anything up. He asks him to name names. Claggart names Billy Budd.
When Claggart begins to list more evidence against Billy, Vere decides that they will continue the conversation in his cabin with Billy present.
When Billy comes inside and hears Claggart's accusation, he is shocked. Vere tries to soothe Billy, but his hand shoots out and he punches Claggart in the face.
Vere has Billy go in the back of the cabin and he calls the surgeon, who immediately can tell that Claggart is dead.