LLMC Cases

The Big Kahuna [2024] 2 Lloyd’s Law Rep. 109

High Court, England and Wales

• When considering whether a limitation claim commenced in England in respect of a fire casualty that happened in a foreign jurisdiction should be stayed in favour of the foreign jurisdiction, the burden is on the defendant (the stay applicant) to show the court that the foreign jurisdiction is available and the “more appropriate forum” to try the limitation claim and not merely that England is not the natural or appropriate forum – the Spiliada test – first stage.
• In deciding the question which is the more appropriate forum, in the context of a limitation claim, consideration will be limited to factors connected with the limitation claim itself, and the factors connected to the underlying claims will not be considered – the two are distinct. 
• Hence, availability of witnesses and evidence in respect of the casualty in the place of the casualty is not relevant to the question which is the more appropriate forum to try the limitation claim.
• The fact that the casualty happened in a place, and must be tried subject to the law of that place, which is the natural and more appropriate forum to try the underlying claims, does not make that place the more appropriate forum to try a limitation claim.
• There are only two issues in a limitation claim under LLMC 1976: (i) the quantum, which is arithmetically calculated and rarely disputed, and (ii) Art 4 defence, which is seldom raised due to its very high threshold to invoke. 
• It is commonplace for the limitation claim and the underlying claims to be tried in different jurisdictions.
• Choice of forum is for the limitation claimant, who has the liberty to choose his domiciliary jurisdiction to have his limitation claim tried. This is a settled practice that a court would be exceedingly slow to interfere with.
• The size of the applicable limitation amounts in different jurisdictions is irrelevant when considering which is the more appropriate forum. The prospect of a higher recovery for the defendant in a limitation claim – the substantive claimant – in a foreign jurisdiction is not a sufficient reason to stay the English limitation claim. 
• The fact that a foreign court may not recognise an English limitation decree or that the foreign court may decide question of limitation in parallel is not relevant to the question which is the more appropriate forum and is no ground to grant a stay.

Following a fire on board the motor cruiser, The Big Kahuna, in a marina in Corfu, Greece, which caused damage to other vessels, the owners and insurers of The Big Kahuna commenced a limitation action in the English Admiralty Court. The named defendant, the owner of another damaged vessel, had also commenced proceedings in Greece. The defendant applied for the English limitation proceedings to be stayed in favour of the Greek proceedings.

The Admiralty Registrar refused the application for a stay. Applying the Spiliada two-stage test, he analysed the connecting factors and found that the defendant had failed to demonstrate that Greece was clearly or distinctly the more appropriate forum for the limitation action (which is different from the substantive claims). The court noted that while the incident occurred in Greece, the claimants (the owners and insurers of The Big Kahuna) and the primary defendant were based in England, English law governed the insurance policies, and much of the expert evidence would be English. The court held that the prospect of a different limitation fund in Greece was not a sufficient reason to grant a stay, stating that “it cannot be said that substantial justice is not available in England.” 

See a detailed write-up of the case by Dr. Arun Kasi on AK on Shipping | Issue 4 (June 2024). 

The MSC Flaminia [2025] UKSC 14

Supreme Court, United Kingdom

• There is no barrier to a charterer limiting its liability to the shipowner under LLMC 1976 as long as the claim is of a type falling within Art 3 of the Convention.
• On this point, this overturns the decision of the Court of Appeal ([2023] EWCA Civ 100) in this case and the decision of the High Court in Aegean Sea [1998] 2 Lloyd’s Law Rep. 39 (EWHC), and affirms the decision of the Court of Appeal in The CMA Djakarta [2004] 1 Lloyd’s Law Rep. 460 (EWCA).
• Article 2.1(a), which covers the damage to property occurring on board the ship, does not include damage to the ship caused by such property – the cargo. The Court of Appeal’s decision overturned the High Court’s view that claims for an owner’s own property (eg. containers) or a charterer’s own property (eg. cargo) would be subject to limitation in a claim between an owner and charterer.
• Article 2.1(f), which covers the mitigation cost and loss consequent upon mitigation – ie. the claims in respect of measures taken to avert or minimise the limitable loss under Article 2.1(a)-(e) and further loss caused by such measures – does not include the cost of removing firefighting water to facilitate repair of the vessel after salvage operation had been completed.
• Article 2.1(e), which covers the removal, destruction or the rendering harmless of the cargo of the ship, includes the cost of discharging sound and damaged, and of decontaminating the cargo. 

Following a major explosion and fire on board The MSC Flaminia, the shipowners (Conti) claimed damages from the time charterers (MSC) in a London arbitration. The arbitrators found that MSC was not negligent, but breached the terms of the charterparty by failing to inform Conti of the dangerous nature of the cargo that caused the explosion, and accordingly held MSC liable for approximately US$200 million. MSC subsequently commenced proceedings in the English Admiralty Court to limit its liability to Conti under the LLMC 1976 in respect of (1) payments to national authorities for preventive measures taken to guard against pollution; (2) the costs of discharging sound and damaged cargo, and of decontaminating the cargo; (3) the costs of removing firefighting water from the holds; (4) the costs of removing waster from the vessel.

The High Court held that MSC was not entitled to limit its liability because all of Conti’s claims were properly characterised as a single claim for damage to the ship and its consequential losses, which are not subject to limitation, within the scope of Article 2(1)(a) ([2022] EWHC 2746 (Admlty)

On appeal, the Court of Appeal dismissed MSC’s appeal, upholding the result but on a broader ground. The Court of Appeal held that, on its true construction, the LLMC 1976 does not permit a charterer to limit its liability for claims brought by the shipowner for the owner’s own losses. The Convention’s mechanism of a single limitation fund for the “shipowner” group (owner, charterer, manager, etc.) is designed to protect that group from claims by third parties (such as cargo interests). On this point, the court did not follow The CMA Djakarta [2004] 1 Lloyd’s Law Rep. 460 (EWCA), instead preferred The Aegean Sea [1998] 2 Lloyd’s Law Rep. 39 (EWHC). To allow an owner to claim against that fund would undermine its purpose by reducing the amount available to third parties. 

On further appeal, the Supreme Court held that the LLMC 1976 permits a charterer to limit liability for claims brought by a shipowner for the owner’s own losses, overturning the Court of Appeal’s decision on this point. The court rejected the Court of Appeal’s interpretation that the Convention’s limitation mechanism is solely for the protection of the shipowner group against third-party claims. The court then considered each limb of the claim to determine if they fall within the scope of limitable claims under Article 2. The court held that damage to the ship was not limitation under Article 2.1(a). The cost of removing the firefighting water from the holds to facilitate repair of the ship was not a mitigation measure falling within Article 2.1(f). As to the claim for cost of discharging sound and damaged, and of decontaminating the cargo, the court found that it fell within Article 2.1(e). Accordingly, the court partly allowed the appeal by granting limitation on the claim in respect of cargo discharge and decontamination, and dismissed the appeal in respect of the other limitations sought.

The MSC Flaminia [2022] 2 Lloyd’s Law Rep. 341

High Court, England and Wales

• An arbitration award finding that a party was not negligent in relation to a casualty can create an issue estoppel, preventing a party to the arbitration, in subsequent limitation proceedings, from arguing that the same conduct was reckless for the purpose of breaking limitation under Article 4 of the LLMC 1976.
• To challenge the right to limit under Article 4, the conduct alleged must be a “personal act or omission” of the party seeking to limit, committed with intent or recklessly with knowledge of probable loss. A finding of no negligence in arbitration in relation to the same underlying facts between the concerned parties can make a subsequent allegation of recklessness unarguable, and make it appropriate for the court to grant the limitation decree summarily.

An explosion and fire occurred on board the containership, The MSC Flaminia, caused by the auto-polymerisation of a chemical cargo (DVB) that had been shipped by Stolt Tank Containers. Three crew members lost their lives and numerous other cargo was damaged. In a London arbitration between the vessel’s time charterer (MSC) and the shipper (Stolt), the tribunal found that Stolt was liable for shipping dangerous cargo and that MSC had not been negligent in relation to the casualty. MSC, facing claims from numerous substantive claimants including the personal representatives of the three crew members and the other cargo interests, commenced a limitation action in England under the LLMC 1976. Stolt advanced a case for breaking the limitation under Article 4. 

The court held that the prior arbitration award, which found that MSC was not negligent, created an issue estoppel between MSC and Stolt. This meant Stolt was legally prevented from re-arguing the issue of MSC’s conduct in another forum. Because a finding of no negligence is incompatible with a finding of recklessness, Stolt had no realistic prospect of proving that MSC was guilty of conduct sufficient to break the limit under the stringent test in Article 4 of the LLMC 1976. Therefore, Stolt’s challenge to limitation was bound to fail, and the court granted the limitation decree summarily. 

The Stema Bargo II [2022] 1 Lloyd’s Law Rep. 170

High Court, England and Wales

• To be an “operator” or “manager” of a ship under Article 1(2) of the LLMC 1976, a person must have been entrusted with the management and operation of the vessel by its owners, such that they have overall responsibility for the ship’s navigation and management.
• Merely providing some assistance in a limited respect, such as operating the barge’s machinery at its destination and monitoring the weather, is insufficient to make a party the “operator” of the barge for limitation purposes.
• The “operator” or “manager” of a ship is the person who has the management of the ship and is not someone who is simply concerned with some part of the operation of the ship.
• The test for determining the “operator” is who has the responsibility for the overall, or “top-to-bottom”, management of the vessel, including tasks such as vessel’s safe operation, arranging crewing, maintenance, insurance, and regulatory compliance.

While anchored off the English coast, the dumb barge Stema Barge II allegedly dragged her anchor during a storm and damaged an undersea electricity cable. The barge was owned by Splitt, demise chartered to Stema A/S (a Danish company), and was carrying rock armour to be supplied by Stema Shipping (UK) Ltd (Stema UK) for a railway project. Stema UK’s role was limited to operating the barge’s machinery for discharging the rock armour at the site and monitoring the weather. Stema UK commenced a limitation action in England, claiming it was the “operator” (or “manager”) of the barge under Article 1(2) of the LLMC 1976 and therefore entitled to limit its liability. 

The High Court held that Stema UK’s role in operating the discharge machinery and monitoring the weather off Dover was sufficient to make it the “operator” of the barge at the relevant time, and it was therefore entitled to limit its liability ([2021] 2 Lloyd’s Law Rep. 307). On appeal, the Court of Appeal overturned this decision. The Court held that to be an “operator” or “manager” under the Convention, a party must be entrusted with the overall management and control of the vessel. The evidence showed that Stema A/S, the demise charterer, retained responsibility for matters such as crewing, maintenance, insurance, and regulatory compliance for the barge. Stema UK’s role was merely to provide some operational assistance at the discharge site. As Stema UK was not responsible for the “top-to-bottom” management of the barge, it could not be considered the “operator” or “manager” and was therefore not entitled to limit its liability under the LLMC 1976.

Holyhead v Farrer [2021] 2 Lloyd’s Law Rep. 221

High Court, England and Wales

• A “marina” is a “dock” within the meaning of s.191 of the Merchant Shipping Act 1995, and its owner is therefore entitled to limit its liability under that section.
• The right of a dock owner to limit liability under s.191 applies to claims for breach of contract as well as claims in tort.
• The test for defeating the right to limit under s.191 is the same as that under the main LLMC 1976 regime, namely the “personal act or omission” test set out in Article 4 of the Convention.
• A limitation decree will not be summarily granted where the limitation defendant has a minimal but real prospect of success in proving that the loss resulted from a personal act or omission of the party seeking limitation, committed with intent or “recklessly and with knowledge that such loss would probably result“.

Following the destruction of the Holyhead Marina during Storm Emma, which resulted in widespread damage to moored craft, the owner of the marina commenced proceedings to limit its liability under the special regime provided by s.191 of the Merchant Shipping Act 1995. The total claims were estimated at £5 million, while the applicable limitation amount under s.191 was approximately £550,000. The owners of the damaged craft opposed the limitation action, arguing that: (1) a marina was not a “dock” for the purposes of s.191; (2) the right to limit did not apply to their claims for breach of their berthing contracts; and (3) the marina had lost its right to limit due to its “personal act or omission” under the test in Article 4 of the LLMC 1976, which they argued should apply to the s.191 regime.

The court held that the ordinary and modern meaning of the word “dock” was wide enough to include a marina. It also found that the right to limit under s.191 was not confined to claims in tort and applied equally to claims for breach of contract. The court observed that the test for defeating the right to limit under s.191 was indeed the same stringent test found in Article 4 of the LLMC 1976. The court found that craft owner had a real prospect of success, though minimal, in establishing that the marina’s senior management had acted with the necessary intent or recklessness with knowledge of probable loss required to break the limit under Article 4. Accordingly, the court refused the marina’s summary judgment application for a limitation decree and allowed the case to proceed to trial. 

The Ocean Victory [2017] 1 Lloyd’s Law Rep. 292

Supreme Court, United Kingdom

• In a claim between co-insured parties, the claim may fail for circuity of action if the defendant has a right to be indemnified by the claimant for the very liability being claimed.
• By analogy to the LLMC 1976, which creates a fund for the benefit of those involved in a maritime adventure (such as owners and charterers) against third-party claims, a contractual insurance scheme can be seen as a fund to which the co-insured parties should look for compensation, rather than suing each other.
• On passing, it was said obiter, a claim by a shipowner for loss of or damage to the ship herself is not a claim subject to limitation under Article 2(1)(a) of the LLMC 1976, as the ship cannot be both the instrument of the incident and the damaged property for limitation purposes, as held in The CMA Djakarta [2004] 1 Lloyd’s Law Rep. 460 (EWCA). 
• The fact that a demise charterer is separately liable to the head owner does not, by itself, mean that the head owner has suffered a “loss” recoverable from a time charterer for breach of a safe port warranty, especially where both the owner and demise charterer are co-insured under a policy intended to cover loss of the vessel.

The Ocean Victory became a total loss after grounding while attempting to leave the port of Kashima, Japan, during severe weather conditions. The vessel was owned, demise chartered, and then time-chartered in a chain. The vessel’s insurers, Gard, paid out for the total loss and then, by way of subrogation, brought claims up the charterparty chain against the sub-charterers, alleging a breach of the safe port warranty. The central issue was whether the safe port warranty was breached and, if so, whether the demise charterer (and by extension its insurers) had suffered a recoverable loss, given that both the head owner and the demise charterer were co-insured under the same hull and machinery policy.

The Supreme Court, by a majority, held that the claim failed. Lord Sumption found that the port was not unsafe as the loss was caused by an abnormal occurrence. However, the majority also decided the case on a separate ground of the insurance arrangements. They held that even if the port had been unsafe, the claim would fail for circuity of action because the head owner and the demise charterer were co-insured for the loss of the vessel. As OLH (the demise charterer) had suffered no liability to the head owner, it had suffered no “loss” that could be passed up the charterparty chain. In his reasoning, Lord Mance drew an analogy with the LLMC 1976. He affirmed the principle from The CMA Djakarta [2004] 1 Lloyd’s Law Rep. 460 (EWCA) that the Convention does not allow one party to limit its liability to another for damage to the ship herself. He reasoned that just as the LLMC 1976 provides a fund to protect the group of co-adventurers from third-party claims, the insurance scheme in this case was likewise intended to be the fund to which the co-insured parties would look, precluding claims between them for the insured loss of the vessel.

The Cape Bari [2016] 2 Lloyd’s Law Rep. 469

Privy Council, United Kingdom

• This is a decision of the Privy Council on appeal from the Court of Appeal of the Bahamas.
• A shipowner is permitted to contract out of or waive their statutory right to limit liability under the LLMC 1976. 
• The LLMC 1976 confers rights on shipowners, not duties; they have a right to limit which they can choose to exercise or waive. 
• To exclude the right to limitation by contract, the language used must be clear and unambiguous, as the right to limit is a valuable one and there is a strong presumption that parties do not intend to abandon their legal rights.
• A contractual clause requiring a shipowner to indemnify a party for “all and any loss, damages, costs and expenses” is not, by itself, clear enough to be construed as an agreement to waive the right to limit liability. Such wording addresses the extent of the loss for which the shipowner is liable, but not the separate question of whether that liability can be limited by statute.

During a berthing operation at a terminal in the Bahamas owned by Bahamas Oil Refining Company (BORCO), The Cape Bari collided with and damaged the berth. The owners of the vessel sought to limit their liability under the LLMC 1976 (as enacted in the Bahamas), which would cap their liability at approximately US$16.9 million, against BORCO’s claim of US$22 million. BORCO argued that the owners had contracted out of their right to limit by signing a “Conditions of Use” document prior to berthing, which contained a clause requiring the vessel and owner to indemnify BORCO against “all and any loss, damages, costs and expenses” arising from the use of the terminal.

The judge at first instance held that the owners had contracted out of their right to limit. The Bahamas Court of Appeal reversed this decision on the novel ground that it was not legally permissible to contract out of the LLMC 1976. On final appeal, the Privy Council addressed two key issues. Firstly, it disagreed with the Court of Appeal and held that it is permissible for a shipowner to contract out of or waive their statutory right to limit liability, as the Convention confers a right, not a mandatory duty. Secondly, on the construction of the contract, the Privy Council disagreed with the first instance judge and held that the wording of the “Conditions of Use” was not clear enough to amount to an agreement to exclude the right to limit. It ruled that an indemnity for “all” losses does not necessarily mean an indemnity for an unlimited amount; clear and express language is required to waive a valuable statutory right like limitation. 

Jetivia v Bilta [2015] 2 Lloyd’s Law Rep. 61

Supreme Court, United Kingdom

• Obiter statements made on passing:
• Lord Sumption said, on passing, “Another is the class of statutory provisions dependent on a company’s personal misconduct, such as a shipowner’s right to limit his liability for a loss which is not attributable to his ‘personal act or omission’: see article 4 of the [LLMC 1976]”.

Note: This is a decision on corporate law, specifically concerning the “illegality defence” (ex turpi causa non oritur actio) and the attribution of a director’s fraudulent conduct to a company. It does not decide any principles regarding the LLMC 1976, but only the above comparative statement mentioning LLMC 1976 was made on passing.

The Atlantik Confidence [2014] 1 Lloyd’s Law Rep. 586

Court of Appeal, England and Wales 

• A limitation fund under the LLMC 1976 can be constituted by the provision of a suitable P&I Club guarantee and is not restricted to the method of a cash payment into court.
• Article 11.2 of the Convention provides a choice to the party constituting the fund to either deposit the sum or produce a guarantee; domestic procedural rules cannot eliminate the option to use a guarantee. 
• The requirement in Article 11.2 that a guarantee be “acceptable under the legislation” of the State Party does not require specific enabling legislation for this purpose; it means the guarantee must be legally effective and not contravene any relevant law (eg. it must be enforceable and issued by an authorised body).
• The court must also be satisfied that the proffered guarantee is “adequate” in the specific circumstances, considering factors such as the guarantor’s financial standing and the terms of the instrument. 

Following the sinking of The Atlantik Confidence, her owners sought to constitute a limitation fund in England in accordance with the LLMC 1976, as amended by the 1996 Protocol. They applied for a declaration that they could constitute the fund by providing a P&I Club letter of undertaking (LOU) instead of paying the full cash amount into court. The High Court refused the declaration, holding that English law and procedure only permitted a fund to be constituted by a payment into court, as there was no specific legislation making guarantees “acceptable” for this purpose ([2013] 2 Lloyd’s Law Rep. 535). 

On appeal, the Court of Appeal unanimously allowed the appeal and overturned the High Court’s decision. The Court of Appeal held that the correct starting point was the ordinary meaning of Article 11.2 of the Convention, which is incorporated directly into UK law and expressly provides a choice between depositing cash or producing a guarantee. It decided that the phrase “acceptable under the legislation” does not require a specific statute to be passed authorising guarantees for limitation funds. Instead, it simply means the guarantee must be legally effective under the general law (eg. enforceable under the Statute of Frauds) and not contravene any other statutory provisions. The court retains the separate power to determine if the specific guarantee offered is “adequate” security. 

Islamic Republic of Iran Shipping Lines v Steamship Mutual Underwriting Association (Bermuda) Ltd [2011] 1 Lloyd’s Law Rep. 145

High Court, England and Wales 

• Obiter statements made on passing:
• The Bunkers Convention 2001, which imposes strict liability for bunker pollution damage, operates alongside and does not override a shipowner’s separate right to limit its overall liability under the applicable limitation regime like LLMC 1976.
• Article 6 of the Bunkers Convention 2001 preserves the shipowner’s right to limit liability under other applicable regimes such as the LLMC 1976.

The claimant, Iran Shipping Lines (IRISL), had its vessel, The Zoorik, insured against liability by Steamship Mutual – P&I Club. Steamship Mutual had issued a “Blue Card” which evidenced that insurance cover was in place to satisfy the requirements of the Bunkers Convention 2001. The UK government subsequently imposed financial sanctions on IRISL, prohibiting financial transactions with it. However, HM Treasury issued a specific licence permitting Steamship Mutual to “continue to provide insurance cover in accordance with the Blue Cards“. Believing this licence did not permit it to continue its full relationship with IRISL, the Club terminated the insurance cover. The very next day, The Zoorik suffered a casualty causing bunker pollution. IRISL sought an indemnity from the Club, which was denied on the basis that the insurance contract had been frustrated by the sanctions.

The court found in favour of IRISL. It held that the Treasury licence, properly construed, permitted Steamship Mutual to continue providing indemnity cover to IRISL for all liabilities falling under the Bunkers Convention, and was not just limited to paying direct claims from third parties. Because a significant part of the insurance contract remained legal and performable, the contract as a whole was not frustrated by supervening illegality. Therefore, the Steamship Mutual remained liable to indemnify IRISL for the liabilities arising from the casualty.

The MSC Napoli [2009] 1 Lloyd’s Law Rep. 246

High Court, England and Wales

• A slot charterer is a “charterer” within the meaning of Article 1(2) of the LLMC 1976 and is therefore entitled to limit its liability as a “shipowner”. 
• The word “charterer” in the Convention should be given its ordinary meaning, which is wide enough to include any type of charterer (demise, time, voyage, or slot), without imposing a gloss that they must act “qua owner”. 
• Pursuant to Article 11(3), a limitation fund constituted by the shipowner is deemed to be constituted by all other persons entitled to limit under Article 1(2), including slot charterers.

Following the beaching of the container vessel, The MSC Napoli, her owners constituted a limitation fund in England under the LLMC 1976. Two “slot charterers” on the vessel, Hapag-Lloyd (HPL) and Stinnes, who had chartered a number of container slots, sought a declaration from the court on two preliminary issues: (1) whether they, as slot charterers, were entitled to limit their liability under the Convention, and (2) if so, whether the fund already constituted by the shipowner was deemed to be constituted on their behalf.

The High Court answered both questions in the affirmative. The court held that the word “charterer” in Article 1(2) of the Convention should be given its ordinary meaning, which is wide enough to include a slot charterer. Following the Court of Appeal’s decision in The CMA Djakarta [2004] 1 Lloyd’s Law Rep. 460 (EWCA), there was no requirement for a charterer to be acting “qua owner”. The court noted that excluding slot charterers, who are common in modern container trade, would undermine the Convention’s purpose of encouraging international trade. Having found that slot charterers were entitled to limit, the court applied Article 11(3), that states that a fund constituted by one person entitled to limit (the owner) is “deemed constituted by all persons” entitled to limit, which includes charterers. Therefore, the fund established by the owners of the MSC Napoli was also deemed to be constituted on behalf of HPL and Stinnes.

The Western Regent [2005] 2 Lloyd’s Law Rep. 359

Court of Appeal, England and Wales 

• A shipowner may commence a limitation action under the LLMC 1976 pre-emptively, before any underlying liability proceedings have been brought against them in the jurisdiction. 
• The right to invoke limitation under Article 10 is a free-standing entitlement and is not conditional on the ability to constitute a limitation fund under Article 11. 
• The court has subject-matter jurisdiction over a limitation claim brought against a defendant over whom it has personal jurisdiction. 
• The grant of a limitation decree in the local jurisdiction is not, by itself, a sufficient ground to issue an anti-suit injunction to restrain a substantive claimant from pursuing their claim for full damages in a non-Convention state (such as the USA). 

The claimants’ vessel, The Western Regent, damaged an oil installation in the North Sea belonging to the defendant, Total, and English company. The owners – claimants – admitted liability for the incident. Before being sued by Total, the owners commenced a limitation action in England, seeking to limit their liability under the LLMC 1976. Total subsequently sued the owners and another who had its principal place of business in Texas, in Texas, where a much higher limit based on the value of the vessel after the incident would apply. Total challenged the English court’s jurisdiction, arguing that a limitation action could only be started in response to an existing liability claim in the same jurisdiction. The High Court rejected this argument, granted the owners a limitation decree, but refused their application for an anti-suit injunction to stop the Texas proceedings. Both parties appealed.

The Court of Appeal upheld the High Court’s decision ([2005] 2 Lloyd’s Law Rep. 54) on all points. It confirmed that there is nothing in the 1976 Convention or English law that requires a shipowner to wait to be sued before they can commence a limitation action. The right to invoke limitation under Article 10 of the Convention is separate from the procedure for constituting a fund under Article 11. As the English court had personal jurisdiction over Total – defendant to the Limitation claim – being an English-domiciled company, it was competent to hear the limitation claim and grant the limitation decree. The Court of Appeal also affirmed the refusal to grant an anti-suit injunction, holding that it was not unconscionable for the defendant to pursue its claim in Texas and emphasising that the effect of the English limitation decree on the Texas proceedings was a matter for the Texas court to decide.

The CMA Djakarta [2004] 1 Lloyd’s Law Rep. 460

Court of Appeal, England and Wales 

• A time charterer is a “charterer” within the meaning of Article 1(2) of the LLMC 1976 and is entitled to limit its liability without needing to show it was acting “qua owner” (as if it were the shipowner). The “qua owner” test established in earlier High Court cases is incorrect. 
• The right of a person within the “shipowner” group (including a charterer) to limit liability depends on the type of claim as set out in Article 2, not on the capacity in which the person was acting when the liability arose. 
• A shipowner’s claim against a charterer for damage to the ship herself is not a claim for “damage to property” under Article 2(1)(a) and is therefore not subject to limitation.
• A shipowner’s claim against a charterer for an indemnity against liability to third-party cargo owners is a claim for “damage to property” (the cargo) under Article 2(1)(a) and is subject to limitation.
• Note: This decision was preferred by The MSC Flaminia [2025] UKSC 14, and aligns with The Aegean Sea [1998] 2 Lloyd’s Law Rep. 39 (EWHC).

Following a fire and explosion on The CMA Djakarta caused by dangerous cargo, the shipowners brought a claim in arbitration against the time charterers for damages. The claim included the cost of repairing the vessel and an indemnity for the owners’ liability to cargo interests. The charterers argued they were entitled to limit their liability under the LLMC 1976. The arbitrators and the High Court, following the precedent in The Aegean Sea [1998] 2 Lloyd’s Law Rep. 39, rejected this argument, holding that a charterer could only limit liability when acting “qua owner” (as if they were the owner), which was not the case here ([2003] 2 Lloyd’s Law Rep. 50).

On appeal, the Court of Appeal partially allowed the charterers’ appeal and overturned the “qua owner” test and The Aegean Sea principle that a charterer may not limit its liability against an owner. The court held that a time charterer is a “charterer” under Article 1 of the Convention and is entitled to limit liability, regardless of the capacity in which they were acting. The key question, the court had to decide, was not the capacity of the person but whether the type of claim fell within the categories listed in Article 2. The court emphasised that the interpretation of the LLMC 1976 must be based on the ordinary meaning of the words in light of its object and purpose, without adding glosses or requirements not apparent from the text, and that the LLMC 1976 should be construed as an international convention, free from domestic legal preconceptions, and in accordance with broad and generally acceptable principles of construction.

The court held:

1. The owners’ claim for damage to the ship herself was not a claim for “damage to property” under Article 2(1)(a) and was therefore not subject to limitation. 
2. The owners’ claim for an indemnity against their liability to cargo interests was a claim in respect of “loss of or damage to property [the cargo]” under Article 2(1)(a) and therefore was subject to limitation.

ICL Vikraman [2004] 1 Lloyd’s Law Rep. 21

High Court, England and Wales 

• The phrase “legal proceedings” in Article 11 of the LLMC 1976, which must be instituted in a State Party before a limitation fund can be constituted there, includes arbitration proceedings and is not limited to court proceedings.
• The power of a court in a State Party to order the release of a ship or security under Article 13.2 of the LLMC 1976 applies only where the arrest was made or the security was given within the jurisdiction of another State Party to the Convention. 
• An English court has no power under Article 13.2 to order the release of security that was provided to release a ship from arrest in a non-State Party (in this case, Singapore).
• For the purposes of Article 13.3, a limitation fund is “actually available” from the moment it is constituted, even if a formal limitation decree has not yet been granted. 

Following the loss of The ICL Vikraman, the cargo owner (Chin Tai) arrested a sister ship in Singapore, which was not a party to the LLMC 1976 at that time. The vessel was released against a letter of undertaking (LOU) from the owner’s P&I Club, which was governed by English law and secured any award from a London arbitration. Chin Tai subsequently won a London arbitration award against the owners (ICL) for an amount that exceeded the vessel’s liability limit under the LLMC 1976. To avoid paying the full award, ICL commenced a limitation action in England, established a limitation fund, and sought an injunction to stop Chin Tai from enforcing the LOU, requesting its release under Article 13.2 of the Convention. 

The court held that although “legal proceedings” in Article 11 of the Convention includes arbitration (meaning ICL could validly constitute the fund in England), the power to release security under Article 13.2 is strictly confined to security given within the jurisdiction of a State Party to the Convention. Since the LOU was provided as security to release a vessel from arrest in Singapore (a non-State Party), the security was effectively “located” in Singapore for the purposes of the Convention. The English court therefore had no power under Article 13.2 to order the release of the Singaporean security or to grant an injunction preventing its enforcement. Chin Tai was thus entitled to enforce the LOU for the full amount of its arbitration award, and the English limitation fund could not be used to restrict this right. 

The Saint Jacques II [2003] 1 Lloyd’s Law Rep. 203

High Court, England and Wales

• The burden of proof is on the party seeking to break limitation under Article 4 of the LLMC 1976, and this is a “very heavy burden”. 
• To defeat the right to limit, it is necessary to prove a personal act or omission committed either with intent to cause the loss, or “recklessly and with knowledge that such loss would probably result“. This requires subjective knowledge of the probable consequences.
• A shipowner “policy” of allowing his vessels to navigate as “rogue vessels” in repeated breach of the Collision Regulations for commercial reasons by the personal direction of the owners might meet the Article 4 threshold.

A collision occurred in the English Channel between the fishing vessel The Saint Jacques II and the tanker The Gudermes. The collision was caused by the fault of The Saint Jacques II, which was proceeding as a “rogue vessel” against the flow of traffic in a Traffic Separation Scheme. This was a repeated practice of The Saint Jacques II, in flagrant breach of the Collision Regulations, by the personal direction of her owners for commercial reasons, which her owners conceded to be reckless. The owners of The Saint Jacques II admitted liability but commenced a limitation action in England under the LLMC 1976 and applied for summary judgment to obtain a limitation decree. The owners of The Gudermes opposed the application, arguing they had a realistic prospect of breaking the limit under Article 4. They alleged that the owner of The Saint Jacques II had a personal policy of allowing their vessels to navigate as “rogue vessels”, and that this conduct was reckless with knowledge that a collision would probably result.

The court emphasised that a substantive claimant would need to surmount a formidable hurdle to succeed in resisting summary judgment application of the owner for a limitation decree and that only truly exceptional cases will give rise to any real prospect of defeating an owner’s right to limit. The court held that this was such an exceptional case and should go for the trial. Accordingly, the court refused the summary judgment application of the owners for a limitation decree.

The Maragetha Maria [2002] 2 Lloyd’s Law Rep. 293

Court of Appeal, England and Wales

• Section 185(4) of the Merchant Shipping Act 1995 excludes the application of LLMC 1976 in the case of claims by a person on board the ship in question or employed in connection with that ship or with the salvage operations in question if he is so on board or employed under a contract of service governed by any UK law.
• The s.185(4) exception does not apply where the deceased was a share fisherman engaged as a co-adventurer and not under a “contract of service”.
• In determining whether a share fisherman is engaged under a “contract of service”, the financial arrangements are a crucial factor. An arrangement to share profits and also share in losses (eg. by having the costs of an unsuccessful trip carried forward and set against future profits) points strongly towards a joint venture rather than a contract of service.
• Being registered as self-employed for tax and national insurance purposes, while not decisive, is a significant indicator that the relationship is not a contract of service.
• A breach of the Fishing Vessel (Safety Provisions) Rules 1975 does not, of itself, give rise to a private law cause of action for damages. 

Following the sinking of the fishing vessel Maragetha Maria and the loss of all four of her crew, the crew’s dependants brought claims for damages against the vessel’s owners. The owners sought to limit their liability under the LLMC 1976, as given effect by s.185(1) of the Merchant Shipping Act 1995. The crew’s dependents argued that limitation should be excluded under s.185(4) of the Act, which disapplies the limitation where the person, in relation to whose death the action is brought, was on board under a “contract of service”. The central issue was whether the deceased crew, who worked as “share fishermen”, were engaged under a contract of service.

The High Court held that the relationship was a contract of service and that the owners were therefore not entitled to limit their liability ([2001] 2 Lloyd’s Law Rep. 443). On appeal, the Court of Appeal overturned this decision. The Court of Appeal conducted a detailed analysis of the working relationship and held that the High Court had failed to give appropriate weight to factors pointing away from a contract of service. These crucial factors included that the crew were remunerated solely by a share of the profits; they shared in losses by having the costs of an abortive trip deducted from the profits of the next trip; they were treated as self-employed for tax and National Insurance purposes; and the owners were not involved in how the crew’s 40% share of the profits was divided amongst them. The Court of Appeal concluded that the only proper view of the relationship was one of independent co-adventurers in a joint venture, not one of employment. Therefore, the crew were not on board under a “contract of service”, the exclusion in s.185(4) did not apply, and the shipowners were entitled to limit their liability.

The Starsin [2001] 1 Lloyd’s Law Rep. 437

Court of Appeal, England and Wales

• In construing a bill of lading to identify the carrier, the entire document must be read as a whole. An express “demise clause” stating the contract is with the shipowner can be determinative and override conflicting descriptions in the signature box that name the charterer as the “carrier”.
• The use of a demise clause is a historical practice developed to avoid imposing liability on charterers at a time when they could not limit their liability. This precaution is now largely unnecessary since the LLMC 1976 extended the right to limit to charterers.

Parcels of timber on The Starsin were damaged by condensation due to bad stowage. The cargo interests commenced the claim against the shipowner. The bills of lading were on the time charterer’s form and signed by agents describing the charterer as the “carrier”. However, the printed conditions included a “demise clause” stating the contract was with the shipowner. The central issue was whether the contract bound the shipowners or the charterers, a distinction historically important because charterers were unable to limit their liability before the LLMC 1976 was enacted.

The High Court held that the bills of lading were charterers’ bills ([2000] 1 Lloyd’s Law Rep. 85). On appeal, the Court of Appeal overturned this by a majority, holding that the bills were in fact shipowners’ bills. The majority reasoned that the express terms of the demise clause were intended to be determinative and make the shipowner the contracting party, notwithstanding the conflicting description of the charterer in the signature box. 

The Leerort [2001] 2 Lloyd’s Law Rep. 291

Court of Appeal, England and Wales 

• The right to limit liability under the LLMC 1976 can only be defeated by proving a “personal act or omission” of the shipowner (or charterer, manager, or operator).
• The test under Article 4 requires proof that the shipowner acted with intent to cause the loss, or “recklessly and with knowledge that such loss would probably result“.
• The phrase “such loss” in Article 4 means foresight of the very loss that actually occurred, not just a general type of loss.
• The burden is on the substantive claimant wishing to break the limitation, and this is extremely high burden.
• The convention provides shipowners with a nearly indisputable right to limit liability, except in extreme cases of intentional or reckless conduct.
• A court may grant a limitation decree summarily and refuse further discovery where the opponent’s case for breaking the limit has no realistic prospect of success in meeting the formidable Article 4 threshold.

The Zim Piraeus collided with the berthed vessel Leerort in Colombo harbour, causing The Leerort to sink and its cargo to be lost or damaged. The owners of The Zim Piraeus admitted liability for the collision due to negligent navigation but commenced proceedings in England to limit their liability under the LLMC 1976. Cargo interests on The Leerort opposed an immediate limitation decree, arguing that they were pursuing a line of inquiry into a possible pre-existing engine defect on The Zim Piraeus which, they hoped, might uncover evidence of conduct by the shipowners sufficient to break the limit under Article 4 of the Convention. They sought further discovery before any decree was granted. 

The Court of Appeal, upholding the High Court’s decision, granted the limitation decree. The court emphasised the extremely high burden of proof on the cargo interests under Article 4. To defeat the right to limit, they would have to prove a personal act or omission by the shipowners committed with intent to cause the collision, or recklessly with knowledge that such a collision would probably result. The court considered the cargo interests’ theory that the owners would have recklessly allowed their vessel to operate with a known defect that could cause a collision –endangering their own vessel in the process – to be “totally absurd”. It concluded that the cargo interests’ investigation was a “chimera” with no realistic prospect of unearthing evidence to meet the stringent Article 4 test. Therefore, it was appropriate to grant the decree summarily without allowing further speculative and costly discovery.

The Rio Assu (No. 2) [1999] 1 Lloyd’s Law Rep. 115

Court of Appeal, England and Wales

• A P&I club’s letter of undertaking will be construed in its commercial context. 
• It is meant to provide security equivalent to sum stated there, which in this case was the amount of liability limited by LLMC 1976, which would not be defeated by the original defendant ceasing to exist. 
• The undertaking to pay sums “adjudged … to be recoverable from” the original defendant will be interpreted to cover a judgment against the original defendant’s legal successor, where the judgment establishes the underlying liability of the original defendant. 
• The reference to the original defendant in the undertaking can be construed to include its successor by operation of law, either by a process of construction or by implying a term to give the undertaking business efficacy. 

Following a fire on The Rio Assu, cargo owners claimed damages from the demise charterers – Lloyd Brasileiro (LB). To obtain security, the cargo owners arrested three other ships belonging to LB. In exchange for the release of these vessels, LB’s P&I Club issued a letter of undertaking promising to pay such sums “as may be adjudged by the English High Court of Justice … to be recoverable from Lloyd Brasileiro” not exceeding the liability limit amount under the LLMC 1976. Subsequently, but before the claim was resolved, LB ceased to exist as a legal entity, and all its rights and liabilities were transferred by operation of law to the state of Brazil. The legal question was whether the Club’s undertaking to pay a sum adjudged against “Lloyd Brasileiro” would cover a judgment that could now only be obtained against its legal successor, the state of Brazil. 

Both the High Court and the Court of Appeal held that the undertaking did extend to cover a judgment against the state of Brazil. The courts reasoned that the letter of undertaking had to be construed in its commercial context, where it was provided as a substitute for the security of the arrested vessels. Had the vessels remained under arrest, the security would have survived the extinction of LB. Therefore, the purpose of the letter was to provide equivalent security that would not be defeated by such an event. The phrase “recoverable from Lloyd Brasileiro” was held to refer to the underlying liability of LB for the casualty, not just a judgment formally bearing its name. A judgment against the state of Brazil as successor would be an adjudication of that liability. The courts concluded that the reference to “Lloyd Brasileiro” included its successor by operation of law, either through a process of construction or by implying such a term to ensure the business efficacy of the undertaking.

The Herceg Novi [1998] 1 Lloyd’s Law Rep. 454

Court of Appeal, England and Wales

• The court may stay the proceedings where the local court has little connection to the dispute, though technically jurisdiction of the court is invoked as of right. 
• That is so although the substantive claimant would lose a juridical advantage of imposing higher limits on the defendant in the present jurisdiction, provided substantial justice would be done in an alternative forum that is clearly or distinctly the appropriate forum. 
• Note: cf Caltex Singapore Pte Ltd and others v BP Shipping Ltd [1996] 1 Lloyd’s Law Rep. 286 (EWHC); and The Hamburg Star [1994] 1 Lloyd’s Law Rep. 399 (EWHC).

The Herceg Novi and The Ming Galaxy were involved in a collision in the Singapore Strait, in which former sank there. The Ming Galaxy brought an action in rem against The Herceg Novi in Singapore and successfully served the claim on wreck of the latter in Singapore. The Herceg Novi then brought an action in rem in England and successfully served the claim on a sister ship of The Ming Galaxy in England. The Herceg Novi preferred the English forum as The Ming Galaxy’s liability limit would be higher under the LLMC 1976 applicable in England. As for The Ming Galaxy, they preferred Singapore forum where their liability limit would be lower under the Limitation Convention 1957. The Ming Galaxy sought a stay of the English proceedings in favour of the Singapore proceedings. 

The High Court applied the Spiliada two-stage test. The first stage questions were whether England was the natural or appropriate forum and whether Singapore was clearly or distinctly the more appropriate forum, also taking into account the ongoing proceedings in Singapore. The court found that the stage one test was satisfied, as the subject matter had little connection to England, and Singapore was clearly or distinctly the more appropriate forum. At the second stage, the question was whether there were special circumstances to refuse the stay. The court took a balanced approach to it, and held that it would grant a temporary and conditional stay with liberty to the parties to return to the English court ([1998] 1 Lloyd’s Law Rep. 167). On appeal, the Court of Appeal held that a stay should not be refused solely because a substantive claimant – The Herceg Novi – would lose a juridical advantage of imposing higher limits on the defendant – The Ming Galaxy, provided substantial justice would be done in the other forum.

The Aegean Sea [1998] 2 Lloyd’s Law Rep. 39

High Court, England and Wales

• A charterer may not, against the shipowner, limit its liability for loss of a ship following the charterer’s nomination of an unsafe port.
• LLMC 1976 limits are not meant to apply in claims between the parties in the same “shipowner” group (eg. the owner and charterer).
• The limits are meant to apply on claims brought by third parties external to the operation of the ship.
• Note: This decision was preferred by The MSC Flaminia [2025] UKSC 14, and aligns with The CMA Djakarta [2004] 1 Lloyd’s Law Rep. 460 (EWCA).
• Hypothetically:
• The ship herself is not a “property” covered in Article 2.1(a). 
• A claim for loss of freight is a contractual claim, hence not falling within the type of claim included in Article 2.1(c). 
• A claim for loss of bunkers is a property claim covered in Article 2.1(a). 
• An indemnity claim for salvage payment was not excluded by Article 3(a), which exclusion is for a direct claim by a salvor against the owner of the salved property only. 

A ship was totally lost at a port, following the nomination of an unsafe port by the charterers. The owners brought a claim against the charterers for the loss of the ship, bunkers and freight, and for indemnity for salvage and clean-up (pollution) payments. The charterers argued that their liability would be limited by LLMC 1976 if they were found liable. 

The court refused this argument. The LLMC 1976 does not allow charterers to limit liability for claims by shipowners, following a total loss of the ship at an unsafe port nominated by the charterers. The Convention limits the liability of owners, charterers, managers and operators on claims brought by “third parties external to the operation of the ship” such as cargo interests. It was not intended to reduce liability on claims between the parties within the “shipowner” group (like an owner and charterer) – Article 1.2. The court hypothetically considered whether liability for each head of the claim would be limitable pursuant to Articles 2 and 3. As to the claim for the loss of the ship and freight, the court’s answer was that the claims were not limitable as the ship was not a property (Article 2(1)(a)) and the loss of freight claim was a contractual one (Article 2(1)(c)). As to the claim for loss of bunkers, it was limitable being for loss of property. As to the salvage payment indemnity claim, it was limitable as the exclusion in Article 3(a) was limited to direct claim by salvors. As to the pollution payment indemnity claim, it was also limitable in the UK’s context, as it would fall within Article 2(1)(a), (d) and (e), not excluded by Article 3(b) as adopted in the UK by the MSA 1979 then in force restrictively for pollutions in the UK only, while the pollution in this case was in Spain. But these hypothetical answers did not affect the unavailability of limitation to the charterers as it was a claim by the owners against the charterers.  

The Happy Fellow [1997] 1 Lloyd’s Law Rep. 130

High Court, England and Wales

• Limitation is a distinct procedural matter from the substantive claim.
• Right to limit is a separate cause of action from the substantive claim.

Following a collision, the shipowners faced legal action in France. They commenced a limitation claim in England under the LLMC 1976. The French claimants applied to stay the English action. 

The court held that the shipowner’s right to limit liability is a distinct procedural right from the French claimant’s substantive claim. The right to limit is a separate cause of action and are not considered the same cause of action as the substantive claim (which in this case was pursued in France). However, the court granted the stay on a different ground.

Caspian Basin Specialised Emergency Salvage Administration and another v Bouygues Offshore SA and others (No. 4) [1997] 2 Lloyd’s Law Rep. 507

High Court, England and Wales

• A limitation claim brought against several potential substantive claimants would not be stayed on the application of one of the substantive claimants only. 
• The choice of forum to bring the limitation claim was for the limitation claimant. 
• A limitation claim may be brought and a decree obtained before liability is admitted or established (Article 1(7)). 
• Liability for misrepresentation falls within Article 2(1), which allows “whatever basis of liability” insofar as the claim is of a type falling within (a)-(f) there – the focus is on the type of claim and not the type of cause of action.

A tug was owned by Caspian, who chartered her to Ultisol. In turn, Ultisol chartered her to Bouygues to tow the latter’s barge. Whilst under tow by a tug, the barge was lost. Bouygues sued Ultisol as the disponent owners and Caspian as the legal owners in South Africa. It was Buoygues’ claim that the tug’s capacity was misrepresented to Buoygues, and that both Ultisol and Caspian were responsible for the misrepresentation. The applicable limitation regime in South Africa was the Limitation Convention 1957, which had the lower limits but the shipowner had to prove that there was no actual fault or privity on its part to enjoy the right the limit. Conversely, the limitation regime in the UK at that time was the LLMC 1976, which had a higher limit but was unbreakable in the sense that burden was on the person opposing the limitation to prove the formidable Article 4 threshold. Bouygues applied for a stay of the English proceedings in favour of the South African proceedings. 

The court refused the stay holding that a limitation action genuinely brought against several potential substantive claimants should not be stayed on the application of only one of them. The court affirmed the choice of forum for limitation action generally belonged to the party seeking the limitation. As to the right to limit, the court held that a limitation action may be commenced and a decree obtained before the liability has been established, and limiting the liability was not an admission of liability (Article 1.7). The court also held that liability for misrepresentation was within the scope of Article 2, hence liability may be limited, pointing out that Article 2.1 makes limitation available “whatever the basis of liability may be” as long as the loss or damage occurred “in direct connection with the operation of the ship”, hence focus on the nature of loss rather than the cause of action.

Caltex Singapore Pte Ltd and others v BP Shipping Ltd [1996] 1 Lloyd’s Law Rep. 286

High Court, England and Wales

• Tonnage limitation is a procedural matter. 
• A court of a forum will only apply its own limitation regime, regardless of where the incident happened. 
• It is a legitimate juridical advantage for a substantive claimant to prefer a forum, if that is one of the available forums, that will apply higher limits. 
• When jurisdiction is involved by a substantive claimant as of right, the court would refuse the stay application of the defendant (owner) even where the court is not the natural or appropriate forum and there is clearly or distinctly another more appropriate forum, if a stay would deprive the substantive claimant of the legitimate juridical advantage.
• Note: cf The Herceg Novi [1998] 1 Lloyd’s Law Rep. 454 (EWCA). See The Hamburg Star [1994] 1 Lloyd’s Law Rep. 399 (EWHC).

The case involved a BP ship colliding with a Caltex jetty in Singapore. BP was a company incorporated in England. Caltex sued BP in England – the place of incorporation of the defendant. At that time, the LLMC 1976 limits – higher limits – applied in England, while the Limitation Convention 1957 limits – lower limits – applied in Singapore. BP applied for a stay of the English proceedings in favour of Singapore. 

The court held that the right to limit was procedural and not substantive. A court of forum would apply its own rules of procedures, regardless of where the incident occurred. Consequently, if the claim is pursued in England, the English court would apply the LLMC 1976 limits and not the Limitation Convention 1957 limits. It was not doubted that the English court had jurisdiction over the BP, that being an English company. Consequently, in order for BP to obtain the stay, the two-stage test must be satisfied – the Spiliada test. The first stage is for BP to satisfy the court both that England is not the “natural or appropriate forum” that there is another forum which is “clearly or distinctly more appropriate”. If the defendant – BP – satisfies the first stage, the burden shifts to the claimant – Caltex – to show special circumstances justifying the action to proceed in England. On the first stage, BP satisfied test, that was England was not the appropriate forum but Singapore was. On the second, it is a “legitimate juridical advantage” for a substantive claimant to prefer a forum, among the available forums, that will apply a higher limit. It would constitute a special circumstance to refuse the stay, if the damages to be recovered in the other – more appropriate – forum would be less than that may be recovered here. In order for the court to determine if the special circumstance existed in this case, it was necessary for the court to know the realistic value of the claim, which was not then readily available. Hence, the court did not make a final decision on the stay application at that point, having decided the applicable legal principles. 

The Nicholas H [1995] 2 Lloyd’s Law Rep. 299

House of Lord, United Kingdom 

• When a claim between cargo and the ship is subject to limitation, court will not favour imposition of a duty of care on peripheral parties like the classification society.
• That is to prevent, as a matter of policy, the cargo circumventing the limitation by suing the peripheral party in tort to obtain compensation for full loss.
• Such circumvention, if allowed, would give way for the peripheral party to claim indemnity from the shipowner or pass on its increased insurance costs to the shipowner, effectively destroying the balance achieved by the limitation regimes. 

On a cargo claim, the cargo owner obtained damages from the shipowner, to the limit of the shipowner’s liability under the applicable tonnage limitation regime. However, the cargo owner’s claim was many times larger than that. Hence, the cargo owner sued the classification society in tort for negligence, and asked the court to find that that classification society owed a duty of care to the cargo owner and breached it, resulting in the loss to the cargo owner. 

The House of Lords refused to impose such a duty of care on the classification society taking into account policy reasons and dismissed the cargo owner’s claim. The House considered that such an imposition would allow the cargo owners to bypass the liability limitation by suing a “peripheral party” for the full extent of their loss and “disturb the balance” and “outflank” this established limitation structure. The House took into account the absence of proximity between or direct contractual relationship between the classification society and the cargo owner. The House considered the classification society’s role within a broader statutory and regulatory framework, which supported the conclusion that imposing a duty of care would be inappropriate. 
 Such a duty would likely force them to seek indemnities from shipowners or increase their own insurance costs, which would then be passed on to shipowners. This would effectively destroy the shipowners’ protection under the limitation regime and disrupt the economic balance of the shipping industry. In those circumstances, the House concluded it “unfair, unjust and unreasonable” to impose such a duty of care on the classification society for the following reasons, hence refused to impose such a duty on the classification society. 

The Hamburg Star [1994] 1 Lloyd’s Law Rep. 399

High Court, England and Wales

• When a substantive claimant has invoked the jurisdiction of the court as of right, an application by the defendant (owner) to stay the proceedings would be determined applying the Spiliada two-stage test. 
• First stage is for the defendant to show that the local court is not the natural or appropriate forum but another court is clearly or distinctly the more appropriate forum. 
• Only if the defendant satisfies the first stage, then the second stage comes into play, where the burden shifts to the substantive claimant to show that there exist special circumstances to refuse the stay.
• Note: cf The Herceg Novi [1998] 1 Lloyd’s Law Rep. 454 (EWCA). See Caltex Singapore Pte Ltd and others v BP Shipping Ltd [1996] 1 Lloyd’s Law Rep. 286 (EWHC).

Containers were lost from The Hamburg Star. Her owners commenced limitation claim in Cyprus. Cargo interests commenced their substantive claim in England by way of an Admiralty action in rem action and arresting the ship in England, and thereby founding the jurisdiction of the English court as of right. England, at that time, adopted LLMC 1976 (higher limits), while Cyprus seemingly adopted Limitation Convention 1957 (lower limits). Owners applied to stay the English proceedings in favour of Cyprus. 

The test for stay was the Spiliada two-stage test. First, the owner must show that England was not the natural or appropriate forum and that there is another forum – Cyprus – that is clearly or distinctly more appropriate. If the owners discharge this burden, then the burden shifts to the cargo interest to show special circumstances to refuse the stay. 

On the stage one, the court held that the owners did not discharge the burden, hence the stage two did not arise. However, the court commented that had the second stage arisen, the court would prefer the cargo interests’ argument that there were special circumstances to refuse the stay because that would deprive them of the legitimate juridical advantage of preferring a forum that would apply higher limits. The existence of the Cyprus proceedings was merely a “neutral” factor that does not make a change.

The Breydon Merchant [1992] 1 Lloyd’s Law Rep. 373

High Court, England and Wales

• A claim by a cargo owner against a shipowner for indemnity to cover the salvage payment made by the cargo owner in respect of the cargo salvage fell within LLMC 1976 Article 2(1)(a) property claim and Article 2(1)(f) claim for averting or minimising loss, and is not excluded by salvage claim exception in Article 3(a). 
• Hence, the shipowner may limit its liability for the salvage payment indemnity claim. 
• Article 2(1)(a) was widely interpreted to include economic damage to property. 
• Article 2(1)(f) was widely interpreted to include the salvors’ salvage assistance (for which the cargo owner is liable to pay) as a measure by the cargo owner to minimise the loss.
• Article 2(1)(e) was widely interpreted to include additional losses such as such as stevedoring, transshipment costs and additional freight, following a casualty on board the ship.

The Breydon Merchant caught fire on board her. That resulted in salvage services being rendered to both the ship and the cargo. Cargo owners had to bear their portion of the salvage payment to the salvors as well as additional losses such as stevedoring, transshipment costs and additional freight. Cargo owners claimed damages from the shipowner by way of indemnity. The basis of the cargo owner’s claim was that the shipowners breached their contractual duty to provide a seaworthy ship. The shipowners sought to limit their liability under the LLMC 1976. The cargo owners opposed the limitation contending the salvage payment claim was excluded under Article 3(a), and that it was not a property or personal claim included within Article 2. Similarly, they contended the additional losses do no fall within the scope of Article 2.

As to the Article 3 argument to counter the salvage payment claim, the court refused the cargo owners’ contention, holding that the exclusion was for direct claims by salvors against the owners of salved property for their reward, and not for an indemnity or recourse claim between the cargo owners and shipowners. 

As to the Article 2 argument to counter the salvage payment claim, the court widely construed the words “a claim in respect of … loss of or damage to property” to include economic damage and that there was an economic damage to the cargo – property – in this case because the value of the cargo would diminish by the lien that the salvors had on the cargo for their reward. The court found that the claim was also included within the type of claim set out in Article 2(1)(f), which includes claims in respect of measures taken in order to avert or minimise loss, because without the salvage assistance, the loss and damage to the cargo would have been greater – the court again adopted a wide construction of Article 2(1)(f).

As to the Article 2 argument to counter the additional losses claims, the court considered the claims fell within Article 2(1)(e), which was for “claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship”, again adopting potentially a wide construction of Article 2(1)(e).

Accordingly, the court disagreed with the cargo owner’s contentions against the right to limit, and held the cargo owner’s claims to be limitable by the shipowners.

The Bowbelle [1990] 1 Lloyd’s Law Rep. 532

High Court, England and Wales

• Once a limitation fund is constituted in accordance with Article 11 of the LLMC 1976, Article 13 prevents claimants against the fund from arresting other ships in the same ownership.
• Under Article 13(2), a court is bound to order the release of a vessel arrested for a limitable claim if the fund has been constituted at the port where the incident occurred.
• In an application to release a vessel under Article 13, the court is not required to investigate whether the shipowner has been guilty of conduct that would bar their right to limit under Article 4. The constitution of the fund is sufficient.
• To give practical effect to the Convention where court rules are silent, a shipowner who has constituted a fund may file a praecipe in the Admiralty Registry, which will act as a caveat or warning against the arrest of their other vessels – this was a judicial innovation made in this case.

Following the disastrous collision between The Bowbelle and The Marchioness on the River Thames, the owners of The Bowbelle anticipated numerous claims for loss of life and personal injury. The owners constituted a limitation fund by making a payment into court in accordance with the LLMC 1976, which was given the force of law by the Merchant Shipping Act 1979. They then sought a procedural mechanism to prevent claimants from arresting their other vessels, a protection to which they were entitled under Article 13 of the Convention. The existing court rules, however, had not been updated to provide a clear procedure for this situation under the new 1976 Convention regime.

The High Court held that the 1976 Convention gave shipowners who had constituted a fund an “almost indisputable right to limit their liability”. The judge, Mr. Justice Sheen, reasoned that Article 13 was intended to ensure that shipowners would only have to provide one limitation fund. Therefore, once a fund was properly constituted in a location specified in Article 13(2) (such as the port of the occurrence, which London was in this case), the court was bound to order the release of any arrested ship without first investigating the shipowner’s right to limit under Article 4. To solve the procedural gap, the judge established a new procedure – a judicial innovation: a shipowner in this position should file a praecipe in the Admiralty Registry. This praecipe, containing an undertaking to acknowledge service, acts as a caveat against arrest, warning potential claimants that a fund has been constituted and that any arrest of a sister ship would be liable to be set aside. 

The Falstria [1988] 1 Lloyd’s Law Rep. 195

High Court, England and Wales

• Limitation claim is a separate distinct claim from the substantive claim. 
• Presence of substantive claims in one jurisdiction does not prevent a limitation claim being pursued in another jurisdiction. 
• The court would not favour granting a stay on the application of one of the substantive claimants when several substantive claims are apprehended in its jurisdiction.

The Falstria, while chartered by a Danish charterer, collided with a quay in Felixstowe (UK). The quay operator sued the Danish operator in Denmark, where LLMC 1976 was in force. At that time, the limitation regime applicable in the UK was that under the Merchant Shipping Acts 1894 to 1984, which adopted the lower limits in the Limitation Convention 1957. The Danish charterers, who apprehended several substantive claims in England, commenced a limitation claim in England to limit their liability in respect of all claims brought in England. The quay operators applied for a stay of the English proceedings in favour of the Danish proceedings, where the limit was higher. 

The court refused the stay on the grounds that the limitation action is a distinct proceeding separate from the substantive claim proceedings, that only the English court had the jurisdiction to grant limitation relief in respect of claims brought in England, and that a single claimant could not apply to stay a limitation action when several substantive claims are apprehended.