Insiders vs. Outsiders
Can a Charterer Limit Liability Against an Owner?

The Supreme Court in MSC Flaminia [2025] UKSC 14 has overturned the ‘Flaminia Rule,’ decisively affirming that charterers can limit liability against shipowners. In doing so, the Court has refined the complex boundaries between ‘ship damage’ and ‘consequential loss’ under the 1976 Convention. However, the judgment introduces a notable tension between ‘cargo removal’ and ‘waste disposal.’ This article analyses the new landscape for ‘insider’ claims and why the Court’s treatment of debris may be ripe for future challenge.

Concept of Modern Limitation

The concept of limitation of liability is the bedrock upon which the economics of modern maritime trade rests. For centuries, the law has recognised that to encourage investment in shipping, the liabilities arising from maritime casualties must be capped at “insurable” levels at a reasonable cost. The quid pro quo of the Convention on Limitation of Liability for Maritime Claims 1976 (the “LLMC 1976”) was simple: in exchange for higher financial limits, the right to limit became virtually unbreakable, barring only cases of intentional or reckless conduct.

Article 1 of the LLMC 1976 grants “shipowners” and salvors the right to limit, while Article 2 lists the types of claims subject to limitation, including claims for loss of property and consequential loss, removal of cargo, and measures taken to mitigate limitable loss. Article 1.2 defines “shipowner” broadly to include owners, charterers, managers, and operators – the “shipowner group”.

However, a persistent doctrinal fracture has existed regarding what happens when one “insider” within this group sues another. The recurring question is whether a charterer can limit their liability for a claim brought by the shipowner. Or is limitation a shield reserved solely for claims brought by “outsiders” – third parties such as cargo interests or coastal states? This question strikes at the heart of the concept of “single limitation” and “single fund” for the entire “shipowner” group, raising fears of circularity and fund depletion by claims made by those within the group.

The Trilogy of Cases

Thomas J in The Aegean Sea [1998] 2 Lloyd’s Law Rep 39 introduced the absolute “insider” bar – charterers could not limit against owners at all. The Court of Appeal in The CMA Djakarta (2004) EWCA Civ 114 lifted the absolute bar, holding that charterers may limit against owners generally, except for claims regarding damage to the ship itself and consequential loss.

Most recently, the Court of Appeal in The MSC Flaminia [2023] EWCA Civ 1007 introduced a new restriction. While accepting that no limitation was available for damage to the ship, it held that a charterer could limit against the owner for losses originally suffered by the owner (as opposed to recourse claims) – the “Flaminia” rule.

Finally, the position has now been decisively corrected by the Supreme Court in MSC Mediterranean Shipping Company SA v Conti 11 Container Schiffahrts-GmbH & Co KG (The “MSC Flaminia”) [2025] UKSC 14. The Supreme Court held that a charterer may limit liability against the shipowner, save for damage to the ship – following The CMA Djakarta. But the “damage to the ship” is not a master exception; if a “consequential loss” fits another specific category in Article 2 (eg. cargo removal), there is no barrier to limiting the liability for it, merely because it is consequential upon damage to the ship – differing from The CMA Djakarta. There is no restriction against limiting in respect of an owners’ claim for losses originally suffered by the owner – ending the “Flaminia” rule.

The MSC Flaminia [2025] UKSC 14

Facts and Arbitration: The container ship, The MSC Flaminia, was time-chartered by her owners, Conti, to MSC. The charterparty incorporated the Hague Rules; the Article IV rule 6 renders a shipper (referring to the charterer, MSC, in this context) liable for damages caused by dangerous goods shipped without the consent of the carrier.

In 2012, a catastrophic explosion and fire occurred aboard the ship caused by dangerous cargo. This resulted in the loss of crew lives, destruction of cargo, and severe damage to the vessel.

Conti incurred massive costs, including:

1. Payments to national authorities (Belgium, France, the UK and Germany) to allow the vessel into a place of refuge and take preventive measures against bunker leakage.
2. Discharging and decontaminating thousands of tonnes of cargo to enable the vessel to be moved to a repair facility.
3. Removing contaminated firefighting water sprayed during the salvage operation to facilitate repairs.
4. Removing waste from fire-damaged cargo, containers, and ship structure before repairs could commence.

Conti sought to recover these costs from MSC, alleging breach of Article IV rule 6 of the Hague Rules. Conti was awarded US$200 million in arbitration, and MSC sought to limit its liability.

Article 2 of LLMC 1976: Article 2, as implemented in the UK by s 185 and Schedule 7 of the Merchant Shipping Act 1995, allows limitation, so far as relevant to The MSC Flaminia case, for claims in respect of:

(a)   

                           i.          loss of or damage to property occurring,

·       on board; or

·       in direct connection with the operation of the ship; or

·       in direct connection with salvage operation, and

                          ii.          consequential loss,

(e)  removal, destruction or the rendering harmless of the cargo of the ship (provided the claim doesn’t relate to contractual remuneration);

(f)    measures taken in order to avert or minimise limitable loss, and further loss caused by such measures (provided the claim doesn’t relate to contractual remuneration).

Simplified: If someone else spends money by taking measures to stop a bigger disaster for which you would be liable and could limit your liability, their claim against you for reimbursement is also subject to your limitation cap – provided the claim doesn’t relate to contractual remuneration. Additionally, if they or anyone else (except you) suffers further loss by such measures, their claims in respect of that loss are also limitable (provided the claim doesn’t relate to contractual remuneration).

High Court and Court of Appeal Decisions on Limitation: Andrew Baker J, at first instance, refused the limitation decree on the ground that the claims did not fall within Article 2 of the LLMC 1976. The Court of Appeal unanimously dismissed MSC’s appeal somewhat on broader grounds rather related to Article 1, holding that a charterer may not limit its liability for claims by the owner for losses originally suffered by the owner.

The Supreme Court’s Restoration of Textualism: The Supreme Court, in the judgment delivered by Lord Hamblen, unanimously overturned the decisions of the lower courts. The Court’s reasoning was anchored in a strict textual interpretation of LLMC 1976, adhering to Articles 31 and 32 of the Vienna Convention.

Article 1.1 of the LLMC 1976 allows the shipowner group and salvors to limit liability for “claims” listed in Article 2. The word “claims” is a defined term. There is no textual basis for inserting a qualification that excludes claims merely because they are brought by an owner against a charterer. To read in an “owners’ original loss qualification” would be to impermissibly “gloss” the Article 2

The Court dismantled the legal position regarding damage to the ship and consequential loss.

First, regarding “damage to or loss of the ship”, the only limb covering “property” damage or loss is Article 2(1)(a). For a claim to be limitable under this limb, the loss must occur “on board”, “in connection with the operation of the ship” or “in connection with salvage operations”. The Court affirmed that the reference to damage “on board” the ship cannot include the ship itself. The reference to damage “in connection with the operation of the ship” again cannot include the ship itself, as the wording presupposes that the ship is the active instrument causing the loss, not the victim suffering it. Similarly, the reference to damage “in connection with salvage operations” does not include the ship because the term “property” excludes the very ship by reference to the tonnage of which limitation is calculated. While this allows a salvor to limit liability for damage to the ship they are assisting by reference to the salvor’s own tug or limitation unit, for a charterer, the ship remains the unit of limitation and cannot simultaneously be the “property” in respect of which the claim is made.

Second, regarding “consequential loss”, since the “ship” is not “property” under Article 2(1)(a), that limb’s reference to “consequential loss” does not cover losses resulting from damage to the ship. However, this exclusion is not a general bar. A loss consequential upon ship damage remains limitable if it falls within the specific terms of another limb of Article 2(1). The limbs are inclusionary, allowing for dual characterisation. In this case, while the costs of discharging and decontaminating cargo were incurred to facilitate hull repairs (and thus were consequential to ship damage), they were nonetheless limitable under Article 2(1)(e) as claims for the “removal” and “rendering harmless” of cargo. The owner’s purpose – to facilitate repairs – was irrelevant. Unlike Article 2(1)(f), the application of limbs (a) through (e) depends solely on the nature or “type” of the claim, not the motive behind it.

Third, the reason why Article 2(1)(f), and only that, requires looking at the motive is because that limb requires the measures to be taken “in order to” avert or minimise loss. In this case, MSC argued that the costs of removing the contaminated firefighting water were limitable under this limb as a “further loss” caused by measures taken to avert or minimise a limitable loss (salving the cargo). The Court disagreed, primarily treating the removal as a repair cost, and secondarily because Conti’s “dominant” purpose for firefighting was not to salve the cargo (limitable) as it was “equally” to salve the ship (non-limitable).

Conclusion: The Court held:

1. Payments to national authorities – not limitable. These are losses consequential to the damage to the ship, and not limitable under Article 2(1)(a) or any other limb.

2. Discharging and decontaminating the cargo – limitable. These costs fall squarely within Article 2(1)(e) and are limitable. The motive of the owners to facilitate repair of the ship (a non-limitable loss under Article 2(1)(a)) is absolutely irrelevant.

3. Removing contaminated firefighting – not limitable. These are part of the repair costs rather than a mitigation cost. Even if they were costs of mitigating a limitable loss (cargo loss), that was not the dominant purpose, the salvage of the ship being an equal purpose. Hence, Article 2(1)(f) was not available, nor any other limb.

4. Removing the waste – not limitable. These costs were characterised as part of the repair costs (damage to the ship) because the removal was a necessary prerequisite to fixing the hull. Consequently, they are excluded from Article 2(1)(a) as the limiting ship is not “property.” The fact that the waste consisted largely of damaged cargo caused by the explosion did not transform the claim into one for “consequential loss resulting from cargo damage”; the Court held that factual causation cannot override the legal characterisation of the expense as a non-limitable repair cost.

Observation (of the author): There is a nuanced tension between Conclusion 2 and Conclusion 4. The Court allowed limitation for “cargo removal” under Article 2(1)(e) by focusing on the nature of the claim rather than the repair purpose, yet denied it for “waste removal” because those costs were characterised as repair costs – even where the waste consisted primarily of damaged cargo residues. Future cases may grapple with the boundary at which “cargo” (limitable to remove) becomes “debris” (non‑limitable to clear), a distinction that may invite further judicial clarification.