UK: Charterers Can Still Not Limit Their Liability Vis-À-Vis Owners

Last Updated: 16 December 2003
Article by Jeb Clulow

In CMA CGM S.A. v Classica Shipping Co. Ltd [2003] 2 Lloyd’s Rep. 50 charterers sought to run an argument to the effect that they were entitled to limit any liability they may have had to owners pursuant to the 1976 Convention on Limitation of Liability for Maritime Claims (the "1976 Convention"), but Mr Justice Steel, rejected their arguments. CMA CGM S.A. (the "Charterers") had chartered the container vessel "CMA Djakarata" (the "Vessel") from Classica Shipping Co. Ltd (the "Owners"). During the charter there was an explosion and fire on the Vessel leading to her abandonment and later salvage. The Owners contended that the fire was attributable to the shipment of two containers containing bleaching powder in breach of the charterparty terms which forbade the carriage of dangerous cargo. Owners claimed damages in the sum of US$26,638.032 together with an indemnity for their exposure to cargo claims and general average contributions. The dispute was referred to arbitration and the arbitrators found in favour of the Owners. The Charterers appealed the arbitrators’ decision on limitation of liability to the Commercial Court. It was recognised by the Charterers that it was implicit that, by bringing their appeal, they were contending that an earlier decision of Mr Justice Thomas in the Aegean Sea Traders Corp v Repsol Petroleo S.A. and Another (the "Aegean Sea") [1998] 2 Lloyd’s Rep. 39 was wrongly decided.

The 1976 Convention provides at Article 1 that:

"1. Ship owners and salvors, as hereinafter defined, may limit their liability in accordance with the Rules of this Convention for claims set out in Article 2.

2. The term "ship owner" shall mean the owner, charterer, manager or operator of a sea going ship".

The Court based its decision that the Charterers could not limit their liability visà- vis the Owners on three main points:

1. Following consideration of the wording of Article 1 and the historical development of the English limitation statutes, it is clear that charterers are entitled to limit their liability only in circumstances where they are exposed to claims by reason of activities usually associated with ownership (i.e. in circumstances where (a) a demise charterer is liable to another vessel as a result of negligence in navigation; or (b) where a time charterer is liable as carrier to cargo interests under bills of lading). Mr Justice Steel agreed with the statement of Mr Justice Thomas in the "Aegean Sea" that: "…the charterer is to be treated as a ship owner and entitled to limit for the claims brought against him when he acts as ship owner".

2. If the application of the 1976 Convention was not restricted to instances where charterers are acting as owners, then this would create real difficulties when it came to the establishment of a single limitation fund, as envisaged by the Convention. There would be practical difficulties in the distribution of the limitation fund in circumstances where it was to compensate both the cargo owners for the loss of their cargo and the Owners for their recourse claim against the Charterers in respect of their liability for the cargo claim (i.e. the same fund would have to pay out twice in respect of the same underlying claim).

3. Article 2.1.(a) of the 1976 Convention provides that "claims in respect of … damage to property … occurring on board or in direct connection with the operation of the ship…and consequential loss resulting therefrom" may be subject to limitation. It is clear from this Article that the vessel could not be both the victim and the perpetrator. The damaged property in respect of which claims are made must be the property of a third party on board the vessel (ie. the cargo) or must be external to the vessel (i.e. another vessel). The exclusion of claims for damage to the actual vessel was inconsistent with the Charterers’ argument that they could limit their liability to Owners for damage done to the Vessel.

Both the "Aegean Sea" and the "CMA Djakarta" are first instance decisions that charterers would like to see overturned on appeal – although the writer would be surprised if this was to happen.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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