Ship owners seeking to limit liability in India have traditionally encountered many legal uncertainties and obscurities. The ruling pronounced by the Bombay High Court in the case of Murmansk Shipping Company v/s Adani Power Rajasthan Ltd (decided on 8 January 2015) sheds much clarity and light on this issue. The Court in this case was called upon by a Russian vessel owner to inter alia determine whether it was entitled to constitute a limitation fund and if so whether the enhanced limits of the 1996 Protocol would be applicable.

The Indian Courts have, for the first time, judicially endorsed the right of a ship owner to limit liability by constituting a limitation fund in India under the 1976 Convention on Limitation of Liability ("Convention") as enacted, (albeit, with significant modifications and omissions), in Part XA of the Indian Merchant Shipping Act, 1958 ("Act"), in 2002.

A Russian flagged vessel MV Yuriy Arshenevskiy carrying project cargo encountered a typhoon enroute from Tianjin to Mundra and Mumbai leading to loss/damage to cargo carried on board the vessel. Upon discharge of the cargo at Mundra, the vessel was arrested by several claimants and security was posted for her release. The ship owner, apprehending the arrest of its vessel by cargo claimants, on the same date as the first arrest was filed, applied to the Bombay High Court to constitute a limitation fund in accordance with the limits prescribed by the Convention.

A preliminary objection as to the validity of the limitation action was raised by the Cargo claimants on grounds that no prior legal proceedings had been instituted in the Bombay High Court. According to the claimants, Article 11 of the Convention which deals with the constitution of a fund requires that prior legal proceedings ought to have been issued before the same forum as that of the fund. On that basis, they argued that the limitation action to constitute the fund was premature and wrongful as it was filed in the Bombay High Court before the Claimants had initiated substantive legal proceedings before the same Court.

The argument did not find favour with the Court. The Judge decided that the wording of Section 352 C (the Indian equivalent of Article 11) was wider than that of Article 11 of the Convention and ruled that Section 352 C did not require prior legal proceedings to be instituted in the same forum in which the ship owner sought to limit liability. The Court further construed the expression "legal proceeding" appearing in Article 11 as well as in Section 352 C to include legal proceedings that may be brought by the party invoking limitation.

In challenging the preliminary objection raised by cargo claimants, the ship owner contended that its right to limit was absolute and unconditional and that it only had to demonstrate that the claim was capable of limitation under Section 352 A of the Act. Section 352 A of the Act corresponds broadly to Article 2 of the Convention. It was undisputed that the claim was capable of limitation, being a claim for loss/damage to property.

The Court was also called to decide whether there was any statutory exception to limitation such as conduct barring limitation as envisaged by Article 4 of the Convention. The Court, after carefully considering the provisions of the Act, concluded that Article 4 of the Convention had not been adopted by the Act. Furthermore, the Court found that there was no equivalent statutory provision in the Act exempting certain categories of claim from limitation such as those listed in Article 3 of the Convention.

The Court rejected cargo claimant's argument that it should read or add Article 4 of the Convention into the Act as this would be tantamount to legislation. It held that the philosophy, aim and object of the Act was to make limitation virtually 'unbreakable'.

The Court also rejected the ship owner's argument that the lower limits of the Convention should be applicable and not the enhanced limits of liability contemplated by the 1996 Protocol due to the lack of any legislation or amendment to the Act giving effect to the increased limits of liability. The Court held that the word "Convention" as defined by the Act expressly included amendments made to it from time to time. The Court held that the 96 Protocol was an amendment to the Convention and was already embraced by the Act.

The limitation action was accordingly decreed and the ship owner got permission to set up a limitation fund. The security which had been posted by the ship owner was ordered to be returned upon deposit of the higher amounts contemplated by the 96 protocol.

The judgment marks a positive and welcome evolution in the law of limitation of liability in India as it strikes a fair and proper balance between the rights of the different stakeholders. Ship owners are now able to limit liability in India, albeit, at the higher amounts contemplated by the 96 Protocol. The party seeking to limit liability has the certainty and comfort of knowing that it cannot be refused the right to limit provided the claim is capable of limitation. Liability claimants, on the other hand, derive the benefit of an increase in the limits of liability.

It is important that the right to limit liability and to constitute a fund can be exercised proactively as soon as a claim is apprehended and that such right is not restricted to a responsive action parasitical to an actual claim being filed in court.

The ruling is expected to put an end to expensive and time consuming litigation in India and provides much wanted clarification on the current state of play in respect of the law on limitation of liability.

Posted on 25 July 2018 by Zarir Bharucha

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