“MSC FLAMINIA” – Court of Appeal affirms High Court’s position on who can limit liability (and who cannot)

In the “MSC FLAMINIA” (No. 2) [2023] EWCA Civ 1007, the Court of Appeal dismissed the appeal by the charterers (“MSC”) against the shipowners (“Conti”). The charterers were hoping to limit their liability while the shipowners were seeking to clarify the scope of limitation, arguing narrower grounds than those they unsuccessfully submitted in the first instance.

Background

Following an explosion and a subsequent fire in cargo hold number 4 of the vessel “MSC FLAMINIA” (the “Vessel”), Conti suffered substantial costs related to the salvage of the Vessel, dealing with the contaminated cargo, removing firefighting water, disposing of burnt metal and carrying out permanent repairs. The Vessel was placed off hire by MSC during this entire period. 

The parties initiated arbitration proceedings in accordance with their contractual agreement, and this resulted in the Tribunal awarding Conti approximately US$200 million in damages. 

Following the award, MSC sought to limit their liability pursuant to the 1976 Convention on Limitation of Liability for Maritime Claims, as amended by the Amending Protocol of 1996 (the “Convention”). Article 2(1) of the Convention sets out the type of claims which can be subject to limitation of liability, always subject to certain exceptions. 

MSC would be able to limit their liability to about GBP 28.2 million, if successful. 

Conti, accepted that MSC could limit their liability for certain third party claims such as those from other cargo claimants, but they contended that MSC would not be able to limit their liability for: 

(a) the costs of discharging and decontaminating the cargo, 
(b) the costs of removing firefighting water from the Vessel’s holds, 
(c) the payments made to national authorities for pollution prevention steps taken by them, and 
(d) the costs of removing the burnt waste material from the Vessel.

Grounds of appeal and counter-arguments

It was MSC’s position that the High Court Judge had erred on four points: 

1. The Judge erred by holding that claims relating to “the removal, destruction or the rendering harmless of the cargo” (Art. 2.1(e)) did not include claims as between the owner and charterer in respect of removing the cargo and decontaminating it, and that they were therefore not limitable pursuant to Article 2.1(e) of the Convention.
2. The Judge incorrectly held that Article 2.1(f) only encompassed claims in respect of measures taken solely to avert or minimise loss.
3. The Judge treated the arbitration award as a single claim in respect of damage to the Vessel, as opposed to a group of claims, some of which were limitable and some of which were not.
4. The Judge erred by deciding that none of Conti’s claims were in respect of consequential loss resulting from loss of or damage to property on board the ship, and, as such, none of Conti’s claims fell within Article 2.1(a) of the Convention.

This time, rather than repeat their successful first instance arguments, Conti simply submitted that a charterer could only limit its liability in respect of claims which originated outside the group of entities that are defined as “shipowners” under Article 1.2 of the Convention. 

The Judgment

Among the many factors discussed in the ruling, the bench deliberated two key factors: 

The CMA Djakarta 

With material facts being very similar to the present matter, the High Court ([2003] EWHC 641 (Comm)) and the Court of Appeal ([2004] EWCA Civ 114) in the case of The CMA Djakarta, tried to construe the Convention as it stands without any English law preconceptions. The consequences of a situation where a shipowner’s claim against a charterer would be paid out of a limitation fund created by the shipowners themselves was considered “remarkable”.  

Here, the High Court ruled against the charterers, and the Court of Appeal allowed the appeal only to the extent that it allowed the charterers the ability to limit their liability for certain type of claims, i.e., primarily third party claims from entities falling outside the class of “shipowners” as defined in Article 1.2 of the Convention. 

Although the Court of Appeal had not granted permission to appeal, the then House of Lords did allow the case to be appealed, indicating that it had a particular interest in the issues and/or considered that the case may have been wrongly decided. However, the matter was settled before the House of Lords could hear the case. 

Later, although in obiter, the Court of Appeal’s decision was approved by the Supreme Court in The Ocean Victory [2017] UKSC 35. 

Interpreting the Convention

In the present case, the bench used previous judgments and travaux préparatoires to understand the objective and purpose of the Convention. 

The Court of Appeal determined that the primary purpose of the Convention was to provide a higher limit of liability than applied under the 1957 Convention and make it more difficult to “break” the limit. 

At the same time, it concluded that it was neither the object nor the purpose of the Convention to extend a charterer’s right to limit beyond the right already conferred to them under the 1957 Convention. 

Finally, the bench agreed with the shipowners that claims referred to in Article 2 of the Convention ought to be interpreted to exclude claims by a shipowner against a charterer to recover losses suffered by that shipowner itself. 

Comment

Any doubts that remained following the Court of Appeal’s judgment in the CMA Djakarta have now been cleared by this most recent decision on the complex topic of charterers’ ability to limit their claims against shipowners. 

It remains to be seen whether MSC will appeal the judgment, and whether the Court of Appeal or the Supreme Court will allow any such appeal to be heard. Until then, the precedent is set to disallow an entity classified as “shipowner” under the Convention from limiting their own liability against claims by another entity that falls within the same category. 

Judgment