Barde AS (Barde) was the owner of a vessel, the Barde Team, which was unloading its cargo at Timaru, New Zealand. While unloading, some of the cargo was damaged. The first respondents in this case brought proceedings over damage to a transformer, suing the Barde Team in an action in rem and securing its arrest. Barde provided an undertaking by its P&I Club and the vessel was released. The second respondent, a freight forwarder, had issued the bill of lading for transporting the transformer, and came forward as a potential claimant, lodging a caveat in the first respondent's proceedings. The third respondent, the consignee of a damaged industrial boiler, also issued a caveat.

Barde argued that if it constituted a limitation fund under the LLMC 1976 covering the damaged goods, it was entitled to have the arrest warrant set aside and the security released. The first and second respondents argued that Barde's conduct fell under art 4 of the LLMC 1976, which disentitles applicants from limiting their liability.

The Limitation of Liability for Maritime Claims Act 1989 (Cth) incorporates the LLMC 1976 into Australian law. Article 11 of the LLMC concerns the constitution of a limitation fund, and art 13 restricts claimants against the fund from claiming against the person's other assets, and provides conditions for the release of an arrested ship or security upon constitution of the limitation fund.

Held: The applicant's security could not be released until the respondents' case had been heard and the issue of whether there had been disentitling conduct under art 4 of the LLMC 1976 was settled.

Claims against Barde were made out under arts 1.1, 2, and 2.1.a of the LLMC 1976 with respect to damaged goods. This being established, Barde wanted to constitute a limitation fund under art 11 and prevent further claims against it under art 13, as well as arrange the release of its security.

Sheppard J referred to a number of authorities concerning the constitution of limitation funds and the impacts on claimants on the fund, or on an arrested ship or security, as well as the treatment of the LLMC 1976 in other jurisdictions and its significance. The LLMC 1976 drastically reformed laws relating to limitation by placing an onus on the party looking to evade the Convention's impacts, and making art 4 (about conduct barring limitation) difficult to satisfy. Limitation funds also became much larger. The prospects of claimants being successfully paid out were improved. Sheppard J described the formation of the Convention and the policies backing it as 'an appropriate solution to a difficult problem'.

The larger question in this case was whether by establishing the limitation fund, Barde could deny the claimants the opportunity to question whether art 4 had been met. If it was, Barde should not have been able to limit liability. If the claimants could not have their case heard first, then the ship (or security) would be released, preventing them from keeping this vessel (or any vessel) under arrest until the case against it was determined.

Section 25 of the Admiralty Act 1988 (Cth) states that limitation funds may be constituted in order to pay claims in respect of which the applicant is entitled to limit liability. The wording is similar to that in art 11.1 of the LLMC 1976. Sheppard J drew attention to the word 'only' in art 11.1, confirming that a limitation fund can only be relied upon to pay out claims that are actually subject to limitation. This restrictive language is consistent with arts 13.1, 13.2, and 13.3. Articles 13.1 and 13.2 are applicable only when a claimant can actually bring a claim against the fund.

A claimant that successfully invoked art 4, preventing the constitution of a limitation fund, would be claiming in personam or in rem instead. If a person could not create a limitation fund in respect of certain claims under art 4 for the reasons contained therein, a claimant could not rely on that limitation fund to pay out their demands. In many instances that would actually disadvantage a claimant disputing a person's right to limit, as the chances of being able to cover its losses would be reduced.

Sheppard J was of the opinion that art 4 could not be interpreted in this way. To do so would make art 4 pointless in the context of the Convention and impede the rights of claimants. Because of this, and to preserve the integrity of the Convention, the respondents in this case had every right to bring their contentions to court and dispute Barde's right to limit. Even if the conclusion was still reached that the arrest warrant over the Barde Team should be set aside and the security released upon constitution of a limitation fund, it should not be done before first hearing the respondents' case.