A collision occurred between the defendants' vessel, Capitan San Luis, and the plaintiffs' cruiser liner, Celebration, off the coast of Cuba. The plaintiffs initiated legal proceedings by issuing a writ in rem and serving a statement of claim. In response, the defendants presented a defence and counterclaim, arguing that they were entitled to limit their liability under the Merchant Shipping Act 1979 (UK) (the Act), which incorporated the LLMC 1976. They argued that their entitlement to limit liability was based on art 1 of the Convention.

The plaintiffs countered by asserting that the defendants should not be allowed to limit their liability due to their conduct. They claimed that the plaintiffs' loss resulted from personal acts or omissions committed recklessly, with the knowledge that such loss was likely to occur.

Subsequently, the defendants filed a summons seeking to strike out the defence to their counterclaim regarding the limitation of liability. The Admiralty Registrar heard the summons and decided to adjourn it, with the possibility of restoration if the plaintiffs did not request interrogatories and discovery within 35 days.

Following this, the plaintiffs served detailed interrogatories, and the defendants also provided their list of documents. An inspection of the documents was conducted, and copies were shared. Additionally, the defendants answered the interrogatories.

The plaintiffs' defence to the counterclaim was struck out by the Admiralty Registrar, who found that it did not amount to a valid defence to the defendants' claim that they were entitled to limit their liability.

Ultimately, liability for the collision was settled, with the Celebration found to be 25% at fault and the Capitan San Luis 75% at fault. Subsequently, the defendants submitted a notice of motion seeking a declaration that they were entitled to limit their liability. They also sought an order that the costs related to the question of their entitlement to limit liability would be borne by the defendants regardless of the outcome, and that these costs should be paid by the plaintiffs to the defendants, to be promptly assessed if not agreed upon.

Held: The plaintiffs should pay the defendants' costs.

The Court addressed two key questions. The first concerned whether the defendants were entitled to the limitation declaration, and the second concerned whether the plaintiffs should bear the costs associated with the limitation of liability issue.

Regarding the first question, the Court found that there was no reason to withhold the requested declaration.

The second issue raised concerned the proper approach to determining costs in cases involving a limitation declaration under the LLMC 1976. The defendants argued that the same rules applied under both the old limitation regime based on the LLMC 1957 established in the Merchant Shipping Act 1894 (UK) as amended (the 1894 Act), and the new regime set out in the LLMC 1976. The old rule stipulated that a party facing a claim by a shipowner seeking to limit liability must have the opportunity to investigate the facts to assess whether to challenge that right. Typically, the shipowner bore the costs of such an investigation. Therefore, it was argued that the same practice should be followed under the LLMC 1976.

Conversely, the plaintiffs argued that the same principles could not be applied to both regimes. Under the 1894 Act, the burden of proof rested on the shipowner to prove that the damage occurred without their actual fault or privity. However, under the LLMC 1976, the ship owner could limit liability unless the claimant could prove that the damage resulted from reckless conduct with knowledge that damage would likely occur. It was argued that the LLMC 1976 intended to create a comparatively straightforward process for obtaining a limitation decree. Given the shift in the burden of proof to the claimant, it was argued that the claimant should decide whether to challenge the claim or not, and if they choose to challenge and lose, they should be responsible for the costs.

The Court found that the current regime is markedly different from that under the 1894 Act. There is a substantial difference between the case in which the shipowner must prove that the damage occurred without its actual fault or privity before it is entitled to a limitation decree, and the case in which the shipowner is entitled to a limitation decree unless the claimant proves either that the shipowner intended to cause the loss or that it acted recklessly and with the knowledge that damage would probably result.

The position under the LLMC 1976 dictates that the shipowner only needs to prove that the claim falls within art 2 of the Convention. Once this is established, it is entitled to a limitation decree unless the claimant proves the facts required under art 4. It is at the discretion of the claimant whether it chooses to investigate that question, and it may do so by persuading the Registrar to make an order for discovery or interrogatories. If, as a result, the claimant obtains information that allows it to establish facts that defeat the shipowner's right to limit its liability, it will ordinarily be entitled to its costs. However, if the facts obtained do not enable the claimant to discharge the burden that the Convention has placed on it, it would not be just to hold that the shipowner should incur the costs of the investigation. In such a case, the costs should follow the event, and the claimant should pay the costs.

The fact that the shipowner is the wrongdoer is irrelevant, because the LLMC 1976 and the Act have conferred upon the shipowner the right to limit its liability, which can only be defeated if certain facts are proved. The right to limit under the LLMC 1976 is a legal right exercisable in circumstances that can readily be established, and is only defeated if the claimant discharges the heavy burden placed on it by art 4 of the LLMC 1976.