A fire in Ibiza, Spain, destroyed the Olympia (owned by the respondent), the Timbali II (owned by the main appellant) and other yachts (owned by the second and subsequent appellants). It was alleged that a fire on the Olympia caused the damage to the Timbali II. The respondent denied liability and brought an action in the Supreme Court of Gibraltar against the appellant, seeking to limit its liability through the constitution of a limitation fund, and served the limitation claim form on the appellant in Germany. The appellant acknowledged service, applied to set aside service of the claim form and commenced liability proceedings against the respondent in Spain. The Supreme Court dismissed the appellant’s application in two separate judgments. The first related to whether there was a good arguable case that the appellant was domiciled in Gibraltar. The second judgment (CMI361) followed the decision of the English Court of Appeal in Seismic Shipping Inc v Total E&P UK Plc (The Western Regent) [2005] 2 Lloyd’s Rep 359.

The appellant appealed, arguing that the respondent should not be allowed to limit its liability in a jurisdiction different from the jurisdiction that had heard the liability proceedings (here, Spain), basing its arguments on an interpretation of arts 10 and 11 of the Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 1976) which has the force of law in Gibraltar.

The issues on appeal were whether the constitution of a limitation fund was obliged by art 10, whether there was a requirement for the limitation proceeding to be heard before the liability proceedings and how arts 10 and 11 should be interpreted, specifically how the reference ‘action is brought’ (art 10.1) should be read consistently with the reference ‘claims subject to limitation’ (art 11.1).

Held: Appeal dismissed.

Since Gibraltar did not adopt the art 10.1 option requiring parties limiting their liability to constitute a limitation fund, this means that limitation proceedings can be commenced in any jurisdiction of the shipowner’s choosing, even without the constitution of a fund, in any court which will accept jurisdiction. The respondent can, accordingly, commence limitation proceedings in Gibraltar and need not make the limitation claim by constituting a limitation fund in the same jurisdiction as the liability proceedings (Spain).

The meaning of the words 'action is brought' is an important consideration in construing art 10.1. However, this expression does not have the same meaning as 'an action is brought in its Courts to enforce a claim subject to liability' in art 10.3 - different expressions are used in the first and second sentence of art 10.1, and in arts 10.3 and 11.1. Although arts 10.1 and 10.3 use the same phrase ie 'action is brought', it does not have the same significance in each article and should be interpreted differently. Since art 10.1 is clearly worded, it cannot be cut down by an implication derived from art 11.1, as they deal with separate issues regarding the constitution of a limitation fund. In other words, the word ‘action’ in art 10.3 can embrace the limitation action referred to in art 10.1 and does not refer to 'legal proceedings ... in respect of claims subject to limitation' in art 11.1. In addition, it also made no sense to read 'action' in art 10.3 as 'such action', especially where the option in art 10.1 was not adopted, as in England and Gibraltar.

Even though the primary consideration when interpreting art 10 should be the natural meaning of the words in their context and in the light of the purpose of the LLMC 1976 as a whole, this does not mean that arts 10 and 11 were meant to be construed together. 

There are two ways to invoke the right to limit. The first is by way of partial defence to liability proceedings and the second by way of an action for a general decree of limitation, with or without constituting a limitation fund. This case concerns the second method. The nature of the right to limit is that it does not attach to a particular claim, but applies to the aggregate of claims which arise on a distinct occasion (art 9 of the LLMC 1976). The right of a shipowner to limit its liability in relation to certain classes of claims to a certain sum, calculated in accordance with the tonnage of its ship, does not qualify as a substantive right of the claimant against the shipowner, but is a procedural right to limit the shipowner’s overall liability to the claimants to a fixed sum (The Western Regent [2005] 2 Lloyd’s Rep 359 [52] (Clarke LJ). This was approved by Harding v Wealands [2006] 4 All ER 1 [47] (Lord Hoffmann)).

Prior to the LLMC 1976, a shipowner could commence limitation proceedings in the jurisdiction of its choice. Although the LLMC 1976 modifies the law regarding limitation and liability claims, it is unlikely that major changes to liability and limitation, as suggested by the appellant, would have been introduced without discussion during the drafting of art 10.