The applicant shipowner chartered out its vessel, M/V Yuriy Arshenevskiy, which was ordered to load cargo at Tianjin and Shanghai for carriage to India. Following loss of deck cargo in heavy weather en route, the vessel berthed at Xiamen, China, for re-lashing of hold cargo. Before the vessel could set sail, it was arrested and released upon the applicant posting security. The applicant subsequently applied to the Xiamen Maritime Court to constitute a limitation fund. The court ordered the applicant to deposit USD 4.94 million within three days. The applicant failed to do so, and its application was deemed withdrawn. The applicant applied for limitation of liability by constituting a fund in Mumbai, whilst awaiting discharge of cargo.

The court framed the issues as follows:

1. Is institution of prior legal proceeding before the court against the vessel or its owner a precondition for the constitution of a limitation fund?
2. Is the application barred by issue estoppel, res judicata or under O 23 r 1 of the Code of Civil Procedure due to the applicant’s withdrawal of its application in China?
3. Is the shipowner's statutory right to limit liability under Part XA of the Merchant Shipping Act 1958 (India), as amended by the Amendment Act 63 of 2002 to incorporate the LLMC 1976, absolute?
4. Does the LLMC 1976 or the 1996 Protocol apply to determine the quantum of the limitation fund?

Held: A. Prior legal proceedings a precondition for the constitution of a fund?

The court found, relying on case authority (The Western Regent [2005] 2 Lloyd’s Rep 359, World Tanker Carrier Corporation v SNP Shipping Services Pvt Ltd (1998) 5 SCC 310, The Volvox Hollandia [1988] 2 Lloyd’s Rep 361 and The APL Sydney [2010] 2 Lloyd’s Rep 555) that institution of prior legal proceedings in the Indian courts against the vessel or owner was not a precondition under the LLMC 1976 or s 352C of the Merchant Shipping Act for maintaining a suit for constitution of a limitation fund. The LLMC 1976 has two separate provisions: (1) limitation of liability without constitution of the fund (art 10); and (2) constitution of the fund, which bars other actions when such fund is constituted (arts 11, 13). The shipowner's very right to limit and to invoke such right do not depend upon the fund’s constitution. If a claimant brings an action against the shipowner, the shipowner may plead limitation by way of defence, without constituting a fund. Likewise, where the shipowner wants to avoid enforcement of a claim, it may invoke limitation by applying for a declaration in respect of his right to limit without constituting a fund. There is thus no need for the shipowner to show that an action was actually brought against it.

B. Present application barred?

The court found that the suit was not barred by the principles of issue estoppel or res judicata. The application before the Chinese court was treated as withdrawn and therefore not a matter ‘heard and finally decided by a court’ (Sarguja Transport Service v State Transport Appellate Tribunal 1987 AIR 88). Order 23 r 1, which bars a second suit upon abandonment or withdrawal of the suit without the court’s permission, has no extra-territorial application.

C. Shipowner’s right to limit absolute?

The court found that, under s 352 of the Merchant Shipping Act as amended, the right to limit was absolute and without reference to any proof of loss resulting from the shipowner’s personal act or omission, unlike the LLMC 1976 (see art 4). Parliament could disregard the restricted mandate reserved in the LLMC 1976 (see art 18.1) for member states to derogate from its provisions. There was no principle of statutory interpretation requiring the court to interpret domestic legislation in accordance with the Convention. Further, the absence of art 4 of the LLMC 1976 in Indian law (ie allowing a shipowner to limit its liability despite having caused loss through its personal act or omission) did not lead to absurd consequences, as the respondent had argued, when one considers the trade-offs with the LLMC 1957 (on which the Act, prior to the amendments, was based and which allowed shipowners to limit liability unless the claim resulted from the owner’s actual fault or privity). The quantum of limitation in the LLMC 1976 was raised significantly in exchange for an almost indisputable right to limit liability - the LLMC 1976 requires proof, not only that the loss resulted from the shipowner’s personal act or omission, but that it was committed (a) with intent to cause such loss, or (b) recklessly and with knowledge that such loss would probably result. In addition, it would not be unwise for Parliament to completely do away with the breaking of limitation if there was not a single successful instance in forty years of the LLMC 1976 regime.

D. LLMC 1976 or LLMC 1996?

The court agreed with the respondents that the phrase ‘as amended from time to time’ in the definition of ‘Convention’ in s 352B of the Merchant Shipping Act was meant to capture all future amendments to the LLMC 1976. It was not restricted, as contended by the applicant, to amendments coming into force between the Bill’s introduction and the bringing into force of the amending Act. It therefore also included the 1996 Protocol, which was acceded to and came into force in India in 2011, after the amending Act came into force in February 2003. The court rejected the applicant’s argument that Parliament, by making all future Convention amendments directly applicable in India without having to vote on them, had impermissibly abdicated its essential legislative function and give carte blanche to an undefined group of countries to amend domestic legislation. The court held that, as a matter of principle, direct application of future amendments to legislation per se does not amount to excessive delegation. Parliament had, in the amending Act, indicated that, with regard to limitation of liability, it would rather accord with the international Convention to which India had acceded - the LLMC 1976 'as amended from time to time'. The quantum of limitation is, by its very nature, an international standard and there is nothing excessive in adopting that standard and all its subsequent amendments.