These proceedings followed on from the earlier decision in MSC Mediterranean Shipping Co SA v Stolt Tank Containers BV [2022] EWHC 835 (Admlty) (CMI1814) that Conti 11 Container Schiffahrts-GmbH & Co KG MS 'MSC Flaminia' (Conti), the owner of the MSC Flaminia, had no viable argument under art 4 of the LLMC 1996 that the conduct of MSC Mediterranean Shipping Co SA (MSC), the time charterer of the vessel, barred the latter from limiting its liability under the Convention for claims arising from an explosion and fire on 14 July 2012 on the vessel in the middle of the Atlantic Ocean.

MSC now applied to limit its liability for Conti's claims arising out of that casualty pursuant to the LLMC 1996. Conti argued that its claims against MSC did not fall within the scope of art 2 of that Convention and were thus not limitable.

Held: Conti's claim, whether considered as a single claim or as a series of distinct claims for various groups of items of expenditure, is not subject to tonnage limitation under the LLMC 1996.

The first international Convention on limitation was agreed in 1924. It provided for a tonnage limitation regime for owners, but also provided in art 10 that '[w]here a person who operates the vessel without owning it or the principal charterer is liable under one of the heads enumerated in article 1, the provisions of this convention are applicable to him'. The UK signed but did not enact the LLMC 1924. It never became part of English law. A new Convention was signed in Brussels in 1957. The provision permitting charterers to limit was art 6.2:

Subject to paragraph (3) of this Article, the provisions of this Convention shall apply to the charterer, manager and operator of the ship, and to the master and members of the crew and other servants of the owner, charterer, manager or operator acting in the course of their employment, in the same way as they apply to an owner himself: Provided that the total limits of liability of the owner and all such other persons in respect of personal claims and property claims arising on a distinct occasion shall not exceed the amounts determined in accordance with Article 3 of this Convention.

The UK did not incorporate the LLMC 1957 into domestic law. Instead, the provisions of the Merchant Shipping Act 1894 (UK) were amended to reflect the Convention. The LLMC 1976 was adopted to update the LLMC 1957. It introduced an increased limitation amount, a more restricted ability to break limits, and the extension of the right to limit to salvors not working on board a ship. There is nothing in the language of the LLMC 1976, or in the travaux préparatoires, suggesting that the Convention was intended to alter the circumstances in which a charterer could limit. The LLMC 1976 was given the force of law in the UK by the Merchant Shipping Act 1979 (UK), the relevant provisions of which were later replaced by the Merchant Shipping Act 1995 (UK). The Convention was amended in 1996 (and again in 2015).

The main issues requiring determination are all issues of construction of art 2.1 of the LLMC 1996. Article 2.1 provides that '[s]ubject to Articles 3 and 4 the following claims, whatever the basis of liability may be, shall be subject to limitation of liability'; and that wording introduces subparas a-e. The Convention has four authentic texts: English, French, Spanish and Russian. For 'claims in respect of' arts 2.1.a-2.1.e, the French, Spanish and Russian authentic texts are 'créances pour', 'reclamaciones relacionadas con', and 'требования в отношении'. Article 2.1.f provides that limitation of liability under the Convention applies to '[c]laims of a person other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with the Convention, and further loss caused by such measures'. When considering MSC’s reliance on art 2.1.f, it will be 'the person liable'. Article 2.1.d is not part of the Convention as enacted under English law by the Merchant Shipping Act 1995 (UK). The Act provides that art 2.1.d shall not apply unless a fund has been established to benefit harbour or conservancy authorities with claims falling within art 2.1.d, and no such fund has been established. The fact that art 2.1.d is not part of English law cannot, however, sensibly affect the meaning of the other subparas of Article 2.1 as they apply here.

Article 2.2 provides that:

Claims set out in paragraph 1 shall be subject to limitation of liability even if brought by way of recourse or for indemnity under a contract or otherwise. However, claims set out under paragraph 1 (d), (e) or (f) shall not be subject to limitation of liability to the extent that they relate to remuneration under a contract with the person liable.

The Convention does not define what it means by a claim brought 'by way of recourse or for indemnity', and that language could mean a number of things, so it is legitimate to look to the travaux préparatoires. They state the view that art 2.2 might be unnecessary, 'but it was felt that it should be expressly stated that a limitable claim does not change its nature when brought as a "recourse claim"'. The example given to illustrate was where an insider (ie a 'shipowner' or person for whose act, neglect or default a 'shipowner' is responsible) and an outsider (ie any other party) are both liable to a claimant, and the outsider satisfies the claim in full (having no right to limit). The outsider's claim against the insider for contribution as a joint tortfeasor, it was said, should be subject to limitation, just as the claimant's claim would have been if pursued against the insider. The travaux also note that in the English Convention text 'recourse' was preferred to 'contribution' to avoid confusion with contribution in general average. The intention of the example given in the travaux was not to suggest that the recourse claimant has to be an outsider for art 2.2 to apply. The most obvious situation for a recourse claim is where both owner and charterer would be liable on a cargo claim, one of them meets the claim, and there is then a claim against the other. In such a case, the recourse claim is within art 2.2 and is limitable or not, as the case may be, by reference to the nature of the original claim.

There may be a question whether art 2.2 refers only to claims by a claimant (insider or outsider) against a defendant (necessarily an insider, or art 2 would not be being considered at all), where the claimant and the defendant were both liable to a third party and the claim by the third party against the defendant would have been limitable. The Court of Appeal in The CMA Djakarta [2004] EWCA Civ 114 (CMI728) decided that a claim by an owner against a charterer in respect of the owner’s liability on a cargo claim is limitable under art 2.1.a, and referred to such a claim as a 'recourse claim', without reference to whether the charterer would (also) have been liable to the cargo claimant, or whether the 'recourse claim' was limitable via art 2.2 or by direct application of art 2.1.a. The present case seems to be the first occasion since The CMA Djakarta where an English court has had to consider a claim by a charterer that it is entitled to limit its liability to the owner other than in respect of cargo claims.

There are two parts of the travaux préparatoires to the LLMC 1976 of possible relevance to the interpretation of the 'consequential loss' language in art 2.1.a. The salient points to note from that material are that: (i) it was considered and intended that art 2.1.a of the LLMC 1976 should have the same scope as the equivalent provisions of the LLMC 1957; (ii) it was considered that a 'claim in respect of' property damage would include a claim for consequential loss arising out of property damage, so that the 'consequential loss' language in art 2.1.a was included for the sake of clarity, not to expand what would otherwise have been the scope of the provision; (iii) it was considered and intended that 'claims in respect of' property damage meant the same as 'claims arising out of' property damage. A claim against a 'shipowner' (as defined in art 1.2) is a claim in respect of the loss of or damage to property if, and only if, the loss of or damage to property in question is the harm in respect of which the claimant has a right to seek redress, which right the claim in question seeks to enforce. That is so whether the claim seeks redress for the property loss or damage itself or for consequential loss. Limitation then applies (subject to arts 3 and 4) if the property loss or damage occurred on board the ship in question or in direct connection with its operation, whatever the legal basis of the liability, eg whether it is tortious, statutory, or contractual, and whether it is strict or fault-based (and if the latter, whatever degree of fault might be required for liability). The express reference to consequential loss claims was for the avoidance of doubt to spell out that 'claims in respect of' the 'concrete' injuries to which art 2.1.a primarily refers extend to consequential loss claims.

The owner and charterer of a seagoing ship are both insiders. Either may have property on board exposed to the risk of being lost or damaged through the other's actionable breach. Most obviously, a charterer may own some or all of the cargo being carried. Or again, bunkers on board will normally be owned by one or other of them. On the ordinary meaning of the language of art 2.1.a, a cargo claim by the charterer against the owner, or a claim by the owner against the charterer for loss of or damage to its containers, or a claim by either against the other for loss of or damage to its bunkers, is a claim in respect of loss of or damage to property occurring on board. There is nothing in the language of art 2.1.a indicating or requiring (for it to make sense) an exception not stated for claims by one insider against another. Furthermore, it seems a startling notion that extending the right to limit to charterers might be said to have damaged owners' right to limit in the core field of cargo claims.

Articles 6 and 7 of the LLMC 1996 provide for separate limits of liability, in each case for claims arising on any given distinct occasion, in respect of: (i) loss or life or personal injury suffered by passengers of a ship (art 7.1); (ii) other claims for loss of life or personal injury (art 6.1.a); and (iii) all other claims plus the excess (if any) of the amount required to pay all claims within (ii) above over the limit under art 6.1.a (art 6.1.b read with art 6.2). The limitation fund in this case is for the art 6.1.b limit, as now set by the 1996 Protocol. By art 9.1.a of the Convention, that limit applies to 'the aggregate of all claims which arise on any distinct occasion' against insiders ('the person or persons mentioned in paragraph 2 of Article 1 and any person for whose act, neglect or default he or they are responsible'). That is one aggregate limit for all limitable claims against all insiders. By art 11.1, any insider facing a limitable claim may constitute a tonnage limitation fund in that amount, and by art 11.3 a fund constituted by any insider is deemed constituted by all insiders. That is one fund for the benefit of all insiders (limiting, and funding the discharge of, the limitable liabilities), to match the one aggregate limit. The contrary is not sensibly arguable. Where under the terms applicable to the contractual or other legal relationship between two insiders, one bears towards the other legal liability for a casualty (here, MSC's liability to Conti), the burden of establishing a limitation fund for the benefit of them both (and all other insiders) must fall on the former. Self-evidently a claim by the latter, if they constitute the fund, for the value of the fund thus constituted, is not itself limitable. Anything else would be absurd. If in this case Conti had established the limitation fund, on the arbitrators' findings as to liability under the time charter, Conti would have been entitled to be compensated by MSC for the cost of having done so.

Bearing that self-evident truth in mind, there is nothing unreasonable or absurd in a charterer's claim against the owner for loss of or damage to cargo the charterer owned being limitable. If the cargo claim is sound, and if it is enforced in a jurisdiction where the LLMC 1996 will apply, the charterer will recover pari passu with, for example, outsiders who also have valid cargo claims. Similarly, it is not unreasonable or absurd for an owner’s claim against the charterer, for loss of or damage to its containers on board, to be limitable. From the perspective of the Convention and its aims, why should the charterer, respectively the owner, not stand pari passu in that respect with, for example, outsiders' cargo claims? Assume a cargo claimant charterer establishes the fund. If it fails to establish the owner’s legal responsibility inter se, its cargo claim fails, its claim to be reimbursed the value of the fund fails, all other claimants against the fund share the fund pari passu, and that is as it should be. If it establishes the owner’s legal responsibility inter se, its cargo claim succeeds, it shares in the fund pari passu with all other claimants against the fund, and its claim to be reimbursed the value of the fund is also a good claim, recoverable independently of the fund, and that is also as it should be - the charterer then has not, ultimately, had to fund the fund, and it makes a net recovery of its proper rateable share of the tonnage limit (as funded, ultimately, by the owner), pari passu with other relevant claimants.

The prime purpose behind extending tonnage limitation to charterers was to ensure that cargo claimants could not 'beat the limit' by suing charterers as carriers under charterers' bills of lading. That means that the LLMC 1996 had well in mind, and should be interpreted so as to operate reasonably and without absurdity for, the case where both owner and charterer are liable to outsider claimants (most obviously, cargo claimants and public bodies with casualty clear-up responsibilities). As a matter of policy, a view might have been taken that outsiders should never have to share with insiders in the distribution of a tonnage limitation fund. But that is not the only view that might be taken, not least because the flip side of outsiders with claims not having to share the fund would be that a claim similar in kind to their claims (for example, a cargo claim) could 'beat the limit' and be enforced, including through proceedings in rem, in competition with those claims. It would not have been difficult to give effect in the text of art 2.1 to an absolute policy of 'outsider claims only'. Its primary wording could have been, 'the following claims … shall be subject to limitation of liability unless made by a shipowner otherwise than by way of recourse or indemnity as referred to in paragraph 2'.

In this case, there was loss of and damage to cargo, and the cargo was of course property on board for the purpose of art 2.1.a. There was property loss and damage both prior to and causing the explosion and fire, and also resulting from the explosion and fire. But Conti’s claim against MSC did not seek to enforce a right of redress in respect of loss of or damage to cargo. It sought to enforce a right of redress in respect of the risk of harm to the ship that had been posed by the cargo, and the damage the ship suffered when that risk eventuated. Conti’s claim against MSC is thus not subject to tonnage limitation under art 2.1.a of the LLMC 1996.

MSC also relied on arts 2.1.e and 2.1.f of the LLMC 1996. In that regard, the technique deployed was to treat Conti as having made a series of claims, by reference to losses said by MSC to be of different types, and to subject each to scrutiny against the language of those two provisions. This is not an appropriate technique in the present case. Conti’s claim against MSC was that dangerous cargo had been shipped in breach of charter resulting in massive damage to the ship. In calculating their award of damages, the arbitrators included the amounts of many items of expenditure incurred by Conti, duly scrutinised by the arbitrators. That means, as will often be the case with damaged ships, that damages have been assessed by reference to actual costs incurred rather than by reference to either a more abstract assessment of the reasonable cost required to restore an undamaged ship to Conti or evidence of the ship’s pre-casualty and damaged sale values. However, the nature of the exercise, in law, was still that of putting a (negative) value on the damage to the ship (inclusive of losses consequential upon that damage) in respect of which Conti made its claim, and awarding that amount as damages. That is a complete answer to MSC's reliance on tonnage limitation in this case. That is to say, the correct claim characterisation in this case is that, from the perspective of the LLMC 1996, Conti made good in the arbitration a claim (singular) in respect of damage to the ship (including consequential loss resulting from having a damaged ship); and tonnage limitation does not apply to such a claim.

[For the unsuccessful appeal to the Court of Appeal, see MSC Mediterranean Shipping Co SA v Stolt Tank Containers BV (Re 'MSC Flaminia' (No 2)) [2023] EWCA Civ 1007 (CMI2276)].