On 10 July 1999, the CMA Djakarta, which was owned by Classica Shipping Co Ltd (the defendant) and time chartered to CMA CGM SA (the plaintiff), suffered an explosion and its voyage had to be abandoned. The explosion was attributable to the fact that two containers on board carried explosive chemicals. This was a breach of the dangerous cargo clause by the plaintiff. The case was referred to arbitration. The arbitrators decided that there was a breach of the charterparty by the plaintiff. Following Aegean Sea Traders Co v Repsol Petroleo SA (The Aegean Sea) [1998] 2 Lloyd's Rep 39, the plaintiff was not entitled to limit its liability under the Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 1976) which had been incorporated into English law by s 185 of the Merchant Shipping Act 1995 (UK).

The Commercial Court upheld the award and stated that under the LLMC 1976, a charterer could only limit its liability to the extent that it was acting as a shipowner: see CMA CGM SA v Classica Shipping Co Ltd [2003] EWHC 641 (Comm) (CMI732). The plaintiff appealed. This appeal raised the question of the extent to which the plaintiff may, pursuant to the LLMC 1976, limit its liability in the proceeding brought against it by the defendant.

The plaintiff alleged that, as a time charterer, it came within the category of persons entitled to limit its liability as prescribed by art 1 of the LLMC 1976 and that all the claims fell within the category of qualifying claims within art 2 of the LLMC 1976.

The defendant asserted that the entitlement to limit was restricted to those persons identified in art 1.2 of the LLMC 1976 whose liability for the qualifying claim arose as shipowner and not otherwise; on the facts of this case no part of the claim against the plaintiff arose from the role of the plaintiff as a shipowner.

Held: Appeal dismissed.

The limitation of shipowners' liability is now governed by the LLMC 1976. Articles 1, 2 and 3 are related. The interpretation of international Conventions must not be controlled by domestic principles but by reference to broad and generally acceptable principles of construction.

It is agreed between the parties that the main object of the LLMC 1976 is to provide for limits which are higher than those previously available in return for making it more difficult to 'break' the limit. Under art 4 of the LLMC 1976, the limit is to apply unless it can be shown that 'the loss resulted from his personal act or omission, committed with intent to cause such loss or recklessly with the knowledge that such loss would probably result'. It is thus particularly difficult to break the limit, but the amount available for compensation is higher than it was previously. The second object of the LLMC 1976 is to enable salvors to claim that their liability could be limited in the same way as shipowners and charterers.

The ordinary meaning of art 1 of the LLMC 1976 is that: first, shipowners and salvors are entitled to limit their liabilities; and secondly, the word 'shipowner' is defined and is said to mean 'the owner, charterer, manager or operator of a seagoing ship'. However, the wording does not mean that a charterer must be acting as a shipowner before it can limit its liability. To ask whether charterers are acting as shipowners is almost a meaningless question since it is almost impossible to say whether stowing the cargo is or is not an act of a kind normally performed by a shipowner. Therefore, the word 'charterer' in art 1 should be given its ordinary meaning, which does not include the 'as owner' gloss. The relevant terms in the LLMC 1957 do not give any assistance in interpretation.

The next question is whether a claim for loss or damage to the vessel by reference to which a charterer seeks to limit its liability is a claim which falls within art 2 of the LLMC 1976.

The relevant provision is art 2.1.a. This article extends the right to limit to claims in respect of loss of life or personal injury and to claims in respect of 'loss of or damage to property occurring on board'. This latter phrase is not apposite to include loss of or damage to the ship itself, since neither the loss of a ship nor damage to a ship can be said to be loss or damage to property on board. Property on board means something on the ship and not the ship itself. The third category of claim is a claim in respect of loss of, or damage to property 'occurring ... in direct connection with the operation of the ship'. However, the reason for including this category of claim is to cater for cases of collision with another ship. It is, of course, true that when one comes to the fourth category of claim, namely, 'loss of or damage to property ... occurring ... in direct connection ... with salvage operations' that property will include the ship to which salvage services have been rendered but that is not then, of course, the ship by reference to the tonnage of which limitation is to be calculated. Articles 9, 10 and 11 of the LLMC 1976 are important in the context of a shipowner claiming against a charterer. They can be summarised by saying that art 9.1 provides for the claims against: (a) the persons mentioned in art 1.2 (namely, the owner, charterer, manager or operator) to be aggregated if they arose on distinct occasions; (b) the owner of a ship rendering salvage services and a salvor operating from that ship; and (c) a salvor not operating from a ship. Article 9.2 deals with passenger claims. Article 10 provides that liability can be limited without the creation of a fund. Article 11 then provides for the constitution of a limitation fund when that is, in fact, done. Article 11.3 provides for separate funds for the 'shipowner' category of those entitled to limit and the 'salvor' categories (and for passenger claims) by providing: 'A fund constituted by one of the persons mentioned in paragraph 1(a), (b) or (c) or paragraph 2 of Article 9 or his insurer shall be deemed constituted by all persons mentioned in paragraphs 1(a), (b) or (c) or paragraph 2 respectively.' Thus, through the references to art 9.1.a all those persons designated as shipowners in art 1.2 of the Convention are brought together as a single unit for the constitution of the fund.

Following The Aegean Sea, the right conclusion is that the claims in respect of which an owner or a charterer can limit do not include claims for loss or damage to the ship relied on to calculate the limit. The Commercial Court's conclusion that a charterer can only limit in respect of operations it undertakes as an owner was wrong. Consequently, the ordinary meaning of art 2.1.a does not extend the right to limit to a claim for damage to the vessel by reference to the tonnage of which limitation is to be calculated.

The plaintiff also argued that the salvage remuneration which had been paid by the defendant was not the cost of repairing the damage to the ship but a free-standing claim which fell within art 2.1.a or 2.1.f of the LLMC 1976 and did not constitute a claim for salvage within the excluding provisions of art 3. However, if a claim for loss of or damage to the ship is not itself a claim within art 2.1.a, a claim for amounts paid to salve the ship cannot be within art 2.1.a. A claim to recover the cost incurred of salving a vessel is best understood as a claim for consequential loss resulting from the damage to the ship; but a claim for that consequential loss is still a claim in respect of damage to the ship and it cannot be brought within art 2.1.a or 2.1.f. The claim to be indemnified in respect of the salvors' claim against the shipowners is, therefore, correctly included in the shipowners' claim as loss resulting from the charterers' breach of contract and the charterers cannot rely on any limit.

In addition, any general average contribution made by the defendant would be made as a result of the damage to the vessel and does not, therefore, fall within art 2.1.a.

According to arts 2.1.a and 2.2, the plaintiff could limit its liability in any suit brought against it by the cargo owners.