The Sea Empress ran aground at St Anne's Head, Milford Haven, resulting in the release of approximately 72,000 mt of crude oil into the sea. A fishing ban was imposed in an area of the sea around Wales, stretching from St David's Head in the west to the Gower Peninsular in the east. This ban encompassed fishing, collecting edible plants and seaweed, and catching fish on the designated zone. Furthermore, the prohibited areas encompassed the whelk fisheries off Tenby and Saundersfoot.

The appellants operated a business that involved processing whelks, situated about 200 miles away from Milford Haven. Following the ban, the appellants' operations were impacted, leading to the termination of a contract they held with a Korean whelk buyer. They could not substitute the whelks with other products, resulting in a loss of gross profits totalling GBP 746,632, reduced by avoided expenses of GBP 103,075. Consequently, the appellants made a claim for loss of profits against the fund. Their claim was rejected by David Steel J (see Alegrete Shipping Co Inc (Owners of the Ship 'Sea Empress') v The International Oil Pollution Compensation Fund 1971 [2002] EWHC 1095 (Admlty), who found that it did not constitute 'damage caused ... by contamination resulting from the discharge or escape' of oil within the meaning of s 153 of Sch 4 to the Merchant Shipping Act 1995 (UK) (the 1995 Act).

The appellants appealed. The respondent to the appeal was the International Oil Pollution Compensation Fund 1971.

Held: Appeal dismissed.

Mance LJ: The Merchant Shipping (Oil Pollution) Act 1971 (UK) and the Merchant Shipping Act 1974 (UK) were amalgamated into the the 1995 Act. These Acts were passed to enact the CLC Convention 1969 and the Fund Convention 1971 within the United Kingdom. Despite the legislative objective, the terms of these Conventions had not been specifically incorporated into or scheduled within the UK legislation. Nevertheless, as the legislation's purpose is to enforce international Conventions, it should 'be given a liberal and broad rather than a restricted construction, and so construed, if reasonably possible, to conform to the language of the Convention; as highlighted in Samick Lines Co Ltd v The Owners of The Antonis P Lemos [1985] 1 AC 711 (CMI2212).

When addressing the question of causation within such cases, the Court agreed with the principle outlined in Kuwait Airways Corp v Iraq Airways Co [2002] UKHL 19 that questions of liability cannot be separated from questions of causation. The Court held that this approach to causation was consistent with a 'liberal and broad' approach to construction and is equally applicable to legislation giving effect to international Conventions as it is to domestically inspired legislation.

The Court further held that, since it was interpreting a statute that gave effect to international Conventions and focused on the consequences of contamination resulting from the escape or discharge of oil, it was crucial to acknowledge that it may not be desirable to import all the principles of causation and remoteness from Common Law negligence into claims brought under a statute mandating strict liability. The liberal and broad interpretation required to effect the purposes of legislation specifically dealing with the consequences of oil pollution need not necessarily stem from an incorporation of all the aspects of domestically developed rules. Conversely, the English and Scottish rules pertaining to economic loss cannot be outright dismissed as peculiarities. Furthermore, those responsible for drafting and enacting the relevant domestic legislation to give effect to the international Conventions must be assumed to have possessed an understanding of the legal foundations in England and Scotland.

Chadwick LJ: The liability of the Fund is subject to the limits imposed by arts 4.4, 4.5, and 4.6 of the Fund Convention 1971. Article 4.4 establishes a cap on the total compensation the Fund can provide for a single incident. In the event that the established claims against the Fund in respect of one incident exceed the aggregate compensation set out by art 4.4, art 4.5 dictates that the available amount should be distributed pro rata between the claims. As a result, these provisions render the Fund a 'common fund' concerning a given incident, meaning that the compensation source is limited, and potential claimants must compete to have relief. Eligibility for a portion of this common fund is established by proving a causal connection between economic loss and contamination. A stricter test ensures a greater likelihood of full compensation for those who meet its criteria, while a less restrictive test increases the chance of inadequate compensation.

The Court held that the intention of the Contracting Parties to the Fund Convention 1971, as well as the legislator in drafting the Merchant Shipping Act 1974, was to compensate in full those who successfully established a causal link between economic loss and contamination. This compensation would extend as far as possible within the financial constraints imposed by the nature of the fund. This intention is underscored by art 4.6, which empowers the assembly of the Fund to increase the monetary limits set by art 4.4 based on incident experience and resulting damages.

The guiding principle that only those able to establish a causal link between economic loss and contamination should receive full compensation subject to the financial constraints of the Fund, is consistent with the intention of the restrictive test of causation. This principle results in those with closer proximity of loss being fully compensated while excluding those with more distant loss from benefiting from the Fund. This boundary to include some claims and exclude others - notwithstanding that those others would satisfy a less restrictive test of causation - is not in doubt and is justified by practical necessity.