An Italian company, Saipem SpA (Saipem), was obligated to provide services in the Vector oil field of the North Sea under a contract with Conoco (UK) Ltd (Conoco) concluded on 10 November 1983. Saipem subcontracted the task of digging a trench and laying a pipeline to Dredging VO2 BV (VO2), a Dutch corporation that owned and operated the suction dredger Volvox Hollandia. VO2 sub-subcontracted with Geosite Surveys Ltd (Geosite), an English company, for the provision of high-tech equipment and personnel. The head contract and the subcontract provided for the jurisdiction of the English Courts over any action brought in connection with or arising out of the contract. The sub-subcontract provided for arbitration in London. All three contracts were subject to English law.

On 9 March 1984, the suction head of the Volvox Hollandia damaged an existing pipeline said to belong to Conoco, resulting in a claim of GBP 4.5 m. These sums were claimed as damages in negligence or breach of contract against VO2 and alternatively in negligence against Geosite. After the occurrence, the vessel proceeded to Rotterdam, its port of registry, as its first port of call.

On 1 April 1985, VO2 was granted an order limiting its liability by the Rotterdam District Court and provided security under the LLMC 1957 and the 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as supplemented by the Accession Convention 1978 (the Brussels Convention). The Netherlands and the UK were parties to the LLMC 1957 and the Brussels Convention. The Brussels Convention was not in effect between the UK and the Netherlands prior to 1 January 1987.

After the Rotterdam proceedings were instituted, Saipem, and subsequently Conoco, instituted proceedings in the English Courts, claiming damages against VO2 and Geosite and a declaration that VO2 was not entitled to limit its liability because the defect in the mode of operating was one of which the shipowner, by its alter ego, ought to have been aware.

In March 1987, VO2 applied for service on it out of the jurisdiction to be set aside on the ground that the English Courts had no jurisdiction to grant the relief claimed, or alternatively for a stay of all proceedings in both actions on the ground that the shipowner had already commenced limitation proceedings in Rotterdam, and that England was forum non conveniens. Staughton J, dismissing the applications, held that England was the appropriate forum because the four parties in the litigation had expressly agreed that disputes should be determined in England and by English law. So far as the claim by Saipem against VO2 was concerned, it arose directly out of the contractual relationship which incorporated those terms; other claims by Conoco or against Geosite had to be laid in tort, but they all arose out of arrangements which contemplated English law and an English forum.

VO2 appealed the decision of Staughton J. It argued that the plaintiffs should not be entitled to proceed in the English Courts with their claims for negative declarations that the shipowner was not entitled to limit its liability, given that, before the institution of any proceedings here, the shipowners had properly instituted limitation proceedings in Rotterdam.

Held: By a majority (Dillon LJ dissenting), the appeal is allowed.

The majority held that limitation of liability is an internationally recognised defence afforded to shipowners in certain circumstances. It is a provision in favour of the shipowner restricting the right of those to whom it is liable. In the absence of any claim for an injunction staying foreign proceedings so far as English courts were concerned the practice had been that a shipowner was at liberty to choose its domiciliary court as the forum in which to set up its limitation fund and to establish its right to limit its liability against claimants. The English Court should be exceedingly slow to interfere with such a settled practice.

Kerr LJ stated that the declarations sought would effectively compel VO2 to litigate issues concerning limitation in England, in accordance with English law and procedure, or both in the Netherlands and England. They constitute a novel type of pre-emptive forum shopping. They distort the settled law and practice governing the rights of shipowners to seek to limit their liability. They involve an exorbitant assumption of jurisdiction by the English courts under their procedural rules without regard for the implications of the LLMC 1957 and the Brussels Convention. And they involve an attempt at forum shopping in the face of pending litigation, properly instituted by the defendants in the Netherlands before the English proceedings, so that a race for judgment in these two jurisdictions would likely result. In the upshot, the inclusion of claims for negative declaration in the plaintiffs' writs for service out of the jurisdiction was improper and should not be allowed to stand.

VO2 faces two actions brought by two plaintiffs, with different claims, and a further potential claimant for indemnity or contribution in the event of their being held liable. This makes the present orders more inappropriate than if this were truly a 'one claim' situation since if - as here - the limitation fund is less than each of the plaintiffs' claims, this procedure can only lead to two judgments in personam between the shipowner and each of the plaintiffs, in each case for the amount of the limitation fund, whereas the purpose of limitation proceedings is, of course, to obtain a decree in rem against all claimants for a single sum limited to the amount of the limitation fund.

The Judge then considered the relevant provisions of the LLMC 1957. Article 1 provides that:

(1) The owner of a sea-going ship may limit his liability … in respect of claims arising from any of the following occurrence [which include damage to property] unless the occurrence giving rise to the claim resulted from the actual fault or privity of the owner …

(6) The question upon whom lies the burden of proving whether or not the occurrence giving rise to the claim resulted from the actual fault or privity of the owner shall be determined by the lex fori.

(7) The act of invoking limitation of liability shall not constitute an admission of liability.

Paragraph 6, therefore, recognises the obvious possibility that situations involving conflicts of laws may arise as between different potential jurisdictions. Paragraph 7 recognises, equally obviously, that the act of invoking limitation of liability appertains to the shipowner.

There is no need to deal with the constitution of the limitation fund and the limits of liability which are referred to in arts 2 and 3. Article 4 provides, so far as relevant that 'the rules relating to the constitution and distribution of the limitation fund, if any, and all rules of procedure shall be governed by the national law of the State in which the fund is constituted'.

Article 5 is the most important provision. Its purpose is to ensure that any ship or sister ship in the ownership of a shipowner entitled to limit its liability will be released from arrest in any Contracting State if bail or other security has already been given in a sum equal to the full amount of the limited liability. Article 5(2) provides that the article is to apply whenever such bail or security has been given at one of a number of places. The relevant part here is art 5.2.b, which refers to 'the first port of call after the accident if the accident did not occur in a port'.

It will therefore be seen that the District Court of Rotterdam was an appropriate court under the terms of the LLMC 1957 for the establishment of the limitation fund. Admittedly, the LLMC 1957 does not deal with the appropriate forum(s) for limitation actions. However, it is entirely usual, as here, that the proceedings for the establishment of a limitation fund are the first stage of a limitation action. In that context, art 5.5 provides:

Questions of procedure relating to actions brought under the provisions of this Convention and also the time limit within which such actions shall be brought or prosecuted shall be decided in accordance with the national law of the Contracting State in which the action takes place.

Under the Brussels Convention, only the Dutch Courts have jurisdiction to entertain the limitation action. Although the Brussels Convention does not apply to the present proceedings, its provisions carry great weight as there is an absolute obligation of reciprocal recognition and enforcement of judgments.

Dillon LJ (dissenting): the grounds on which an appellate court can interfere with the exercise of the judge at first instance are very limited. There is no basis for this court to interfere with Staughton J's decision made in exercise of his discretion.

This is a single-claim case in which the issue of VO2's right to limit liability could conveniently and properly be decided in the same proceedings as VO2's liability to Saipem or Conoco. The English actions by Saipem and Conoco were commenced before the provisions of the Brussels Convention became fully binding as part of English law, and consequently the provisions of the Brussels Convention do not apply in relation to these actions.

Staughton J had in mind that the Dutch proceedings were started first in point of time, and he treated that as a factor of some significance in deciding which was the appropriate forum, but not of overwhelming weight. He was entitled to take that view in exercising his discretion.