The Court of Appeal affirmed the High Court decision that charterers cannot limit liability in connection with claims brought by shipowners against charterers for losses suffered by the shipowners themselves.
The MSC Flaminia suffered an explosion whilst enroute from Charleston to Antwerp. The explosion resulted in serious damage to the vessel and containers on board. Three crew members were killed. The shipowners engaged salvors to extinguish the fire and salvage the vessel and the cargo. It was found that the reason for the explosion was the auto – polymerisation of a chemical known as DVB which had been loaded at New Orleans.
Owners commenced arbitration and obtained an award against Charterers to recover the hire due to Owners during the period the vessel was out of service under the charter and to recover the losses incurred because of the explosion. The damages awarded to Owners amounted to USD 200 million.
Charterers sought to limit their liability under the 1976 Convention on Limitation of Liability for Maritime claims as amended by the Amending Protocol 1996 and given the force of law in the United Kingdom by section 185 of the Merchant Shipping Act 1996. Had Charterers been entitled to limit, their liability to Owners would have been significantly reduced to approx. GBP 28.2 million.
Charterers were not seeking to limit their liability for claims for loss of life or personal injury which are subject to a separate limit and were within that limit. Nor were they seeking to limit in connection with cargo claims which had been heard before the US courts which held the shippers and the manufactures of the DVB liable for the damages and exempted both Owners and Charterers from liability.
The Court of Appeal affirmed the High Court decision that charterers are not entitled to limit liability under the 1976 Convention for claims brought by the shipowners for losses suffered by the shipowners themselves.
Article 1.2 of the Convention states that the term “shipowner” shall mean the owner, charterer, manager and operator of a seagoing ship. Under the Convention once a claim arises that is subject to limitation any of the parties described as “shipowners” are entitled to constitute a limitation fund for the benefit of all. Owners’ argument that it would be remarkable if Owners’ own claim had to be paid out of a fund constituted by the Owners was upheld by the judge.
This is an expected but unfavourable decision for charterers, and it remains to be seen whether the Court of Appeal judgment will be appealed. However not all is lost as charterers are still allowed to limit liability in connection with other claims such as third party cargo claims settled by owners where owners are seeking an indemnity against charterers under the charterparty.
