MSC Mediterranean Shipping S.A. v Conti 11 Container Schiffarhts GmbH KG MS & Others - The MSC Flaminia No.2
DMC/SandT/24/05
England
MSC Mediterranean Shipping Company S.A. v Conti 11. Container Schiffahrts – GmbH & Co KG MS & Others (The “MSC Flaminia” (No. 2))
English Court of Appeal: Males and Falk LJJ and Sir Launcelot Henderson: [2023] EWCA Civ 1007: 1 September 2023
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWCA/Civ/2023/1007.html
Julian Kenny KC and Michal Hain (instructed by Mills & Co Solicitors Ltd) for MSC (Time Charterers)
Christopher Smith KC and David Walsh (instructed by HFW LLP) for Conti (Head Owners)
TIME CHARTER: 1976 CONVENTION ON LIMITATION OF LIABILITY FOR MARITIME CLAIMS: WHETHER TIME CHARTERERS ENTITLED TO LIMIT THEIR LIABILITY UNDER ARTICLE 2 OF 1976 CONVENTION AGAINST HEAD OWNERS FOR CONSEQUENCES OF EXPLOSION LEADING TO FIRE ON BOARD VESSEL, DESTROYING HUNDREDS OF CONTAINERS, CAUSING EXTENSIVE DAMAGE TO VESSEL AND INCURRING SUBSTANTIAL EXPENSES RELATED TO REPAIRS TO VESSEL: APPEAL ON A QUESTION OF LAW
Summary
The Court of Appeal, in dismissing Time Charterers’ appeal from an Admiralty Court judgment, held that Head Owners’ claims against Time Charterers – awarded in their favour in arbitration for the breach of a time charter that had caused extensive damage to containers, cargo and the vessel and significant resulting expenses – did not fall within Article 2 of the 1976 Limitation Convention. As a result, Time Charterers were unable to limit their liability for the USD200m. or so, awarded to Head Owners in the arbitration.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Registered Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes
Background
The case involved an appeal by MSC, Time Charterers of the containership “MSC Flaminia”, against a decision by the Admiralty Court that they were not entitled to limit their liability to Conti, Head Owners, for losses arising from an explosion on board the vessel in July 2012.
The explosion was caused by dangerous cargo carried in breach of the time charter. Head Owners were awarded about USD200m damages in arbitration. Time Charterers sought to limit their liability under the 1976 Limitation Convention. The Admiralty Court held that Time Charterers could not do so.
Consequently, the central issue between the parties in the appeal to Court of Appeal was whether or not Head Owners' claims against Time Charterers fell within Article 2 of the 1976 Limitation Convention (fn.1).
Judgment
The Court of Appeal’s opinion was given by Males LJ, with whom Falk LJ and Sir Launcelot Henderson agreed.
Based on various concessions made between the parties (fn.2), the Court only needed to examine whether Time Charterers could limit their liability to Head Owners for (a) discharging and decontaminating the cargo, (b) removing firefighting water, (c) payments to authorities, and (d) removing burnt waste.
The Court considered that the purpose of such limitation of liability was to protect shipowners from third party claims, not to limit claims by shipowners against their charterers for losses suffered by the shipowners themselves.
The Court rejected Time Charterers’ argument that Head Owners’ claims could be broken down into separate heads, some of them being limitable. Overall, the Court considered that this was a non-limitable claim for damage to the vessel.
The Court considered that, even if Time Charterers’ argument was correct, the claims did not fall within Article 2 of the 1976 Limitation Convention. The cargo handling expenses fell within Article 2(1)(e) at most but the other claims did not.
Further, Article 2(1)(f) did not apply, because the measures taken were not solely to minimise cargo loss. The claims were also not “consequential losses” under 2(1)(a), because they primarily resulted from damage to the vessel.
In giving effect to the language of Article 2, on the facts as found by the Admiralty Judge, Time Charterers were not entitled to limit their liability to Head Owners. Accordingly, the Court dismissed Time Charterers’ appeal.
Comment
This judgment considered and broadly applied, despite differences in reasoning, the earlier judgments in The “Aegean Sea” (fn.3) and The “CMA Djakarta” (fn.4). The Court of Appeal judgment in the latter case had also been approved, on a non-binding basis, by the UK Supreme Court in The “Ocean Victory” (fn.5).
In particular, the Court of Appeal in the present case accepted that a charterer can limit its liability only in respect of liabilities that originate “outside” the group of entities that are defined as “shipowners”, for the purposes of limitation, in Article 1.2 (fn.6) of the 1976 Limitation Convention.
Thus a charterer, as an “insider”, whose right to limit arises only because it falls within the definition of “shipowner”, cannot limit its liability in relation to claims by the actual owner, as another “insider”, in respect of losses suffered only by the actual owner.
The above result appears to be in keeping with the objective intention of the scheme created by and implemented under the 1976 Limitation Convention, in view of the English case law on this topic taken as a whole.
Footnote 1:
Article 2 materially states:–
“1. Subject to Articles 3 and 4 the following claims, whatever the basis of liability may be, shall be subject to limitation of liability:
(a) Claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connexion with the operation of the ship or with salvage operations, and consequential loss resulting therefrom;
(b) Claims in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;
(c) Claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connexion with the operation of the ship or salvage operations;
(d) Claims in respect of the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship;
(e) Claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship;
(f) Claims 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 this Convention, and further loss caused by such measures.
2. 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) and (f) shall not be subject to limitation of liability to the extent that they relate to remuneration under a contract with the person liable.”
Footnote 2:
Head Owners accepted that there were some claims or potential claims in respect of which Time Charterers were or would be entitled to limit their liability. For example, if Head Owners had been held liable to cargo claimants in the United States proceedings related to the casualty, they accepted that their claims to be indemnified against such liability by Time Charterers would be subject to limitation. Conversely, Time Charterers accepted that there were some claims by Head Owners in respect of which they were not entitled to limit their liability, as to which there was no appeal from the Admiralty Judge's decision – for example, the cost of repairing the vessel.
Footnote 3:
[1998] 2 Lloyd's Rep 39
Footnote 4:
High Court [2003] EWHC 641 (Comm), [2003] 2 Lloyd's Rep 50 (DMC’s Case Note available here [1]
Court of Appeal [2004] EWCA Civ 114, [2004] 1 Lloyd’s Rep 460 (DMC’s Case Note available here [2])
Footnote 5:
[2017] UKSC 35, [2017] 1 WLR 1793 (judgment available here and DMC’s Case Note available here [[3]])
Footnote 6:
Article 1 materially states:–
“2. The term "shipowner" shall mean the owner, charterer, manager and operator of a seagoing ship.”
