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Limitation of Liability for Ship Owners – Why jurisdiction matters!

Limitation of Liability for Ship Owners – Why jurisdiction matters | BDM Blog | BDM Law

Forum shopping to take advantage of favourable limitation is perhaps less common than it once was but it still happens, especially when incidents arise at sea and the sums involved are considerable. Witness the recent case of The Di Matteo1.

Those interested in the facts can click here to read the judgment. In a nutshell, in December 2019 Malta suffered a nationwide power outage when the subsea cable supplying power to the island was cut. The finger of blame was directed at the Di Matteo which was passing through the Sicily Channel (international waters) at the relevant time. Their P&I Club (Standard Asia) put up security in the form of an LOU to prevent an arrest from taking place.

The LOU was subject to English law and the exclusive jurisdiction of the English Court. It was for just over 21 million euros. The LOU responded to a final judgment of a “competent court”. It was also given on the basis that the owners of the Di Matteo reserved their right to limit liability.

The Maltese claimants issued proceedings in Malta. The ship owners issued proceedings in Singapore. The former has adopted the 1996 Protocol, the latter the 1976 Limitation Convention. On the numbers, the difference is stark. The limit of liability of the ship owners in Singapore would be 5.77 million euros. In Malta, the limit would be around 21 million euros (the amount of the LOU). This provided the perfect backdrop for a jurisdiction battle.

The obvious concern for the ship owners’ P&I Club (who were exposed under their LOU) was that the Maltese Court would quickly rule in the claimants’ favour and that judgment could then be enforced in England against the LOU. For that reason, the ship owners asked the Singapore Court to make a ruling that the LOU should be released upon a limitation fund being constituted in Singapore. The basis for that was Article 13.2 of the 1976 Convention which provides as follows:

“After a limitation fund has been constituted in accordance with Article 11, any ship or other property, belonging to a person on behalf of whom the fund has been constituted, which has been arrested or attached within the jurisdiction of a State Party for a claim which may be raised against the fund, or any security given, may be released by order of the Court or other competent authority of such State…”

The purpose of 13.2 is to protect a ship owner who has legitimately constituted a fund under the 1976 Convention. In effect, it seeks to prevent arrests and provide for the return of securities previously provided so that the fund is the sole security available to claimants. This avoids proceedings in multiple jurisdictions and makes for efficient case handling.

The application in Singapore for release of the LOU triggered proceedings in the High Court in which the Maltese claimants asked the Court to make various declarations to the effect that the LOU would remain valid and enforceable as a matter of English law notwithstanding any decision from the Singapore Court. The ship owners (seeking to resist those declarations) asked the English Court to decline jurisdiction and to set aside or stay the English proceedings in favour of the courts of Singapore.

His Honour Judge Pelling QC took the view that there was nothing to prevent the ship owner from making any application it wished to make in Singapore. That said, he held on the facts that the LOU was subject to English law and jurisdiction and it was not a security within the jurisdiction of the Singapore Court. To refer back to the provisions of 13.2, the LOU was not security given to obtain the release of a ship or other property arrested or attached within the jurisdiction of any state party to the 1976 Convention.

The ICL Vikraman2  is authority for the proposition that the “State Party” in which security has been provided must also be a party to the 1976 Convention. To put it another way, the security regime provided by the Convention is confined to states that are party to it and, on that basis, if the LOU is subject to the jurisdiction of a non-1976 Convention state (the UK), then the Singapore Court cannot invoke its powers under Article 13.2 as regards that security.

Of course, the ICL Vikraman is an English law decision and it remains to be seen whether the Singapore Court will take a different approach. Pending that, however, the English Court refused to decline jurisdiction and the ship owners’ application was dismissed. As regards the declarations sought by the Maltese claimants, the judge felt that it was right to stay the proceedings temporarily pending the outcome of the Singapore proceedings on the basis that the Singapore Court may take the same view as the English Courts when it came to the interpretation of 13.2 of the 1976 Convention. If that was the case, then the English proceedings would be otiose.

The interesting issue is what happens if the Singapore Court takes a different view to the English Court when it comes to 13.2 of the 1976 Convention. That would raise a potential issue of importance. However, the Judge refused permission to appeal to the Court of Appeal on the basis that it was too soon to determine if that would arise as it will only become apparent when the substantive issues are resolved.

We will have to see if an application is made directly to the Court of Appeal. In our view, the issue is one of general importance because it is common for LOUs to be provided which respond to “competent court” and subject to a right to limit. The fact that the LOU itself contains a law and jurisdiction clause arguably frustrates the scope of Article 13.2. Pending that, it is arguable that more care is needed when issuing high value LOUs on such terms to avoid this situation from arising again.

We shall of course continue to monitor the case and update our readers if the case comes before the Court of Appeal.

(1) Enemalta Plc v The Standard Club Asia Ltd [2021] EWHC 1215 (Comm).
(2) ICL Shipping Ltd v Chin Tai Steel Enterprise Co Ltd (The ICL Vikraman) (QBD (Comm Ct)) [2003] EWHC 2320 Comm.

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