Case No: 2003 0808 A3
ON APPEAL FROM THE QUEEN’S BENCH DIVISION
COMMERCIAL COURT (MR JUSTICE DAVID STEEL)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Before :
LORD JUSTICE WALLER
LORD JUSTICE LONGMORE
and
LORD JUSTICE NEUBERGER
Between :
CMA CGM S.A. | Appellant |
- and - | |
CLASSICA SHIPPING Co Ltd | Respondent |
(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
CHRISTOPHER HANCOCK Esq QC
(instructed by Ince & Co) for the Appellant
IAIN MILLIGAN Esq QC and MICHAEL COBURN Esq
(instructed by Holman Fenwick & Willan) for the Respondent
Judgment
Lord Justice Longmore:
Introduction
On 10th July 1999 the container ship CMA DJAKARTA (ex CLASSICA) suffered an explosion and her voyage had to be abandoned; the explosion was attributable to two containers containing bleaching powder. The shipowners asserted (and arbitrators have held) that the shipment of the containers constituted a breach of lines 45 – 47 of a time charterparty on the New York Produce Exchange form of 9th April 1999 which provided that the vessel was to be employed in carrying lawful containerised merchandise
“excluding any goods of a dangerous injurious flammable or corrosive nature”.
The arbitrators decided that the charterers were liable to the owners in damages for the cost of repair to the vessel in the sum of US $26,624,022; they also made consequential declaratory awards.
This appeal raises the question of the extent to which the charterers may (if at all) pursuant to the Merchant Shipping Act 1995, limit their liability in the proceedings brought against them by the owners. On appeal from the arbitration award David Steel J has held that a charterer may only limit his liability to the extent that he was acting “as (or “qua”) shipowner” which he has defined as undertaking an activity “usually associated with ownership” and further defined as “to the extent that he operates or manages the vessel” (paragraphs 30 and 32 of the judgment now reported at [2003] 2 Lloyds Rep. 50). In so holding he, like the arbitrators, followed the decision of Thomas J (as he then was) in The Aegean Sea [1998] 2 Lloyds Rep. 39 but he considered that the point was one of general importance and gave leave to appeal to this court.
A right for a shipowner to limit his liability in respect of certain claims according to the tonnage of his ship has been granted by United Kingdom statute for a long time but the matter has been increasingly dealt with by international convention. Both the United Kingdom statutory history and the history of the 1924 and 1957 Conventions are set out by the judge. This species of limitation is now governed, as far as this country is concerned, by the Convention on Limitation of Liability for Maritime Claims of 1976 (“the 1976 Convention”). The current United Kingdom statute is the Merchant Shipping Act 1995 which, by section 185, enacts that the provisions of the 1976 Convention shall have the force of law in the United Kingdom.
The relevant articles for the purpose of this appeal are Articles 1, 2 and 3 which provide:-
“Article 1. Persons entitled to limit liability
1. Shipowners and salvors, as hereinafter defined, may limit their liability in accordance with the rules of this Convention for claims set out in Article 2.
2. The term “shipowner” shall mean the owner, charterer, manager or operator of a seagoing ship.
3. . . . . . .
4. If any claims set out in Article 2 are made against any person for whose act, neglect or default the shipowner or salvor is responsible, such person shall be entitled to avail himself of the limitation of liability provided for in this Convention.
5. In this Convention the liability of a shipowner shall include liability in an action brought against the vessel herself.
Article 2. Claims subject to limitation
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) . . . . . . .
(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.
Article 3. Claims excepted from limitation
The rules of this Convention shall not apply to:
(a) claims for salvage or contribution in general average.
. . . . . . .”
Owners’ claims
The main part of the owner’s claim is the cost of repair of the ship. It was this claim which resulted in the award of $26,624,032.00; it includes $4,702,441.80 paid for salvage services rendered to the ship. There were, however, other claims made by the shipowners; these were claims to be indemnified in respect of (1) their liability to contribute to general average and (2) their liability to the cargo owners for loss or damage to cargo. We were informed that a limitation fund had been established by the charterers in France. The question, therefore, is whether the shipowners, together with other claimants, are obliged to look only to that fund for compensation.
The decision below
At the arbitration the charterers accepted that, once the arbitrators decided that the owners’ losses were attributable to the charterers’ breach of charterparty, the decision of Thomas J in The Aegean Sea precluded them from relying on any right to limit their liability. This was because their acts or omissions in relation to the shipment of the cargo were acts or omissions done in their capacity as charterers not as (or qua) shipowners. On appeal, David Steel J recorded the rival contentions before him in the following way:-
(1) Charterers alleged that as time charterers they came within the category of persons entitled to limit their liability as prescribed by Article 1 of the Convention and that all the claims fell within the category of qualifying claims within Article 2;
(2) Owners asserted that the entitlement to limit was restricted to those persons identified in Article 1 (2) whose liability for the qualifying claim arose qua owner and not otherwise; on the facts of this case no part of the claim against the charterers arose from the role of the charterers qua owner.
Most claims brought by a shipowner against a charterer, such as breach of the safe port or safe berth warranty (the Aegean Sea) or breach of a promise that dangerous cargo will not be loaded (this case), will consist of a claim for damage to a ship. It may not be unfair to David Steel J or Thomas J to say that their conclusion that a charterer is not entitled to limit his liability to the owner for such a claim stems from a feeling, shared by many a United Kingdom shipping lawyer, that damage to the ship, by reference to whose tonnage the limit is to be calculated, was never intended to be part of the statutory limitation scheme or (to put the matter another way) the shipowner was never intended to be obliged to look to the limitation fund (put up, at any rate primarily, to satisfy claims brought against shipowners) and himself be obliged to share in that fund to the detriment of other claimants on that fund.
Both judges, moreover, relied to some extent on the history of the United Kingdom legislation and its incremental approach to the widening of the category of persons entitled to limit their liability in order to reach their decision that the charterer must be acting “as an owner” before he is entitled to limit his liability.
General Approach
With due respect to David Steel J and Thomas J, who are both extremely well versed in this area of law, I venture to think that they have started from the wrong point. Now that Merchant Shipping Act limitation is governed by an international convention which is, in its own words, incorporated into United Kingdom law, the task of any court is to construe the Convention as it stands without any English law preconceptions. It has been said on many occasions, in reliance on the dicta of Lord Macmillan relating to the Hague Rules in Stag Line Ltd v Foscolo, Mango & Co Ltd [1932] AC 328, 350, that the interpretation of international conventions must not be controlled by domestic principles but by reference to broad and generally acceptable principles of construction, see James Buchanan & Co Ltd v Babco Forwarding & Shipping (UK) Ltd [1978] AC 141, 152 D-E, Fothergill v Monarch Airlines Ltd [1981] AC 251, 272E, 282A and 293C, and Morris v KLM Royal Dutch Airlines [2002] 2 AC 628, 656 para. 78.
It may be difficult to know in any given case what are broad and generally acceptable principles, but some such principles are undoubtedly enshrined in Articles 31 and 32 of the 1969 Vienna Convention on the Law of Treaties, which was ratified by the United Kingdom on 25th June 1971 and came into force on 27th January 1980 on ratification by the required number of signatories. It provides:-
“ARTICLE 31
General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
ARTICLE 32
Supplementary means of interpretation
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable.”
As I read these provisions, the duty of a court is to ascertain the ordinary meaning of the words used, not just in their context but also in the light of the evident object and purpose of the convention. The court may then, in order to confirm that ordinary meaning, have recourse to what may be called the travaux preparatoires and the circumstances of the conclusion of the convention. I would, for my part, regard the existence and terms of a previous international convention (even if not made between all the same parties) as one of the circumstances which are part of a conclusion of a new convention but recourse to such earlier convention can only be made once the ordinary meaning has been ascertained. Such recourse may confirm that ordinary meaning. It may also sometimes determine that meaning but only when the ordinary meaning makes the convention ambiguous or obscure or when such ordinary meaning leads to a manifestly absurd or unreasonable result.
Context, object and purpose
Neither owners nor charterers relied on any special context. As to object and purpose the parties agreed:-
(a) that the general purpose of owners, charterers, managers and operators being able to limit their liability was to encourage the provision of international trade by way of sea-carriage;
(b) that the main object and purpose of the 1976 Convention was to provide for limits which were higher than those previously available in return for making it more difficult to “break” the limit, to use the colloquial phrase. Before 1976, any person, arguing in the United Kingdom that the limit should not apply, only needed to show “actual fault or privity” on the part of the party relying on the limit. Under the 1976 Convention the (now higher) limit is to apply unless it can be shown that the loss resulted from the personal act or omission of the party relying on the limit “committed with intent to cause such loss or recklessly with the knowledge that such loss would probably result”. It is thus particularly difficult to break the limit, but the amount available for compensation is higher than it was previously;
(c) one of the other objects of the Convention was to enable salvors to claim that their liability could be limited in the same way as owners and charterers; this reverses the Tojo Maru [1972] AC 242.
It is not in my view possible to ascertain with certainty any object or purpose of the 1976 Convention beyond this common ground, although the somewhat broader views of the judge, expressed when he was Mr David Steel QC are, as always, well worth reading in this context (“Ships are different”, [1995] LMCLQ 490). It is then necessary to ascertain the ordinary meaning of the words used.
Ordinary meaning
It is important not to compartmentalise the approach to the Convention; it must be interpreted as a whole but one inevitably has to start at the beginning.
Article 1
Two matters are immediately noticeable. First, two classes of persons are accorded the right to limit, shipowners and salvors; secondly the word “shipowner” is defined and is said to mean “the owner, charterer, manager or operator of a seagoing ship”. This dichotomy was relied upon by both Thomas J and David Steel J by way of assisting them to their conclusion that a charterer could only limit his liability when he was acting as if he were a shipowner or, in other words, if he was acting in the management or operation of the vessel. Failure to prevent the loading of a dangerous cargo was then said by David Steel J not to be an act of managing or operating a ship under time charter so that the right to limit could not arise. To my mind this places a gloss on the word “charterer” which is by no means apparent from the words used. Of course, the dichotomy relied on exists but the mere fact that “charterer” is part of the definition of the word “shipowner” cannot of itself mean that a charterer (an expression otherwise unqualified) has to be acting as if he were a shipowner before he can limit his liability. To my mind the ordinary meaning of the word “charterer” connotes a charterer acting in his capacity as such not a charterer acting in some other capacity. The judge’s construction is, moreover, liable to give rise to, at any rate, two difficulties.
A simple example may be taken to illustrate the first difficulty. Cargo is loaded and damaged by bad stowage. Stowage may be performed by servants of the shipowner on board the vessel for the purpose or by servants of the charterer allowed on board for that purpose or, more usually, by independent contractors known as stevedores, responsibility for whom may vary according to the contractual arrangements made by shipowners and charterers as between themselves on the one hand and between cargo-owners and whoever it is with whom (shipowners or charterers) they (the cargo-owners) have made their contract of carriage on the other hand. If the 1976 Convention is part of the law governing all the contractual arrangements one would expect that both the shipowners and the charterers should be able to limit their liability; the shipowners should be able to limit their liability regardless of the fact that (as between themselves and the charterers) it might be the charterers’ responsibility to perform the stowage; likewise the charterers should be able to limit their liability notwithstanding the fact that (as between themselves and the shipowners) the responsibility for bad stowage may be on one or the other. To ask whether charterers are acting as owners (or even whether the shipowners are acting as owners) is almost a meaningless question since it is almost impossible to say whether stowing the cargo is or is not an act of a kind normally performed by an owner.
To say, therefore, that a charterer must be acting qua owner or as if he were owner is not only to impose a gloss upon the wording of the Convention and accord it a meaning other than its ordinary meaning. It is also to impose a requirement the ambit of which will often be difficult to ascertain. The only way in which it would be easy to remove that doubtful ambit would be to construe “charterer” as if it meant “demise” or “bareboat” charterer. Such a charterer could be said always to be acting as owner because, unlike the ordinary time charterer, a demise charterer provides the master and crew and does himself, through them, operate and manage the vessel. Indeed, in English law, the original word “owner” in the Merchant Shipping Act 1894 was construed to include a demise charterer in The Hopper No 66 [1908] AC 126. But it would be altogether too bold to construe the word “charterer” in a modern international convention to mean only “demise charterer” or “bareboat charterer” and the shipowners have advanced no argument to that effect in the present case.
There is a second difficulty with the judge’s construction. Mr Milligan QC, who appeared for the respondent shipowners, conceded that a charterer when sued by a cargo-owner for loss of or damage to cargo could limit his liability. This concession is obviously correct since the main (if not the sole) purpose of according a charterer the right to limit his liability must have been to enable him to limit his liability to a cargo-owner in just the same way as a shipowner had previously been able to limit his liability. This right was granted to charterers (other than demise charterers) for the first time in the 1957 Convention on Limitation, the predecessor to the 1976 Convention. But it makes no sense in that context to say that, before the charterer can limit his liability, he must have been acting qua owner; alternatively it would only make sense if one were also to say making a contract of carriage was itself acting qua owner. This latter statement is, however, untrue; many people may make contracts of carriage without being the owner of the particular vehicle on or in which goods are carried. The truth is that liability of a charterer to a cargo-owner will often stem from an act done which is plainly done in his capacity as charterer. In this very case it stems from the charterers’ permitting dangerous cargo to be loaded which is, on any view, an act done qua charterer rather than an act done qua owner. The judge was troubled by this anomaly and, having recorded the shipowners’ concession that the charterers could invoke limitation against a claim brought by cargo-owners, said (para. 35):-
“If the appellants [viz the charterers] are unsuccessful in making good their wider case that any charterer can limit liability under the convention in respect of any qualifying claim, including a claim brought against them in their capacity as charterers, I would not want to be regarded as necessarily having accepted the validity of this concession.”
Yet, as I have said, the concession must be right and, once the word “charterer” cannot be construed as qua shipowner in an action brought by a cargo-owner, I do not consider that it can be so construed merely because the claimant is not the cargo-owner but the shipowner.
In an apparent attempt to get round this difficulty, Mr Milligan proposed that the relevant condition, by reference to which the charterers had the right to limit their liability, was that the claim had to be
“founded on a fault in the operation of that ship and on the defendant’s responsibility for that fault vis-a-vis the claimant.”
This formulation explains how it is that, if one were to regard stowage of the cargo or shipment of a dangerous cargo as part of the “operation of the ship”, the charterer can limit his liability to the cargo-owner. But if stowage or permitting the shipment of a dangerous cargo is part of the operation of the ship vis-a-vis the cargo-owner, why is it not equally part of the operation of the ship vis-a-vis the shipowner? If it is, then the charterer should be able, on Mr Milligan’s argument, to limit in any event.
I would therefore not give any gloss to the word “charterer” in Article 1 (2) and give it what seems to me its ordinary meaning. There was some discussion whether the word included a part charterer or a slot charterer; it was said for the shipowners that the framers of the Convention could not have intended that a slot charterer could limit his liability to the owner particularly since it would be absurd that his limit would have to be calculated by reference to the whole tonnage of the vessel when he had never contracted to have that tonnage available to him. I am content to leave to another day the question whether “charterer” means the charterer of the ship as a whole or charterer of part of the ship, merely observing that this Court has already held in the (not entirely dissimilar) context of the Arrest of Seagoing Ships Convention 1952 that the word “charterer” does indeed include a slot charterer, The Tychy [1999] 2 Lloyds Rep. 11.
Confirmation of the ordinary meaning
Neither party invited us to look at the travaux preparatoires. They had invited the judge to do so but he got no assistance from them. He did, however, get some assistance from the terms of the 1957 Convention which was the Convention which, for the first time, extended the right to limit to a “charterer”. Article 6 of this Convention provides:-
“(1) In this Convention the liability of the shipowner includes the liability of the ship herself.
(2) Subject to § (3) of this Article, the provisions of this Convention shall apply to the charterer, manager and operator of the ship, and to the master, members of the crew and other servants of the owner, charterer, manager or operator acting in the course of their employment, in the same way as they apply to an owner himself, Provided that the total limits of liability of the owner and all such other persons in respect of personal claims and property claims arising on a distinct occasion shall not exceed the amounts determined in accordance with Article 3 of this Convention.
(3) When actions are brought against the master or against members of the crew such persons may limit their liability even if the occurrence which gives rise to the claims resulted from the actual fault or privity of one or more of such persons. If, however, the master or member of the crew is at the same time the owner, co-owner, charterer, manager or operator of the ship the provisions of this paragraph shall only apply where the act, neglect or default in question is an act, neglect or default committed by the person in question in his capacity as master or as member of the crew of the ship.”
The judge regarded it as significant that it was said that the provisions of the Convention should apply to the charterer (and indeed the manager, master and crew operator) of the ship
“in the same way as they apply to an owner himself”.
The judge said that this phraseology strongly suggested to him that the relevant charterer had to be exposed to one or more of the prescribed claims “in a setting analogous to that which would usually implead an owner”. While I can follow the train of thought, I think that the judge’s conclusion puts an excessive weight on the quoted phrase. If it was intended to have the significance that the judge thought it had, one would have thought that would have been made clear in the United Kingdom statute enacting the Convention but section 3 of the Merchant Shipping Act 1958 merely provided:-
“The persons whose liability in connection with a ship is excluded or limited by Part VIII of the Merchant Shipping Act 1894, shall include any charterer and any person interested in or in possession of the ship, and, in particular, any manager or operator of the ship.”
Moreover the phrase relied on by the judge has no counterpart in the provisions of the 1976 Convention.
As to this, Thomas J said in The Aegean Sea (at page 47) that he did not consider it significant that the phrase used in Article 6(2) of the 1957 Convention was not used in the 1976 Convention because, as he put it,
“the same result has been achieved by different drafting and retaining the charterer within the categorization “shipowner”. This points to the view that the charterer is to be treated as a shipowner and entitled to limit for the claims brought against him when he acts as a shipowner.”
I have already said that I cannot regard the fact that the charterer is placed into the “category” of shipowner in Article 1(2) as, of itself, entitling one to give a specially restricted meaning to the word “charterer”. In the result, I do not myself gain any assistance from the terms of the 1957 Convention.
Article 2
The matter does not, of course, conclude at this stage of the inquiry because it is still necessary to ascertain whether a claim for damage to the ship by reference to which a charterer seeks to limit his liability is a claim which falls within Article 2. There is the further question whether the charterers can limit their liability for any of the other claims brought by the shipowners, but the shipowners’ main claim is for the cost of the extensive repairs required by the vessel. So the question here is whether a claim for loss or damage to the vessel by reference to which a charterer seeks to limit his liability is a claim which falls within Article 2.
Loss of or damage to the ship
The relevant provision is Article 2.1 (a). This article extends the right to limit firstly to claims in respect of loss of life or personal injury and secondly to claims in respect of “loss of or damage to property occurring on board”. This latter phrase is not apposite to include loss of or damage to the ship itself since neither the loss of a ship nor damage to a ship can be said to be loss or damage to property on board; property on board means something on the ship and not the ship itself. The third category of claim is a claim in respect of loss of or damage to property
“occurring . . . in direct connexion with the operation of the ship.”
The most obvious reason for including this third category of claim is to cater for cases of collision with another ship. Loss or damage to that other ship (or its cargo) is not “loss of or damage to property . . . occurring on board” but is “loss of or damage to property . . . occurring . . . in direct connexion with the operation of the ship”. But the wording of this third category of claim is not, in my judgment, apt to cater for a case where the very ship, by reference to the tonnage of which limitation is to be calculated, is lost or damaged because the loss envisaged is loss to something other than that ship herself. It is, of course, true that when one comes to the fourth category of claim viz “loss of or damage to property . . . occurring . . . in direct connexion . . . with salvage operations” that property will there include the ship to which salvage services have been rendered but that is not then, of course, the ship by reference to the tonnage of which limitation is to be calculated.
It is not without interest that in order to describe the third category of claim the framers have used the phrase “occurring . . . in direct connexion with the operation of the ship”. That is, of course, virtually the same phrase as that used by the judge to define what he means by “qua owner” (see para. 32 of the judgment). If one were to postulate the case of the vessel being in berth when the dangerous cargo exploded and damaging parts of the harbour, the harbour authority could sue for that damage but one would expect that the shipowners would be able to limit any liability for that claim. In order to do so, however, they would have to assert that the loss or damage occurred in direct connexion with the operation of the ship. The fact that dangerous cargo had with their permission been loaded on the ship would, one thinks, be enough for that purpose. But if it would be sufficient for that purpose, it would be odd that a charterer pursuant to Article 1 could not say of his own act in permitting such cargo to be loaded that it was an act “in direct connexion with the operation of the ship”.
Articles 9 to 11 of the Convention
These Articles are important in the context of a shipowner claiming against a charterer. They are set out in detail in The Aegean Sea by Thomas J and can be summarised by saying that Article 9.1 provides for the claims against (a) the persons mentioned in Article 1.2 (viz. owner, charterer, manager or operator) to be aggregated if they arose on distinct occasions; likewise for claims against (b) the owner of a ship rendering salvage services and a salvor operating from that ship and (c) a salvor not operating from a ship. Article 9(2) then deals with passenger claims. Article 10 provides that liability can be limited without the creation of a fund. Article 11 then provides for the constitution of a limitation fund when that is, in fact, done; it provides for separate funds for the “shipowner” category of those entitled to limit and the “salvor” categories (and for passenger claims) by providing:-
“A fund constituted by one of the persons mentioned in paragraph 1(a), (b) or (c) or paragraph 2 of Article 9 or his insurer shall be deemed constituted by all persons mentioned in paragraphs 1(a), (b) or (c) or paragraph 2 respectively.”
Thus through the references to Article 9.1 (a) all those persons designated as shipowners in Article 1.2 of the Convention are brought together as a single unit for the constitution of the fund. Thomas J said this (page 49):-
“In my view the combined effect of these articles is important. As there is provision for a fund for those categorized as shipowners and that fund is to cover both charterers and owners, it is difficult to see how charterers can claim the benefit of limitation through that fund where a claim is brought against them by owners. Owners are entitled to the benefit of limitation for a claim by charterers as that claim is being brought by charterers not when performing a role in the operations of the ship or when undertaking the responsibility of a shipowner, but in a different capacity, usually through their interest in the cargo being carried.”
While I entirely agree with this passage from The Aegean Sea, the considerations advanced by the judge to my mind more effectively support a conclusion that the claims in respect of which an owner or a charterer can limit do not include claims for loss or damage to the ship relied on to calculate the limit rather than a conclusion that a charterer can only limit in respect of operations he does qua owner.
Moreover, Thomas J held that, if he was wrong in his general conclusion that the charterers could only limit when the loss (a total loss in that case) was caused by an act normally performed by the shipowner, the claim for the loss of the vessel did not fall within Article 2.1 (a) because the loss of the ship was not “loss of property . . . occurring . . . in direct connection with the operation of the ship”. This in turn was because (page 51):-
“it is the operation of the very ship that must cause the loss of property; the ship cannot be the object of the wrong.”
Similarly in the present case (which is a case of extensive repair rather than total loss) David Steel J upheld the shipowners’ argument that the vessel cannot be both the victim and the perpetrator and that the “property” envisaged in the Article must be the property of a third party either on board the vessel (eg cargo) or external to the vessel, for example an SBM. He said (para. 52):-
“The property damaged cannot be the very same thing as the operation of which caused the damage.”
I agree with both Thomas J and David Steel J in this respect and conclude that the ordinary meaning of Article 2.1 (a) does not extend the right to limit to a claim for damage to the vessel by reference to the tonnage of which limitation is to be calculated.
Confirmation of the ordinary meaning of Article 2.1 (a)
Recourse can be had to supplementary means of interpretation to confirm the ordinary meaning or to determine the meaning when the ordinary meaning leaves the matter ambiguous or obscure or leads to a manifestly absurd or unreasonable result. The result of giving the words their ordinary meaning is not absurd or unreasonable, nor is there ambiguity or obscurity. David Steel J did consider the wording of the (previous) 1957 Convention and held that his conclusion derived support from Article 1 of that Convention which drew an express distinction between “the ship” and “other property”. I have already said that the terms of a previous convention are part of the “circumstances” of the later convention’s conclusions for the purpose of Article 32 of the Vienna Convention. Recourse may therefore be had to Article 1 of the 1957 Convention. It is, if anything, even clearer than the 1976 Convention on this point. The fact that it is “even clearer” does not, however, cause me to doubt the proposition that damage to the ship itself is not within Article 2.1 (a) of the 1976 Convention. Indeed, it serves to confirm the proposition since any intention to change the previous agreement so that damage to the ship itself would be subject to limitation would have been made much more explicitly.
David Steel J added that the exclusion of damage to the ship itself from the scope of claims subject to limitation was inconsistent with limitation being available to charterer qua charterer and that this consideration supported his construction of Article 1 of the 1976 Convention. I do not, with great respect, agree with this later remark because it gives too great an effect to Article 2.1 (a) to say that the meaning of the word “charterer” in Article 1 should be construed according to the construction given to one particular head of claim in Article 2. This disagreement with the judge is, however, of no consequence with respect to the main head of claim in this case (cost of repair to the ship itself) although it may be of some consequence when one comes to consider other claims.
Amount of shipowners’ liability to salvors
The eighth item in the shipowners’ claim for the cost of repair resulting from breach of the charterparty provision excluding the carriage of dangerous cargoes was the amount which they had to pay to salvors for salvage services rendered to the vessel. Charterers argued that the amount of such salvage remuneration was not the cost of repairing the damage to the ship but a free-standing claim which fell within Article 2.1 (a) or 2.1 (f) of the Convention and did not constitute a claim for salvage within the excluding provisions of Article 3. If, however, a claim for loss of or damage to the ship is not itself a claim within Article 2.1 (a), a claim for amounts paid to salve the ship cannot be within Article 2.1 (a) since it is not a claim in respect of loss or damage to property within the Article for the reasons given above. It may be that a claim to recover the cost incurred of salving a vessel is best understood as a claim for consequential loss resulting from the damage to the ship; but a claim for that consequential loss is still a claim in respect of damage to the ship and it cannot be brought within Article 2.1 (a) or 2.1 (f). In these circumstances it is not necessary to decide whether the right to limit is also excluded by Article 3 although I see no reason to dissent from Thomas J’s view (page 55) that it is not. The claim to be indemnified in respect of the salvors’ claim against the shipowners is, therefore, correctly included in the shipowners’ claim as loss resulting from the charterers’ breach of contract and the charterers cannot rely on any limit.
Liability to contribute to general average
The same principle must apply to the shipowners’ claim to be indemnified against their liability to contribute in general average. Any contribution made by the shipowners will be made as a result of the damage to the vessel and does not, therefore, fall within Article 2.1 (a).
Indemnity from cargo claims brought by cargo-owners
The arbitrators have awarded an indemnity in respect of any cargo claims for which owners are liable. Since it was the charterers who issued the relevant bills of lading to cargo-owners, the primary liability must be that of the charterers who (the shipowners concede) will be able to limit their liability because the claims made by cargo-owners are claims in respect of loss of or damage to property occurring on board the vessel within Article 2.1 (a) of the Convention. Cargo-owners have, however, sued the shipowners in tort and it is this liability which the shipowners, if such tortious liability is established, wish to pass on to charterers; to the extent that such tortious claims are brought in (or governed by the law of ) countries which have ratified the 1976 Convention no difficulty arises because the cargo claim will be regarded as one claim against the fund. But not all the claims have been brought in such countries and one claim, in particular, has been brought in the United States which is not a party to the Convention. There is, therefore, a possibility that the shipowners may be held fully liable in respect of some cargo claims and it is, apparently, so real a possibility that both parties have asked us to decide whether, if shipowners seek to pass on that liability to charterers, charterers can limit their liability.
As I have said, shipowners concede that charterers can limit their liability in any suit brought against them by cargo-owners. If that is so, it would be anomalous if they could be exposed to a greater liability for the same claim merely because it was routed through the shipowners. I do not think that anomaly exists. The claim is a result of “loss of or damage to property . . . occurring . . . on board the ship”. It, therefore, falls within Article 2.1 (a) and, unless the judge is right to have held that a charterer can only limit his liability when acting qua owner, the charterer must be able to limit his liability for that claim even though it is being passed on via the shipowner as is, in any event, contemplated by Article 2.2. I have already said that I do not believe the judge was right to limit the reference to “charterer” in this way and I would hold that the charterers can limit their liability in this respect only.
Conclusion
It therefore follows that, in principle, the charterers’ appeal will fail except to the extent that they will be entitled to limit their liability to indemnify the shipowners for the shipowners’ own liability for cargo claims, to the extent that that liability is discharged by shipowners in a sum exceeding the appropriate limit. A declaration to that effect can be made.
This decision will mean that a charterer’s ability to limit will depend on the type of claim that is brought against him rather than the capacity in which he was acting when his liability was incurred. It may be said this construction of the 1976 Convention is less certain and less straightforward than trying to ascertain the capacity in which the charterer is acting. I do not think, however, that that would be right. To analyse a claim is primarily a legal task and is a familiar one to charterers, their insurers and advisers. The capacity in which a charterer acts is primarily a factual matter which may require evidence as well as analysis of a somewhat esoteric legal concept. It is doubtless inaccurate to say that of all the claims that could be brought by an owner against a charterer, it will only be liability to indemnify the shipowner in respect of cargo claims that he will be able to limit. But I cannot at the moment easily think of any other category where limitation is likely to apply.
Mr Hancock QC for the charterers submitted that if we decided that a charterer could limit for acts done otherwise than qua owner, we should remit the case to the arbitrators to decide which of the various claims made by owners could be the subject of a right to limit. Since, if my brethren agree, we have decided that it is only in respect of damage to cargo and not in respect of damage to the ship (or consequential loss resulting from such damage) that the charterers in this case can limit their liability, my view is that no such remission is necessary. But we will, if necessary, listen to any further argument on that point from the charterers at the time of handing down this judgment.
Lord Justice Neuberger:
I agree.
Lord Justice Waller:
I also agree.
Order: Appeal dismissed; the owners to receive 25% of their costs of the appeal; so far as the costs of the arbitration are concerned, those costs are not limitable and thus will not be remitted; so far as removal of damaged containers and payment to the Egyptian authorities and concerned, Mr Hannock to produce a further skeleton argument to demonstrate that there is an arguable case for limitation within 14 days; Mr Coburn’s skeleton argument in reply to be served 14 days thereafter; permission to appeal to the House of Lords refused; counsel to lodge a draft minute of order when all outstanding matters have been dealt with.
(Order does not form part of the approved judgment)