Blue Nile Shipping Company Ltd v Iguana Shipping and Finance Inc & Ors

The court has before it a preliminary issue ordered by the Admiralty Registrar on 9^th December 2003. In short, the issue for determination is whether claims brought against the first claimant (the owners of the ““Darfur””) by Baco-Liner (the time charterers of the “Darfur”) are limitable pursuant to the Limitation Convention 1976 (“the Convention”). The background is unusual and complicated.

On 20^th November 1995, whilst proceeding along the River Seine, the ““Darfur”” collided with the m/v “Happy Fellow”. The ““Darfur”” was partly laden with cargo. The “Happy Fellow” was in ballast. The collision was a serious one that caused damage to both vessels, both of which required salvage services. It also caused personal injury to crew members of the “Happy Fellow” and, it is said, damage to/late delivery of the ““Darfur”” cargo.

The first Claimants (“Blue Nile”) were the registered owners of the m/v ““Darfur”” at all material times. The Second Claimant was the Master of the ““Darfur”” at the time of this collision.

The First Defendants were the registered owners of the “Happy Fellow”. The Second Defendants were the bareboat charterers of the “Happy Fellow”. The Third Defendants (referred to hereafter as “Baco-Liner”) were the time charterers of the ““Darfur””.

The “Happy Fellow” was being operated by various companies under a pool agreement. These companies were known as the Unigas pool. Sloman Neptune, to whom further reference is made below, was a member of this pool.

Substantive proceedings were commenced in France in the Commercial Court of Le Havre on 22^nd December 1995 by seven named Claimants. All of these parties were, or sued on behalf of, the owners/charterers of the “Happy Fellow”. They are referred to below collectively as the “Happy Fellow” interests. Sloman Neptune was one of these seven Claimants. The Le Havre proceedings are referred to further below as “the French collision action”.

The proceedings sought a declaration that the ““Darfur”” was entirely responsible for the collision and sought “full” damages, provisionally valued at US$18 million. The French collision action was brought against the Master of the ““Darfur”” and Blue Nile, i.e. the Claimants to this limitation action.

On 6^th June 1997 Blue Nile admitted liability in the French collision action, formally admitting that the ““Darfur”” was entirely to blame for the collision. That did not dispose of the action entirely because issues of quantum remained. In addition, the “Happy Fellow” interests sought to raise issues of limitation (i.e. Blue Nile’s right to limit). Blue Nile contended that this was not open to them in view of the limitation action in England.

The dispute gave rise to protracted legal argument in France. Neither the jurisdictional issues concerning limitation nor the substantive question of Blue Nile’s right to limit were ever finally resolved. Both the hearing before the Cour de Cassation on the jurisdictional questions and judgment following the merits hearing on quantum and the right to limit were overtaken by the settlement agreement entered into between the “Happy Fellow” interests and the Claimants.

On or about 13^th March 1996 Baco-Liner issued a writ out of the English Commercial Court against Blue Nile. The writ sought damages for breach of charterparty and/or breach of duty of care and declarations of Baco-Liner’s right to be indemnified against various claims and/or expenses.

The liability proceedings brought by Baco-Liner against Blue Nile under/arising out of the time charterparty were bound to be tried in England pursuant to Article 17 of the Brussels Convention as a result of an exclusive English jurisdiction clause agreed between Baco-Liner and Blue Nile both as a term of the charterparty and as a term of security put up by Blue Nile’s P and I insurers. The English exclusive jurisdiction clause was a variation to the term originally contained in the charterparty, which had provided for arbitration in Germany.

The action brought by Baco-Liner has progressed slowly. Both parties waited to see how matters developed in the French liability proceedings. However, directions orders were made by Mr Justice Thomas on 6^th June 2000, by Mr Justice Smith on 8^th February 2001 and 19^th June 2001 and by Mr Justice Coleman on 21^st December 2002. Liability was admitted by Blue Nile by an amendment served in draft on Baco-Liner on 3^rd December 2001 (formally served on 17^th December 2001) and, accordingly, the remaining issues are narrowly confined. The action is stayed pursuant to the Limitation Decree in this action.

This limitation action was commenced by writ issued out of the Admiralty and Commercial Registry on 25^th March 1996. A limitation fund was constituted in this jurisdiction by payment into Court of the sum of £1,719,224.64 on 2^nd April 1996. The sum remains in Court.

The limitation writ was served upon Baco-Liner. Nothing further was required by way of service under the rules then in force (R.S.C. Ord.75 r.37(4)), but the issue of the writ was notified to the “Happy Fellow” interests through their solicitors Messrs. Holman, Fenwick & Willan, so no question of lack of notice could arise.

On 19^th April 1996 the Claimants issued a summons for a decree in this action pursuant to R.S.C. Ord. 75 r.38(1). The summons sought declarations of the Claimants’ right to limit their liability pursuant to the Merchant Shipping Act 1995 and directions for the distribution of the limitation fund. It was supported by the affidavit of Michael Burch, a partner at Bentley Stokes & Lowless, which deposed to the Claimants’ right to limit and set out the calculation of the fund.

The summons came before the Court on 3^rd May 1996. It was adjourned pending applications which Baco-Liner, Sloman Neptune and cargo interests represented by Waltons & Morse indicated that they wished to make in order to challenge the jurisdiction of the Court and/or contend that jurisdiction should be declined or the limitation action stayed.

On 3^rd by 1996 Sloman Neptune issued an application in this action seeking orders that the writ and all subsequent proceedings be set aside or a stay (at least as against the parties to the French collision action). The grounds of the application were that the French collision action and the limitation action involved the same cause of action within the meaning of Article 21 of the Brussels Convention, alternatively that the actions were related within the meaning of Article 22, and/or forum non conveniens. Sloman Neptune’s application gave rise to substantial factual and legal issues between the parties. The main factual issue was whether the French courts were seized of any issue of or relating to limitation.

On 25^th July 1997 Mr Justice Longmore held that the French collision action did not involve the same cause or "objet” as the collision action within the meaning of Article 21 of the Brussels Convention; however, he went on to hold that the actions were “related” within the meaning of Article 22 (see report at [1997] 1 Lloyd’s Rep. 130). Accordingly, the limitation action was stayed in so far as it affected Sloman Neptune.

The Court of Appeal upheld the decision of Mr Justice Longmore, for essentially the same reasons: [1998] 1 Lloyd’s Rep. 13. By that time Blue Nile had formally admitted liability in France (see 20 above), but the Court of Appeal was not persuaded that this altered the position or could properly be taken into account (per Saville L.J. at pp 17-18).

Accordingly, this limitation action was stayed upon Sloman Neptune’s application, as against Sloman Neptune alone. The precise terms of the stay ordered by Mr Justice Longmore are as follows: “this action be stayed insofar as it affects Sloman Neptune”.

Applications seeking similar relief were also issued by the owners/underwriters of the part cargo laden on board the ““Darfur”” represented by Waltons & Morse and by Baco-Liner on 24^th May and 31^st May 1996 respectively. These applications were never pursued.

On 28 January 2002, the Claimants issued an application that the stay in the limitation action to be lifted. The Claimants also applied for any automatic stay under CPR part 51.19 be lifted. On 15 May 2002, Jackson Parton on behalf of Baco-Liner indicated their consent to the stays being lifted, subject to the court’s approval.

A hearing of the Claimants’ application was fixed for 12 July 2002. Two days before the hearing, on 10 July, Clyde & Co. came on the record for the ““Darfur”” cargo interests. They indicated that they would seek an adjournment of the Claimants’ application. The following day, Baco-Liner via Jackson Parton reconfirmed its consent to the lifting of the stays but reserved a right to seek a fresh stay under article 22.

At the hearing on 12 July 2002, I adjourned the application at the request of the cargo interests. Baco-Liner issued a cross application on 2 August 2002, opposing the lifting of the stays. The hearing of the Claimants’ and Baco-Liner’s applications took place on 10 and 11 September 2002. In his judgment of 13 September 2002, Mr Justice Andrew Smith granted the lifting of the stays sought by the Claimants and denied Baco-Liner’s application that a further stay be imposed.

The Claimants issued their application for a general limitation decree on 20 November 2002. That application was heard before the Admiralty Registrar on 19 December 2002, when a decree was granted. Under the terms of the Admiralty Registrar’s order, the limitation decree was to be advertised in the West African Ports of Tema, Doula and Abidjan, as well as in Lloyd’s List. ADM 20’s were filed against the fund by Sirpicam (represented by McFaddens), the ““Darfur”” cargo interests (represented by Clyde & Co.), Baco-Liner (represented by Jackson Parton) and the Claimants (represented by Bentleys, Stokes & Lowless).

The Case Management Conference took place before the Admiralty Registrar on 9^th December 2003. The Admiralty Registrar ordered the trial of the preliminary issue: “Whether, for the reasons set out in paragraph 9 of Baco-Liner’s ADM20 form herein, Baco-Liner’s claims in 1996 Folio 619 are not limitable and need not be brought against the limitation fund”.

As appears from the terms of the issue that has been formulated, the basis of the claim by Baco-Liner that their claims are not limitable is by reference to the claim originally made in the Commercial Court. This is despite the fact that there was no pleaded response to the claim to limitation pleaded in the defence and despite the fact that no objection to the stay of the Commercial Court action was raised.

The relevant heads of claim are set out in paragraph 5 of the Amended Particulars of Claim in the Commercial Court action as follows:

In their ADM 20, Baco-Liner contended in paragraph 9 that all of these claims were not limitable because they were claims “for other loss resulting from the infringement of a contractual right and accordingly not within Article 2.1(c)”. In the event, matters had moved on considerably by the time of the hearing of the preliminary issue before me in April 2004. By then it had become common ground that Item (i) was not limitable and items (v) and (vi) were limitable.

It was also common ground that none of the remaining items qualified for limitation under Article 2 (1) (c). Indeed the focus of the debate had moved on to Article 2 (1) (a) and (f): -

“ 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 or damage to property…. occurring on board or in direct connection with the operation of the ship… and consequently loss resulting therefrom…

(f)

Claims of a person other than the person liable in respect of measures taken in order to avert or minimise loss for which the person liable may limit his liability in accordance with this convention and further loss caused by such measures.”

It was the stance of the Baco-Liner Defendants that all the remaining heads of damage were items of consequential loss flowing from damage to the Claimant’s own vessel and, thus, not limitable. The foundation of this submission, which only emerged on the eve of the hearing, was the decision of the Court of Appeal in CMA CGM S.A v Classica Shipping Co. Ltd [2004] EWCA Civ 114, [2004] 1 Lloyd’s Rep. 460, [2004 1 All ER (Comm) 865.

The proceedings in that case concerned a claim by shipowners against time charterers for damage to their vessel attributable to the shipment of dangerous cargo by the charterers. Charterers claimed an entitlement to limit. The threshold issue was whether the term “charterer” in Article 1 of the Limitation Convention were to be construed as restricted to charterers acting qua shipowner or without any such restriction.

Having held that “charterer” should be given its ordinary and natural meaning i.e. without restriction, the court went on to consider the scope of Article 2 (1) (a) because the bulk of the shipowners’ claim was in respect of loss or damage to the vessel. The court held as follows: -

Simply having regard to the description of the claims on the face of the pleading (as indeed the Claimants invite me to do), I would be minded to agree that, leaving aside the concessions referred to in paragraph 29 above, they are all items of loss consequential on damage to the vessel and, thus, not limitable. (The charterers sought to categorise them as “in the nature of” third party claims. Even assuming the distinction to be material, in my judgment, they are not). The difficulty about achieving closure on the issue either generally or as regards any individual item is that it is common ground that there remain potential issues of causation and remoteness (leaving aside matters of quantum as such).

For the moment it is sufficient to hold that, in my judgment, having regard to the decision discussed above, insofar as the heads of claim are consequential upon damage to the “Darfur”, her Owners are not entitled to limit their liability in respect of them. For this purpose, it matters not, as suggested by the owners, that it is owners who are seeking to limit against claims brought by charterers rather than, as in CMA, the other way round. The issue turns on the scope of the claims that are subject to limitation and not the class of persons entitled to limit.