MSC Flaminia – The Final Word on Limitation

In a landmark ruling from the UK Supreme Court (UKSC) in April 2025, the questions of (1) whether charterers can limit their liability against owners in respect of owners’ own losses; and (2) how widely Article 2 of the 1976 Convention should be interpreted have been definitively answered.

Facts

On 14 July 2012 the “MSC Flaminia” (the “Vessel”) was en route from South Carolina to Belgium when an explosion occurred in cargo hold number 4. The resulting fire spread rapidly and sadly resulted in the death of three crew members. There was extensive damage to the Vessel and hundreds of containers were destroyed. 

MSC had time chartered the Vessel from Owners, Conti. Salvors were engaged and the Vessel was towed to Wilhelmshaven for discharge of the containers. The Vessel was then taken to Romania and Denmark for discharge of the waste and then returned to Romania for repairs, following which the Vessel was redelivered to MSC under the charter. 

Conti as Owners incurred significant losses and sought to recover these from MSC. In the initial arbitration action in London, Conti were successfully awarded USD 200 million in respect of damages due to the shipment of dangerous cargo along with outstanding hire. 

MSC then sought to limit its liability under the 1976 Convention on Limitation of Liability for Maritime Claims (the “1976 Convention”) for:

1. Payments to national authorities for preventative measures against pollution.

2. Costs of discharging the sound and damaged cargo and of decontaminating the cargo.

3. Costs of removing firefighting water from the holds.

4. Costs of removing waste from the Vessel.

The High Court found MSC had no right to limit liability for these claims because they were not within the scope of any of the limitable claims listed in Article 2 of the Convention and were incurred to enable Owners to have the ship repaired or as part of the costs of repairs. MSC appealed the decision to the Court of Appeal. 

The Court of Appeal ultimately agreed with the decision of the High Court but for different reasons. The Court found that the 1976 Convention was not intended to extend a charterer’s rights of limitation beyond what is set out in the Convention – namely that an owner does not have the right to limit liability in respect of losses suffered by themselves. MSC appealed the decision to the UKSC. 

It is of interest to note that the matter settled between the parties before the hearing date. However, given the questions were of such importance to the maritime industry, the UKSC elected to go ahead with the appeal. 

The 1976 Convention – A Brief Recap

The 1976 Convention allows shipowners (and salvors) to limit their losses in the event of a maritime claim. The reduction in liability can be considerable and the purpose is to protect shipowners from unlimited financial responsibility. 

It is important to note that the 1976 Convention does not give shipowners a complete “get of jail free” card. If the loss was caused by the shipowner’s own act and was done with the intent of causing the loss, then they cannot limit their liability. The same applies if the shipowner acted recklessly. 

The term “shipowner” is defined in Article 1.2. of the Convention as the owner, charterer, manager and operator of a seagoing ship. 

The level to which shipowners can limit their liability is set out in the Convention and is based on the size of vessel, specifically the vessel’s gross tonnage, meaning the smaller the vessel, the smaller the limitation fund. There are two different limits: (1) a limit for claims for loss of life or personal injury and (2) a separate limit for property claims such as damage to other ships, cargo etc. 

Article 2.1 of the Convention sets out the types of claim that can be limited including for example recovery of a wreck [but some jurisdictions, including the UK, have excluded the right to limit in respect of wreck removal], damage to property and loss from delay to cargo. As a matter of English law, it is important to note that there is no right to limit liability in respect of claims by a shipowner for loss of or damage to the ship itself. This was confirmed in The CMA Djakarta (2004) - charterers do have a right to limit against owners in respect of specific claims but they cannot limit in respect of damage to the ship.

The Decision of the UKSC

Issue 1 - Can Charterers limit their liability against Owners in respect of owners’ own losses?

The questions put before the UKSC went to the core of what is the purpose of the 1976 Convention, in particular what does “claims” mean in the context of Article 2.1.

The Court of Appeal had found that there was a distinction between “insiders” and “outsiders” when it came to claims - an “insider” being anyone in the definition given in Article 1.2 and an “outsider” being any other person. Owners had argued that any claim being brought by one “insider” against another “insider” e.g. a charterer against an owner, meant claims other than those suffered by the owner. 

The UKSC disagreed. They found that “claims” is a defined term under the 1976 Convention – meaning claims as specified in Article 2 – and should be given its ordinary meaning. There is no wording within the 1976 Convention to suggest that the word should be interpreted differently depending on which parties are involved and accordingly all persons falling within the definition of shipowner are to be treated equally. 

The concern was that the situation would arise where a fund was established and the owner was then (1) essentially paying their own claim from the fund and (2) this would then diminish the amount of fund available for other claimants. 

The UKSC found that, generally, owners’ claims are for damage to or loss of a vessel, neither of which are limitable under the 1976 Convention. If the owner has a claim against the fund, it is likely to be because they are owners of property damaged on board, such as a container. This is exactly the type of claim the fund is designed to deal with and is subject to limitation. The owner only benefits from this as they will receive their proportionate share of the fund. 

For these reasons, it was found that a charterer can limit its liability for claims by an owner in respect of losses originally suffered by the owner itself.

Issue 2 - How widely should Article 2 of the 1976 Convention be interpreted i.e. do any of the Owners’ claims fall within Article 2.1 and does the fact they result from damage to the vessel mean there is no right to limit?

Charterers’ position was that Article 2 should be given a very wide application. The UKSC disagreed. There was nothing apparent to suggest Article 2 should be applied either narrowly or widely. 

The UKSC found that the claims to which there was a right to limit had been heavily discussed and negotiated at the time the 1976 Convention was agreed and that the wording “is what it is”. 

Having determined that Article 2 should be read as it is, the UKSC then turned to decide whether any of the Owners’ claims fell within the limitable claims of Article 2.1.

There were three different heads of claim in dispute which the UKSC considered in turn. 

The first related to Article 2.1.(a) –claims in respect of “loss of or damage to property…occurring on board or in direct connection with the operation of the ship… and consequential loss resulting therefrom”. 

Charterers’ position was that all the Owners’ claims were consequential losses arising from the loss of and damage to the cargo. This would mean they were limitable as a consequential loss arising from cargo damage. 

The UKSC disagreed. They found this brought a causation issue into the Convention, whereas causation is not relevant to the application of Article 2.1(a). Where the claim is for damage to the ship, not to cargo, it falls outside of Article 2.1(a). It is irrelevant that the damage was caused by cargo damage. 

The second head of loss related to Article 2.1(f) which provides that claims for “…measures taken in order to avert or minimize loss for which the person liable may limit his liability…” are limitable. 

Charterers argued that the payments to (i) national authorities and (ii) for removal of the firefighting water fell under this Article. 

Again UKSC disagreed and found neither of these claims were limitable. The payments to the national authorities were required as a necessary part of the repair of the Vessel, not as a mitigation payment. They were therefore part of the costs of repair. 

As to the costs for removal of firefighting water, the UKSC found that the removal was not part of the salvage operation but occurred after the salvage operation had finished in order to enable the Vessel to be repaired.  The costs were also therefore part of the costs of repair.

The final head of loss related to Article 2.1(e) which allows limitation for claims for “the removal, destruction or the rendering harmless of the cargo of the ship”. 

Owners argued that Article 2.1(e) only applies to claims by a third party such as the harbour authority and cannot be used to limit liability against owners. The UKSC disagreed. They found that such a distinction would cause a random application of the Article as the question of whether liability could be limited would depend on who did the discharging. 

It had already been determined by the Court of Appeal that the costs of discharging sound and damaged cargo and for decontaminating the cargo fell within this Article. The question for the UKSC to determine was the position if the costs are incurred in order to repair the vessel – and so have been included in the costs of the repair. 

The UKSC found that frequently claims will fall within more than one sub-paragraph of Article 2.1. The mere fact the cargo removal cost is the consequence of damage to the ship does not stop it also falling within another definition which is limitable. 

The UKSC agreed with the Court of Appeal and found that Charterers could limit liability in respect of the cargo costs. 

Summary

The certainty given by the UKSC decision gives confidence to all parties, whether they are operating as an owner or a charterer, as to what types of claims will fall within Article 2.1. 

The UKSC decision has reclarified that claims for loss of or damage to a vessel are not limitable but does also show there is scope for claims included within the repair costs to be limited by a charterer where they fall under an alternative subparagraph of Article 2.1. 

It is important to closely check any repair costs for which recovery is being sought to identify any aspects that might be limitable. It is also important for owners to be aware that simply calling something a repair cost may not be enough to avoid the claim being limitable.