Shipowner's Right to Limit - Jurisdictional Issues

August 2005

The Court of Appeal has recently approved the first instance decision in "The  Western Regent"¹, and in doing so has confirmed that a shipowner's right to invoke limitation under the 1976 Limitation Convention is not restricted to the jurisdictions in which claims, which may be subject to limitation, are brought.

The limitation decree in question related to damage to a well head installation by a seismographic research vessel in the North Sea. "The  Western Regent", whilst towing 6 streamers in the North Sea, snagged and dragged a marker buoy, which resulted in damage to Total's well head installation. The Owners of the vessel admitted liability for the collision.

One month after the incident, and before any claims had been brought, the owners of the vessel (hereinafter referred to as the "Owners") served the limitation "claim" on Total, under the Merchant Shipping Act 1995 which enacted the 1976 Limitation Convention in the UK.

The limitation decree was granted and the Owners paid a total of GB£ 2,150,000 into court - a figure marginally in excess of liability plus interest under the limitation decree. The payment into court was made both as constitution of the limitation fund and as a CPR Part 36 offer², the Owners thereby protecting their exposure to legal costs.

The limitation claim was served on Total (an English registered company) in England. A month later Total commenced proceedings against the Owners in Texas - the Owners' alleged principal place of business - claiming USD 9.9 million in damage to property, lost production and business interruption³.

Total submitted that the English Court had no subject matter jurisdiction, arguing that a shipowner could only launch limitation proceedings in a jurisdiction where legal or arbitration proceedings had been launched in respect of claims subject to limitation. The judge at First Instance, Mr. Julian Flaux QC, rejected that submission⁴ and granted the Owners application for summary judgment limiting their liability in accordance with the 1976 Convention.

The Owners had further sought an anti-suit injunction restraining Total from pursuing the Texan proceedings until final judgment in the UK on the limitation point. This application was denied. Summarising the case law on anti-suit injunctions the Judge commented as follows: "…The essential touchstone is whether there has been unconscionable conduct or the threat of unconscionable conduct… it is important to have in mind that this is not such a case and that the commencement of proceedings in Texas is not in any sense a breach of any obligation by (Total)" ⁵. Mr. Flaux held that "both in the interests of comity and in the exercise of the court's discretion, it would be wrong for the court to pre-empt what decision the Texas court might reach in the light of this judgment on limitation"⁶.  

Total appealed the finding on limitation, and the Owners appealed the anti-suit injunction point. Lord Justice Clarke, giving the lead judgment in the Court of Appeal, upheld the first instance decision and dismissed both appeals.

The Owners had argued that Chapter I of the Convention conferred a right on shipowners to limit their liability in cases of this nature, and Art. 10.3 provided that any procedural questions relating to the invocation of rights of limitation under the Convention were to be decided in accordance with the law of the jurisdiction in which the limitation action is brought⁷. It followed that since, under Section 20 of the Supreme Court Act 1981, the Admiralty Court has jurisdiction over shipowners' limitation actions "in relation to all ships… whether British or not …" and "in relation to all claims, wherever arising…", the Court was entitled grant the limitation decree.

Total argued that Article 11.1⁸ contemplated the setting up of a fund only in a state in which legal proceedings have been instituted in respect of the claim subject to limitation, and since no such proceedings were instituted in England by Total, it followed that the Owners could not bring a limitation action in England. In short, according to Total, the Convention did not contemplate the possibility of a pre-emptive strike by shipowners before any proceedings had been brought by a claimant.

Clarke LJ held that the wording of the Convention supported the Owners' submissions. Article 1 and 2 of the Convention conferred the right to limit and that right could be invoked in two ways: either without constituting a limitation fund under Article 10, or after constituting such a fund under Article 11⁹ .

According to Clarke LJ¹⁰ : "in principle the Convention permits a party to seek to limit its liability in any Contracting State which has personal jurisdiction over the defendant. Since there is no express restriction in the Convention restricting the invocation of the right to limit in any way, if there is such a restriction it must be implied in the Convention. To my mind there is nothing in the Convention to lead to the implication of such a restriction". Lord Justice Rix echoed this view¹¹.

Clarke LJ dismissed the suggestion by Total that Article 10 should be read as providing that a limitation action¹² could be brought only in courts of a state in which a claimant brought an action , holding that had there been an intention for the Convention so to provide it would have been very easy to do so.

Article 11 of the Convention was immaterial, it simply conferred a right upon the party invoking limitation to constitute a limitation fund if he so wished. Total's argument that this provision was to the effect that a limitation fund could be constituted only in a court in which legal proceedings have been instituted by a claimant was rejected by the court on the ground that Art. 11.1 "is framed in permissive terms, and does not include the word 'only' ".

According to Clarke LJ (at para 23) "there is nothing in the language of the Convention… which requires a person who wishes to limit his liability to wait until a claimant has started proceedings in England before invoking his right to limit." This echoed David Steel J who held, in "The Denise"¹³, that there was nothing to limit the entitlement of a party to invoke the jurisdiction of the English Admiralty Court to seek a decree of limitation even in circumstances where there is no claim (as yet) brought against it in England and that in fact the Convention expressly contemplated such action.

Counsel for Total had attempted to rely on the following comments of Colman J in "The ICL Vikraman": "Article 11 ties the entitlement to constitute a limitation fund to the commencement of legal proceedings in order to provide certainty as to the venue on the fund, rather than leaving it to the shipowner to constitute the fund in a jurisdiction chosen by him"¹⁴. Clarke LJ distinguished that case on the basis it concerned a situation where legal proceedings had already been commenced before limitation was invoked. Colman J in that case had been considering the issue of whether permission could be given to serve a limitation claim form on a defendant out of jurisdiction. In granting leave to serve out, Colman J had, obiter, made the statement that Total sought to rely on. Whilst this did lend some support to Total's position, the Court of Appeal did not feel Colman J's comments to be persuasive as they had been made in the context of a very different factual matrix.

Clarke LJ also upheld the First Instance judge's decision not to grant an anti-suit injunction against Total. Echoing Mr. Flaux QC's reasoning, Clarke LJ ruled that, in these circumstances - where there was no breach of any contractual exclusive jurisdiction clause - the question was whether in continuing to proceed in Texas after the English court had granted a limitation decree Total was acting unconscionably so as to make the Texan proceedings oppressive or vexatious. This question was answered in the negative. In doing so, Clarke LJ affirmed the principles set out by Evans-Lombe J in Royal Bank of Canada v. Centrale Raiffeisen-Boerenleenbank¹⁵ relating to the granting of anti-suit injunctions.

According to Clarke LJ, "The purpose of an injunction is not to ensure that an English judgment is recognised by a friendly foreign state but to prevent unconscionable conduct". The fact that the Texas proceedings had been stayed by an order of the court pending a final decision at an appellate level in England was seen as "a good example of the principle of judicial comity in action", and there was no reason for the English court to believe the court in Texas would not give full consideration to the various aspects of the case, including the English limitation decree.

This case has ruled unequivocally that a shipowner can invoke its rights to limit in the English Admiralty Courts even though no proceedings have been commenced in England in respect of claims subject to limitation provided the Admiralty Court has personal jurisdiction over the party against whom limitation is being invoked. This leaves open two interesting questions:

1. Assuming the incident took place within the jurisdiction, can a shipowner seek a limitation decree in England against a claimant based outside England? And, 

2. Can a shipowner seek a limitation decree in England against a claimant based outside England in respect of an incident which occurred outside the jurisdiction?

The Court of Appeal did not have to address either of these questions, but indications as to how the Court have approached these issues can be gleaned from the judgments. What is clear from both Clarke LJ and Rix LJ is that the answer to both questions is not to be found in the Convention itself. Rather the answers lie in English Procedural Law¹⁶ and, although not mentioned in the judgments, the applicable EC Regulations.

Some of the relevant English procedural rules were looked at by the Court of Appeal in the context of "The Western Regent", namely Section 20 of the Supreme Court Act 1981 (hereinafter referred to as the "SCA 81"), and Rule 61.11 of the Civil Procedure Rules. Section 20 provides as follows: 

"(1) The Admiralty jurisdiction of the High Court shall be as follows, that is to say - 

(a)… 

(b) jurisdiction in relation to any of the proceedings mentioned in subsection (3) … 

(3) The proceedings referred to in subsection (1)(b) are - … 

(c) any action by shipowners or other persons under the Merchant Shipping Act 1995 for the limitation of the amount of their liability in connection with a ship or other property … 

(7) The preceding provisions of this section apply - 

(a) in relation to all ships… whether British or not… and wherever the residence or domicile of their owners may be; 

(b) in relation to all claims, wherever arising…"

CPR Rule 61.11(5) specifies the circumstances in which leave to serve out of the jurisdiction, i.e. on parties based outside England:

"The claim form may not be served out of the jurisdiction unless - 

(a) the claim falls within section 22(2)(a), (b) or (c) of the Supreme Court Act 1981; 

(b) the defendant has submitted to or agreed to submit to the jurisdiction of the court; or 

(c) the Admiralty Court has jurisdiction over the claim under any applicable Convention; and the court grants permission in accordance with Section III of Part 6."

Section 22(2) of the SCA 81 provides:

"(2) The High Court shall not entertain any action in personam to enforce a claim to which this section applies unless -

(a) the defendant has his habitual residence or a place of business within England or Wales; or 

(b) the cause of action arose within inland waters of England or Wales or within the limits of a port of England or Wales; or 

(c) an action arising out of the same incident or series of incidents is proceeding in the court or has been heard and determined in the court."

Arguably it would follow that Question 1 should be answered in the affirmative and Question 2 in the negative.

As to the former, on the basis of Section 20 of the SCA 81, which confers jurisdiction on the Court, and Rule 61.11(5)(a) in conjunction with SCA 81 Section 22(2)(b) which allows service of proceedings outside the jurisdiction in such circumstances, the shipowner can join parties over which the English Admiralty Court does not have personal jurisdiction to the English limitation proceedings, provided the incident took place within the jurisdiction ¹⁷.

With respect to the latter, while the jurisdiction of the Court is very wide ranging under Section 20 of the SCA 81, the Court is restricted in its ability to grant leave to serve outside the jurisdiction under CPR Rule 61.11(5). An incident occurring outside the jurisdiction does not come under Subsections (a) or (b) of Rule 61.11(5). Under Subsection (c), the Admiralty Court does have jurisdiction "under any applicable Convention", cf. Section 20 of SCA 81, the second half of Rule 61.11(5) should prevent service out: Section III of Part 6 of the CPR - Rule 6.20(17A) - only allows service outside the jurisdiction in respect of Admiralty Claims which relate to Salvage or Oil Pollution.

1. Seismic Shipping Inc. v. Total E&P UK PLC [2005] EWCA Civ 985 (as yet unreported). 

2. Under Civil Procedure Rules r.36.20, where a claimant fails to obtain a judgment more advantageous than a defendant's "Part 36" offer, unless it considers it unjust to do so, the court will order the claimant to pay any costs incurred by the defendant after the latest date on which the offer could have been accepted. 

3. Limitation in the United States in governed by the Shipowner's Limitation of Liability Act, 46 U.S.C. S 183 et seq., under which the amount of the limitation fund is determined by the value of the vessel after the incident. In this case, there was no damage to the vessel and its post collision value comfortably exceeded the amount of Total's claim. As such limitation in the U.S. was of no use to the Owners. 

4. Seismic Shipping v. Total E&P UK Plc. sub nom "The Western Regent" [2005] 2 Lloyd's Rep 54 

5. ibid. at para. 30. 

6. ibid. at para. 33. In reaching this decision, Mr. Flaux QC cited the decision of the European Court of Justice in Turner v. Grovit [2005] AC 101, and the principles of mutual trust between EU Member Nations. Although this case did not involve an EU Member State, it was felt the same principles of mutual trust were applicable to this case. See also "Anti-Suit Injunctions, European Law and London Arbitration" article on Steamship Mutual website

7. Article 10 - Limitation of liability without constitution of a limitation fund - 3.: "Questions of procedure arising under the rules of this article shall be decided in accordance with national law of the State Party in which action in brought". 

8. "Any person alleged to be liable may constitute a fund with the Court or other competent authority in any State Party in which legal proceedings are instituted in respect of claims subject to limitation…" 

9. Where the fund has been constituted under Article 11, Article 13 ("Bar to Other Actions") applies, and bars security actions against Owners in other 1976 Convention States. 

10. at para. 16 

11. Rix LJ at para 61: "jurisdiction does not appear to be expressly addressed in any of the articles of the 1976 Convention. On the contrary, all questions of procedure are expressly left to the national law of the state parties (articles 10.3 and )" 

12. Clarke LJ at para. 19. Counsel for Total argued that Art. 10.3 which provides "Questions of procedure arising under the rules of this Article shall be decided in accordance with the national law of the State Party in which action is brought " should be construed as if it read "such action is brought" and as a reference back to the second sentence of Article 10.1 of the Convention (not included in the 1995 Merchant Shipping Act) which provided "a State Party may provide in its national law that where an action is brought in its Courts to enforce a claim subject to limitation,… (the circumstances in which the right to limit can be invoked)… ". Clarke LJ did not accept this argument. 

13. Unreported, December 3, 2004. 

14. [2004] 1 Lloyd's Rep 21, at para. 49 

15. [2004] 1 Lloyd's Rep 471, at para 8. See Clarke LJ at para. 44. 

16. Cf. Footnote 14. 

17. This in the case even those parties are domiciled in European Union States, as under Article 5 of EC Council Regulation 44/2001 - On Jurisdiction and the Recognition of Judgements in Civil and Commercial Matters - a person domiciled in a Member State can be sued in another Member State where a tortious event occurred, and under Article 7 that "other" Member State shall also have jurisdiction over the related limitation claims.