09/04/2025

Supreme Court levels the playing field in limitation

The Supreme Court has today handed down its judgment in The MSC Flaminia [2025] UKSC 14 in which it overturns the judgment of the Court of Appeal regarding the scope of a charterer’s right to limit under the Convention on Limitation of Liability for Maritime Claims 1976 (the Convention).

Julian Kenny KC and Michal Hain acted for the successful appellant, MSC Mediterranean Shipping Company SA (MSC).

Background

MSC had chartered the container ship MSC Flaminia from her owner, the respondent to the appeal (Conti) when, in 2012, an explosion occurred causing extensive damage to the cargo on board as well as to the ship.

Ultimate responsibility for the casualty lay with the shippers of a dangerous cargo of liquid vinyl that had overheated and exploded. However, as between Conti and MSC, Conti obtained a substantial arbitration award of around $200 million. MSC subsequently sought to limit part of its liability to Conti under the Convention.

Judgment

The Convention provides that shipowners, who are defined as “the owner, charterer, manager and operator of a seagoing ship” (article 1.2), “may limit their liability … for claims set out in article 2” (article 1.1).

The critical issue in the appeal was whether a charterer, such as MSC, could limit its liability under the Convention in respect of expenses, such as the costs of discharging cargo, that an owner, such as Conti, might incur following a casualty.

Conti’s case was that a charterer could not limit against a shipowner in respect of expenses or other losses initially suffered by the shipowner itself. A charterer could only limit against a shipowner in respect of ‘recourse claims’, meaning claims made by the shipowner against the charterer in respect of liabilities that the shipowner had incurred to cargo interests or other third parties. This submission had been accepted by the Court of Appeal.

The controversy has now been put to bed in a judgment delivered by Lord Hamblen, with whom the rest of the court agreed.

The Supreme Court rejected Conti’s argument and held that article 2 of the Convention, which sets out the claims that are limitable, does not distinguish between claims made by different claimants [91]. The Court also held that Conti’s construction would involve (i) reading in words – ie, the original loss qualification – that are not there; (ii) the word “claims” having different meanings in different contexts; and (iii) introducing an asymmetry between different types of “shipowner” [92]–[97]. All of these were reasons for rejecting the argument.

Other matters

The other issues raised by the appeal related to the proper characterisation of claims if MSC was, as the Court held, in principle entitled to limit. There were four:

1. First, Conti said that its claim was a single claim in relation to the costs of repairing the ship as a result of the casualty, and therefore that none of it was limitable in accordance with any part of article 2.1 of the Convention. This argument was rejected [165].
2. The second argument related to article 2.1(a). This provides that a claim in respect of “… loss of or damage to property … occurring on board or in direct connexion with the operation of the ship … and consequential loss resulting therefrom” is limitable. MSC argued that Conti’s claims in this case were all consequential losses arising from the initial loss of and damage to the cargo of DVB which caused the explosion and fire, and so are limitable as consequential loss resulting from cargo damage. The Court held that this “introduces a causation issue which is not relevant to the application of article 2.1(a), which is concerned with the nature and characterisation of the claim being made, not the underlying cause or causes of that claim”.
3. The third issue was whether certain costs fell within article 2.1(f), that is, were claims “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”. Lord Hamblen held that on the findings of the first instance judge, the relevant costs were not such costs [147]–[149].
4. The last questions before the Supreme Court related to article 2.1(e), which provides for the limitation of claims for “the removal, destruction or the rendering harmless of the cargo of the ship”. Conti argued that this (i) includes only claims made by a party not involved in the operation of the ship; and (ii) excludes claims that are part of the costs of repair of the vessel. As to (i), the Court held that the “ordinary meaning of the words do not involve any such qualification or gloss” [153]. As to (ii), Lord Hamblen concluded that the characterisation of a claim as a repair cost does not mean that it cannot be limitable under article 2.1(e) for a total of eight reasons set out in [155]–[162].

Significance

This judgment is likely to have significant ramifications for many ongoing and future limitation actions, not only in England but also in the approximately 70 jurisdictions that have ratified the Convention. The judgment has the effect of entrenching a charterer’s right to the full benefit of the Convention, and ends a long controversy that has dogged this area of law, as to whether registered shipowners have, in some way, a fuller or better right to limit than other parties involved in operating ships.

One important issue that the Supreme Court deliberately left open, however, is the question of whether a shipowner who establishes a fund that is deemed to be set up on behalf of all shipowners is entitled to make a claim, whether for breach of contract or contribution, against another shipowner who stands to benefit from that fund, for the cost of setting it up, and whether such a claim would or would not itself be limitable. Andrew Baker J accepted MSC’s submission in this respect, but the Court of Appeal expressed doubts about it. Lord Hamblen said he “would prefer to leave this issue to be dealt with in a case in which such a claim is made, rather than on a hypothetical basis” [123].

Julian Kenny KC and Michal Hain were instructed by Guy Mills and Christopher Hellstrom of Mills & Co Solicitors Ltd. Tom Corby and Rupert Hamilton also acted for MSC in different phases of the underlying arbitral references.

Read the Supreme Court’s press summary