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Court of Appeal affirms High Court’s position on who can limit liability

In the “MSC Flaminia” (No. 2) [2023] EWCA Civ 1007, the Court of Appeal dismissed the appeal by the charterers (“MSC”) against the shipowners (“Conti”). The charterers were hoping to limit their liability while the shipowners were seeking to clarify the scope of limitation, arguing narrower grounds than those they unsuccessfully submitted in the first instance. Following an explosion and a subsequent fire in cargo hold number 4 of the vessel, now sailing as 'CMA CGM San Francisco', Conti suffered substantial costs related to the salvage of the ship, dealing with the contaminated cargo, removing firefighting water, disposing of burnt metal and carrying out permanent repairs. The Vessel was placed off hire by MSC during this entire period. The parties initiated arbitration proceedings in accordance with their contractual agreement, and this resulted in the Tribunal awarding Conti approximately US$200 million in damages. Following the award, MSC sought to limit their liability pursuant to the 1976 Convention on Limitation of Liability for Maritime Claims, as amended by the Amending Protocol of 1996 (the “Convention”). Article 2(1) of the Convention sets out the type of claims which can be subject to limitation of liability, always subject to certain exceptions. MSC would be able to limit their liability to about GBP 28.2 million, if successful. Conti, accepted that MSC could limit their liability for certain third party claims such as those from other cargo claimants, but they contended that MSC would not be able to limit their liability for: (a) the costs of discharging and decontaminating the cargo, (b) the costs of removing firefighting water from the Vessel’s holds, (c) the payments made to national authorities for pollution prevention steps taken by them, and (d) the costs of removing the burnt waste material from the Vessel. Grounds of appeal and counter-arguments It was MSC’s position that the High Court Judge had erred on four points: The Judge erred by holding that claims relating to “the removal, destruction or the rendering harmless of the cargo” (Art. 2.1(e)) did not include claims as between the owner and charterer in respect of removing the cargo and decontaminating it, and that they were therefore not limitable pursuant to Article 2.1(e) of the Convention. The Judge incorrectly held that Article 2.1(f) only encompassed claims in respect of measures taken solely to avert or minimise loss. The Judge treated the arbitration award as a single claim in respect of damage to the Vessel, as opposed to a group of claims, some of which were limitable and some of which were not. The Judge erred by deciding that none of Conti’s claims were in respect of consequential loss resulting from loss of or damage to property on board the ship, and, as such, none of Conti’s claims fell within Article 2.1(a) of the Convention. This time, rather than repeat their successful first instance arguments, Conti simply submitted that a charterer could only limit its liability in respect of claims which originated outside the group of entities that are defined as “shipowners” under Article 1.2 of the Convention. Among the many factors discussed in the ruling, the bench deliberated two key factors: With material facts being very similar to the present matter, the High Court ([2003] EWHC 641 (Comm)) and the Court of Appeal ([2004] EWCA Civ 114) in the case of The CMA Djakarta, tried to construe the Convention as it stands without any English law preconceptions. The consequences of a situation where a shipowner’s claim against a charterer would be paid out of a limitation fund created by the shipowners themselves was considered “remarkable”. Here, the High Court ruled against the charterers, and the Court of Appeal allowed the appeal only to the extent that it allowed the charterers the ability to limit their liability for certain type of claims, i.e., primarily third party claims from entities falling outside the class of “shipowners” as defined in Article 1.2 of the Convention. Although the Court of Appeal had not granted permission to appeal, the then House of Lords did allow the case to be appealed, indicating that it had a particular interest in the issues and/or considered that the case may have been wrongly decided. However, the matter was settled before the House of Lords could hear the case. Later, although in obiter, the Court of Appeal’s decision was approved by the Supreme Court in The Ocean Victory [2017] UKSC 35. The Court of Appeal determined that the primary purpose of the Convention was to provide a higher limit of liability than applied under the 1957 Convention and make it more difficult to “break” the limit. At the same time, it concluded that it was neither the object nor the purpose of the Convention to extend a charterer’s right to limit beyond the right already conferred to them under the 1957 Convention. Finally, the bench agreed with the shipowners that claims referred to in Article 2 of the Convention ought to be interpreted to exclude claims by a shipowner against a charterer to recover losses suffered by that shipowner itself. It remained to be seen whether MSC will appeal the judgment, and whether the Court of Appeal or the Supreme Court will allow any such appeal to be heard. Until then, the precedent is set to disallow an entity classified as “shipowner” under the Convention from limiting their own liability against claims by another entity that falls within the same category.

MSC failed legal bid to limit liability

The Mediterranean Shipping Company (MSC) has failed in its legal bid in the United Kingdom to limit its 200 million dollars liability to a shipowner following an explosion in the cargo hold No. 4 of the 'MSC Flaminia', on the mid-Atlantic during a voyage from Charleston, South Carolina, to Antwerp (actually sailing as 'CMA CGM San Francisco') in pos. 48 13 N, 27 56 W, that left three people dead on July 14, 2012. The Swiss company was at that time the charterer of the vessel. An arbitration panel in 2021 found the MSC had breached its time charter and said that the company should pay an affiliate of German shipping group Conti $200m for losses arising out of the incident. The blast was blamed on a cargo of divinyl benzene (DVB) chemical known to be a fire risk if not properly stored. MSC launched a partial appeal against the full award, saying it was not liable for the full clear-up of the ship and its cargo. It has paid some of the damages, but was seeking to limit more than 120 million dollars still owed to 35 million dollars. However, the three appeal court judges all found against the company, according to a ruling published on Sep 1, 2023. The court refused MSC's request to take the case to the UK Supreme Court.

Court: MSC Not Liable for Losses from MSC Flaminia Fatal Fire

MSC, the Swiss ocean carrier, is not liable for the explosion and losses related to the MSC Flaminia fire from July 2012 that claimed the lives of three crew members and destroyed thousands of cargo containers, New York District Court said in a verdict on September 10.