CMA CGM v. Classica Shipping

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CMA CGM S.A. v Classica Shipping Co Ltd (The ‘CMA Djakarta’)
English Court of Appeal: Waller, Longmore, Neuberger LLJ.: [2004] EWCA Civ 114: 12 February 2004
Christopher Hancock QC, instructed by Ince & Co, for the appellant timecharterer (CMA CMG).
Iain Milligan QC and Michael Coburn, instructed by Holman Fenwick & Willan, for the respondent owner (Classica).
The appeal concerned the question of law whether the charterer of a vessel was entitled to limit its liability pursuant to the Merchant Shipping Act 1995 and the Convention on Limitation of Liability for Maritime Claims 1976, as against claims from the shipowner relating to damage to the ship and to indemnification against cargo claims and general average settlements. The Court of Appeal, overruling the reasoning of David Steel J at first instance, decided that a charterer’s ability to limit depended on the type of the claim, rather than the capacity in which it was acting at the time of the loss. On a correct construction of the Convention terms, on the facts of this case, the charterer had a right to limit only in respect of the cargo claims, but not in respect of claims arising from damage to the vessel itself.

DMC Category Rating: Developed.

Case note contributed by Ann Moore, Law Correspondent for Fairplay International Shipping Weekly. Ann Moore is a contributor to this website

The vessel was time-chartered by Classica Shipping to CMA CGM on an amended NYPE form for trading in the charterer’s liner network. The charterparty provided the vessel was to be employed in carrying lawful containerised merchandise "excluding any goods of a dangerous flammable or corrosive nature". There was an explosion and fire on board, attributable to the fact that two containers carried explosive chemicals, in breach of the "dangerous cargo" clause. The ‘CMA Djakarta’ was salvaged, the containers were discharged, and substantial repairs undertaken.

Classica Shipping sought damages of US$26,638,032, mainly for repairs but including US$4,702,441 for salvage. It also demanded indemnification against its exposure to cargo claims and general average contributions.

The dispute was referred to London arbitration under the charter. CMA CGM claimed to be entitled to limit its liability under the Convention on Limitation of Liability for Maritime Claims 1976 ("the 1976 Convention"), incorporated into English law by the UK Merchant Shipping Act 1995.

The arbitrators found that there was a breach of the charterparty, and followed the The ‘Aegean Sea’ [1998] 2 Ll.Rep. 39, ruling that the 1976 Convention "does not provide, (and is not intended to provide) any entitlement to charterers to limit where the shipowner brings [a claim of this type] against the charterer. Such claims cannot in principle ... be reasonably brought within its language.They found CMA CGM was not entitled to limit its liability, and upheld the owner’s claim for indemnification against cargo claims and general average contributions, but gave leave to appeal on the question of law, under the 1996 Arbitration Act.

In the Commercial Court, Mr Justice David Steel upheld the award. In reliance on Thomas J’s reasoning and judgment in The ‘Aegean Sea’, he held that the 1976 Convention did not entitle a charterer to limit its liability as against the shipowner, for a claim which arose when the charterer was not acting "as owner" - in this case the loading of cargo. He did, however, give the charterer leave to appeal to the Court of Appeal.

Article 1.1 of the 1976 Convention provides that: "Shipowners and salvors, as hereinafter defined, may limit their liability in accordance with the rules of this Convention for claims set out in Article 2."
Art 1.2 provides that "The term ‘shipowner’ shall mean the owner, charterer, manager or operator of a seagoing ship."
Art. 2.1 provides that "... the following claims, whatever the basis of liability may be, shall be subject to limitation of liability: (a) claims in respect of ... damage to property ... occurring onboard or in direct connection with the operation of the ship ... and consequential loss resulting therefrom ...".

At arbitration, CMA had argued (i) that, as timecharterer, it came within the category of persons defined in Art.1 of the Convention, and (ii) that Classica’s claim fell within Art. 2.1(a). CMA CGM had conceded that if the arbitrators found the losses were due to its breach of the charterparty, The ‘Aegean Sea’ ruling precluded any right to limit its liability because any acts or omissions relating to the shipment of the cargo were in its capacity as charterer, not "as shipowner". However it reserved its right to challenge the ruling, and did so on appeal. In The ‘Aegean Sea’ Thomas J had held that a voyage charterer was not entitled to limit its liability for nominating an unsafe port.

Steel J decided the right to limit under Art.1 did not apply to ‘charterers’ in general, but only when they undertook an ‘owner’s role. He added that even if a time-charterer, as ‘disponent owner’, was acting in a quasi-owner capacity, the right did not apply as against claims by the actual shipowner arising out of the voyage.

He relied on The ‘Aegean Sea’ as authority for the proposition that while the charterer was "to be treated as a shipowner and entitled to limit for the claims brought against him when he acts as shipowner," the1976 Convention did not, in the absence of any express contrary provision, apply in relation to claims by the actual owner, or to claims which had arisen when the charterer was not acting "as if it were the owner". If that had been the intention, there would have been a provision to that effect. He accordingly found in owner’s favour.

Judgment on appeal
In a judgment with which his colleagues agreed, Lord Justice Longmore took as his starting point the proper construction of the 1976 Convention. Both Steel J and Thomas J had based their decisions on an examination of the UK legislative history of limitation, which - he said - was "to start from the wrong point". Now that limitation under the UK Merchant Shipping Act was governed by an international convention incorporated into English law, the courts must construe the 1976 Convention "as it stands" without any English law preconceptions. He cited the dicta of Lord Macmillan in Stag Line v Foscolo, Mango & Co [1932] AC 328 at p 350, that the interpretation of international conventions must not be "controlled by domestic principles but by reference to broad and generally acceptable principles of construction", advice which the House of Lords had subsequently followed in a number of more recent cases.

For guidance as to what these principles should be, Longmore LJ turned to the 1969 Vienna Convention on the Law of Treaties, which entered into force in the UK in 1980. The general rule of interpretation in Art.31 requires a treaty to be construed "in good faith" in accordance with the "ordinary meaning" to be given to its terms, having regard to their context and the treaty’s object and purpose. The "context" includes the circumstances of any agreement or instrument agreed by the parties in connection with the treaty.

Art. 32 sets out supplementary aids to interpretation, including reference to the travaux préparatoires and other background information to clarify wording which is ambiguous, or would produce a "manifestly obscure or unreasonable result."

Applying these guidelines to the 1976 Convention, he said both parties agreed that its general purpose was to enable owners, charterers, managers and operators to limit their liability, with the object of encouraging international trade by sea. Its principal object was to increase the existing limits, but to make them harder to "break". It also added salvors to the categories of persons entitled to limit.

Ordinary meaning - Article 1.
The appeal judge said he could not be sure about any further "objects" of the Convention, so he turned to the "ordinary meaning" of the words. Article 1 gave two categories the right to limit - shipowners and salvors. Secondly, it defined "shipowner" as "the owner, charterer, manager or operator of a seagoing ship". This had led both Thomas and Steel JJ (mistakenly, in his opinion) to conclude that a charterer could only limit his liability when he was acting as owner, that was to say - in the management or operation of the vessel. Steel J had concluded that this did not include failure to prevent the loading of a dangerous cargo under a time-charter "so the right to limit did not arise."

Longmore LJ rejected this "gloss" on the word "charterer". The wording could not, of itself, mean that a charterer had to be acting as a shipowner before he could limit his liability. "To ask whether charterers are acting as owners ... is almost a meaningless question since it is almost impossible to say whether stowing the cargo is or is not an act of a kind normally performed by an owner." This "doubtful ambit" could only be removed if "charterer" was construed as if it meant "demise" or "bareboat" charterer, who would provide the master and crew and manage the vessel, unlike an ordinary time-charterer. But it would be "too bold" a step to assume this meaning in a modern international convention.

A further problem with the judges’ construction was that although (as the owner had conceded) a charterer can limit his liability when sued by a cargo owner for loss or damage, it would make no sense to say he only had this right when acting as if he were the shipowner. If "charterer" cannot be simply construed as "qua (acting as if a) shipowner" in an action by cargo interests, said Longmore LJ, it could not be given such a meaning merely because the claim is by the shipowner rather than the cargo owner.

He ruled that "charterer" in Art.1 should be given its ordinary meaning, which did not include the "qua owner" gloss, but probably did extend to slot charterers. Unlike the Steel and Thomas JJ., he did not find the terms of the predecessor 1957 Convention gave any assistance in interpretation.

Claims within Article 2
Longmore LJ agreed with both Steel and Thomas JJ. that the Convention excluded damage to the ship itself.

Article 2.1(a) extends the limitation right to claims for loss of life or personal injury; and for "loss of or damage to property": first, occurring on board; and secondly "occurring ... in direct connection with the operation of the ship".

Having analysed the subsequent articles of the Convention and cited Thomas J’s dicta in The ‘Aegean Sea’ (at p. 49), the appeal judge agreed with Steel and Thomas JJ that a claim for the loss of the vessel (total in the case of The ‘Aegean Sea’, extensive repair in the present case) did not come within the "ordinary meaning" of Art.2.1(a).

In both cases the loss was not "loss of property ... occurring ... in direct connection with the operation of the ship". "It is the operation of the very ship that must cause the loss of property; the ship cannot be the object of the wrong" (per Thomas J). "The property damaged cannot be the very same thing the operation of which caused the damage" (per Steel J).

Longmore LJ went on to hold that the part of Classica’s claim relating to salvage expenses was correctly included as a loss resulting from the breach of contract, and so CMA CGM could not rely on any limit. The same applied to any contribution to general average. This would result from the damage to the vessel and did not fall within Art.2.1(a). The owner had conceded that the charterer could limit its liability in claims against it by cargo owners. These resulted from loss "occurring on board the ship", and there was no difference in principle if such claims were routed through the shipowner. In view of his construction of Art.2.1(a), Longmore LJ held that the charterer could limit its liability "in this respect only".

The appeal court concluded that, in principle, the charterer’s appeal would fail except to the extent that it would be entitled to limit its liability to indemnify the owner for liability for cargo claims "to the extent that that liability is discharged by the shipowner in a sum exceeding the appropriate limit."

This decision, said Longmore LJ, meant that "a charterer’s ability to limit would depend on the type of claim brought against him rather than the capacity in which he was acting when his liability occurred". He rejected the accusation that this construction of the 1976 Convention was "less certain and straightforward" than trying to ascertain the capacity in which the charterer was acting. The analysis of a claim was a familiar task for charterers, insurers, and their legal advisers, and no more complicated than deciding the issue of "capacity".

Classica was awarded 25% of its costs. Leave to appeal to the House of Lords was refused.

The Court of Appeal’s reasons for largely dismissing an appeal by the timecharterer of the CMA Djakarta will result in an important shift of risk from charterers to owners, with commensurate effects on liability insurers. Furthermore, CMA CGM’s solicitors are on record as saying that the decision will make the question of limitation in such cases "much more complicated", as it will require analysis of "every item of a shipowner’s claim to see which items are limitable and which are not".


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