CMA CGM v. Classica Shipping
Note: the decision in this case has been in part overruled by the Court of Appeal in a judgment delivered on 12 February 2004. For the note of this judgment, click here
DMC Category Rating: Confirmed
Case note contributed by Ann Moore, Law Correspondent for Fairplay International Shipping Weekly. Ann Moore is a contributor to this website
The owners claimed the explosion and fire was caused by explosive material carried in two containers, in breach of the "dangerous cargo" terms of the charterparty. Classica sought damages of US$26,638,032, and indemnification against its exposure to cargo claims and general average contributions.
The dispute was referred to London arbitration under the charterparty. CMA pleaded it was entitled to limit its liability under the 1976 Limitation Convention. It relied on "(i) the fund established in proceedings in the Tribunal de Commerce of Marseille, France and (ii) the right to limit by way of defence herein."
Arbitrators found that the charterers had no right to limit liability their liability. CMA was given leave to appeal under the 1996 Arbitration Act.
The Limitation Convention 1976 ("the Convention") provides (Article 1.1): "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: "The term ‘shipowner’ shall mean the owner, charterer, manager or operator of a seagoing ship." Art. 2.1: "... 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 ...".
CMA argued that, as time charterer, it fell "squarely" within the category of persons entitled to limit their liability under Art 1 of the Convention, and that Classica’s entire claim fell "equally squarely" within the categories of claims within Art 2.1(a). CMA conceded that the arbitrators were bound by the ruling in The Aegean Sea,  2 Lloyd’s Rep 39, that, on the facts of that case, voyage charterers were not entitled to limit their liability for nominating an unsafe port, but it reserved its right to challenge the ruling.
The shipowners’ case was that, taking the overall context, and the object and purpose of the Convention, it was clear that the only persons entitled to limit were those identified in Art 1.2 whose liability arose solely qua (as if they were) owner. Limitation was not available to CMA because, as was accepted, none of the claim arose from its "owner" role.
CMA argued that the word "charterers" could include a demise, time and voyage charterer, a time trip and a consecutive voyage charterer, a subcharterer "and even a slot charterer". The logical conclusion of this line of argument, said the judge, was that any charterer could invoke limitation, whether acting qua owner or not. But it was "striking" that the 1976 Convention sought to harmonise the limitation rules by reference only to "shipowners" and to "salvors". Using an all-embracing category of "shipowners" suggested to him that members of that class such as charterers, like managers and operators, could be exposed to claims arising from ownership-type activities.
Classica’s analysis, by contrast, suggested three possible categories: "shipowner" meaning owner or manager; "charterer" meaning time or voyage charterer; and "salvor". Steel J considered "shipowner" only included those "directly concerned with the operation of the vessel and [who] have incurred liability as such", even without any beneficial or possessory interest in it. This obviously applied to a time charterer, who is the temporary owner of the vessel. But a voyage charterer, who only pays the owner freight for carrying goods on a defined voyage, does not operate or manage the vessel. "He has no more role or responsibility as the ‘shipowner’ than a shipper."
Although a timechartered vessel is under the charterers' legitimate orders as regards its employment (described as within its "disponent ownership"), "almost all aspects of management and operation remain the responsibility of the shipowners."
Steel J said Article 1 of the Convention evolved from the 1894 Merchant Shipping Act which gave ‘owners’ rights of limitation, extended by the 1957 Limitation Convention (Art 6) to ‘charterers’ - "in the same way as they apply to an owner himself", suggesting that the charterer’s exposure to claims must have arisen in a situation "analogous" to an owner. According to Thomas J, in The Aegean Sea, the 1976 Convention had achieved the same result by different drafting namely, keeping the charterer within the ‘shipowner’ category. Thus "the charterer is to be treated as a shipowner and entitled to limit for the claims brought against him when he acts as shipowner."
The judge dismissed CMA’s reliance on the Marseille fund, saying such a fund was designed to help those identified as "within the class of shipowner", with a community of interest as to exposure to claims and funding the liability. In this case, he said, the owner was entitled to damages from the time charterer in respect both of damage to the ship and to cargo resulting from the shipment of dangerous goods. If the owner had set up a fund to limit its exposure to cargo owners, it would at the least be "surprising" if the charterer could invoke "the very same fund" as ‘deemed’ to be constituted by itself as well to limit claims for which all members of the class were liable. Such a fund, said Thomas J in The Aegean Sea, "was intended for claims by cargo interests and third parties external to the operation of the ship against those responsible" for that operation.
The loss of the ship
The judge dismissed the appeal, adopting the opinion of Thomas J (The Aegean Sea), that the 1976 Convention "does not provide, (and is not intended to provide) any entitlement to charterers to limit where the shipowner brings [this type of claim] against the charterers. Such claims cannot in principle ... be reasonably brought within its language."
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