Background
Chin Tai were holders of a bill of lading issued by the owners of the ‘ICL Vikraman’, under which the owners acknowledged receipt of Chin Tai's goods for shipment from Poland to Taiwan. On 26 September 1997, the vessel collided with another and sank with the loss of 26 lives and all cargo.

Chin Tai arrested a sister ship under proceedings begun in Singapore in April 1998. A letter of undertaking from the owner's P&I Club, Steamship Mutual, was accepted under protest and the arrested vessel was released. The final wording of the letter was settled by the Singapore court. Under this wording, the club undertook to pay on demand any sum due for damages, interest and costs under arbitration in London in accordance with the arbitration clause in the bill of lading, provided the total liability did not exceed US$4.5 million.

Chin Tai's cargo claim went to arbitration in London. The arbitrators held that the owners had failed to exercise due diligence in making the vessel seaworthy at or before the commencement of the voyage, in breach of their duty under the Hague Rules. On 3 April 2003, Chin Tai was awarded US$2,696,127 plus interest.

Between the end of the hearing and publication of the award, the club and the owners realised that, if Chin Tai won, it would be able to draw down on the letter of undertaking without regard to the Limitation Convention because no limitation claim had been issued. The owners sought to rectify this by issuing a claim form in the English Admiralty Court on 18 March 2003 and establishing a limitation fund by making a payment into court of over £6 million. Chin Tai's share of the fund would amount to about £1,068,097 (equivalent to about US$1,687,593), considerably less than the arbitration award. Leave was granted to serve the claim form on Chin Tai in Taiwan. In addition, an injunction prevented Chin Tai from presenting the letter of undertaking to the Club. Chin Tai applied to have the order and the injunction set aside.

Judgment
The first point was whether the Convention applied to arbitration proceedings. Under Article 11, "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…".

Did arbitration constitute "legal proceedings"? The ordinary meaning of the words suggested not. The predecessor to the 1976 Convention referred to "claims" rather than to legal proceedings and "claims" had been construed as covering arbitration (The ‘Penelope II’ [1980] 2 Lloyd's Rep 17). But the term "claims" was wider than "legal proceedings". A study of the travaux preparatoire relating to the 1976 Convention shed no light on why the apparently narrower phrase was adopted.

The judge applied the same reasoning to this case. A wide construction of "any legal proceedings" was consistent with the practicalities of the shipping industry. Arbitration clauses are not uncommon in bills of lading, and it made no sense if the owner's ability to limit his liability depended on whether or not a particular bill contained such a clause.

The second point was whether the English Admiralty Court had jurisdiction to give permission to serve the claim form out of the jurisdiction. That depended on rule 61.11(5) of the Civil Procedure Rules. This provides:

The judge was satisfied that "claim" in this rule should be construed as including "claim to limit" and that "any applicable convention" covered the 1976 Convention. The court had been entitled to grant leave to serve the claim form on Chin Tai.

What about the injunction? Under Article 13(1) of the Convention, where a fund has been constituted, "any person having made a claim against the fund shall be barred from exercising any right in respect of such a claim against any other assets of a person by or on behalf of whom the fund has been constituted". Under 13(2) "…any ship or other property, belonging to a person on behalf of whom the fund has been constituted, which has been arrested or attached within the jurisdiction of a State Party for a claim which may be raised against the fund, or any security given, may be released by order of the Court or other competent authority of such State…"

The letter of undertaking had been provided by Steamship Mutual as security to procure the release of the sister ship in Singapore. The final wording of that letter had been prescribed by the Singapore High Court and now stood as the only security in the pending action in that court. Only the Singapore Court could release the security. But Singapore is not a State Party to the 1976 Convention. Consequently there was no basis on which Article 13(2) could operate to prevent Chin Tai from making a demand on the letter of undertaking. Accordingly, the injunction could not stand.

Comment
What then are the consequences of this judgment? It seems that Chin Tai would be able to collect, under the Club letter, the full amount of the arbitration award, subject to a contingent right to refund the recovery to the extent it exceeded Chin Tai’s entitlement under the Limitation Fund. But how can that right be enforced??