DMC Category: Confirmed

This case note has been prepared by Matthew H. James of Healy & Baillie, LLP in New York. Healy & Baillie are the International Contributors to this website for the United States.

Facts
As three vessels, the M/V Kariba, the M/V Tricolor and the M/V Clary, sailed through dense fog in the English Channel, the M/V Kariba and the M/V Tricolor collided, resulting in significant damage to the M/V Kariba and the total loss of the M/V Tricolor. The owner of the M/V Kariba, Otal Investments Ltd. ("Otal"), filed suit against the M/V Clary in the Netherlands alleging embarrassment of navigation and attached the vessel. Upon the establishment of a limitation fund under the Convention, the Dutch Court released M/V Clary from attachment. However, the limitation fund established by the Convention did not provide direct security to Otal, but rather served to secure all claims filed in the Dutch limitation action, which ultimately exceeded the total limitation fund.

Soon thereafter, Otal filed a complaint for exoneration from or limitation of liability in the Southern District of New York pursuant to the U S Limitation Act and sought contribution and indemnity from the other two vessels for any amounts for which Otal might be found liable. Otal then filed an action against the M/V Clary in the Southern District of Georgia for hull and machinery damages and lost income. In order to avoid the impending arrest of the M/V Clary upon her arrival in Georgia, her P&I club issued a Letter of Undertaking to Otal. Otal thereupon dismissed the action in the Southern District of Georgia and amended its claim in the Southern District of New York to include the hull and machinery damages and lost income claims. The owners of the M/V Clary then filed a motion in New York to dismiss the in rem claim against the vessel, arguing that it was duplicative of Otal’s claim in the Dutch proceedings.

Judgment
The District Court acknowledged that under the 1976 Convention, a party cannot seek another attachment of a previously attached vessel by commencing suit in another country that is a signatory to the Convention. The United States is not a signatory to the Convention, however, but instead has enacted its own limitation of liability regime. Nevertheless, U.S. Courts will extend "international comity" to judgments of foreign tribunals to the extent that the result would not be prejudicial or contrary to U.S. policy. The District Court observed that under the law of the Netherlands, however, an in rem proceeding is an unknown concept, thus leaving Otal with only an in personam claim against the M/V Clary’s interests in the Netherlands’ insufficient limitation fund. United States law, by contrast, provides for a maritime lien in respect of collision damage that is not dischargeable by the limitation of liability proceedings in the Netherlands. Thus, the court held, the in rem claim is not duplicative of the claim in the Netherlands and is not precluded by the Convention because that treaty is not binding in the United States.

The owners of the M/V Clary argued that permitting the in rem claim to proceed would be inequitable as it would effectively require security in two different jurisdictions. The District Court rejected this argument as (1) there would be no recovery under either fund if the M/V Clary prevailed, (2) the P&I Club’s Letter of Undertaking in the United States did not result in any additional premiums paid by her owners, and (3) Otal agreed to withdraw its claim in the Netherlands if it prevailed in its Limitation Action in the United States, thus preventing a double recovery.

Comment
This decision illustrates that United States’ courts will be reluctant to constrict a party’s in rem right of action if there is a related foreign proceeding that recognizes only an in personam right of action, and it will ordinarily not permit a defendant to substitute a foreign in personam claim against an inadequate limitation fund in place of an in rem claim against its vessel merely by the act of commencing a limitation action in a foreign jurisdiction pursuant to the Convention.

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