Note: the judgment in this case was  upheld by the Court of Appeal on 29 July 2005. For the  note on the Court of Appeal judgment, click here 

DMC Category Rating: Developed

This case note is based on an Article in the April 2005 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA Piper Rudnick Gray Cary. DLA Piper is an International Contributor to this website

Background
The claimants were the owners and demise charterers of "The Western Regent", a purpose-built seismic survey vessel. On 2 October 2004, as it was operating in the North Sea, two of its six streamers made contact with the Ellon Grant marker buoy in the Total Dunbar oilfield, allegedly dragging it from its position and damaging the well-head installation. The defendant, an English company, was the operator of the Dunbar field and owner of the installation.

The claimants admitted liability and, in November 2004, issued proceedings in England seeking to limit their liability under the Merchant Shipping Act 1995, which implements the 1976 Limitation Convention into English law. The tonnage of the vessel was 5,975 tons, so under the Convention, liability would be capped at 2.59 million Special Drawing Rights (about US$3.8 million).

On 24 January 2005, the defendant filed an original complaint in the United States District Court for the Southern District of Texas, claiming damage to property and lost production and business interruption losses of US$9.9 million. The United States is not a signatory to the 1976 Convention and the limitation provisions that apply in Texas exceeded the value of the defendant's total claim.

The defendant then applied to the English court for a declaration that it had no jurisdiction and for an order dismissing the shipowners’ claim. It argued that, in order to be able to issue limitation proceedings in a given jurisdiction, legal or arbitration proceedings regarding the underlying claim must already have been instituted in that jurisdiction. The claimants responded by applying for summary judgment and for an anti-suit injunction restraining the defendant from pursuing the proceedings in Texas.

Article 11 of the 1976 Convention provides that a person may constitute a limitation fund with the court or competent authority in any State Party "in which legal proceedings are instituted in respect of claims subject to limitation". Article 12 deals with distribution of the fund amongst claimants in proportion to their established claims.

The defendant relied on Article 11 to argue that, since no proceedings had been brought in England, the claimants were precluded from setting up a limitation fund and so could not bring a limitation claim under the Merchant Shipping Act 1995.

The claimants relied, however, on Article 10 of the Convention, which provides that "Limitation of liability may be invoked notwithstanding that a limitation fund as mentioned in Article 11 has not been constituted … If limitation of liability is invoked without the constitution of the limitation fund, the provisions of Article 12 shall apply correspondingly…"

Judgment
In the judge's view, Article 10 clearly envisaged a claimant invoking the jurisdiction of the court to seek a decree of limitation without setting up a fund. The ability to constitute a fund under Article 11 was neither a pre-condition of the jurisdiction to hear and determine a limitation claim, nor of court's power to grant a limitation decree. Article 10 granted a freestanding entitlement to limit, irrespective of whether a fund was ever constituted.

This was supported by the Civil Procedure Rules, which recognise that constitution of a fund is not mandatory. Rule 61.11 provides that, when a limitation decree is granted, the court may order the claimant to establish a fund if one has not been established or make other arrangements for payment of claims against which liability is limited.

In some, albeit fairly rare, circumstances, the court might consider it more appropriate simply to require the claimant to make payment rather than set up a fund. One example was the present situation, where there was only one claim against the shipowner, so no useful purpose would be served by requiring the constitution of a fund.

The claimants were, therefore, entitled to judgment limiting their liability under the Convention in the form of a restricted limitation decree.

The judge, however, found it was not appropriate in the circumstances to grant an anti-suit injunction to prevent the Texas action continuing, as the Texas court had not yet considered what effect, if any, the limitation decree in the English court would have upon its proceedings.

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