DMC Category Rating: Confirmed

This case note is based on an Article in the August 2005 Edition of the ‘Marine Bulletin’, published by the Marine team 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 "The Western Regent's" six streamers made contact with the Ellon Grant marker buoy in the Total Dunbar oilfield, 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 of Liability for Maritime Claims 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. The limitation provisions that apply in Texas far 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 claim. The claimants responded by applying for summary judgment and for an anti-suit injunction restraining the defendant from pursuing the proceedings in Texas.

At first instance, the judge held that the claimants were entitled to judgment in the form of a restricted limitation decree which limited their liability to 2.59m Special Drawing Rights. The liability in pounds sterling was £2,089,383.67 with simple interest of £43,118.58, making a total of £2,132,502.25.

But the judge was not prepared to grant an anti-suit injunction to prevent the defendant from continuing with the action in Texas, as the Texas court had not yet considered what effect, if any, the limitation decree in the English court would have upon its proceedings. Both parties appealed.

The Convention
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.

Article 10 of the Convention, however, 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…"

The defendant relied on Article 11 to argue that the claimants were precluded from limiting their liability. The only circumstances in which a party in the position of a shipowner or demise charterer can launch limitation proceedings is when underlying legal proceedings or arbitration proceedings have been instituted in the same jurisdiction. Neither the 1976 Convention nor the 1995 Act contemplates the possibility of a pre-emptive strike brought by a shipowner before any such proceedings have been brought by a person with a claim arising out of a particular incident.

Judgment
Limitation
The Court of Appeal, however, unanimously agreed with the judge. The wording of the Convention is clear. The right to limit can be invoked in two ways - without constituting a limitation fund under Article 10, or after constituting such a fund under Article 11. The Convention treats the two methods differently. For instance, Article 13 (which bars actions in the courts of other contracting states) applies only once a fund has been set up.

There is no general jurisdiction provision in the Convention that sets out where rights of limitation can, or cannot, be invoked. In principle, therefore, it allows a party to limit its liability in any contracting state which has personal jurisdiction over the defendant. Neither Article 10 nor Article 11 contains any restriction that states, expressly or impliedly, that a party cannot begin limitation proceedings without first setting up a fund. This is unsurprising because, in some cases (such as in this one) there might be only one claim arising out of a particular casualty.

The Civil Procedure Rules also recognise that the 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. This allows the court in some, albeit fairly rare, circumstances, to require the claimant to make payment rather than set up a fund. Where, as here, there is only one claim against the shipowner, a fund would serve no useful purpose.
Anti-suit injunction

But the Court of Appeal also agreed with the judge that there were no grounds for granting the claimants an anti-suit injunction restraining the proceedings in Texas.

Where concurrent proceedings have been issued in England and in a foreign jurisdiction, the English court will only grant an anti-suit injunction when justice requires it. The court is always careful to emphasise that the injunction is not an order directed against the foreign court, but against the parties who issued or threaten to issue those proceedings (Donohue v Armco Inc and others [2001] 1 UKHL 64). If, however, the foreign court is in a European state that is party to the Brussels or Lugano Conventions or the Jurisdiction Regulation 44/2001, the English court has no power to grant an anti-suit injunction, even if the foreign proceedings are an abuse (Turner v Grovit (Case C - 159/02, [2004] 2 Lloyd's Rep 169).

In deciding whether to grant the remedy, the court will look at all the circumstances of the case. It must be persuaded that England is the more appropriate forum and that the foreign proceedings are "vexatious and oppressive or unconscionable" (General Star International Indemnity v Stirling Cooke Brown Reinsurance Brokers Ltd [2002] EWHC 3). An example might be where the foreign proceedings have been brought in breach of an exclusive English jurisdiction clause.

No jurisdiction clause, however, was involved in this case so the claimants had to persuade the court that the proceedings in Texas were unconscionable in some other way.

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