DMC Category Rating: Developed

Background
The case arose from the grounding and subsequent salvage of a vessel, the "Tasman Pioneer" in the Japanese sea in May 2001. At the time, the ship was owned by Rimba Shipping Co. Ltd. of Cyprus and timechartered to Tasman Orient Line (Cyprus) Ltd., who in turn sub-time chartered her to Tasman Orient Line CV ("Tasman Orient"). Tasman Orient ran a liner trade between New Zealand and Asia and was the contractual carrier under various bills of lading that it had issued for the voyage in question. This involved the carriage of about 150 containers and a quantity of break bulk cargo from various ports in New Zealand to seven ports of discharge in Japan and Korea. The casualty gave rise to substantial cargo claims, amounting to over NZ$21m. The sub-timecharterers and carriers, Tasman Orient, applied for a limitation decree under Part VII of the NZ Maritime Transport Act, 1994 ("MTA"), the effect of which would have been to limit its liability to some NZ$7m.

Cargo interests did not oppose the application but themselves applied for security, in the event that a limitation decree were granted, that would have required Tasman Orient to establish a limitation fund in the amount of the limitation decree. Tasman Orient opposed this application, principally on the ground that the court did not have power under the Act to order security in this manner.

Judgment
In New Zealand, by Part VII of the MTA - which enacted the provisions of the London Convention - timecharterers are to be treated as 'owners' and are entitled to limit their liability in terms equivalent to the Convention provisions. The New Zealand legislation did not enact the London Convention wholesale, but adopted similar phraseology to the Convention.

Justice Williams of the New Zealand High Court referred to the development under statute of the categories of persons entitled to limit their liability, and also to the judgment of Mr Justice Steel in the English Commercial Court in the case of CMA CGM S.A. v Classica Shipping Company Limited [2003] Lloyd's Rep. 50, in which he summarised the history of limitation and observed that charterers may limit liability where the liability arises "qua owner" (that is, when the charterer is acting as an owner). (This restricted interpretation of the charterer’s right to limit was overruled by the Court of Appeal in a judgment delivered on 12 February 2004.)

The New Zealand court also found that, for the obvious reason that he was employed by the ship's owner, the acts of the Master in the navigation of the vessel could not be attributed to the sub-timecharterer of the vessel. Although the sub-timecharterer did direct the master as to such matters as ports of call and, broadly, the route to be followed, the manner of implementing those orders, including the detailed navigation and management of the ship, was left to the master. The charterparty provided for the actual owner to remain responsible for navigation and gave the master sole responsibility for deciding the course.

The Court found that on the evidence available, the casualty might have been caused by the negligent navigation of the master but in circumstances where it had not been shown that his actions were attributable to the sub-charterer. This did not, therefore, defeat the sub-charterers' entitlement to limit liability. The court specifically did not follow in this respect the earlier decision of the New Zealand High Court in the case of Nelson Pine Industries Ltd. v. Seatrans New Zealand Ltd. (the "Pembroke").

The Court also found that New Zealand law does not provide that an applicant - in order to get a decree – must admit liability or set up a limitation fund. In the result, therefore, sub-charterers, who were contesting the cargo claims - obtained an order limiting liability and remained entitled to defend them to trial without giving security as a condition of the order. The effect of the order was to limit the sub-charterer's potential liability, if any proved at trial, to about US$4 million, rather than approximately US$12 million.

As regards the power of the Court to order the establishment of a limitation fund, the Court found that the MTA did not give the Court jurisdiction to require a fund in relation to claims subject to limitation of liability.

In the event that the Court had found jurisdiction, Tasman Orient had argued that it was not appropriate to require security in a case where there was no admission of liability. There was no English authority by which the Court had required that a limitation fund be constituted where liability had not been admitted. In the one reported case in which a party did not admit liability, a fund had already been constituted before the decree was made. The English Rules of the Supreme Court incorporate clear textual indications which confirm that requiring a fund is a matter of discretion rather than obligation. This is also consistent with Article 10 of the London Convention which provides that the constitution of a limitation fund is not mandatory, but a State party may provide in its national law that it will be.

The Court did not address this point directly, although it observed that if jurisdiction had been held to exist, it would have permitted the sub-charterer to provide security by way of an International Group P&I Club letter of undertaking, rather than by placing funds in Court. Such a course is consistent with the Court's general practice to accept Letters of Undertaking/Guarantee from members of the International Group of P&I Clubs by way of security in lieu of arrest.