What is a ‘shipowner’ for the purposes of Article 1(2) of the Limitation Convention?
Sea Consortium Pte. Ltd (trading as X-Press Feeders) and Ors -v- Bengal Tiger Line Pte. Ltd (X-Press Pearl) [2024] EWHC 3174 (Admty)
The Admiralty Court has provided helpful guidance on what constitutes a ‘shipowner’ for the purposes of Article 1(2) of the Convention on Limitation of Liability for Maritime Claims 1976 tas amended by the 1996 Protocol (as amended in 2012) (the Convention).
It is clear that when making its determination as to whether a party is a “shipowner”, the Court will examine the precise terms of the underlying contracts to ascertain the extent to which a party enjoyed the services of the vessel in question. This will include the owners’ commitment to allocate space for the charterers to use, albeit there is no requirement for the putative charterers to pay for space that it does not in fact use. It is also now clear that NVOCCs could also constitute ‘charterers’ (and therefore shipowners) under the Convention, subject to the specific terms of their agreements.
The background facts
This case concerned a tonnage limitation claim brought by Sea Consortium Pte. Ltd (trading as X-Press Feeders) (X-Press). The claim arose from the fire on the container vessel X-PRESS PEARL, which started on 20 May 2021 and culminated in the sinking of the vessel and her cargo on 2 June 2021 off Colombo, Sri Lanka, resulting in the total loss of both.
Contractual context
At the time of the casualty, the vessel was carrying containers under a variety of contractual arrangements, including:
- a written Agreement for Transport Services dated 1 July 2020 between the first to third claimants and Maersk A/S (Maersk);
- a Fixed Slots Contract contained in or evidenced by an unsigned term sheet headed “SMX BTL (1 Mar – 31st May 2021)” between the first claimant and Bengal Tiger Line Pte. Ltd (BTL); and
- a written Connecting Carrier Agreement dated 1 May 2015 (the CCA) between the first claimant and MSC Mediterranean Shipping Company S.A. (MSC).
Constitution of a Limitation Fund
X-Press sought to limit its liability pursuant to the Convention. On 21 February 2022, X-Press was granted permission by the English High Court to constitute a Limitation Fund in England by letter of undertaking for claims arising out of the casualty. Limitation was calculated to be SDR19,159,937 (which, at the time, was equivalent to GBP 19,990,325.57). A letter of undertaking in that amount was issued by X-Press’ P&I club insurer.
On 3 July 2023, the Admiralty Registrar granted a limitation decree to X-Press, thus limiting its liability in respect of any loss or damage arising out of or in connection with the casualty pursuant to Article 6 of the Convention. The limitation decree was advertised in various newspapers and trade journals on 25 August 2023 and 27 October 2023. Claims were subsequently lodged against the Limitation Fund using Admiralty Form ADM20.
Singapore Proceedings
Meanwhile, the Democratic Socialist Republic of Sri Lanka (Sri Lanka) commenced proceedings against X-Press in Singapore for loss and damage alleged to have been caused by the vessel and its cargo sinking in Sri Lankan waters.
Article 1 & 4 applications
Sri Lanka’s Article 4 application
By an application dated 26 January 2024, Sri Lanka disputed X-Press’ entitlement to limit its liability. In doing so, Sri Lanka sought to invoke Article 4 of the Convention by which it sought to set aside the limitation decree. Case management directions have been made that will lead to a determination of that dispute in due course.
Article 1 applications
There was also a case management direction requiring any application for a declaration of entitlement to limit liability in respect of the casualty as a ‘shipowner’ under Article 1(2) of the Convention (an Article 1 application) to be filed and served, with directions for evidence to be served in support of and in response to any such application.
Article 1 applications were issued by MSC, BTL and Maersk respectively.
MSC’s and Maersk’s Article 1 applications each sought orders:
- that they are a shipowner under Article 1(2) of the Convention;
- that they are entitled to limit liability in respect of the casualty under the Convention; and
- that the Limitation Fund constituted by X-Press is also deemed constituted by them.
BTL’s Article 1 application only sought an order equivalent to (i), however the Court considered that it was appropriate to grant materially identical relief on any of the applications that succeed.
On 6 December 2024, Counsel for Maersk, BTL, MSC and X-Press gave submissions on the merits of the Article 1 applications. Neither party opposed any of the Article 1 applications.
However, although there was no active opposition to the Article 1 applications, the parties sought declaratory relief that would bind all parties. The Court, therefore, considered it to be appropriate for each applicant to establish to the Court’s satisfaction that it fell within the Article 1(2) definition of ‘shipowner’.
Submissions on the definition of ‘shipowner’ – The MSC Napoli case referred
In making their submissions, Counsel referred to the judgment of Teare J in The MSC Napoli [2008] EWHC 3002 (Admty) – a case in which the Admiralty Court had addressed the issue of whether a slot charterer was a ‘charterer’ for the purposes of the Convention.
In The MSC Napoli, both Hapag-Lloyd AG (HPL) and H Stinnes Linien GmbH (Stinnes) had contracts with MSC by which MSC as slot provider or vessel provider allocated a number of TEU container slots per voyage leg on a defined MSC container service route to HPL, respectively Stinnes, as slot charterer. These slot charters provided for containers carried under them to be covered by bills of lading issued by the slot charterers. The consideration payable to MSC was described as “slot charter hire” and was payable for the slot allocation, used or unused.
Teare J decided that HPL and Stinnes were ‘shipowners’ as defined by Article 1(2) of the Convention. Each was a “… charterer … of a seagoing ship”, which did not require that they had a right to use or direct the use of the entire cargo carrying capacity of the ship. Teare J noted that there were features of the slot charters in that case that bore similarity to a time charter and features that bore similarity to a voyage charter – a point also made by BIMCO in a description it had given of slot chartering on which Teare J relied. As part of giving the Article 1(2) definition a proper, purposive construction, in its context within the Convention, Teare J noted that:
“The convention encourages [international trade by way of sea carriage] by limiting the liabilities which arise on a distinct occasion. Such liabilities obviously include cargo claims. If charterers who had issued bills of lading as carriers were not within the definition of shipowner cargo claimants could direct their claims at the charterers and so avoid the limit … . The charterers would have a claim against the shipowner but he would be able to limit his liability, thus leaving the charterers to bear the excess of the cargo claim over the limit. The inclusion of charterers within the definition of shipowners ensures that this does not happen.”
Teare J had concluded that as a matter of ordinary language there was no reason to say that ‘charterer’ in Article 1(2) did not include a slot charterer; and that treating slot charterers as outsiders in that regard would discourage the use of slot chartering, which has become a well-established and efficient way to organise the carriage of goods.
The Admiralty Court decision
In this case (the X-PRESS PEARL), the Court agreed with Counsel for Maersk and MSC who submitted that it was not essential to Teare J’s reasoning in The MSC Napoli that the charter slot hire in that case was given that title or that it was payable for the allocated slots, ‘used or not used’. The Court noted that the particular contractual arrangements under which a putative Article 1(2) ‘charterer’ enjoyed the services of the ship in question will always need to be examined before a decision can be reached on whether they are indeed within that definition.
The Court also agreed with Counsel for Maersk’s submission, supported by the reasoning in The MSC Napoli, that it should normally be sufficient for a party to be considered an Article 1(2) ‘charterer’ that its relevant contract obliges an owner or disponent owner to make part of the carrying capacity of a vessel available to that party for the carriage of goods which that party will have contracted, or will be obliged to contract, to undertake as carrier. A party to whom space on a vessel is contracted for the performance by it, delegated to the vessel, of its contractual obligations as carrier, will generally be an Article 1(2) ‘charterer’, given the ordinary connotation of that word and the purpose of the Convention.
The Court noted that this may mean (as BTL’s Counsel had submitted) that businesses that would describe themselves, in the modern jargon, as NVOCCs (non-vessel operating common carriers) rather than as (slot or any other kind of) charterers, will also be Article 1(2) ‘charterers’, subject always to reviewing the precise terms of their contractual arrangements with the vessel whose services they use.
BTL
The Court was satisfied that the Fixed Slots Contract was materially identical to the slot charters considered by Teare J in The MSC Napoli and that BTL was straightforwardly an Article 1(2) ‘charterer’ (like HPL and Stinnes in The MSC Napoli).
MSC
The Court was satisfied that the only point of difference of any possible substance between the CCA, and the slot charters considered in The MSC Napoli, was the lack of any obligation upon MSC to pay for unused slots. In the Court’s opinion, that did not take MSC outside the scope of Article 1(2). The CCA was still properly described as a slot charter of the type considered by Teare J. The Court, therefore, considered MSC to be an Article 1(2) ‘charterer’.
Maersk
The Court was satisfied that, when reading the ATS as a whole, the ATS is a contract to make cargo carrying space available to Maersk for its effective use in order to perform its contractual commitments as carrier. Although Maersk did not promise to pay for slots, used or not used, but only for container transport actually undertaken, the Court concluded, on balance, that the ATS can be characterised as a contract to hire slots on X-Press’ (chartered) ships from time to time, including, in the event, on the vessel for the casualty voyage. The Court, therefore, concluded that Maersk was an Article 1(2) ‘charterer’.
Accordingly, the Court held that each of BTL, MSC and Maersk was a ‘shipowner’ within Article 1(2) of the Convention in relation to the casualty voyage of the X-PRESS PEARL, because each was a ‘charterer’ of the vessel within the meaning of that term as it appears in the Article 1(2) definition of ‘shipowner’.
Comment
This decision provides helpful clarification as to what constitutes a ‘shipowner’ within Article 1(2) of the Convention. When making its determination as to whether a party is a ‘shipowner’ under the Convention, the Court will seek to examine the specific terms of the underlying contracts to ascertain the extent to which a party enjoyed the services of the vessel in question.
The Court attributed particular relevance to the Owners’ commitment to allocate space for the Charterers to use (which was the case in the Maersk contract, i.e., the CCA). The Court held that it is not necessary for the putative Charterers to pay for space that it does not in fact use. Interestingly, the judgment also recognises that NVOCCs could also constitute ‘charterers’ (and therefore shipowners) under the Convention, subject to the specific terms of their agreements.
