Clash of the Conventions

Limitation of Shipowners' Liabilities — 1957 or 1976 Convention?

In their search for uniformity, the countries of the world come together every now and then to draft universally acceptable Conventions of law. This noble purpose is not always achieved. Sometimes, the very Conventions drafted to create synthesis can become the source of the legal conflicts between two countries. In this article, the authors examine conflicts that have plagued two such Conventions that exist side by side in the world of shipping litigation. The Conventions in question are the International Convention of Limitation of Liability of Owners of Sea-Going Ships 1957 in Brussels ('1957 Convention') and its successor, the Convention on Limitation of Liability for Maritime Claims 1976 in London ('the 1976 Convention').

Introduction

The concept of limitation of liability discussed here is a creature of statute. It enables a shipowner to limit his total liability for losses which have occurred, under circumstances for which he must answer, but without his fault or privity. One may well ask why shipowners should form a select breed when other tortfeasors are left to fend for themselves to the full extent of their purses. In the words of Lord Denning MR in The Bramley Moore [1964] 1 All ER 105,

I agree that there is not much room for justice in this rule; but limitation of liability is not a matter of justice. It is a rule of public policy which has its origin in history and its justification in convenience.

The answer lies in the foundations of international trade — in days when trade was only possible by ships, the absence of such limitation would have made shipowners reluctant to take on the potentially ruinous risks of sea voyages for they could bankrupt him. Without a limit to liability, insurance cover would also have been impossible to come by. If allowed, this state of affairs would have ultimately hindered the development of trade between nations. Hence, the right to limit was bestowed upon the shipowners.

The 1957 and 1976 Conventions are the distillation of many years of legislation, case law and commercial input. In understanding the conflict between the Conventions, it is useful to review the history of limitation as a whole.

Historical Development of Limitation of Liability

The statutory right to limit liability in select circumstances traces its origins back to the 17th century with the Continental countries leading the way. Provisions can be found in the States of Hamburg in 1603, the Hanseatic Ordinances of 1614 and 1644 and the Marine Ordinance of Louis XIV in 1681, which allow shipowners to limit their liability to claimants by reference to the value of the carrying ship and its freight.

The United Kingdom only entered the fray in 1733 when it passed the Responsibility of Shipowners Act. This Act allowed a shipowner to limit his liability in respect of theft by the master or crew to the value of the ship and her freight. This right was extended in 1786 to cover the consequences of '... Any act, matter, or thing or damage or forfeiture, done or occasioned, or incurred by the said master or mariners, or any of them, without the privity and knowledge of such owner or owners ...'. The concept of privity was introduced (undoubtedly as a counterbalance to the extension) — the shipowner could not limit if he was personally privy to the cause of the loss.

The system of limitation continued to evolve through the 19th century with the Merchant Shipping Act 1854, which provided shipowners, for the first time, with the right to limit liability in respect of loss of life and personal injury. The developments were eventually consolidated under the English Merchant Shipping Act 1894 which, by section 503, sets out the test of 'actual fault or privity' that exists today in Singapore. Under the Act, the limitation fund was fixed to be calculated on the basis of the vessel's net tonnage plus engine room space.

In the Continent, however, the concept of limitation funds had developed along slightly different lines: most countries there still required the owner to calculate the size of the fund by reference to the actual value of the ship after the accident plus freight. This difference in approaches led to the first Convention on limitation — the International Convention for Unification of Certain Rules relating to the Limitation of Liability of the Owners of Seagoing Vessels in Brussels in 1924 ('the 1924 Convention'). At the Convention, section 503 was adopted as the international standard test for limitation.

However, only 15 states eventually either ratified or acceded to the 1924 Convention and it was widely deemed a failure.

The 1957 Convention

In 1957, a fresh Convention was held and, inter alia, the limits of liability were raised. The 1957 Convention saw a greater take-up rate with 46 states ratifying or acceding to it. In fact, several states adopted the 1957 Convention without denouncing the 1924 Convention, which leads to curious consequences as will be explained later.

The 1957 Convention still retained the concept of 'actual fault or privity'. Judicial pronouncements over time meant that the words were interpreted to mean not just affirmative or positive acts by way of fault by the shipowner, but that if a shipowner was guilty of an act or omission to do something which he ought to have done, he was no less guilty of actual fault than if the act had been one of commission.

The 1976 Convention

Notwithstanding the popularity of the 1957 Convention (and, perhaps, as a consequence of shipowners finding it increasingly difficult to show that they were not in any way at fault for the incident), a radical change was introduced to the law of limitation in 1976. By the 1976 Convention in London, the test of 'actual fault or privity' was exchanged for a test of whether 'the loss resulted from [the shipowner's] personal act or omission, committed with the intent to cause such loss or recklessly and with knowledge that such loss would probably result'. In exchange for the establishment of a much higher limitation fund, claimants had to accept the extremely limited opportunities to break the right to limit liability. The list of persons entitled to claim limitation was also increased to include salvors and insurers.

The Effect of the Two Conventions

To add to the above complications, some countries have adopted the later limitation Convention without denouncing their previous Convention. One would have thought that this would not create any problem by itself, since one would just apply the later Convention if need be. Unfortunately, this is not so. It is provided under the 1969 Vienna Convention on the Law of Treaties that where two states are parties to a Convention, that Convention must be applied between them. This is so, even if one of the states concerned has ratified a more recent Convention on the same subject, but has failed to denounce the earlier one. If there is a collision in Y country, where the vessel concerned is flying X flag, Y court would be obliged to allow owners of X flag vessel to limit in accordance with the 1957 Convention rather than the 1976 Convention. This is because both countries have agreed to apply that Convention on a reciprocal basis. Therefore, since Y has not denounced the 1957 Convention when she adopted the 1976 Convention, she still has obligations to countries which ratified the 1957 Convention.

The 1976 Convention came into force on 1 December 1986 and has been ratified or acceded to by 32 states to date. Singapore, however, has refrained from doing so, choosing instead to remain a participating country to the 1957 Convention. It is against this background that wily maritime lawyers have been trying to gain their clients an advantage through the fine art of forum shopping.

Forum and jurisdiction

In the event of a marine casualty, the main question that arises is where to commence an action. Amongst a number of important factors, one of frequent consideration is which Convention a particular country subscribes to. The lawyers will have to take into consideration the culpability of their clients for the casualty, the size of the fund they would need to establish and the likelihood that the limitation will be broken. This is further complicated by the simple fact of whose shoes one is wearing: the plaintiff's or defendant's? In most cases, both parties will seek to commence the action in their chosen jurisdiction to take advantage of whichever Convention best assists their cause. This usually necessitates an urgent assessment of the likely apportionment of liability.

Once the forum is chosen, it is not difficult to confer the courts with the appropriate jurisdiction. This is usually done by the arrest of a sister ship or even the offending ship if it is present in the chosen jurisdiction. The game plan would be to have the issues of liability determined in that jurisdiction and, since the court is already seized of jurisdiction, a limitation fund is set up shortly thereafter in the same jurisdiction.

Once initial jurisdiction has been conferred on the court, it is up to the defendants to come forth and argue that the chosen jurisdiction is forum non conveniens and that there is a better forum elsewhere for resolving the dispute. Depending on the forum chosen, the principles of Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460 will then usually assist in determining which would be the appropriate jurisdiction to litigate the matter. Most practising lawyers would recall the two-stage test in Re Spiliada: whether there is any other available forum

1. having competent jurisdiction which is more appropriate for trial of the action, and
2. that forum is where the case may be tried more suitably for the interest of all parties and the ends of justice.

The first stage of the test is easily enough applied and the results are often quite predictable. However, in retaining the court's final discretion, the House of Lords held that, notwithstanding a clearly more appropriate jurisdiction existing elsewhere, the court was entitled to take into consideration via the second stage, special circumstances by reason of which a stay should be refused.

It is at this point that the Conventions started clashing.

Which Convention?

Although we recognise the comparatively tenuous connection between Hong Kong and this casualty, we think it would be unjust to the plaintiffs to deprive them of the Hong Kong limit which reflects international public policy and confine them to the at best uncertain, and at worst, derisory level of the Indonesian limit.

This point came up for consideration again in Caltex Singapore Pte Ltd v BP Shipping Ltd [1996] 1 Lloyd's Rep 286. Clarke J, in a long and reasoned judgment, held that the ends of justice would be best served if the plaintiffs were allowed to proceed in England as opposed to Singapore. This was despite his recognition that Singapore was the natural forum for determination of the issues in the action. His rationale was that it was the International Maritime Organisation's policy that all countries should ratify the 1976 Convention and that it had been recognised by countries with 43% of the world's tonnage. The judge took the view, at page 298, that:

it is desirable that as many countries as possible should apply the same standards, partly because that is desirable in itself and partly because it avoids problems such as have arisen in this case. It seems to me to be proper to regard the 1976 Convention as representing a widely accepted development from the regime which existed under the 1957 Convention.

The judicial trend set by these cases in finding special circumstances to refuse to stay matters smacked of judicial imperialism and this was pointed out by Waung J in the Hong Kong case of The Kapitan Shvetsov [1996] 1 Lloyd's Rep 199.

I do not therefore accept the argument in Caltex that it is desirable that as many countries should apply the 1976 Convention. What is desirable to Great Britain is not desirable to many of the civilised countries such as USA, Canada, Italy, Portugal, Singapore and Malaysia which have chosen not to apply the 1976 Convention. ... It seems to me that this court is being asked to go back to the old days where the theme is 'our system is better'. If I pay heed to what Lord Goff said in the Spiliada, there is no place for this court to say 'our Convention is better' and employ that as the basis for refusing a stay.

He allowed the matter to be stayed in Hong Kong and to proceed instead in Singapore.

However, the Court of Appeal in Hong Kong reversed the decision of Waung J by a majority. The first part of the reversal was a finding by the Court of Appeal that the most appropriate forum for the adjudication of the disputes was Thailand. Since neither party wanted to try the matter there, and the defendants could not show sufficient reason that Singapore was more appropriate than Hong Kong as the forum for the litigation, there was no reason to order a stay. That much of their decision would have been a proper application of the Spiliada principles and cannot be faulted. However, Litton VP, went on to hold that there was considerable juridical disadvantage to the plaintiffs in having to litigate in Singapore under the 1957 Convention as opposed to the 1976 Convention in Hong Kong, therefore, he held that the interests of both parties and the ends of justice do not demand that they be driven from their chosen forum. In his dissenting judgment, Liu JA said, at page 221, in reference to the Caltex case:

Mr Justice Clarke, seemed to have, in a broader sense, compared the quality of justice in different jurisdictions by reference to what he regarded as an English public policy of upholding the modern 1976 Convention. We know not what the local, legislative and enforcement conditions in Singapore were, and Mr Justice Clarke's comparison of quality of justice cannot be supported and should not be encouraged.

In Caspian Basin Specialised Emergency Salvage Administration v Bouygues Offshore SA (No 4) [1997] 2 Lloyd's Rep 507, the situation was reversed. The shipowners wanted to limit their liability in England and not South Africa, presumably because the difficulty in breaking the limit under the 1976 Convention was greater than under the 1957 Convention. Rix J dismissed the stay application whilst saying, obiter at page 530, that;

the 1976 Convention represents not merely English law but an internationally sanctioned and objective view of where substantial justice is now viewed as lying, and that in the circumstances, the advantages of the 1976 Convention (whichever way they fall on the facts of any case) are a relevant and legitimate consideration in the overall question of where a case may be tried for the interests of all parties and the ends of justice.

Interestingly, in an earlier case, The Falstria [1988] 1 Lloyd's Rep 495, Sheen J refused to grant a stay over English limitation proceedings in a reverse situation. The proposed forum was Denmark which, at that time, applied the 1976 Convention whilst England was still applying the 1957 Convention. In Denmark, under the 1976 Convention, the limitation fund would have been larger than the claim being made and therefore limitation there would not have availed the charterers any useful purpose. In arriving at his decision, Sheen J stated:

I have been invited to say that a Danish court is the appropriate forum for the trial of the action. At the same time, have been told that there will be no limitation action in Denmark because the limit of liability in that country exceeds the amount of the claim ... the relief claimed by the plaintiffs in this action does not relate to Denmark and cannot be obtained in a Danish court. The relief claimed by the plaintiffs is a decree of this court that in respect of all claims brought in this country there is a limit to the liability of the charterers. That decree can be granted by this court and only by this court.

It is submitted that the approach of Sheen J, with due respect, was not in consonance with Rix J's later characterisation of the 1976 Convention as an internationally sanctioned and objective view of where substantial justice was viewed as lying. If Rix J was correct, Sheen J should have allowed the advantages of the 1976 Convention to fall where they lay in this case and not use their higher limits as a basis for denying one party full recovery. Anti-imperialists may explain this judicial divergence as follows: since England had yet to apply the 1976 Convention at that time, the learned judge did not believe it was a just Convention. This interpretation may have some support in that once the 1976 Convention was in force in England, Sheen J took the view in The Vishva Abha stated above that England was preferred because it applied the 1976 Convention. (In all fairness, it must be said that Sheen J's final conclusion in The Vishva Abha can be explained on the basis that South Africa was not clearly a more appropriate forum in that matter compared to England.)

Alternatively it may be that, in The Falstria, Sheen J was setting the scene for The Volvox Hollandia [1988] 2 Lloyd's Rep 361, where the English Court of Appeal held that the party seeking to limit cannot be denied his right to choose the jurisdiction in which he wished to set up his limitation fund (as opposed to having liability issues determined) — all he needs to do is found jurisdiction.

In Bouygues Offshore SA v Caspian Shipping Co (No 5) [1997] 2 Lloyd's Rep 533, Timothy Walker J followed the Caltex case and Rix J above, saying, at page 539, that 'the 1976 Convention represents a widely held view of objective justice.'

The culmination of these cases came with The Herceg Novi v The Ming Galaxy [1998] 1 Lloyd's Rep 167. On 18 August 1996, somewhere along the Straits of Singapore, the Herceg Novi ('HN') and the Ming Galaxy ('MG') collided. HN sank as a result of the collision but MG suffered relatively minor damage. Two days after the collision, the owners of MG began an action against the owners of HN in Singapore. Some eight days after, the owners of HN commenced an action against the owners of MG in England. Both parties sought to stay each other's action in the corresponding jurisdiction. The reason why the MG commenced the action in Singapore and the reason why the HN commenced proceedings in England was undoubtedly the same. In each case, the parties sought to take advantage of the different limitation regimes prevailing in England and Singapore. The total loss of HN, coupled with wreck removal expenses, put the claim of HN at an extremely high level. In the circumstances, it was in MG's interest to plead limitation, and further, to do so in a 1957 convention jurisdiction, ie Singapore. HN, on the other hand, aware that limitation would become an issue, sought to have the case adjudicated before a court in a 1976 Convention country, thereby ensuring a higher recovery.

HN's claims were in the region of US$15m. The claims of MG were about US$3.2m. MG's limit of liability under the 1957 Convention would have been about US$2m, provided that the collision was caused without their actual fault or privity. In England, on the other hand, the courts would apply the regime laid down by the 1976 Convention and the limitation fund would have been about US$5.8m for MG's liability.

In The Ming Galaxy, there was no factual connection with England other than the fact that the plaintiffs were able to arrest a sister ship of MG there. However, the fact that the plaintiffs were able to serve and arrest a sister ship there meant that they were able to exercise the jurisdiction of the court as of right. On the facts of that case, it would have been clearly more cumbersome and expensive to deal with the case in England than in Singapore. Nevertheless, for reasons of a bigger limitation fund, the owners of HN wanted to proceed there.

Appropriately enough, the first instance hearing of the English stay application came before Clarke J. After an exhaustive review of the authorities, Clarke J held that:

... different jurisdictions will naturally have different approaches to matters such as evidence, discovery and costs. The question remains an objective one, namely whether in the interests of all parties and the ends of justice it is just to grant a stay. ... After hearing the argument and considering the question afresh .... I reached the conclusion that the views expressed in Caltex are to be preferred to those expressed by Mr Justice Waung in The Kapitan Shvetsov, namely that, given the provisions of the 1976 Convention and the development of international maritime law which it represents (as evidenced by the support of case that, viewed objectively, the interest of all parties and the ends of justice may best be served by refusing a stay in an appropriate case and allowing the plaintiffs to proceed.

He then went on to hold that the plaintiffs were entitled to maintain the action in England but that it will be stayed pending the (more appropriate) Singapore court's determinations on liability for the collision.

On appeal to the English Court of Appeal, which finally had an opportunity to express their views on this issue, did so in three clear and concise paragraphs. Sir Christopher Staughton, delivering the judgment of the court in [1998] 2 Lloyd's Rep 454, at page 460, held:

In the corresponding application in Singapore, GP Selvam J was invited to stay the Singapore proceedings in favour of England. In an unreported judgment dated 10 September 1998, the learned judge minced no words about what he thought of the defendants' submission on the perceived superiority of the 1976 Convention over the 1957 Convention. His view was that:

the true meaning and effect of the defendants' submission based on the question of substantial justice is that something is lacking in the system of justice as regards limitation of liability. I am not aware of a decision anywhere whereby a court has stayed an action legitimately brought before on the ground that there is something wanting in its system of justice and that better justice will be done in another jurisdiction. For my part it would be wrong in principle to do so because I cannot accept that the law of Singapore is unjust to either party. As the Singapore legislature had deemed it just to retain the lower limitation when there is no actual fault or privity this court must give effect to that legislation and the merits of that legislation are not justiciable before this court.

He dismissed the application.

With decisions of the Court of Appeal in England and GP Selvam J in Singapore, it is hoped that the battle of the Conventions has ground to a halt. The courts no longer have to decide forum non conveniens issues on the basis of which Convention is better. The lofty sounding words behind which judicial chauvinism could possibly be hidden or even suspected of would no longer be available in jurisdictions that use these cases as persuasive precedents. Similarly, it is no longer available for parties to forum-shop with a view to taking advantage of the 1976 Convention where it otherwise may not have been available to them.

However, it must be said that these cases do not prevent parties stuck with forums with limitation laws different from the 1957 or 1976 Convention from arguing that they would not get substantial justice in those forums and therefore insist on maintaining their actions in the Convention countries. In those situations, only the comity of nations stands in the way of the courts commencing another round of clashes for the Conventions, this time with local laws. The only way to silence the guns forever would be for all countries to unite under one Convention.

Conclusion

When the authors' firm wrote to the Attorney-General's Chambers in 1998 seeking clarification on Singapore's choice of the 1957 Convention, the Attorney-General referred the question to the Maritime Port Authorities, who responded as follows:

... the maintenance of the 1957 Convention as the governing limitation regime in Part VIII of the Merchant Shipping Act (Cap 179) is a result of a previous preference for the 1957 Convention over the 1976 Convention. [Emphasis added.]

This could be, perhaps, a hint that it is but a matter of time before Singapore, too, would ratify the 1976 Convention. If so, seafarers can set forth knowing that their search for a uniform law has one more port of call.

Jude P Benny & SA Durai
Joseph Tan Jude Benny