England and Wales High Court (Admiralty Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMIRALTY COURT

		St. Dunstan's House
		3rd December 2004

MR. JUSTICE DAVID STEEL:

1. This is an application by the first defendants to set aside these limitation proceedings which have been served on them on the grounds that the court lacks jurisdiction to entertain the claim.
2. The claimants are the owners of two vessels: a tug called The Polago VI and a dumb barge called The Denise. These two vessels suffered a casualty in the River Plate, in which they grounded and/or capsized. The owners of the tug and the barge are the claimants in these limitation proceedings. A number of cargo owners, whose cargo had been damaged in the casualty, brought proceedings in Argentina against the owners. As I understand it, compulsory court mediation in Argentina was unsuccessful, and, accordingly, court proceedings are or are about to get under way against the owners. The court in Argentina has already appointed a court surveyor. Judging from his initial report and an enquiry report from the coastguard, it is likely that there will be a finding that the grounding and capsize was due to an error in navigation on the part of the Master of the tug. If that opinion proves to be well founded, it would follow that the claim against the owners would be unlikely to succeed by virtue of the terms of the relevant contracts of carriage under bills of lading.
3. It is right to record in passing that that the value of the claim that is brought by the cargo owners in total is about $1 million, and that the limit of liability under Argentinean law, which is based upon the post-casualty value of the vessels, would be about $500,000 to $600,000.
4. Claims in Argentina by the cargo owners were also intimated against various shipping lines that had chartered or reserved space on the barge. The defendants are one of those shipping lines. It does not appear as if the proceedings against the shipping lines have been pursued in Argentina but the threat of proceedings in turn prompted the shipping lines, including the first defendant, to threaten to arrest the claimant's vessels. To avoid that arrest the shipping lines were issued with Club letters of undertaking up to a total liability of $3 million apparently on the basis that that security, which was accepted by the defendants and the other shipping lines, should be valid for any judgment of an English court, and provision was made for ensuring that English jurisdiction could be properly and safely invoked by the shipping lines.
5. These claims in turn provoked the limitation action which had been issued by the claimants. As a matter of reality, the possibility of indemnity claims being brought by the shipping lines are remote, given that the proceedings being prosecuted by the cargo owners at the moment are focused directly on the shipowners themselves. In any event, the shipping lines will have an equally valid defence, based on error of navigation since they in turn issued their own bills of lading. Equally, it may be that they are in a position to pray in aid some degree of limitation of liability. Nonetheless, it is not suggested that the security that they have obtained from the shipowners in favour of English proceedings has been rendered redundant. They wish to maintain that security and in due course may be forced to seek to recover an indemnity. Indeed I am told that there is already a threat of proceedings as a result of a cargo claim in Belgium against a shipping line, the effect of which will be that the claimants will require any claim for an indemnity to be brought in England.
6. The thrust of the first defendant's case on the issue of jurisdiction - and I hope I do it justice - is this. The claim form that has been issued by the claimants seeks, in effect, a declaration that they are entitled to limit their liability in respect of the incident and that supplementary directions be given for ascertaining the amount of the liability and for distributing in effect the fund amongst those entitled thereto. In effect, the claim form is in standard form.
7. The first defendants say that whilst the claim form was legitimately issued and served on the first defendants, who are an English company, nonetheless, there is no subject matter jurisdiction because of the effect of Article 11 of the 1976 Convention. What is said, as I understand it, is this. Article 11 permits a person to constitute a limitation fund in "any state party in which legal proceedings are instituted in respect of claims subject to limitation". Since it is said the process of seeking a decree will lead to an obligation on the part of the claimants to put up a fund, and since at the moment there is no claim which would justify the creation of a fund under Article 11, the court has no jurisdiction to entertain the claim for a decree.
8. I regard this submission as misconceived. The jurisdiction of this court is governed by the Supreme Court Act 1981 which, by virtue of section 20, allocates admiralty jurisdiction of the High Court as being inclusive of "any action by shipowners or other persons under the Merchant Shipping Act 1995 for the limitation of the amount of their liability in connection with a ship or other property". It does not seem to me that there is any limitation on the court's jurisdiction within the Supreme Court Act (and it may be that this is not controversial) which restricts an action for limitation to an action in which there already exists a claim against the shipowners in the same jurisdiction. Nor do I think it appropriate to read the Convention as limiting the jurisdiction of the court in that way either. I have already read Article 11 which, as I say, restricts the entitlement of a person to constitute a fund to situations in which legal proceedings have been instituted in the same state. But Article 10 of the Convention makes it plain that "limitation of liability may be invoked, notwithstanding that a limitation fund has not been constituted". It also prescribes that "questions of procedure arising under the rules of this Article shall be decided in accordance with the national law of the state party in which the action is brought".
9. I see nothing there to limit the entitlement of the claimant to invoke the jurisdiction of this court to seek a decree of limitation even in circumstances where there is no claim (as yet) brought against him in this jurisdiction. To the contrary, it seems to me that the Convention expressly contemplates it. Of course it will be a rare case where a claimant invokes the jurisdiction of a state party to seek a decree of limitation in circumstances in which there is no realistic prospect of any claim being brought in that jurisdiction to justify the constitution of the fund merely to invoke thereby the sort of powers that are afforded under the English rules of court in Part 61.11, rule 13, which prescribes that "where a limitation decree is granted, the court may [and I emphasise 'may'] amongst other things (i) order proceedings relating to any claim arising... be stayed and (ii) order the claimant to establish a limitation fund if one has not been established".
10. I note in passing that the authors of Limitation of Liability for Maritime Claims 1998, 3rd edition, assert that there is an obligation to constitute a limitation fund once a decree has been granted. In my judgment, that overstates the matter. The position is that a limitation fund can be constituted at any stage when legal proceedings have been instituted, whether before or after a decree, but there is no obligation so to do, albeit the court may impose an obligation if that is appropriate.
11. Here the situation is that on the first defendant's own assertion it is unlikely that matters will need to go so far as to require the constitution of a fund. The degree can be granted and in the event, which is said to be unlikely, a claim is brought, the claimant can, if he is so minded, create a fund in order to absorb that claim and any other claim that may be brought. That seems to me to be perfectly commercially sensible, given the fact that the claimants are faced with incipient claims totalling $3 million, albeit that it has protested that the total claim could not exceed much more than $1 million, and have put up security in that sum.
12. Much reliance was placed by the first defendants on the decision of Colman J. in ICL Vikraman [2004] 1 Lloyd's Rep 21. That judgment, which has many valuable observations, was concerned with the particular question as to whether the entitlement to constitute a fund could arise not when legal proceedings in court were instituted but when proceedings by way of arbitration in London had proceeded to an award. The learned judge concluded that the scope of Article 11 was appropriate to allow the constitution of a fund to cover just that circumstance. He was not dealing with the question as to whether the initial issuance of limitation proceedings in the absence of existing proceedings was justified, albeit that he observed in passing, at para.60, that such an eventuality was not in any sense inappropriate. Indeed, he observed that, "If a limitation fund has not yet been constituted at the time of the issue of the limitation claim form, none of the defendants may yet have launched proceedings in this country", he presciently contemplating the very situation that we have in this case.
13. For all these reasons, which perhaps I would have expressed with greater facility if I had reserved this short judgment, I have come to the conclusion that the application must fail.

MR. GOLDSTONE: My Lord, in my submission, this was an unrealistic and misconceived application. Can I just draw your Lordship's attention to p.24 of the bundle? There are two paragraphs in Mr. Kennard's second affidavit, paras.5 and 6, precisely the points that we have relied upon today and that, in my submission, underlie the dismissal of this application. We marked up these points, indeed, as long ago as July, and one sees this from p.10 -- in fact it is p.11, my Lord.

MR. JUSTICE DAVID STEEL: Yes.

MR. GOLDSTONE: We wrote in these terms:

"It is abundantly clear that any jurisdictional challenge is bound to fail and in any event is an entirely pointless exercise."

My Lord, that is p.11 of the bundle.

MR. JUSTICE DAVID STEEL: Yes.

MR. GOLDSTONE: In my submission, this is a case for indemnity costs: misconceived, uncommercial, and we pointed out that out a long time ago.

MR. JUSTICE DAVID STEEL: Thank you. Mr. Karia?

MR. KARIA: My Lord, there is no basis for indemnity costs in this case. Indemnity costs are only appropriate where there has been either some bad faith or grossly unreasonable conduct. The fact that we have failed to persuade your Lordship on what is a difficult point where there is authority certainly of textbook writers that there was an obligation, an inevitable obligation, on the claimants to constitute a fund, and that was of necessity a part of the claim that they had raised, and your Lordship has decided, contrary to my learned friend's submissions, that, yes, the court does not have jurisdiction to allow the constitution of a fund where there is no claim, we think that there is absolutely no basis on which indemnity costs can be claimed. May I remind you that my learned friend spent a large part of his skeleton argument arguing that the constitution of a fund, Article 11.1, is not the exclusive mechanism for constituting a find. Well, your Lordship held against him on that.

MR. JUSTICE DAVID STEEL: Yes.

MR. KARIA: So we certainly did not act in the grossly unreasonable way that would be required to be penalised by way of indemnity costs, and your Lordship will be fully aware that the Court of Appeal has emphasised that they are penal in nature.

MR. JUSTICE DAVID STEEL: Thank you. Any more, Mr. Goldstone?

MR. GOLDSTONE: No.

MR. JUSTICE DAVID STEEL: The claimants will have their costs but on a standard basis.

MR. GOLDSTONE: My Lord, a schedule has been provided.

MR. JUSTICE DAVID STEEL: Yes, I have got that. Well, I think I have. What is the total figure?

MR. GOLDSTONE: My Lord, our figure is £10,000, plus or minus. My Lord, I am told that, inclusive of everything, it is £9,366 plus £345, making a total of £9,711.

MR. JUSTICE DAVID STEEL: Yes.

MR. GOLDSTONE: Your Lordship may have seen the other side's schedule.

MR. JUSTICE DAVID STEEL: Yes.

MR. GOLDSTONE: I am proceeding on the basis that this figure is not disputed and that the first defendants are content to pay it in full in the light of their own figure.

MR. JUSTICE DAVID STEEL: Yes. Mr. Karia?

MR. KARIA: My Lord, subject to some clarification as to where the £345 comes from, we do not dispute this.

MR. GOLDSTONE: My Lord, it is my solicitors' costs of attending today. (Counsel conferred). It is the cost of my solicitors attending today.

MR. KARIA: My Lord, we have no objection to that on that basis.

MR. JUSTICE DAVID STEEL: Then the first defendants will pay £9,711 within 14 days.

MR. GOLDSTONE: I am most grateful, my Lord. Thank you very much.

MR. JUSTICE DAVID STEEL: Thank you very much.

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