Kairos Shipping Ltd and Another v Enka & Company LLC and Others MV Atlantik Confidence
| Jurisdiction | England & Wales |
| Judge | Rimer,Beatson,Gloster L JJ |
| Judgment Date | 06 March 2014 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 March 2014 |
Court of Appeal (Civil Division).
Rimer, Beatson and Gloster L JJ.
Robert Thomas QC and Thomas Macey-Dare (instructed by Clyde & Co) for the appellants/claimants.
Mark Jones (instructed by Jackson Parton) for the respondent/defendant, Cosmotrade SA.
The following cases were referred to in the judgment:
Barde AS v ABB Power Systems [1995] FCA 1602.
CMA CGM SA v Classica Shipping Co Ltd (The CMA Djakarta)UNK [2003] EWHC 461 (Comm); [2004] EWCA Civ 114; [2004] 1 CLC 468.
Daina Shipping Co v Mediterranean Shipping Co SA (The Rena) [2012] Folio 255.
Morris v KLM Royal Dutch Airlines [2002] CLC 820; [2002] 2 AC 628.
Newcastle Port Corp v Pevitt (The Robert Whitmore)UNK [2004] 2 Ll Rep 47.
Schiffahrtsgesellschaft MS Merkur Sky mbH & Co KG v MS Leerort NTH Schiffahrts GmbH & Co KG (The Leerort)UNK [2001] EWCA Civ 1055; [2001] 2 Ll Rep 291.
Shipping — Cargo claims — Limitation of liability — Limitation fund — Vessel sank on laden voyage after engine room fire — Owners wishing to establish limitation fund by letter of undertaking from P & I Club — Convention providing for limitation fund by depositing sum or producing guarantee — No requirement for specific enabling legislation — Owners entitled in principle to constitute limitation fund by means of Club LOU — Adequacy of LOU remitted to Admiralty Court — International Convention on Limitation of Liability for Maritime Claims 1976 — Merchant Shipping Act 1995 — Civil Procedure Rules 1998, Pt. 61.
This was an appeal by shipowners (Kairos) from a decision ([2013] 2 CLC 82) that it was not possible to constitute a limitation fund under the International Convention on Limitation of Liability for Maritime Claims 1976, as scheduled to the Merchant Shipping Act 1995, by means of a guarantee in the form of a P & I Club letter of undertaking.
The owners” vessel sank on a laden voyage from Turkey to Oman, following an engine room fire. Various parties obtained worldwide freezing injunctions against the owners in support of claims arising out of the loss of the cargo on board the vessel. The owners issued an Admiralty limitation claim seeking to limit their liability, if any, arising from the fire and loss of the vessel in accordance with the 1996 Protocol to the Convention. They wished to constitute a limitation fund by provision of a letter of undertaking from their P & I Club. Article 11.2 of the Convention provided that a fund could be constituted, “either by depositing the sum, or by producing a guarantee acceptable under the legislation of the State Party where the fund is constituted and considered to be adequate by the Court or other competent authority.” CPR, r. 61.11(18) provided that a claimant “may constitute a limitation fund by making a payment into court”.
The judge held that before the 1976 Convention the English court required a party wishing to constitute a limitation fund to make a payment into court, and the position had not been changed by the Convention: there was nothing in the 1995 Act or CPR Part 61 to justify reversing the previous well established practice and nothing that made the provision of a guarantee “acceptable under the legislation” of the UK. Without a specific statutory provision that a guarantee was acceptable a limitation fund could only be constituted by making a payment into court.
The appellants argued that their right under art. 11.2 to constitute a limitation fund in England by producing a guarantee could not be affected by the absence of specific legislation making provision to that effect. In any event, CPR 61.11 and the accompanying Practice Direction, properly construed, did allow a party to constitute a limitation fund by producing a guarantee. Further or alternatively, the guarantee proffered by the Club in this case was acceptable, within the meaning of art. 11.2, under primary UK legislation applying specifically to guarantees, namely the Statute of Frauds.
Held, allowing the appeal:
The correct starting point of the analysis was the construction of art. 11.2. The words of art. 11.2, incorporated into UK law by the 1995 Act, expressly provided that a fund could be constituted by a guarantee, subject to the conditions that the guarantee was “acceptable under the legislation of the State Party” and “considered to be adequate by the Court or other competent authority”. Contrary to the judge's view, the first condition did not require specific additional enabling legislation expressly defining what was “acceptable” for the purposes of the 1995 Act. It simply meant that the guarantee had to be acceptable under any relevant UK legislation; in other words, a guarantee that did not contravene any relevant statutory provision. A guarantee which satisfied the requirements of the Statute of Frauds was likely to be regarded as “acceptable” as a guarantee for the purposes of the 1995 Act. In particular circumstances, in order to qualify as “acceptable”, a guarantee might also have to satisfy other requirements of UK legislation. The second condition meant that the court would need to be satisfied that the guarantee provided “adequate” security for the fund. None of the authorities or textbooks contained any real analysis of the guarantee issue. It was wrong to ask, as the judge had done, whether the 1995 Act contained anything to alter the position under the old law, rather than to focus on the meaning and effect of art. 11.2. There was nothing in the CPR or the Practice Direction which precluded the constitution of a limitation fund by means of the production of a guarantee. If and in so far as they purported to do so, they could not operate to override s. 185 of the 1995 Act and art. 11.2 of the 1976 Convention. The owners were entitled to constitute a limitation fund under the 1976 Convention by means of the production of a guarantee. Detailed consideration of the adequacy of the LOU offered by the Club would be dealt with by the Admiralty Court.
Gloster LJ: Introduction
1. This appeal raises the interesting question as to whether it is in principle possible to constitute a limitation fund under the International Convention on Limitation of Liability for Maritime Claims 1976 (“the 1976 Convention”), which is scheduled to the Merchant Shipping Act 1995 (“the 1995 Act”), by means of a guarantee in the form of a letter of undertaking (“LOU”) provided by a protection and indemnity club (“P&I Club”) (“a Club LOU”).
2. In a judgment dated 21 June 2013 (“the judgment”; [2013] 2 CLC 82), Simon J refused to grant a declaration to the effect that the first appellant, Kairos Shipping Limited (“Owners”), owners of the MV “ATLANTIK CONFIDENCE” (“the Vessel”), and the second appellant, Owners” P&I Club, the Standard Club Europe Limited, were entitled to constitute a limitation fund under the 1976 Convention, by means of a guarantee in the form of a Club LOU.
3. The issue is one of considerable importance to the shipping industry, including P&I Clubs and others who provide insurance and reinsurance in respect of maritime claims. Because of concerns that had arisen in shipping circles about the consequences of the judgment, this court was provided with a helpful letter from the International Group of P & I Clubs, dated 8 November 2013. This letter explained the financial and practical benefits both for P&I Clubs, and for those who need to constitute limitation funds, of the use of guarantees, as opposed to cash deposits paid into court. The letter also informed the court that numerous countries throughout the world, including states which are parties to the 1976 Convention, and states which are not, readily accept Club LOUs as an acceptable method of constituting limitation funds. The judge did not have the advantage of this additional material at the date of the hearing before him.
4. The basis of the judge's decision was that, as a matter of law, a limitation fund can only be constituted in England and Wales by means of a payment into court. In coming to his conclusion, the judge found support in the views expressed in the relevant specialist practitioners' textbooks, which almost uniformly appeared to adopt this approach. However the judge expressed some misgivings about this result, as appears from the following passages from his judgment:
“9. … It might seem surprising in today's world that it could be argued that a suitably framed guarantee in an appropriate amount from a creditworthy provider is not effective security, and therefore suitable to constitute a limitation fund, and none of the cargo parties has argued that it would not be. Nevertheless it seems to me that the court must approach this as a question of principle.
…
17. I hope from what I have said that I have made clear that consideration should be given to effecting a change in the law; and, in any event, since there is likely to be more than one view of the matter, I have decided to give permission to appeal.”
5. The appellants appeal against that decision, with the permission of the judge. They contend that, as a matter of law, a limitation fund may indeed be constituted in England and Wales by the production of a guarantee, provided only that the particular guarantee proffered is not unacceptable under UK legislation, and provided also that the guarantee is considered adequate by the English court. They contend that these requirements are all satisfied here.
6. The Vessel was a Handysize bulk carrier built in 1996. Early on the morning of 30 March 2013 she was on passage from Turkey to Oman carrying a cargo of steel products when a fire broke out in her engine room. The crew were unable to control it and the master ordered them to abandon ship. Fortunately, no one was injured. As a consequence of the fire and/or explosions, the Vessel took on water and began to sink. Salvors were engaged to assist her but, before steps could...
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