Limitation and container vessels

Limitation and container vessels

Fires and other casualties on board container vessels unfortunately remain a regular occurrence even in the modern era, and the dramatic images are often splashed across news screens.

The causes of these incidents are varied and complex but often stem from misdeclared or undeclared cargo which is beyond the knowledge of the owners, the operators, and the majority of the other parties engaged in the maritime adventure of a container ship voyage. As a result, the exact contents of containers can be unknown to even the crew tasked with initial fire-fighting operations relating to those containers, at great risk to safety.

It is precisely that myriad of parties involved in every voyage of a container ship which makes the question of limitation in the event of such a casualty of particular importance, not least where the property limitation fund can in many instances be only a small percentage of the overall value of the goods lost and damaged, even when accounting for the limitations arising from the carriage conventions.

Not only is it of significant importance who can limit their liability, it is also important what claims can be limited. The last year has seen developments in the law on each point, both in the English Courts (X-Press Pearl, and MSC Flaminia), and globally.

Who can limit – The X-Press Pearl

Article 1 of the 1976 Convention on Limitation of Liability for Maritime Claims (the Convention) provides that “Shipowners” can limit their liability under the Convention. It defines a “Shipowner” as the owner, charterer, manager, and operator of a seagoing ship.

Those categories might apply with some degree of clarity to, for example, a bulk cargo vessel operated on behalf of its owner and subject to a single time charter, but their application is less obvious to the web of parties which routinely have an interest in container voyages, often including slot charterers of various tiers, NVOCCs, and freight forwarders, leading to the issuance of multiple varieties of bills of lading.

In The MSC Napoli [2008] EWHC 3002 (Admty), two slot charterers contracted with slot providers whereby they were allocated a number of TEU container slots per voyage leg on a defined container service route. These slot charters provided for the carriage of containers, covered by bills of lading issued by the slot charterers. The consideration payable to the slot providers was described as “slot charter hire”. Slot charterers had to pay for the slot allocation, whether they used that allocation or not. Teare J decided that the two slot charterers were “Shipowners” for the purposes of Article 1(2) of the Convention.

In The X-Press Pearl [2024] EWHC 3174 (Admty), slot charterers again sought to limit liability. The court agreed that differences relating to the description of payments made, or whether payment obligations arose whether slots were used or not used, were not distinguishing factors from MSC Napoli. The Court held that it should normally be sufficient that the contract obliges an owner (or disponent owner) to allocate a section of a vessel’s carrying capacity available to another party for the carriage of goods for which that party will have contracted, or will be obliged to contract, to undertake as carrier. As a result, the minor differences as against MSC Napoli did not preclude the slot charterers being considered charterers, and so “shipowners”, for the purposes of Article 1(2) of the Convention.

The Court found it particularly relevant, that the owners/providers were subject to a commitment to allocate space for the charterers to use. The Court held that it is not necessary, for the purposes of the Convention, for a party claiming a right to limit to also be required to pay for space that it does not in fact use. The judgment also recognises that NVOCCs could, in certain circumstances, also be entitled to limit under the Convention.

What claims can be limited – English law – The MSC Flaminia

The Supreme Court’s judgment in MSC Flaminia [2025] UKSC 14 is of considerable significance to the marine sector, such that a ruling was issued notwithstanding that the underlying dispute had settled.

Articles 2 and 3 of the Convention set out the claims which can be limited, and those excluded from limitation. Limitable claims include indemnity claims, and claims relating to the removal, destruction or the rendering harmless of a ship and the cargo of the ship, but not if (for those categories) they relate to remuneration under a contract with the person liable.

In July 2012 the vessel suffered a fire and explosion, found to be caused by the autopolymerisation of a Divinylbenzene (DVB) cargo. Arbitrators under the charterparty reference found charterers liable for all claimed losses, including costs of the salvage and costs of discharge and disposal of cargo and fire-fighting water.

Charterers established a limitation fund with a view to incorporating the owners’ arbitration claims and rendering them subject to that limitation.

In the first instance Admiralty Court, charterers sought to limit liability under Article 2(1), claiming the costs as consequential losses resulting from “damage to property.” The Admiralty Court held that the causal contribution of cargo, in this case the explosion and subsequent fire from the DVB tank-tainers to the damage sustained to the vessel, was not sufficient to render a claim for damage to the vessel into a cargo claim under Article 2(1)(a).

The Admiralty Court noted that the focus of Article 2 should be the nature of the claim brought, not its causation. As a result, the owners’ claims should be properly described as a single claim for damage to the vessel (rather than reclassified as losses resulting from damage to property on board by which the vessel was damaged). The first instance judgment therefore found that charterers could not limit owners’ claims under Article 2(1).

The Admiralty Court reached this conclusion despite having rejected the owners’ contention that limitation does not apply to claims between “insiders” to the wider definition of “shipowners”. If that were the case, claims for damage to cargo owned by a charterer could not be limited.

The Court of Appeal disagreed, finding that: (i) a charterer could only limit its liability in respect of liabilities which originate from “outsiders”, and (ii) the owners’ claims were not limitable in any event, other than the claims for discharging sound and damaged cargo, and decontaminating that cargo.

The Supreme Court was, therefore, asked to determine two issues:

Whether, on its true construction, the Convention permits a charterer to limit its liability to an owner for a claim concerning loss originally suffered by the owner itself; and

What, on a true construction, is the scope of Article 2(1), sub-sections (a), (e) and (f) of the Convention?

The Supreme Court answered the first question in the affirmative – charterers can limit for claims in respect of losses originally suffered by the owner itself. The Supreme Court did not agree with the ‘insider’ and ‘outsider’ definitions – the Convention did not contain those differentiations nor could the words expressly used in the Convention be so qualified. The Court also rejected the idea that “claims” should have different meanings in different contexts.

On the second point, the Supreme Court rejected the charterers’ arguments that the disputed claims arose from the initial loss or damage to the subject cargo and so were caught by Article 2(1)(a). As found by the first instance judge, it is the nature of the damage and not the initial cause of losses arising that was relevant per The CMA CGM Djakarta [2004] EWCA Civ 114. In that case, the losses did not fall within Article 2(1)(a) due to being incurred in relation to the damage to the vessel.

What claims can be limited – other jurisdictions

Article 2(1) was also relevant to an interesting appeal judgment in Australia earlier this year (although not pertaining to a container ship), in The Goliath [2025] FCAFC 53, where the Full Federal Court (reversing the first instance judge’s decision) held that wreck removal claims are not limitable in Australia under the Convention. That finding will also likely be highly persuasive in other comparable jurisdictions which have also exercised their right under Article 18(1) of the Convention to exclude the application of Article 2(1)(d) – the provision by which claims for wreck removal are limited.

The Australian Full Federal Court overturned the primary court’s judgment which had allowed the costs to be limitable, but in doing so endorsed and corresponded to the Hong Kong Court of Final Appeal’s 2024 judgment in The Star Centurion [2024] 2 Lloyd’s Rep 435. The Full Federal Court found that claims should not be subject to attempted reclassification under different heads of claim to that by which they should be properly described, and that an Article 18(1) reservation would be undermined if limitation could nonetheless be achieved through reclassification.

The Full Court’s decision, and the new accordance reached between the position in Hong Kong and Australia, greatly adds to global certainty on the question, and increases the prospects of a future English court seized with a similar question arriving to the same conclusion.

This article was first published by Maritime Risk International, you can find this here.