The Big Kahuna: limitation under fire
7 May 2024
In a recent judgment, the Admiralty Court refused to stay English limitation proceedings brought by the owners of a yacht, the “BIG KAHUNA” which caught fire at Gouvia Marina in Corfu, causing the destruction of a luxury, British flagged classic wooden sailing yacht, “HALCYON” built in 1929. The judgment provides clarification on jurisdictional challenges in this area.
Limitation claims allow shipowners to limit their liability to a predetermined amount following a maritime casualty involving damage or loss; a right that derives from the Convention on Limitation of Liability for Maritime Claims 1976, which has been ratified by many maritime nations including the UK. Essentially, a limitation claim allows shipowners to swiftly cap their liability exposure after an incident, providing valuable economic protection for the shipping industry. More recently, there has been discussion as to whether the caps are outdated in the modern shipping industry, with advocates arguing that they are essential for insurance which keeps the industry afloat while critics suggesting that they enable shipowners to escape liability at a minimum of exposure.
As different jurisdictions offer differing values of limitation fund, jurisdictional challenges often follow. In this case, the Court had to determine whether the English limitation proceedings should be stayed to allow limitation proceedings in the Greek courts, which would have resulted in a larger limitation fund.
The case
The fire began on motor yacht BIG KAHUNA and spread to around five vessels in the marina, causing widespread destruction. Both BIG KAHUNA and HALCYON were ravaged by fire and sank at the Corfu Marina.
The insurers for BIG KAHUNA commenced a limitation claim in England just two months after the casualty. Under English law, it is permissible to bring a pre-emptive liability claim without first waiting to be sued in a substantive claim and to then raise limitation as a defence. The insurers relied on s.185 / Schedule 7 of the MSA 1995 as amended by the Merchant Shipping (Convention on Limitation of Liability for Maritime Claims) (Amendment) Order 1998, SI 1998/1258.
HALYCON’S owner applied to stay the English limitation action on grounds of forum non conveniens, arguing Greece as the place of the tort was clearly the more appropriate forum. A key consideration was that Greek law applies higher limitation limits than England for this incident. Pursuant to Article 15(2) of the Convention, the regime governing limitation claims in England & Wales incorporates a small craft limit for vessels of less than 300 tons, this limit is 500,000 SDR (about £530,000) and would apply to BIG KAHUNA. Greece incorporated the same limit from 1 May 2023, however the new Greek limit is not retrospective. The Greek limit for BIG KAHUNA would be 1,510,000 SDR (about £1.6m), significantly higher than the English limit.
In favour of Greek jurisdiction, the owners submitted that relevant witnesses were based in Greece and it would be the expectations of the parties and their insurers that disputes arising out of the fire would be resolved in Greece according to Greek law. The owners took the position that the insurer’s approach was “tactical forum-shopping” and unfair to other vessel owners. A further argument was submitted that, should there be an Article 4 defence to the limitation claim (i.e. that the loss resulted from a personal act or omission), the appropriate forum for that issue was the place of domicile of the owner, i.e. Greece.
The decision
While acknowledging Greece as the natural forum for the underlying claim, the Court drew a distinction between the underlying claim and the limitation claim, highlighting that the limitation claim is “separate and distinct”. As there was limited evidence available as to whether an Article 4 defence could be made out, the Court did not conclude as to whether England or Greece would be the most appropriate forum for addressing that.
The Court acknowledged the practice established in The Volvox Hollandia [1988] 2 Lloyd’s Rep 361 of permitting shipowners to select their home jurisdiction for limitation claims without interference from the courts. The insurers are English and the owner of the HALCYON is an English LLP based in Wales. Both vessels are British flagged. Considering those facts, the Court found “nothing untoward” in bringing the limitation claim in England. The courts were reluctant to disturb the principle in The Volvox Hollandia.
Further, the courts preferred a single limitation claim as opposed to raising a limitation defence to each substantive claim because this is a more orderly management of this case.
The defendant’s argument that a limitation fund established in England will be one third the size of a limitation fund established in Greece was dismissed by the courts. The reasoning was that such advantage is not relevant if England is a suitable forum for all parties’ interests and ultimately, in terms of justice.
Significantly, the court held that potential juridical advantages like higher limits do not invalidate the appropriateness of the chosen forum. Any purported “forum shopping” was inherent in shipowners’ traditional prerogative of choice.
The Birketts view
This decision clarifies that shipowners have the right to limit their liability in a separate jurisdiction to where the substantive claim is heard. The judgment demonstrates the Admiralty Court’s commitment to the established rights of shipowners, to choice of jurisdiction.
The decision is also a reminder to shipowners, their insurers and solicitors to make an early decision on setting up a limitation fund if the option is open to them in terms of deciding which jurisdiction to do this in where there are multiple appropriate forums.
However, it remains to be seen if the Greek courts accept the Admiralty Court’s decision or whether they apply their jurisdictional rules on limitation when the underlying claim comes before them. This may not be the last of the arguments on limitation in this case.
Prior to joining Birketts, Daniel Crockford, now a Partner in our Shipping and Logistics Team, was instructed by the owners of the HALCYON. Should you wish to discuss any of the matters in this article with Dan please contact him at [email protected].
Sectors
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2024.