The plaintiff, Aegean Sea Traders Corp, owned the Aegean Sea. The vessel was chartered to the second defendant, Repsol Oil International Ltd (ROIL), a wholly-owned subsidiary of the first defendants, Repsol Petroleo SA (Repsol). In November 1992, the vessel loaded crude oil at Sullom Voe, UK, and was ordered to discharge it at La Coruña, Spain. The vessel grounded near La Coruña and began to break up. An explosion and fire occurred. The vessel was abandoned. Most cargo was lost, polluting Spanish territory and adjacent waters, and damaging private property. In addition to salvage claims, the owner faced substantial claims for pollution damage (including liability to Cristal Ltd), and, in turn, claimed against ROIL and Repsol for the same, together with the vessel's value, bunkers, and freight. The owner's claim against ROIL was made under their voyage charterparty, which was subject to arbitration in London. The owner's claim against Repsol was made under one of two bills of lading covering the cargo. The bills were expressly subject to the Carriage of Goods by Sea Act 1971 (UK), which gave the Hague-Visby Rules the force of law in the UK. The parties agreed that the Court should determine two groups of issues. First, ROIL's entitlement to limit liability under the LLMC 1976. Second, the owners' right to hold Repsol liable under the bill and its implied terms.

The first issue on limitation was whether ROIL, as charterer, was entitled to limit its liability under the LLMC 1976? The owner argued that ROIL was not. The scope of LLMC 1976 was limited by third parties against the shipowner or the charterer and other interests only when acting in the capacity of the shipowner. The charterer would be entitled to limit in respect of bills issued by itself or claims made by third parties. The charterer was not, however, entitled to limit in its capacity as a charterer vis-à-vis the shipowner.

ROIL argued that the LLMC 1976 did not confine the charterer's right to limit in such a way; a charterer was entitled to limit in respect of claims under the LLMC 1976 in whatever capacity the charterer acted and not merely as a 'quasi-owner'. ROIL argued that a fundamental principle of the LLMC 1976 was limited liability, insurable at an acceptable cost. Insurance was often the only asset that would constitute the limitation fund. Charterers frequently had liability insurance; the LLMC 1976 limit was based on amounts likely to be available to shipowners. This applies to charterers. The same policy reasons that extended the limitation provisions to charterers for cargo claims apply to claims by shipowners against their charterers. It is unfair that a shipowner can limit where the charterer claimed, but in a reciprocal claim the charterer cannot.

The second issue on limitation was if ROIL could limit liability, are the owner's claims against ROIL within art 2 of the LLMC 1976, which provided the ability to limit liability?

As for the bill of lading claim, the owner argued that due to the Carriage of Goods by Sea Act 1992 (UK) (COGSA 1992), Repsol was liable to it under the bill which contained an implied term as to the safety of the nominated discharge port and an implied indemnity. The owners argued that Repsol became the lawful holders of the bill and, by demanding or taking delivery of the cargo, became subject to the liabilities under that bill. Because La Coruña was nominated by Repsol and was unsafe, Repsol was liable.

Repsol disagreed and argued that, due to art 4.3 of the Rules, Repsol would not be liable under any implied term unless Repsol was negligent. By s 3 of COGSA 1992, Repsol claimed that its liabilities could not exceed those imposed on the shipper. Article 4.3 of the Rules set out the shipper's responsibility: the shipper was only liable where it had acted negligently.

Held: Judgment for the plaintiff in part.

ROIL, as charterers, cannot limit liability.

LLMC 1976 has the force of law in the UK by virtue of the Merchant Shipping Act 1979 (UK) (MSA). The Court should have regard to the history of limitation in applying the LLMC 1976 and apply the LLMC 1976, if possible, to all cases which can reasonably be brought within the language of the LLMC 1976: The Tojo Maru [1972] AC 242, 269 (HL). Nevertheless, the Court was not aided by the travaux préparatoires of either the LLMC 1957 or the LLMC 1976, as they were silent on the issues.

Although ROIL's policy arguments must be considered, the Court thought it arguable (with very considerable force) that issues of limitation as between shipowners and charterers (or between shipowner and manager) can always be agreed by way of the contract between them and therefore are a subject not apposite for an international Convention.

The Court examined the pre-LLMC 1976 position and the policy reasons in favour of legislation limiting shipowners' liability. The UK had domestic legislation in favour of shipowners. Other maritime nations had similar legislation. However, no protection was given to charterers, other than demise charterers availing themselves of s 71 of the UK's MSA 1906. Desiring international uniformity, the LLMC 1924 was agreed and subsequently ratified by several states. Subsequently, LLMC 1957 was signed, providing charterers with limitation under LLMC 1957 art 6.2. LLMC 1957 was not directly incorporated into UK law but given effect to by UK legislation, which did not enact the extension to charterers using the phrase in art 6.2 of LLMC 1957 'as they apply to an owner himself'. Article 6.2 showed that charterers could limit in the same way as the shipowner. The total liabilities of the shipowners, charterers and others was to be subject to one limit of liability determined by the vessel's tonnage and covered by one fund. This precludes the possibility that the LLMC 1957 was meant to provide to charterers (or the other interests listed in LLMC 1957 art 6) a right to limit liability when shipowners claimed against them. Any such possibility requires multiple limits and funds.

The travaux préparatoiresof the LLMC 1957 showed legislative intent that it was unjustifiable to exclude charterers from the benefits enjoyed by demise charterers: the charterer was often the effective operator of the ship and should have the benefit of limitation. The same protection given to shipowners would be afforded to the charterer. One of the common situations where a charterer would incur the liabilities of a shipowner was where charterers' bills of lading had been issued without a demise clause or identity of the carrier clause, or where claims were brought in jurisdictions in which such clauses were not recognised as effective. This was a reason why the right to limit was given to the charterers by the LLMC 1957. But there was nothing express in the travaux préparatoires that showed that the limitation provisions were only applicable to the charterer if the charterer was liable by reason of the liability the charterer would have been under had the charterer been the shipowner.

The LLMC 1976 was meant to update the LLMC 1957. It introduced three significant changes: (1) a larger limitation fund; (2) changing the circumstances in which the limit could be broken; (3) extending limitation to salvors not working on board a ship, in effect reversing The Tojo Maru [1972] AC 242 (HL). There was no event or decision between 1957 and 1976 that pointed to any need for a change in relation to the position of the charterer.

The scope of claims within LLMC 1976 are set out in art 2. Those claims are subject to limitation whatever the basis of liability (art 2.1) and even if brought by way of recourse or for an indemnity (art 2.2).

Article 1.1 of the LLMC 1976 identifies shipowners and salvors as two distinct categories of person entitled to limit. Articles 1.1, 1.2, 1.3, and 1.5 differentiate salvors as a category of person entitled to limit separate from those categorised as shipowners. Under art 1.2, owners, charterers, managers and operators are categorised as shipowners for the purposes of the LLMC 1976. This followed the LLMC 1957. The separation of the salvor as a distinct interest was due to dissatisfaction with The Tojo Maru; a salvor who was a shipowner and acted in that capacity had always been entitled to limit. The LLMC 1976 did not change the position of the charterer.

Although the phrase 'in the same way as they apply to an owner himself' in LLMC 1957 art 6.2 was not retained in the LLMC 1976, the same result was achieved by different drafting and retaining the charterer within the 'shipowner' category. This indicates that the charterer is to be treated as a shipowner and entitled to limit for the claims brought against itself when it acts in the capacity of a shipowner.

ROIL argued, however, that there was no reason why in respect of a claim by the shipowner against the charterer for an act done by the charterer in relation to the operation of the ship, the charterer should not be entitled to limit liability, as it was not possible logically to differentiate the roles those interested in the maritime adventure actually performed. There was no logical distinction that could be drawn as to the role that charterers and managers could perform and those that shipowners could perform. It was not possible therefore to base a distinction on the activities of charterers or managers between those where they acted as 'quasi-owners' and those where they acted in another capacity. But ROIL's arguments do not address the question whether under the LLMC 1976, the charterer, manager or operator is entitled to limit when a claim of the type raised in these proceedings is made by the shipowner against them.

Article 6 of the LLMC 1976 sets out the amount of the limits at a rate per ton of the vessel's tonnage; as under previous regimes, there is a higher rate for loss of life and personal injury claims and a lower rate for other claims. Under art 6.2, if the limitation amount for loss of life and personal injury claims is insufficient to cover those claims, the unpaid balance ranks rateably with the other claims in respect of the limitation amount for those other claims. As salvors are entitled to limit for services not rendered on a ship, art 6.4 provided a notional tonnage for them.

Article 9.1.a provides for the aggregation of all the claims if they arose on one distinct occasion against those categorised as 'shipowner' for the purposes of limiting liability. This aggregation also applies for the purposes of the limitation fund, if constituted. Under art 10, liability can be limited without a fund.

Article 11 provides for the constitution of a fund. There are no loss of life or personal injury claims in the present case; it is unnecessary to discuss their separate position. Article 11 indicates that there can be a fund on behalf of those categorised as 'shipowner' separate from the salvors, but only one such fund. Article 11.3 and the use of the word 'respectively' indicates that a fund constituted by anyone within the category of the shipowner is constituted on behalf of all of them; through the reference to art 9.1.a, those categorised as shipowners are brought together for the purposes of the limitation amount and the fund.

Given that the fund is to cover both charterers and owners, charterers cannot limit liability through that fund when a claim is brought against them by owners. Owners can limit liability for a claim by charterers as that claim is being brought by charterers not when performing a role in the operations of the ship or when undertaking the responsibility of a shipowner, but in a different capacity, usually through their interest in the cargo being carried.

The provisions for the distribution of the fund are contained in art 12. Article 12 applies (through art 10.2) if limitation of liability is invoked without the constitution of a fund or where a fund is constituted; if a fund is not constituted, art 12 must be read accordingly. Article 12 provides that the fund is to be distributed among the claimants in a rateable proportion. Articles 12.2, 12.3, and 12.4 indicate that if the liability of one person to a claimant is in fact discharged by another, then that other person stands in the shoes of the claimant vis-à-vis the fund. Thus, as regards liabilities to those outside the operation of the ship, those rights of indemnity for such claims as have been discharged do not compete with the other claims against the fund or the limitation amount (as the case may be). But this is not the case in respect of the types of claim that the owners seek to bring against ROIL as the charterers; a substantial part of those claims by the owners will compete with the other claims.

It follows from the development of limitation prior to the LLMC 1976 and the LLMC 1976's structure and language that it does not provide (and is not intended to provide) an entitlement to charterers to limit where the shipowner brings the type of claim seen in this case against the charterers.

Although a distinction is drawn between those categorised as shipowners and salvors, no distinction is drawn between owners and charterers. Therefore, all claims arising from a distinct occasion where the owners and charterers are responsible are subject to one limit and, if a fund is constituted, to one fund. Article 11.3 shows that that fund is for the benefit of all claimants and protects equally the owner, charterer, manager and operator in respect of those claims. There is no separate limit or a fund through which the charterers can limit their liability to owners.

It cannot have been intended that either the limitation amount or the fund be reduced by direct claims by the owners against charterers for the loss of the ship or the freight or the bunkers; it was intended for claims by cargo interests and other third parties external to the operation of the ship against those responsible for the operation of the ship. To permit claims of the type advanced by owners against charterers for the direct losses they suffer to come within the scope of the limitation amount or the fund would diminish what was available to others.

Article 12.2 shows that a person who meets the claim of another is subrogated to the amount paid; some recourse claims will therefore not diminish the limitation amount or the fund. But there are recourse claims (of which claims by cargo interests to recover from the shipowner amounts paid in salvage and general average are clear examples) which will diminish the limitation amount or the fund.

Despite the arguments for providing for limitation protection to charterers against claims by shipowners of the type raised in these proceedings, the language and structure of the LLMC 1976 do not, in the light of the development of limitation, encompass recourse or indemnity claims by shipowners against charterers of the type here made. It cannot have been intended that the salvage and oil pollution recourse claims by shipowners against charterers would diminish the limitation amount or must be paid out of the fund.

Perhaps no one in 1976 contemplated very substantial claims being made by shipowners against charterers. More probably it was thought that a claim by shipowners against charterers could be expressly limited by the terms of the charterparty so it was unnecessary to provide for limits in a Convention. The LLMC 1976 did not alter the previous position. If policy reasons necessitate a change, then it should be considered when making or revising international Conventions on such liability.

If ROIL was entitled to limit its liability, are the owner's claims against ROIL within the scope of LLMC 1976 art 2? Given that ROIL was not entitled to limit, the second issue on limitation is moot. The Court expressed brief views, dealing only with the main arguments.

The claims made by the owners fall into 2 groups: (A) direct claims for loss of the vessel, freight and bunkers; (B) recourse or indemnity claims for the sums the owners have paid principally in respect of salvage and pollution.

Parties agreed that the Court must look at the nature of the claim rather than its legal basis: LLMC 1976 art 2.1; Caspian Basin Specialised Emergency Salvage Administration v Bouygues Offshore SA [1997] 2 Lloyd's Rep 507 (Caspian Basin) 522.

(A) Claims for direct losses sustained by the owners

(1) The vessel

ROIL contended that the loss of the vessel fell within art 2.1.a because that was loss of property occurring in direct connection with the operation of the ship. The Court disagreed. Giving the language its ordinary meaning, the loss of the ship is not within art 2.1.a. Although the words 'in direct connection with the operation of the ship' are wide enough to encompass the selection of La Coruña or the orders to proceed there, the loss of the very ship was not 'loss of property ... occurring in direct connection with the operation of the ship', when the claim under consideration is a claim in respect of the ship brought by the group of persons within the category of shipowners rather than those within the category of salvors. The operation of the ship must cause the loss of property; the ship cannot be the object of the wrong. The position is different if one is considering a claim against salvors for the loss of the ship they are trying to salve; in that case the loss of the ship being salved occurs in direct connection with the operation of the salvor's ship.

(2) The bunkers

The bunkers were property on board the ship: art 2.1.a. The bunkers were lost when the vessel stranded, broke up, and exploded. The Court rejected the owner's suggestion that the bunkers were not lost on board the ship but were lost when they were taken into the possession of Repsol at the refinery.

If the loss of the bunkers was in consequence of the vessel being ordered to La Coruña, that was a loss occurring in direct connection with the operation of the ship.

The Court agreed with Caspian Basin 522 that '[i]n direct connection with the operation the ship' under art 2.1.a is the way in which the LLMC 1976 'expresses the necessary linkage between loss of or damage to property' and 'the ship in respect of which the claim to limit is made on the other'.

The Court rejected the owners' argument that the giving of the orders was not an activity that was part of the operation of the ship. The phrase 'operation of the ship' is not confined to action occurring on the ship; it encompasses all that goes to the operation of the ship. It includes the selection of a port and the ascertainment of its safety and suitability for the vessel and the provision of what might be necessary for the vessel to use it safely - charts, tugs and the like. To confine the phrase to the narrow scope argued by owners would significantly limit the protection that should be available in respect of claims that can reasonably be brought within LLMC 1976 and be contrary to the broad policy of construction that should be applied.

(3) The freight

The arbitration will determine whether the charterparty freight was earned and due. ROIL accepts full liability for earned freight but seeks a limited liability for unearned freight claimed as damages.

ROIL argued that loss of freight was a consequential loss resulting from loss of the vessel as the owners would not have been able to deliver the cargo. But given that loss of the vessel was not within art 2.1.a, the consequential loss of freight is not within art 2.1.a.

ROIL also argued this was a loss within art 2.1.c if it was a claim for an indemnity and not damages. Owners contended that the loss resulted from the infringement of contractual rights in that the owners' right to earn and be paid freight had been infringed. ROIL maintained that the owners' claim was one for an indemnity under the charterparty and a claim for the enforcement of contractual rights.

Article 2.1.c was intended to provide for limitation where any rights other than contractual rights were infringed; 'infringement of contractual rights' encompasses the freight loss claims made by owners under the charterparty; that claim was not a claim for the enforcement of rights, but for infringement of contractual rights. Therefore, the claim is not within art 2.1.c.

(B) The recourse claims

(4) Claims in respect of payments for pollution claims

The owners' claims against ROIL as charterers in respect of the moneys paid out to settle pollution-related claims against the owners were recourse claims. There is no need to compare the nature of the original claim against the shipowners with the nature of the claim made by the shipowners against the charterers. The original and recourse pollution claims 'in respect of' loss of property and the other types of loss fall within the opening words of each of arts 2.1.a, 2.1.c, 2.1.d, 2.1.e, and 2.1.f.

ROIL argued that the three types of pollution claims paid by the owners fell within art 2.1.a as they were 'in respect of damage to property' or were 'consequential loss resulting therefrom' and had occurred in direct connection with the operation of the ship. The Court agreed. The claims for direct damage by the pollution are either claims in respect of damage to property polluted by oil or that damage to the property, as well as the clean up and prevention claims. The loss of profit claims are consequential loss claims resulting from cargo loss.

The pollution claims occurred in direct connection with the operation of the ship for the reasons given for the bunkers claim. The Court rejected the owners' argument that because the claims were strict liability claims they did not occur in direct connection with the operation of the ship: art 2.2. The claims are within art 2.1.a, whatever the basis of liability.

The loss of profit claims fell within art 2.1.c. It was undisputed that the loss of profit claims made by the fishing boat owners and others resulted from the infringement of rights other than contractual rights. Such losses did occur in direct connection with the operation of the ship as they occurred either because of the decision to order the vessel to go to an unsafe port or because of the way the vessel was navigated.

The claims for pollution caused by the bunkers and cargo also fall within arts 2.1.d and 2.1.e respectively insofar as they related to clean up or pollution prevention costs.

The pollution claims do not fall within art 2.1.f. The shipowner is the person liable in respect of the clean up costs.

Even if the pollution claims were within art 2, the owners argued that they were excluded by LLMC 1976 art 3.b. ROIL disagreed.

Under the Civil Liability Convention on Oil Pollution Damage 1969 (CLC 1969) art 3.4, pollution compensation claims must be brought against the shipowner under the CLC 1969; no claim for such damage can otherwise be made against the servants or agents of the shipowner. Under CLC 1969 art 1.3, the shipowner means only the registered shipowner; the charterer is not included. By CLC 1969 art 5, one fund with a much higher limit of liability than the LLMC 1976 can be constituted in the State affected by the pollution (CLC 1969 art 9).

LLMC 1976 art 3 was intended to ensure that the shipowner could not claim the lower LLMC 1976 limit for CLC claims and that CLC claims are dealt with under the CLC.

ROIL argued that LLMC 1976 art 3.b only dealt with claims actually made under the CLC and not other claims for oil pollution damage. ROIL contended that, in any event, the LLMC 1976 was irrelevant because what mattered before the Court was the MSA 1979, s 17 of which had given the LLMC 1976 the force of law. Under MSA 1979, no pollution claim had arisen.

The CLC was not given the force of law in the UK. Instead, the Merchant Shipping (Oil Pollution) Act 1971 (the 1971 Act) enacted it as a statute. Paragraph 4 of pt II of sch 4 to the MSA 1979 provided that '[t]he claims excluded [from LLMC 1976 by art 3.b of LLMC 1976] are claims in respect of any liability incurred under section 1 of the [1971 Act]'.

Section 1 of the 1971 Act mirrored CLC art 2 which delineated the scope of the CLC and reads: 'This Convention shall apply exclusively to pollution damage caused on the territory including the territorial sea of a Contracting State and to preventive measures taken to prevent or minimize such damage.'

The claims under the CLC as enacted by the 1971 Act were accordingly claims confined to local pollution damage or to the costs of local preventive measures. Section 13 of the 1971 Act clarified that UK Courts had no jurisdiction over foreign CLC claims.

As there was no pollution for which a claim under the 1971 Act could be made, ROIL contended that the CLC pollution claims made (and which could only be made) in Spain were not excluded by LLMC 1976 art 3.b as given the force of law in the UK. This is what the language of the MSA 1979 on its face provides, but the owners argued that the word 'claim' in para 4(1) of pt II of sch 4 of the MSA 1979 should be construed restrictively to refer to claims where the original claim was one in respect of pollution to the UK.

The Court rejected this restrictive interpretation. Under the LLMC 1976 it could be argued that even though the only person entitled to limit under the CLC was the shipowner, LLMC 1976 art 3.b was sufficiently wide to deprive those not liable (and not entitled to limit) under the CLC of their right to limit under the LLMC 1976 in respect of a claim brought against them for oil pollution damage. The Court's preliminary view is that this argument is incorrect. LLMC 1976 art 3.b only excludes a claim against the person seeking the right to limit that is actually made under the CLC. Otherwise, a party other than the shipowner would face unlimited liability for pollution claims. That can never have been intended. LLMC 1976 art 3.b's 'claims for oil pollution damage within the meaning of the [CLC]' should be read as claims within 'the meaning of' in the sense of claims that can 'be brought under'.

Paragraph 4(1) of pt II of sch 4 of the MSA 1979 clarifies that the only claims excluded from the ambit of LLMC 1976, were claims in respect of liabilities incurred under the 1971 Act. If the claim did not lie under the CLC, then those within the LLMC 1976 category of shipowners would be entitled to limit for any claim not within the 1971 Act.

(5) The liability to Cristal Ltd

The liability to Cristal was a claim either within (i) arts 2.1.a or 2.1.c or (ii) arts 2.1.d or 2.1.e for the same reasons given in respect of the pollution claims.

Like the pollution claims, the claim by Cristal was not a claim under the CLC within art 3.b of the LLMC 1976 (as that article had the force of law in the UK).

It was unnecessary to consider whether this claim was a claim under art 4.1.c of the International Convention on the Establishment of an International Fund for the Compensation for Oil Pollution Damage 1971.

(6) Salvage

ROIL contended that the claim for an indemnity for the amounts paid to the salvors was a claim in respect of a loss consequent on the loss of the ship or the cargo and therefore within art 2.1.a. But since the loss of the ship was not within art 2.1.a, then the consequential claim is not within it. Nevertheless, part of the salvage payment was for the cargo and is a consequential loss resulting from the loss of the cargo.

Like the freight loss claim, the Court rejected ROIL's argument that the claim fell within art 2.1.c on the basis that the owners were seeking to enforce their rights to an indemnity and not making a claim for an infringement of their rights.

The Court rejected the owners' argument that the claims were excluded by LLMC 1976 art 3.a. Article 3.a only excludes claims against the shipowner for its contribution in general average and claims against the shipowner for salvage; there is no entitlement to limit for such claims. But a shipowner would need the protection of limitation for claims for the recovery of cargo's proportion of salvage or contribution in general average which often accompanies a claim for cargo damage. It is strange if the shipowner could limit cargo damage liability but be fully liable to cargo interests for claims made by them for the recovery of salvage or general average contributions paid by them. This makes little commercial sense. Article 3.a was drafted to prevent this. Article 3.a relates solely to a claim by a salvor against the owner of salved property and not to a claim by cargo interests which included as part of the claim an indemnity in respect of the amount for which cargo-owners were liable for salvage: The Breydon Merchant [1992] 1 Lloyd's Rep 373. This result cannot be circumvented by looking at the original basis of the claim and not the indemnity or recourse claim being made: art 2. The Court is concerned with the claim being made against the party seeking limitation: art 2.

Turning to the bill of lading claim, the Court found that Repsol never became subject to the liabilities under the bill. Furthermore, the bills did not contain the implied terms.

The Court rejected Repsol's argument on art 4.3 of the Rules, finding that 'shipper' means only the shipper and not the person on whom the liabilities are imposed under s 3(1) of COGSA 1992.

It was unnecessary to discuss the owner's argument that even if the liabilities imposed on the lawful holder were qualified by art 4.3, 'act' in HVR art 4.3 included any positive act, including the act of nomination and thus art 4.3 did not qualify the implied term as to safety.