The tug Polago VI and the dumb barge Denise suffered a casualty in which they grounded and/or capsized.

Several cargo owners brought proceedings in Argentina against the owners of the vessels. It was likely that there would be a finding that the grounding and capsize was due to an error in navigation by the tug's master. Therefore, the claim against the owners would have been unlikely to succeed by virtue of the terms of the relevant contracts of carriage under the bills of lading.

The value of the claim that was brought by the cargo owners in total was about USD 1 m, and the limit of liability under Argentinean law, which was based upon the post-casualty value of the vessels, was about USD 500,000-USD 600,000.

Claims in Argentina were also intimated against various shipping lines that had chartered or reserved space on the barge. The threat of proceedings against the shipping lines prompted them to threaten to arrest the owners' vessels. To avoid that, the shipping lines were issued with P&I club letters of undertaking up to a total liability of USD 3 m, apparently valid for any judgment of an English court. In any event, the shipping lines would have had an equally valid defence based on error of navigation, since they in turn issued their own bills of lading. Equally, it might have been that they were in a position to pray in aid some degree of limitation of liability. They wished to maintain that security.

The owners brought a limitation action in England and Wales. The limitation claim form was in the standard form. It sought a declaration that they were 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 among those entitled thereto.

One of the shipping lines, an English company, applied to set aside proceedings on the ground that the Court lacked jurisdiction. It argued that there was no subject-matter jurisdiction under art 11 of the LLMC 1976. Article 11 permits a person to constitute a limitation fund in 'any State Party in which legal proceedings were instituted in respect of claims subject to limitation'. Since the process of seeking a decree would lead to an obligation on the owners to put up a fund, and since there was no claim against which would justify the creation of a fund under art 11, the Court had no jurisdiction to entertain the claim for a decree.

Held: Application dismissed.

The applicant's submission was misconceived. The jurisdiction of this Court is governed by the Supreme Court Act 1981 (UK) (the Act) which, by virtue of s 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'. There was no limitation on the Court's jurisdiction under the Act restricting an action for limitation to an action in which there already existed a claim against the owners in the same jurisdiction. Nor was it appropriate to read the LLMC 1976 as limiting the jurisdiction of the Court in that way. Article 11 restricts the entitlement of a person to constitute a fund to situations in which legal proceedings have been instituted in the same State. But art 10 of the LLMC 1976 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'.

It would 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 was 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 were afforded under the CPR 61.11, r 13, which prescribes that 'where a limitation decree is granted, the court may among 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'.

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 to do so, although a court may impose an obligation if that is appropriate.

It was unlikely that matters would need to go so far as to require the constitution of a fund. The decree could be granted and, in the event, which was said to be unlikely, a claim was brought, the owners could, if they were so minded, create a fund in order to absorb that claim and any other claim that might be brought. That was perfectly commercially sensible, given the fact that the owners were faced with incipient claims totalling USD 3 m, and had put up security in that sum.

Colman J in ICL Shipping Ltd v Chin Tai Steel Enterprise Co Ltd [2003] EWHC 2320 (Comm) (CMI778) 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 [60]), that such an eventuality was not in any sense inappropriate.