In a recent judgement (M.V. Nordlake GmBH vs. Union of India and Anr.), the Bombay High Court upheld a shipowner’s absolute and unfettered right to limit liability under the Convention on Limitation of Liability for Maritime Claims 1976 (“LLMC 76”), regardless of any conduct barring limitation. The LLMC 76 has been statutorily adopted in India, with significant variations and omissions.
Three important points of law were clarified by the Bombay High Court in this Judgement-
- A Shipowner’s right to limit liability under the provisions of the Indian Merchant Shipping Act is absolute, notwithstanding any fault / negligence on part of the shipowner;
- The shipowner’s right to limit liability and constitution of a limitation fund can be adjudicated by a court at the interlocutory stage without postponing the same to trial; and
- The applicable regime for determining the limits of liability i.e., the quantum of the limitation fund (whether the limits under LLMC 76 apply or the enhanced limits under the 1996 Protocol apply) is to be determined on the basis of the law in force, when the claim against the shipowner arose.
Background
A Cypriot vessel- M.V. Nordlake (“Vessel”) collided with the Indian naval ship INS Vindhyagiri while leaving the Mumbai Port on 30 January 2011.
Union of India (“Navy”) sought and obtained an order for arrest of the Vessel by instituting an admiralty suit in the Bombay High Court for a claim of INR 34 Crores (approx..) on account of damage to the naval vessel. The owners of the vessel M.V. Nordlake (“Shipowner”) vacated the arrest by depositing and securing the Navy’s claim for the full amount of INR 34 Crores in the Bombay High Court.
Subsequently, the Shipowner initiated proceedings for limitation of liability. The Shipowner sought to limit liability for the Navy’s claim to the tune of INR 20 Crores (approx.) and also sought the constitution of a limitation fund for this amount.
Concept of Conduct Barring Limitation not applicable in India
The Navy objected and opposed the Shipowner’s action for limiting its liability, by contending that the Vessel was at fault for the collision, thereby disentitling the Shipowner from limiting its liability under Article 4 of LLMC 76, which contemplates the exception of ‘conduct barring limitation’.
The Court found that even though India has ratified the LLMC 76 and incorporated its provisions in the Indian Merchant Shipping Act, 1958 (“Merchant Shipping Act”), there were differences, modifications and omissions in the adopted text in the Merchant Shipping Act, in comparison to the text of LLMC 76.
The Court noted that the Indian Parliament expressly omitted to include Article 4 of LLMC 76, while incorporating the provisions of LLMC 76 in the Merchant Shipping Act. The Court also noted that Article 2 of LLMC 76, which enlists the type of claims which can be subjected to limitation by the shipowner, is expressly made subject to Article 4 of LLMC 76. In contrast, Section 352 A of the Merchant Shipping Act (similar to Article 2 of LLMC 76) is not made subject to any statutory exception. The Court therefore concluded that the concept of ‘conduct barring limitation’ is not applicable in India.
The Court concluded that as long as a claim against the Shipowner is covered under Section 352 A of the Merchant Shipping Act, i.e., the claim is eligible for limitation, the right of the Shipowner to limit its liability is absolute and unconditional.
Constitution of Limitation Fund at the Interlocutory Stage
The Court was unconvinced with the Navy’s argument that the relief sought by the Shipowner for declaration of its right to limit liability and constitution of a limitation fund cannot be granted at the interlocutory stage, since it would amount to grant of final relief which can be done only at the end of a trial.
The Navy argued that the tonnage certificate produced by the Shipowner, which is essential for calculating the quantum of the limitation fund cannot be taken into consideration by the Court unless the same is proved in accordance with the provisions of the Indian Evidence Act by examining its author. Therefore the correct tonnage of the Vessel is an issue, which can be determined only at trial.
The Court gave short shrift to this objection and held that the tonnage certificate was issued by the competent authority in the flag state of the Vessel i.e., Cyprus and was therefore reliable. The Court placed reliance on the Navy’s pleadings filed in the Court, where it had admitted the tonnage of the Vessel as stated in the tonnage certificate. The Court therefore held that it was not open to the Navy to question the tonnage of the Vessel.
More importantly, the Court held that all that was required to be assessed while deciding the issue of limitation of liability was whether the claim sought to be subjected to limitation by the Shipowner is covered under Section 352A of the Merchant Shipping Act and the applicable regime for determining the quantum of limitation. The Court held that the scope of inquiry for deciding the issue of limitation of liability is narrow and can be decided at the interlocutory stage.
Applicable Regime for the Quantum of Limitation Fund
The Court refused to adopt the Navy’s approach in determining the applicable regime governing the quantum of limitation (limits under LLMC 76 or the enhanced limits under the 1996 protocol) on the basis of the law in force on the date, when a suit for limitation of liability is filed by the Shipowner.
The Court held that the relevant date for determining the applicable regime should be the date when the claim against the Shipowner arose, since this approach provides an element of definitiveness as opposed to the date when the Shipowner may choose to file a suit for constituting a limitation fund.
Since the 1996 protocol amending LLMC 76 was not in force in India on the date of collision of the Vessel, the Court held that the Shipowner is entitled to limit its liability in accordance with the lower limits prescribed under LLMC 76.
Takeaways from this Judgement
This Judgement follows the earlier decision of the Bombay High Court in Murmansk Shipping vs. Adani Power Rajasthan and reiterates the prevailing legal position in India that the concept of ‘conduct barring limitation’ is not applicable in India. This provides clarity to shipowners who require to commence limitation proceedings in India. This reiteration should hopefully result in objections by claimants in future limitation actions on the basis of ‘conduct barring limitation’ being summarily rejected by Indian Courts thereby streamlining and speeding up the process of constituting a limitation fund in India.
The observations of the Bombay High Court about the narrow and limited scope of inquiry in a proceeding for limitation of liability should result in much faster and predictable outcomes in future proceedings for limitation of liability.
Lastly, shipowners will now be able to easily ascertain whether the limits of liability are those prescribed under LLMC 76 or the enhanced limits prescribed under the 1996 Protocol on the basis of the date when the claim was made against them.