Can a charterer limit its liability for claims brought against it by the owner?
In a significant decision for the maritime industry, the UK Supreme Court in the MSC Flaminia judgment [1] has clarified the scope of a charterer’s right to limit liability under the 1976 Convention on Limitation of Liability for Maritime Claims (LLMC).
Whilst South Africa is not a party to the LLMC, it does contain limitation provisions in s261 of the Merchant Shipping Act, 1957 (MSA). Absent the causative fault and privity of the owner or charterer, their liability is limited to an amount calculated on the tonnage of the ship, damaged or undamaged. It is not particularly difficult to break limits under the MSA. The MSA only allows for the limitation of claims “sounding in damages” and not by way of debt or breach of contract. On the face of it, a claim by an owner against a charterer arising out of the breach of a charterparty contract would not be limited in terms of s261.
The LLMC provides that the limitation is available to claims whatever the basis of liability. Breaking limits under the LLMC is an almost impossible task, reserved for extreme situations of shipowner recklessness or intent.
The Flamina was a container vessel time-chartered by MSC from Conti, its owners. An explosion occurred at sea due to hazardous cargo, resulting in fatalities, extensive vessel damage, and significant environmental and salvage costs. Conti incurred substantial expenses in salvaging, decontaminating, and repairing the vessel.
In arbitration, Conti was awarded approximately US$200 million for MSC’s breach of the charterparty. MSC subsequently sought to limit its liability under the 1976 Convention to around £28.2 million and established a limitation fund.
The Supreme Court addressed two central questions:
1. Is it correct that there is no right for a charterer to limit its liability in respect of claims by an owner for losses originally suffered by the shipowner (as opposed to recourse claims);
2. Whether the claims for limitation made by MSC fall within article 2.1 of the LLMC and, if so, whether the fact that they resulted from damage to the Flamina means that there is no right to limit.
The Court carefully considered the judgments handed down in The CMA Djakarta[2], The Ocean Victory[3], and The Aegean Sea[4]. These cases had established the principle that claims for damage to the vessel itself are not subject to limitation under the LLMC, and had debated the circumstances in which a charterer could limit liability for claims brought by the owner.
The Court affirmed that charterers are entitled, under appropriate circumstances, to limit liability for claims brought by the owner, including cases where the loss was originally suffered by the owner itself. In doing so, the Court expressly rejected the approach taken by the Court of Appeal in The CMA Djakarta, which approach would have imposed a blanket exclusion on such claims and instead confirmed that the right to limit is not restricted simply because the claim originated from the shipowner’s own loss.
The Court endorsed the reasoning in The Ocean Victory and The Aegean Sea regarding the non-limitability of claims for actual damage to the vessel and purely consequential losses arising from such damage, unless those claims fall within other specific provisions of the LLMC.
The judgment preserved the established principle that claims for the actual damage to the vessel, together with those purely consequential upon the vessel’s own physical damage, remain outside the scope of limitation if they do not satisfy other specific provisions of the LLMC.
Nevertheless, the Court made clear that certain additional costs triggered by a casualty may indeed be limitable under defined provisions. For instance, the effort and expense of removing and rendering harmless damaged cargo fell within the language of the LLMC even if these actions were taken as part of an overall plan to repair the vessel. In this respect, the Court distinguished its approach from earlier decisions that had sometimes treated all post-casualty expenses as non-limitable if they were connected to a vessel repair.
The Court refused to reduce every claim following a casualty to a “vessel damage” claim, confirming instead that the relevant analysis must look to the nature and purpose of each particular expense, as discussed in the case law. In practice, this means parties must closely examine whether an expense relates to repairing the ship itself or falls into separate categories covered by the LLMC, such as cargo removal or mitigation measures that benefit a broader group of maritime interests.
Commercial operators, insurers, and charterers alike should be aware of this decision’s ramifications where limitation funds are established under the LLMC. It clarifies that when a claim arises from losses that are not purely for damage to the ship, a charterer may be permitted to limit liability despite the overall factual backdrop of a serious casualty.
At the same time, where the primary claim is for the ship’s own physical damage or any purely knock-on losses from that particular damage, the well-established rule against limitation persists.
This nuanced outcome ensures that the LLMC’s goals of encouraging investment in maritime trade and protecting certain maritime operators from crippling liabilities are achieved, without unfairly reducing the full rights of shipowners in cases where their vessel suffers direct damage.
In practical terms, owners, charterers, cargo interests, and their insurers should review how claims arising from future or ongoing casualties are classified and documented. Precise contract drafting, including attention to indemnity provisions and the choice of forum, remains vital. This judgment underscores the need for thoughtful analysis of the LLMC’s scope at an early stage in any dispute to ensure the best strategic approach, whether pursuing or resisting limitation.
[1] MSC Mediterranean Shipping Company SA v Conti 11 Container Schiffahrts-GmbH & Co KG MS “MSC Flaminia” [2025] UKSC 14
[2] [2004] EWCA Civ 114
[3] [2017] UKSC 35
[4] [1998] 2 Lloyd’s Rep 39