JOSEPH TAN JUDE BENNY

E - BULLETIN 2005 Vol. 1

16 March 2005
This service is a quarterly review of recent cases, updates on key legislative changes and other topical issues of interest. Where cases from outside Singapore are highlighted, we aim to explain how they may impact on future decisions in our jurisdiction.

A Tale of Two Conventions

The most important aspect of this is that, however desirable it may be in theory for the 1976 Convention to be truly and completely international, there is no real prospect of this being achieved in practice Lord Brandon of Overbrook Despite the dream for a unified convention for limitation regimes, Lord Brandons observation, made shortly before the Convention for Limitation of Liability for Maritime Claims 1976 in London (the 1976 Convention) came into force in England, proved more than merely pragmatic, it was prophetic. Lord Brandons observation also paints the context of the present regime of limitation. To date, only around 43 States have ratified the 1976 Convention. This is opposed to around 48 States which still use the predecessor to the 1976 Convention i.e. the International Convention for Limitation of Liability of Brussels (the 1957 Convention) This article finds itself at a time when Singapore is taking its initial foray into the 1976 Convention. The bill in Parliament to amend the Merchant Shipping Act (to adopt and bring into force the 1976 convention) was passed on 28th January 2005 and the limitation regime will come into force from 1st May 2005. Therefore, this is an appropriate juncture at which to look at the implications of this shift by Singapore towards the noble ideal of a uniform limitation regime internationally. goes on to define shipowners as including the owner, charterer, manager or operator of a sea-going vessel. Salvors are also defined in Article 1 (3) as any person rendering services in direct connection with salvage operations. As an aside, it must be noted that salvage operations were specifically excluded under the 1957 Convention. As such, the 1976 Convention is rather clear in its scope and brings the limitation regime more in line with the present High Court (Admiralty Jurisdiction) Act (Chapter 123) which was amended in 2004 to include claims against bareboat charterers.

A.

The Right to Limit: Persons entitled to limit

Under the 1957 Convention, Article 1 states that the owner of a sea-going ship may limit his liability. The 1976 Convention is drafted to apply to a larger pool of defendants. The new Article 1 in the 1976 Convention reads Shipowners and salvors, hereinafter defined, may limit their liablilty. The 1976 Convention then

B. Widening the Bracket Increasing the limit for liability i) The Increased limitation fund trade-off

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The whole purpose of the limitation regime "In respect of personal claims involving vessels not exceeding is not premised on the concept of justice, 500 tons the minimum limitation fund is 330,000 SDR (USD this was regrettably noted by Lord Denning M.R in The Bramley Moore :- I agree that 499,500)... in dealing with all other claims (not being personal there is not much room for justice in this claims), the minimum amount of limitation for vessels not exrule; but limitation of liability is not a matter ceeding 500 tons is 167,000 SDR (USD250,500.00)." of justice. It is a rule of public policy which has its origin in history and its justification One other point to note is that the 1957 Additional tonnage for large ships is calin convenience. Convention prescribes the same multi- culated at Table B at page 4. Therefore being a creature designed to plicand for claims and does not differenii) An Industry of Estimation encourage and protect the shipping trade tiate claims brought by a passenger from Calculation of Tonnage under the in view of the often-massive financial that of a person engaged in the business 1957 Convention investments involved, the limitation regime or trade of shipping. under the 1957 Convention remained The 1976 Convention basically rewires modest. the manner in which tonnage limitation Under the 1957 Convention, limitation would is calculated. In line with the international be calculated by using gold francs multi- conventions of its day, the 1976 Convenplied against the net tonnage of the vessel tion moves away from the speculative (or vessels) involved. This system, which currency that was the gold franc and is in force in Singapore, is set out in sec- adopts units of account called Special tion 136 of the Merchant Shipping Act Drawing Rights (SDR). SDR are cur(Chapter 179). The limitation fund calculated rency which have values assigned to under section 136 is categorized by the them by the International Monetary Fund type of claim involved, e.g. the limitation (IMF) and the purpose of the introducfund would be higher for claims arising from tion of SDRs is to inject some stability loss of life or personal injury (3,100 gold and uniformity in the currency of interfrancs per ton = SGD484.73 per ton). Fur- national conventions. ther, in respect of claims for loss of life and/ or personal injury, the Act sets out a minimum tonnage of 300 tons. Therefore, claims of this nature would always produce a limitation fund of at least SGD145,119.00. Radically moving away from the system used in the 1957 Convention, the 1976 Convention adopts a graded approach to the calculation of limitation. In respect of personal claims involving vessels not exceeding 500 tons the minimum limitation fund is 330,000 SDR (USD 499,500) Any additional tonnage beyond 500 tons is calculated as set out in Table A at page 4. Singapores continued adoption of the 1957 Convention as set out in section 136 of the Merchant Shipping Act (Chapter 179) had one unsatisfactory result as the years ran by. Set out in section 136 (2), the tonnage used as the multiplicand for ascertaining the limitation amount involved a compensation for an engine room deduction for mechanically powered vessels. At the time of the 1957 Convention, the engine room space could be ascertained by reference to the tonnage certificate of the vessel. However, following the 1969 Tonnage Convention, all such tonnage certificates did not set out on the face of the certificate this information. This led to what is called the engine-room deduction namely, that one-third of the gross tonnage of the vessel would be an approximation of the engine-room space. It is evident that this manner of guess work , no matter how rationalized, adds an element of arbitrariness in the calculation of the tonnage limitation and is for that reason alone rather undesirable.

Accordingly, for claims that involve loss and/ or damage to property the limitation fund constituted by the owners would be lower (being pegged at lower limit i.e. 1,000 gold francs per ton which is equivalent to SGD 156.36). Moreover, there is no minimum tonnage applicable in respect of such Similarly, in dealing with all other claims (not being personal claims), the minimum claims. amount of limitation for vessels not exceeding 500 tons is 167,000 SDR (USD250,500.00).

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Should Singapore follow through and adopt the 1976 Convention, it is heartening to note that such a deduction would no longer be called for and tonnage limitation can be relatively easily calculated by multiplying the tonnage by the applicable limitation amount of SDRs.

to run an affirmative case for limitation in the event of a claim. Most prominently, the 1976 Convention shifts this burden around. Owners and/or other persons who can limit under the 1976 Convention are awarded an automatic right to limit. The onus falls upon the party seeking to break limitation to prove that owners conduct was such that they should not be entitled to the protection of limitation.

"The onus falls upon the party seeking to break limitation to prove that owners conduct was such that they should not be entitled to the protection of limitation."

C. Laying siege to a limitation fund Breaking Limitation established under the Convention
The 1976 Convention has increased the amount of liability that shipowners and/ or other parties entitled to limit may to face in the event of claims. However, in exchange for the increased limitation fund, the test for breaking limitation has been made more stringent than before. Under the 1957 Convention, limitation could be broken if it was shown that the owners had caused the loss or damage suffered by the claimant as a result of their actual fault or privity. The standard required to show that there was actual fault or privity was undeniably high. In essence, one had to show that the directing mind of the company in ownership of the vessel (and not merely his agents and/or servants such as the Master) had been the one negligent. However, the burden of proving that there was no actual fault or privity lay with the owners and not the party seeking to break limitation. As such, limitation was not a right under the 1957 Convention, but rather something that the owners had to show, on the balance of probabilities, that they were entitled to. In exchange for the lower limitation involved, the 1957 Convention put the onus on the owners

decree) in a forum which would be Gone also is the test of actual fault or privity favourable to them. Thus developed a line and in place of that is a new test, which is of cases that can be classified as clash set out in Article 4. Article 4 prescribes that of conventions cases. to break limitation, it must be proven that the loss resulted from his personal act or One of the earliest of such cases was the omission, committed with the intent to cause Vishva Abha [1990] 2 Lloyds Rep 312. such loss, or recklessly and with knowledge This case involved an application to the English courts that the action in England that such loss would probably result. be stayed in favour of South African This test has been aptly defined by academics proceedings. and learned judges as nearly unbreakable At present there is a dearth of authorities for the standards and the tests set out in Article 4. Academics however opine that the test applied would be akin to that adopted by the Courts in criminal matters. If that is indeed the case, then the party seeking to break limitation may have to satisfy the tests on both objective and subjective bases. Needless to say, this places a rather onerous burden of proof on his shoulders. By way of background, the collision had occurred on the Red Sea. In England, the limitation fund would have been in the region of 1.5m under the 1976 Convention. In South Africa, which adopts the 1957 Convention, the limitation fund would have been around 367,000.00. The English courts weighed the factors linking the claim to South Africa and England. In doing so they determined that the cost of bringing witnesses and evidence to England would be far less than the difference between the two limitation fund amounts. Be that as it may, Justice Sheen made his views clear stating that it would be a grave injustice to deprive them of their right to litigate in this country and send them to South Africa where their chances of recovering damages would be limited to so much less than the sum they may recover in this country.

D. An Open market for Litigation The issue of Forum shopping

One of the expected effects of having 2 limitation regimes with varying limitation amounts and methods of breaking the said limitation is a situation where the claimant and the owner both seek to bring their claim (or their defence in the form of a limitation

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In the more recent case of Caltex intricacies of shipping in Singapore, the Singapore Pte Ltd v BP Shipping Ltd [1996] Asia-Pacific region and other States in this 1 Lloyds Rep 286, a preference for the 1976 global time-honoured trade. Convention was again evinced by Clarke J, who held that the ends of justice would By: Adam Abdur Rahim be better served if the Plaintiffs were Email: adamrahim@jtjb.com allowed to proceed in England. The learned DID: +65 6224 1565 Judge made this decision despite an acknowledgement that the natural forum for the determination of the issues would have been Singapore. In his decision, which appears to be based mainly on policy, Clarke J stated that it was desirable that countries ratify the 1976 Convention.

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E. On the Road to the Future The Conclusion

It is undeniable that the 1976 Convention would be greeted in Singapore with both consternation and with great joy. For owners and/or parties seeking to limit, the 1976 Convention would mean having to face a considerably higher initial payout to constitute their limitation fund. However, they will enjoy some degree of comfort in knowing that after the limitation fund is established, all they may have to do is sit back and leave the rigors of proof to their Opponents. As for claimants, despite the difficulties in breaking limitation, some comfort may be drawn from the higher limitation funds available under the 1976 Convention. Lastly, the adoption of the 1976 Convention would bring the Singapore in line with the other 1976 Convention States. This may stem the flow of limitation cases away to other 1976 Convention countries and, in turn, allow for the healthy growth of local jurisprudence on the topic. Possibly, even allowing Singapore to fine tune this international regime to deal with the

Table A:
For each ton from 501 - 3,000 tons - 500SDR (USD 750) For each ton from 3,001 - 30,000 tons - 333 SDR (USD 500) For each ton from 30,001 - 70,000 tons - 250 SDR (USD 375) For each ton in excess of 70,000 tons, 167 SDR (USD 251)

Table B:
For each ton from 501 - 30,000 tons, 167 SDR (USD 251) For each ton from 30,001 - 70,000 tons, 125 SDR (USD 180) For each ton in excess of 70,000 tons, 83 SDR (USD 125)

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gThe Jordan IIs Final Port of Call

A. Introduction
The cargo arrived at its destination allegedly damaged by defective loading, stowage, lashing, security, dunnaging, separation and/ or discharge. The shippers, the charterers and the consignees all sued the owners. decision in Renton rested. They failed bothat the court of first instance and on appeal before the Court of Appeal.

The legal journey in Jindal Iron & Steel Co Limited and Others (Appellant) v Islamic Solidarity Shipping Company Jordan Inc (Respondents) 2004 UKHL 49 (The Jordan II) came to rest with a decision delivered by the English House of Lords on 25 November 2004. In dismissing the appeal, by cargo interests, the Law Lords upheld earlier rulings of the Court of Appeal and the Queens Bench Division and kept the status quo held good and relied upon by both the shipping and the insurance industries since 1954. The decision is important for the repercussions that might have followed. If the House had found against owners then, where the Hague or Hague-Visby Rules applied (which is in most contracts), owners could still be made responsible for damage caused by the improper loading, stowage or discharge operations even if those tasks were agreed to be carried out and were so carried out by cargo interests.

D.

The Final Port of Call

C.

The Voyage Begins

At first instance and in the Court of Appeal, cargo interests sought to argue that the charterparty incorporation clauses (i.e clauses 3 and 17) in the bills of lading did not have the effect of rendering them responsible for the cargo handling. They further argued that Article III Rule 2 of the Hague/Hague-Visby Rules imposed a nondelegable duty upon the Carrier to perform and accept responsibility for those operations. However, this further argument ran contrary to the existing House of Lords authority of Renton v Palmyra [1957] AC 149. Their argument was whilst such clauses could effectively transfer away from owners to the charterers the obligation to pay for the cargo operations, those clauses were not effective in transferring the responsibility for such operations to charterers. If it were so, the argument goes, such a clause relieving owners of their duties under Article III Rule 2 of the Hague Visby Rules must be null and void and of no effect by operation of Article III Rule 8 of the Hague Visby Rules. In carrying their argument, cargo interests also effectively challenged dicta delivered by the eminent Devlin J. in Pyrene v Scindia (1954) 2 QB 402 which was the basis upon which the House of Lords

Upon grant of leave to make their final appeal, the shippers and the consignees (but not the charterers) set sail for the House of Lords. Their ultimate destination - to invite the House to rule that the decision in Renton, albeit that it had stood for nearly 50 years, had been wrongly decided. The House held that at common law the duty to load, stow and discharge the cargo prima facie rested on shipowners. However this duty could be transferred by agreement to cargo interests. In this case, such a transfer had been done. It was also held that the ratio decidendi in Renton was that such an agreement transferring responsibility for loading, stowage and discharge of the cargo from the shipowners to shippers, charterers and consignees was not invalidated by Article III, Rule 8. What seemed to weigh heaviest for the House was that the principle had been consistently relied upon for so long and applied in later cases involving the wide use of FIOST clauses. The importance of certainty in the commercial world was a significant issue that the House was not prepared to jeapordize by the overturning of their earlier decision. It would only do so if it was convinced somehow that the earlier decision was not working satisfactorily in the market place and that it was producing manifestly unjust results. Page 5 of 6

B.

The Facts

The Jordan II was carrying a cargo of steel coils under a voyage charter on a Stemmor form. Under the charterparty, freight was to be paid FIOST [free in out stowed and trimmed] - lashed / secured / dunnaged (Clause 3) and cargo operations were to be performed by the shippers, charterers, receivers (Clause 17). These terms were incorporated into the bills of lading which were issued by owners.

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The House unanimously dismissed cargo interests appeal and affirmed the interpretation given by Devlin J. The effect of their decision is that under FIOST terms (or such other agreement as can properly show the parties agreeing to transfer responsibility for cargo operations), cargo interests cannot thereafter say the responsibility for such operations somehow is still retained with owners. The Jordan II might best be remembered not so much as a victory for shipowners but perhaps more a victory for the principle of freedom of contract and the need for certainty and reliability in the business and commercial world. By Colin Jarraw: Email: colinjarraw@jtjb.com DID: +65 62209388

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