Clarification on slot charterers’ right to limit liability under the Convention on Limitation of Liability for Maritime Claims 1976 (as amended)

The right of shipowners to limit their liability, (according to the tonnage of the vessel), under international convention for marine loss incidents is well established, and generally arises in the context of large casualties where multi-million claims are in prospect.    

Occasionally, non-vessel owning parties undertaking carrier functions may incur substantial contractual liabilities, and will argue their right to limit liability as well- in this case, the vessel’s slot charterers, raising the question “who can limit?” 

This tonnage limitation claim, (the relevant limit being almost £20 million), arose from a fire on the X-Press Pearl, which culminated in the sinking of the ship and her cargo on 2 June 2021 off Colombo, Sri Lanka.

The claimants, (who include the vessel’s registered owners, bareboat charterers, and disponent owners), applied for and obtained a limitation decree limiting their liability in respect of any loss or damage arising out of or in connection with the casualty pursuant to Article 6 of the Convention on Limitation of Liability for Maritime Claims 1976 (as amended). Those parties also constituted a limitation fund.

At the time of the casualty, the ship was carrying containers under a variety of contractual arrangements on behalf of Maersk, Bengal Tiger Line, and MSC. The question before the court was whether these parties, (each of which described itself as “slot charterer”), were also entitled to limit their liability. This turned on whether the parties qualified as “shipowners” within the meaning of the Convention.

Article 1(1) of the Convention provides that shipowners and salvors may limit their liability. The term “shipowner” is defined in Article 1(2) as “the owner, charterer, manager or operator of a sea-going ship”. 

In The MSC Napoli [2009] 1 Lloyd’s Rep. 246 the Commercial Court held that the slot charterers in that case fell within the Article 1(2) definition and were therefore entitled to limit their liability. Those slot charterers had contracts with the shipowner, (as slot provider or vessel provider), by which it allocated a number of container slots per voyage on a defined container service route to the slot charterers. The relevant slot charters provided for containers carried under them to be covered by bills of lading issued by the slot charterers. The amount payable to the shipowner was described as “slot charter hire” and was payable for the slot allocation, used or unused.

The issue in this case was whether the reasoning in The MSC Napoli extended and applied to each of the parties claiming to be entitled to limit. This was because the contractual arrangements here did not expressly refer to slot charterers, being respectively a written agreement for transport services, and unsigned term sheet incorporating a fixed slots contract, and a "connecting carrier agreement".

The court found that all three parties qualified as “charterers” within Article 1(2), holding that the particular contractual arrangements under which the “charterer” enjoyed the services of the ship in question will always need to be examined before a decision can be reached on whether they qualify.

It will normally be sufficient for a party to be considered an Article 1(2) “charterer” where its relevant contract obliges an owner or disponent owner to make part of the carrying capacity of a ship available to that party for the carriage of goods. and which that party will have contracted, or will be obliged to contact, to undertake as carrier.

The court also noted, that the description of the relevant party as a “slot charterer” or reference to “slot charter hire” was not essential. Many freight forwarding businesses allocated container space as NVOCCs, (non-vessel operating common carriers), rather than as a slot or any other kind of charterer, would also be Article 1(2) “charterers”, subject always to reviewing the precise terms of the contractual arrangements with the ships they were using.

This decision provides clarification on the scope of Article 1(2) and the proper approach for determining whether or not a party falls within the definition. It is apparent that the court will look to the substance of the contractual arrangements, (rather than the labels given to the parties), in seeking to give effect to the intended purpose of the Convention.