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Court of Appeal finds charterers’ associated company not barge “operator” for limitation purposes

Insights / / London

(1) Splitt Chartering APS (2) Stema Shipping A/S (3) Maibau Baustoffhandel GmbH (4) Stema Shipping (UK) Limited (Claimant) v. (1) Saga Shipholding Norway AS (2) RTE Reseau De Transport D’Electricitie SA and others (Stema Barge II) [2021] EWCA Civ 1880

This was a dispute over whether an associate company of the charterers was entitled to limit its liability in respect of a barge that was involved in an incident off Dover that resulted in a claim for about Euros 55 million worth of damage. The issue was whether the associated company was the operator of the barge within the scope of Article 1(2) of the Convention on Limitation of Liability for Maritime Claims 1976 (“1976 Limitation Convention”) and consequently entitled to limit liability. The Admiralty Court found that it was. The Court of Appeal disagreed, with the result that the company could not rely on limitation arguments.

1976 Limitation Convention

Article 1 of the Convention states that:

1. "Shipowners and salvors, as hereinafter defined, may limit their liability in accordance with the rules of this Convention for claims set out in Article 2.
2. The term "shipowner" shall mean the owner, charterer, manager or operator of a seagoing ship.
3. …
4. If any claims set out in Article 2 are made against any person for whose act, neglect or default the shipowner or salvor is responsible, such person shall be entitled to avail himself of the limitation of liability provided for in this Convention.”

The background facts

Stema UK was contracted to provide rock armour to repair a railway line between Dover and Folkestone. Stema UK purchased the rock armour from its associated company in Denmark, Stema A/S. Stema A/S chartered the barge STEMA BARGE II from the Danish owners to transport the rock armour from a Norwegian quarry to Dover.

In November 2016, while the barge was anchored off Dover, there was a bad storm. The owners of an undersea cable alleged that the barge’s anchor had damaged the cable, which supplied electricity from France to England. The cable owners sued the barge owners and charterers in Danish court proceedings, who then sought to limit their liability in English limitation proceedings. Their right to do so was not disputed, but the issue was whether Stema UK was also entitled to limit any liability it might have had on the basis that at the time of the incident, it was the operator/manager of the barge. The cable owners contended that Stema UK had no direct responsibility for the management and control of the commercial, technical or crewing operations of the ship and could not limit.

Stema UK was the receiver of the cargo on the unmanned barge and did not have any formal role in respect of the barge's management or operation, but its personnel did operate the machinery of the barge whilst off Dover and were involved in monitoring the weather and in the decision to leave the barge at anchor during the storm.

The Admiralty Court decision

The Court stated that the "operator” and “manager” of a ship were very closely related and connected functions. The manager was a person entrusted by the owner with a sufficient number of tasks related to ensuring that a vessel was safely operated, properly manned, properly maintained and profitably employed. However, it might not include someone who was entrusted with just one limited task as that might be described as assisting in the management of the ship, rather than as being the manager of the ship.

The role of "operator" was also one which had a notion of management and control over the operation of the ship. However, it embraced not only the manager of the ship but also the entity which, with the owner’s permission, directed its employees to board the ship and operate her in the ordinary course of the ship's business. By contrast, those on board the ship physically operating the machinery did not come within Article 1(2) but were covered elsewhere, under Article 1(4).

The Court accepted that prior to the barge’s arrival at Dover, the charterers were the operator. However, thereafter and for the period during which the barge was anchored off Dover, Stema UK had a real involvement with the barge, its employees not only anchoring her but preparing her for lying safely at anchor and, during discharge, operating the barge's machinery to ensure that she was safely ballasted. No personnel of Stema A/S were on board, only personnel of Stema UK (although not continuously because there was no accommodation on board). On the facts, the Court concluded that Stema UK was appropriately described as the operator of the barge while off Dover and could, therefore, limit any liability.

The Court of Appeal Decision

The Court of Appeal overturned this decision. It found it difficult to accept that an entity who did no more than provide crew to operate the machinery of a vessel was any more the “operator" than the crew that entity provided. To take that approach would potentially expand the protection provided by the 1976 Limitation Convention to a whole range of service providers notwithstanding that they were intended to be excluded. In the Court of Appeal’s view, there was no reason why the physical operation of the barge necessarily involved an element of management and control such as to make the provider of the crew the operator of the vessel. Further, it was not clear why the position should be different in relation to an unmanned vessel, nor why the physical operation of such a vessel necessarily involved an element of management and control so as to make the provider of the crew the operator of the vessel, regardless of whether they were supervised by an operator and manager from afar.

The Court of Appeal added that while it might be unfortunate if the limitation afforded to a group of companies which comprised the owner, charterer and operator of a vessel was effectively lost because an associated company provided crew for certain mechanical operations of the vessel, such a group could take steps to bring all its associates within the umbrella of the protection by ensuring that crew were seconded to the owner or operator and/or ensuring that the owner or operator was responsible for the actions of the associate. In the Court of Appeal’s view, the judge’s approach would effectively extend the protection given under Article 1(4) to "associated companies" providing services to the vessel, even if the owner was not responsible for their actions. Whilst that might seem to be a fair or reasonable result, it was not what the 1976 Limitation Convention provided.

The Court of Appeal concluded that Stema UK's limited actions in respect of operating the barge's machinery off Dover and monitoring the weather could be described as no more than providing assistance to Stema A/S in its role as operator, and did not qualify Stema UK as a second or alternative operator or, indeed, as a manager.

Comment

The decision makes it clear that the term "operator" must entail more than the mere operation of the machinery of a vessel (or providing personnel to operate that machinery). It relates to a higher level of "operation", involving management or control of the vessel.

Associated companies that may face similar circumstances should consider their company structure and internal arrangements with a view to maintaining limitation protections insofar as possible.

Vernon Sewell

Vernon Sewell Partner

James Drummond

James Drummond Admiralty Manager

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