In the early hours of the morning on 19 March 2022, the chemical tanker CHEM P found itself with no engine power in the midst of a storm offshore Malta. Without the ability to manoeuvre, the CHEM P found itself drifting inwards towards the north-easternly coastline of Malta, where she was eventually salvaged by tugs with the imminent risk of grounding being averted. In an attempt to slow down the rate at which the vessel was drifting towards the shoreline, the CHEM P lowered her anchors, yet continued drifting inland. In doing so, its anchor dragged along the seabed and eventually  lodged onto an underwater interconnector cable, which essentially serves to connect the Maltese islands to the European electrical grid.  The said cable is owned by Enemalta Plc, the leading energy service provider in Malta.

Immediately after the incident, a preliminary assessment of the damages was carried out, with Enemalta initially estimating its damages to be in the region of Euro 30,000,000.  It should be noted that following a more thorough analysis being conducted, it later transpired that the actual damages were just shy of Euro 50,000,000.

Around a week after the incident, Enemalta sought to arrest the CHEM P to obtain security for their claim in the amount of Euro 30,000,000 – the extent of the damages anticipated at the time. Enemalta p.l.c. subsequently commenced an action on the merits against the vessel and its owners before the Maltese courts.  The owners did not put up any security and the vessel remained under arrest within Maltese waters.

Several months later, the owners of the CHEM P filed an application to challenge the validity of the arrest. The owners argued that the amount secured was prima facie excessive since under the 1996 Protocol to the 1976 Limitation of Liability of Maritime Claims Convention, which Malta is a party to, the limit of liability was lower than the secured sum. Moreover, they also pleaded that the Court should accept the sum of Euro 6,614,140.11 as alternative security. The Owners argued that amount represented the value of the arrested vessel.

In response, Enemalta p.l.c contended that an arresting party had every right to seek to secure its anticipated damages when issuing the arrest over a vessel.  Furthermore, it was explained that since the arrest was issued, the estimate damages had actually increased significantly to nearly Euro 50,000,000.

Enemalta argued that once the arrest was issued, it was incumbent on the arrested party to seek to limit its liability, should it wish to do so.  Nonetheless, despite there being nothing precluding the owners from seeking to limit their liability, they had not yet done so. Reference was made to the LLMC and to the provisions of the Limitation of Liability for Maritime Claims Regulations S.L. 234.16, by means of which the LLMC Convention was transposed into domestic law.

Under LLMC, an owner may avail of the right to either set up a limitation fund in the competent forum, or in terms of Article 10(2), owners may still invoke the limitation of liability notwithstanding that a limitation fund has not be constituted.  Enemalta contended that since no limitation fund had been set up, the right of limitation of liability had to therefore be invoked prior to the owners being able to rely on same. Procedurally, it was argued, that this had to be made by application to the court.

A few days later, the owners filed an application seeking to invoke their right to limit their liability up to the threshold fixed by the formula found under Article 6 of the LLMC.  On the basis of the gross tonnage of the Chem P, the owners sought to invoke limitation of liability to the sum of EUR 17,306,319.50. Moreover, they argued that the Court should therefore reduce the security sum from Euro 30,000,000 to EUR 17,306,319.50.

Enemalta rebutted this and whilst it did not contest the owners had a prima facie right to limit their liability under the LLMC, it did not agree that the security level of the arrest should be lowered to EUR 17,306,319.50. It argued that the Convention did not apply to all the claims is sought to secure.

In its submissions, Enemalta explained to the Court that the heads of claims covered by the Convention can be found in Article 2.  They submitted that judicial costs and fees associated with a creditor’s claim should be excluded from the limitation figure.

Reference was made to the works of leading authorities on the subject, such as Professor Norman A Martinez Gutierrez who opined that “…the claims in respect of which the right to limit is available are listed in Article 2, and as may be seen from a cursory reading of that Article, none of the claims listed are of a procedural nature. In fact, unless the words “and consequential loss resulting therefrom” found in Article 2(1)(a) are subjected to an over-stretched ‘but for’ test, it seems improbable that a claim for the recovery of legal costs will be subject to limitation under the Convention”.

Authors Professor Michael Tsimplis and Richard Shaw share this view and sensibly argue that “[a]lthough the 1996 LLMC does not clarify this point, it is strongly arguable that litigation costs are not to be paid out of the limitation fund because otherwise the shipowner would be encouraged to embark upon long litigation knowing that it will not have to pay additional costs.”

Accordingly, Enemalta argued that the arrest should secure not just the limitation sum but also their exposure to legal costs. Under Maltese law, judicial costs and fees are recoverable and calculated on the basis of a statutory tariff. The formula is heavily dependent on the claim value.  With a claim value being calculated at just under EUR 50,000,000, Enemalta argued that its exposure to judicial costs and fees amounted to Euro 1,207,071.91.

Accordingly, it maintained that the arrest should continue to secure not just the limitation sum of EUR 17,306,319.50 but also an additional EUR 1,207,071.91.  Thus, any reduction in the security level should be limited to Euro 18,513,491.41.

By virtue of a judgment delivered on the 14 July 2022, the Court saw merit in Enemalta’s submissions and pronounced that it saw no reason why legal costs should not be secured over and above the maximum limitation sum calculated in terms of the Convention. The learned Judge explained that in his view, such an approach also mirrored the raison d’etre of precautionary interim measures available under Maltese law: that is, to protect the rights of both parties until there is a final determination on the merits in the appropriate forum.

The Court therefore ordered that the arrest should remain in force and reduced the security level to Euro 18,513,491.41. The Court also ordered the owners to pay the costs of these proceedings.

Notwithstanding the above, the owners did not put-up security to cover the Euro 18,513,491.41 and to date, the vessel CHEM P remains under arrest.  In the context of this particular arrest, this decision may therefore be regarded as somewhat academic, however the judgment certainly helps shed some judicial light on the matter of limitation of liability, and the extent to which such limitation extends.

Fenech & Fenech acted for Enemalta plc in these proceedings.

How can we help?

Should you require any further information or assistance on the matter, please do not hesitate to reach out to us personally on adrian.attard@fenechlaw.com

©Fenech & Fenech Advocates 2022

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