Kairos Shipping Ltd & Anor v Enka & Co LLC & Ors

Article 11.2 of the International Convention on Limitation of Liability for Maritime Claims 1976 gives a person constituting a limitation fund a choice between depositing the prescribed sum and producing a guarantee.

Domestic law and procedural rules cannot impose a blanket exclusion of guarantees. A guarantee is acceptable if it does not contravene relevant legislation, including applicable enforceability requirements. The court must also be satisfied that it provides adequate security, having regard to the guarantor’s financial standing, the practicality of enforcement and the guarantee’s terms.

Shipowners and their protection and indemnity club appealed from a judgment of Simon J in the Admiralty Court dated 21 June 2013. The judge had refused a declaration that a limitation fund under the Merchant Shipping Act 1995 and the 1976 Convention could be constituted by a club letter of undertaking rather than a payment into court.

The appeal concerned the proper construction of Article 11.2, its interaction with Article 14 and CPR Part 61, and whether English law permitted a guarantee-based fund.

1. Disposition. Lady Justice Gloster allowed the appeal, with Beatson LJ and Rimer LJ agreeing. The court declared that the owners were entitled in law to constitute a limitation fund by producing a guarantee. The adequacy of the particular letter of undertaking was left for detailed consideration by the Admiralty Court.
2. Construction of the Convention. The court applied the broad and purposive international approach explained in Morris v KLM Royal Dutch Airlines [2002] 2 AC 628 and The CMA Djakarta [2004] EWCA Civ 114. The Convention had to be construed without English-law preconceptions, by reference to its ordinary meaning, context and purpose.
3. Article 11.2. The words providing for constitution of a fund by depositing the sum or producing a guarantee conferred a genuine choice. They imposed two conditions: the guarantee had to be acceptable under the legislation of the relevant State Party and considered adequate by the court. No specific enabling legislation was required. A guarantee complying with the Statute of Frauds would be likely to satisfy the acceptability requirement because it was enforceable. Other statutory requirements could also apply, including authorisation under the Financial Services and Markets Act 2000 where relevant.
4. Adequacy. The court assessing a guarantee had to consider the guarantor’s financial standing, the practicality of enforcement and the terms of the guarantee instrument. These were ordinary questions of security adequacy for an Admiralty or Commercial Court.
5. Domestic procedure. Article 14 was expressly subject to Chapter III, including Article 11.2. CPR 61.11 and Practice Direction 61, although framed principally around payment into court, contained no prohibition on guarantees. The word “may” in CPR 61.11(18) did not exclude the alternative method. Any contrary interpretation would be ultra vires section 185 of the Merchant Shipping Act 1995.
6. The earlier authorities and textbooks did not provide a sufficient reason for a different result. Barde AS v Abb Power Systems [1995] FCA 1602 was obiter and unsupported by full argument. The declaration was final rather than interim.

1. Court of Appeal (Civil Division) allowed the appeal and declared that a limitation fund could be constituted by producing a guarantee.
2. Queen’s Bench Division, Admiralty Court Simon J refused the requested declaration on 21 June 2013, holding that the fund could only be constituted by payment into court.