Maritime Transport (Global Limitation of Liability)

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by Nicolai Lagoni

1. Object and purpose

Shipping has always been an adventurous and perilous business. But in former times navigation depended more upon weather and sea and on the conditions of the vessels than nowadays. When the ship had left the port, the shipowner could no longer communicate with the master and the crew. In that era, neither a general marine insurance existed nor the possibility of a limitation of liability by way of company law. Because the shipowner had to face the unforeseeable perils of the sea, it was generally considered unfair to hold him liable not only with the vessel but with all his assets.

The legal origins of the limitation of liability in shipping, however, are not entirely clear. Some scholars trace them back to the Roman law principle of noxae deditio, under which an owner would be discharged from his liability if he handed the cause of the damage to the injured. Others link them to the maritime code of the Italian town of Amalfi, the Tabula Amalphitana of the 11th century, or to the Consolat del Mar, a collection of maritime customs and ordinances edited by the Kings of Aragon in or before 1494. Under the Consolat del Mar the shipowner could limit his liability to his share in the value of the ship. A French ordinance of 1681 provided for a personal liability of the shipowner, but he was exempt from liability if he handed the ship and its cargo to the injured (so-called abandon). Under the English Responsibility of Shipowners Act of 1733 and the Merchant Shipping Act of 1786, the shipowner could limit his liability to the value of the vessel before the incident, as long as there was no privity and knowledge. In the case of personal injury, the Merchant Shipping Act of 1894 required a minimum amount of £15 sterling per ton. Under the German system the owner of the ship could only be held liable to the value of the vessel and the freight remaining after the incident. Only in exceptional cases, eg if the damage could be attributed to his own fault, was he fully liable. Since the mid-19th century, European shipping nations have enacted various forms of the French, English or German system of limitations of liability in shipping.

A limitation of the shipowner’s liability is an exception to the basic legal principle of restitutio in integrum. Several scholars consider this exception as being no longer justified under the conditions of modern navigation. But the tendency in the law obviously leans towards an increase of the limitations rather than their abolition. The shipowner can insure his liability if it is limited, and persons who suffer damage have a safe claim, albeit with a limited amount of compensation.

Nowadays numerous laws and maritime conventions limit the liability of shipowners and prescribe compulsory insurance, which is normally provided by protection and indemnity insurers (P&I Clubs). In the field of marine pollution a shipowner’s liability is especially limited in cases of oil spills from tankers and, once the HNS Convention enters into force, in cases of escapes and discharges of hazardous and noxious substances from other ships (marine pollution (compensation)). Besides that, damage claims in connection with various other incidents of navigation, such as the discharge of bunker oil or the removal of wrecks, are limited. And claims concerning damage caused in connection with the transport of cargo or passengers may also be limited. As an occurrence often gives rise to several different claims with different limits of the shipowner’s liability, there have been attempts since the last century to establish rules on global limitations of liability in order to avoid problems of compensation and forum shopping.

2. Tendencies of the development of the law

The Brussels Convention of 1924 for the unification of certain rules relating to the limitation of the liability of owners of seagoing vessels, which entered into force in 1931 and is still in force in three states, initiated the convergence of the continental and the English systems. It limited the liability of the shipowner for damage caused by the captain or crew, by the pilot or by another person providing a service on the ship to the value of the ship and the freight after damage, unless the claim resulted from an actual fault of the owner. In regard to personal claims, the shipowner could limit his liability to £8 sterling for each ton of the ship’s tonnage. The 1924 Brussels Convention, however, did not aim to limit liability, but to extend it because of the general need to improve the legal situation of third parties suffering damages in shipping.

Soon thereafter, the limits of liability were again regarded as being too low. Therefore the International Convention relating to the Limitation of the Liability of Owners of Sea-going Ships, adopted at Brussels on 10 October 1957, increased the maximum amount of liability, both with regard to the liability of the shipowner and of the vessel itself for in rem claims. The 1957 Brussels Convention entered into force on 31 May 1968 and is still in force for 27 states parties (status as of 31 May 2011). It deals only with loss of life or personal injury of any person carried in (or in some instances outside) the ship and with loss of or damage to any property on board the ship as well as with costs of wreck removal. To be entitled to the limitation of liability, the shipowner needs to constitute a fund of an amount of at least 1,000 gold francs per ton of his ship if the occurrence has only given rise to property claims. In the case of personal injury, an amount of 3,100 gold francs per ton is required. If both personal and property claims occur, an aggregate amount of 3,100 gold francs is required, of which a first portion of 2,100 gold francs is exclusively appropriated to the payment of personal injury claims and a second portion of 1,000 gold francs to the payment of property claims. Besides the shipowner, the charterer, manager or operator of the ship is entitled under the 1957 Convention to constitute the fund as are the master, members of the crew and others.

The Convention on Limitation of Liability for Maritime Claims of 1976 (LLMC 1976) was an important step forward in the direction of a global limitation of the shipowner’s liability. It entered into force on 1 December 1986 and has 51 states parties, which presently account for 50.02 per cent of the world tonnage (status as of 31 May 2011). While again raising the liability limits, the liability in respect of maritime claims has been limited, unless such limits are expressly excluded in the Convention. The liability is channelled upon the shipowner and the limits shall be ‘unbreakable’. Not only the owner, charterer, manager and operator of a seagoing ship and salvors benefit from the limitation of liability, but any person for whose act, neglect or default the shipowner or salvor is responsible. Persons rendering services in direct connection with salvage operations, wreck removal or with preventive measures are also within the scope of application of the 1976 Convention. They have the option to limit their liability to the same extent as the ship to be rescued. Once a limitation fund has been constituted by one of these persons, claims against any other assets or persons are barred. The LLMC 1976 limits liability for claims for loss of life or personal injury as well as for damage to property which occur on board or in direct connection with the operation of the ship—including damage to harbour works, basins and waterways or to navigational aids—or with salvage operations and consequential loss resulting therefrom. Also included are claims resulting from delay in the carriage of passengers or their luggage or delay in the carriage by sea of cargo as well as damages resulting from infringement of rights other than contractual rights occurring in direct connection with the operation of the ship or salvage operations and claims concerning the raising, removal, destruction or the rendering harmless of wrecks. Several claims, however, are excluded from a limitation of liability, as is shown below.

As regards claims for loss of life or personal injury to passengers, the limits of liability are calculated on a basis of 46,666 ‘Units of Account’ (meaning Special Drawing Rights (SDR) of the International Monetary Fund (IMF)) multiplied by the number of passengers which the ship is authorized to carry; but liability may not exceed 25 million SDR per ship. Claims for loss of life or personal injury of other persons as well as other claims—including, eg cargo damages—are calculated on the basis of an equation depending on the tonnage of the ship. A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss or recklessly and with knowledge that such loss would probably result. An example for the loss of the right to limit liability is given by the judgment of the French Cour de Cassation of 20 February 2001 (Groupe des Assurances Nationales – GAN and Others v Nautiloc and Others – The ‘Moheli’ (2002 DMF 144)).

The 1996 Protocol to the LLMC (LLMC Protocol 1996), which entered into force on 13 May 2004, has 41 states parties representing 45.05 per cent of the world tonnage (status as of 31 May 2011). It abrogates and replaces the LLMC 1976 between the states parties. Under the LLMC Protocol 1996 the maximum liability amounts increased substantially and a tacit acceptance procedure for updating these amounts was introduced. The maximum amount of 25 million SDR for claims of loss of life or personal injury of passengers was abolished. The liability of salvors no longer depends on the tonnage of the rescued ship but on the tonnage of their own ships. For salvage operations which are rendered not from a ship or solely on the ship to be rescued, a fixed amount applies.

3. Structure of the regulation in uniform law

Shipowners and salvors of a seagoing ship may limit their liability under the LLMC 1976 or the Protocol of 1996. The term ‘shipowner’, as defined in the LLMC 1976 and the Protocol, includes the legal owner as well as the charterer, manager and operator of the ship. Not included are classification societies. Persons rendering services in direct connection with salvage operations and any person for whose act, neglect or default the shipowner or salvor is responsible may also benefit from the limitation of liability. Claims against the owner and/or the ship which arise on any distinct occasion are aggregated. The limitation of liability also applies in favour of a person whose ship does not sail under the flag of a state party, but who seeks to limit his liability before the court of a state party or seeks to procure the release of a ship or other property or the discharge of any security given, unless such limitation is excluded by the state party.

The rules of the LLMC 1976 and of the LLMC Protocol 1996 do not presently apply to claims for salvage, contribution in general average, oil pollution damage within the meaning of the CLC and nuclear damage. Not excluded, however, is their application alongside the Bunkers Convention. Claims by servants of the shipowner or salvor whose duties are connected with the ship or the salvage operations are excluded if under the law governing the contract of service between those parties the shipowner or salvor is not entitled to limit his claims or is only entitled to limit it to a certain amount.

On the other hand, liability for claims in respect of loss of life or personal injury or loss of or damage to property occurring on board or in direct connection with the operation of the ship or with salvage operations and consequential loss resulting therefrom falls within the scope of the limitation provisions. The term ‘damage to property’ also includes damage to harbour works, basins and waterways and aids to navigation. Claims in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage are also subject to limitation of liability, as well as claims in respect of other loss resulting from infringement of rights, other than contractual rights, occurring in direct connection with the operation of the ship or with salvage operations. The same applies for claims concerning the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship. Finally, claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship as well as claims of a person other than the person liable in respect of measures taken in order to avert or minimize loss and further loss caused by such measures are subject to limitation of liability.

Regarding the calculation of the maximum liability amount, one has to distinguish between claims for loss of life or personal injury, where different sliding scales apply to passengers and other persons, and other claims. According to the LLMC Protocol 1996, passengers’ claims for loss of life or personal injury are limited to an amount of 175,000 SDR multiplied by the number of passengers which the ship is authorized to carry according to the ship’s certificate. The limitations of other persons’ claims in respect of loss of life or personal injury depend on the ship’s tonnage. The gross tonnage is calculated in accordance with the International Convention on Tonnage Measurement of Ships of 1969. For a ship with a tonnage of less than 2,000 tons a limitation of liability of 2 million SDR applies. For a ship up to 30,000 tons, liability is increased by 800 SDR per ton; in regard to a ship from 30,001 tons to 70,000 tons, 600 SDR are added for each additional ton which exceeds 30,000 tons. If the tonnage exceeds 70,000 tons, 400 SDR are added per ton. With regard to claims other than loss of life or personal injury, an amount of 1 million SDR is set forth for ships up to 2,000 tons. For ships of a tonnage from 2,001 tons to 30,000 tons the liability amount is increased by 400 SDR for each ton, from 30,001 tons to 70,000 tons by 300 SDR per ton and beyond that by 200 SDR per ton. Unlike the LLMC 1976, the LLMC 1996 does not provide for a cap of the amount of liability per vessel.

Regardless of whether one or more persons are liable, the overall liability is limited to the aforementioned levels. If a person who is alleged to be liable constitutes a limitation fund, the liability of all other persons is also limited. As soon as the fund is constituted, the person having made a claim against the fund is barred from exercising any right in respect of such claim against any other assets of a person alleged to be liable.

A person is not entitled to limit his liability if it is proved that the loss or damage ‘resulted from his personal act or omission committed with the intent to cause such loss or recklessly and with knowledge that such loss would probably result’ (Art 4 LLMC Protocol 1996). Negligence or even gross negligence on behalf of the shipowner does not breach this high threshold. This exception, which originated in aviation law (see Art 25 of the Warsaw Convention as amended by the Hague Protocol in 1955), has also become part of maritime law.

There is no mutual exclusivity between the LLMC 1976 or the LLMC Protocol 1996 and rules of another international convention limiting the shipowner’s liability, unless the exceptions are provided in the relevant conventions (see Art 3 LLMC 1976). Several international conventions and rules contain more or less express references to the limitation conventions. The shipowner and the insurer may limit their liability under Art 6 of the Bunkers Convention in accordance with the LLMC 1976 as amended. The 1974 Athens Convention Relating to the Carriage of Passengers and their Luggage by Sea (maritime transport (contracts of carriage of persons)) states in Art 19 that it does not modify rights or duties of the carrier, the performing carrier and their servants or agents provided for in international conventions relating to the limitation of liability of seagoing ships. Similar rules are set forth in the field of maritime transport (contracts of carriage of goods). These rules are Art VIII of the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading of 1924 (‘the Hague Rules’) and of the Protocol of 1968 (‘the Hague Visby Rules’). Not in force are Art 25(1) of the United Nations Convention on the Carriage of Goods by Sea of 1978 (‘the Hamburg Rules’) and Art 86 of the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea of 2009 (‘the Rotterdam Rules’). All these provisions show that the LLMC 1976 and the LLMC Protocol 1996 are important steps towards a global limitation of the liability of shipowners.

4. European uniform law projects

In 2005 the Commission of the EU submitted a proposal for a ‘Directive on the civil liability and financial guarantees of shipowners’ to the European Parliament and the Council (COM(2005) 593 final). In order to establish at the EU level a civil liability scheme for operators in the maritime transport chain, the proposal envisaged that the Member States of the EU should ratify the LLMC Protocol 1996, the rules of that Convention should be incorporated into Community law, and a system of compulsory insurance should be established. The insurance should cover an equivalent to double the ceilings provided for in the Convention. Under Community law, the high threshold beyond which the owners of ships flying the flag of a non-contracting state lose their right to limit their liability should be lowered to ‘gross negligence’. But the ambitious aims of the Commission were considerably curtailed by the Council. In a common position of 2008, the title of the proposed directive was amended, the requirement to ratify the LLMC Protocol 1996 was deleted and so were certain provisions relating to insurance (COM(2008) 846 final). But the requirement has been retained that all ships flying the flag of a Member State and all ships entering the maritime area under the jurisdiction of a Member State must have insurance cover, which must correspond to the ceilings set out in the LLMC Protocol 1996. The details of the compulsory insurance are set forth in Directive 2009/20/EC of the European Parliament and the Council of 23 April 2009 on the insurance of shipowners for maritime claims. The directive’s entry into force is postponed until 1 January 2012.

Literature

Jürgen Basedow, Der Transportvertrag (1987); Lord Mustill, ‘Ships are different—or are they?’ [1993] LMCLQ 490; Gotthard Gauci, Limitation of liability in maritime law: an anachronism? [1995] Marine Policy 65; Hans-Jürgen Puttfarken, Seehandelsrecht (1997); Patrick Griggs, Limitation of Liability for maritime claims: the search for international uniformity, [1997] LMCLQ 369; Rolf Herber, Seehandelsrecht (1999); Dieter Rabe, Seehandelsrecht (4th edn, 2000); Christopher Hill, Maritime Law (6th edn, 2003); Richard Williams and Jeremy Farr, Limitation of Liability for Maritime Claims (2004); Nicolai Lagoni, The Liability of Classification Societies (2007); Verena Lahmer, ‘Limitation of Liability and Denial of Limitation in Maritime Conventions—Past, Present and Future of Limitation of Liability’ in Peter Ehlers and Rainer Lagoni (eds), Responsibility and Liability in the Maritime Context (2009) 45.

Retrieved from Maritime Transport (Global Limitation of Liability) – Max-EuP 2012 on 28 March 2024.

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