Limitation of Liability for Maritime Claims

What is Limitation?

The entitlement to limit liability is in some respects a peculiarity of maritime law, although similar schemes operate in, for example, international carriage by air.1 The limitation regime provides owners of ships, and others associated with the running of the ship, a limitation on their liability for claims made by others who suffer loss in connection with the operation of the ship.

The limitation is one calculated by reference to the tonnage of the ship or, in the case of passenger claims, to the number of passengers the ship is licensed to carry.

Although one way of asserting a right to limit is in a defence to proceedings commenced against the shipowner, the right to limit does not provide a shipowner with a defence as such, but only the right to limit the amount of damages that may be payable in respect of liability otherwise established.2 Therefore generally, ordinary principles applicable to claims in negligence will apply, although in some cases there may be a liability akin to strict liability, such as for pollution events, including more recently, from bunker fuel.3

There are also separate schemes in place in respect of liability for pollution by oil from oil tankers.4 

The Convention

Australia is party to an international convention known as the Convention on Limitation of Liability for Maritime Claims 1976, as amended by a 1996 Protocol (“the Convention”). The Convention is contained in a schedule to the Limitation of Liability for Maritime Claims Act 1989 (Cth) (“the Limitation Act”).5

By section 6 of the Limitation Act, the Convention (with some exclusions) has the force of law in Australia. It applies in respect of incidents occurring from 1 June 1991.

Who May Limit?

Article 1(1) of the Convention provides that shipowners may limit their liability in accordance with the rules of the convention for claims set out in Article 2.

The term “shipowner” is defined in Article 1(1) to mean “the owner, charterer, manager and operator of a seagoing ship”.

Article 1(4) of the Convention extends the protection of the Convention to any person for whose act, neglect or default the shipowner is responsible (such as the master or crew), where a claim is made against such a person. For convenience this article will refer to all persons entitled to limit as “shipowners”.

The protection is available where claims are made in personam against shipowners or in rem against the ship itself: Article 1(5). Doing so does not involve the shipowner admitting liability: Article 1(7)

The reference to charterers includes charterers by demise as well as non-demise charterers, such as time charterers and voyage charterers. However, the inclusion of charterers only applies where charterers act in the capacity of shipowners, not where charterers are sued by owners for indemnity under contractual arrangements.6

Which Ships?

The convention applies to claims in respect of sea-going ships. This means ships that actually go to sea. It does not include ships that may be capable of going to sea but do not do so.7

Therefore, vessels that only trade on inland waterways (eg CityCats, houseboats) are not sea-going ships and owners of those vessels cannot avail themselves of the convention.

The convention does not apply to air-cushion vessels or to floating platforms used, for example, for oil exploration.8 Nor does it apply to foreign naval vessels.9

What Claims?

By Article 2 of the Limitation Convention the following types of claims may be the subject of a claim to be entitled to limitation:

• claims in respect of loss of life or personal injury occurring on board or in direct connexion with the operation of the ship or with salvage operations;
• claims in respect of loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connexion with the operation of the ship or with salvage operations;
• claims in respect of consequential loss resulting from claims for personal injury or property damage coming within the first two categories;10
• claims in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;
• claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connexion with the operation of the ship or salvage operations;
• claims in respect of the raising, removal, destruction or rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including things that are or were on the ship;
• claims in respect of removal, destruction or rendering harmless of the cargo of a ship;
• claims of a person other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with this Convention, and further loss caused by such measures.

Article 3 of the Limitation Convention exempts certain claims, including:

• Claims for salvage;
• Claims for contribution in general average;
• claims for oil pollution damage within the meaning of the International Convention on Civil Liability for Oil Pollution Damage, in respect of which a separate limitation regime applies;11
• claims subject to a convention prohibiting limitation for nuclear damage;
• claims  against the owner or master of a nuclear ship for nuclear damage;
• claims by employees of the ship or salvor whose duties are connected with the operation of the ship or salvage, including dependency claims, if the proper law of the contract of employment prevents the shipowner from limiting liability.12

Article 2(1) of the Convention applies to claims “whatever the basis of liability”.  Limitation is available whether the claim sounds in debt or damages and whether based in tort, contract, breach of statutory duty, nuisance or strict liability.13 Pure economic loss claims fall within Article 2.1(c) “infringement of rights”.14 Whether there is an entitlement to make a claim falls to be determined by the general law. The Convention only deals with when the liability that otherwise applies may be limited.

Procedure

The right to invoke limitation arises when a claim is either made or is apprehended.

Limitation may be invoked by either raising it in a defence to a claim already commenced, or by the shipowner commencing a separate limitation proceeding in either the Supreme Court or Federal Court.15 It is a substantive right, enforceable in separate proceedings, even after a claim has passed into judgment.16

Raising limitation only by way of defence may be appropriate where the existing claimant is likely to be the only claimant and there is no risk of the total liability exceeding the limitation amount.

Where, however, there may be many claimants, or even a few claimants, in circumstances where the total of claims will exceed the limitation amount, the shipowner may wish to seek the protection that is afforded by commencing its own limitation proceeding and establishing a limitation fund.

Seeking to invoke limitation does not require or constitute an admission of liability for the claim.17

Where a separate limitation action is commenced in the Supreme Court or Federal Court, the Admiralty Rules 1988 apply. Such an action is commenced as an action in personam by a statement of claim in accordance with the prescribed form: Rule 21. The shipowner will be the applicant or plaintiff and the claimants (that is, the persons claiming damages or compensation) will be the respondents or defendants.

At least one of the respondents to the limitation proceeding must be named as respondent in the initiating process. Other respondents need not be named but may be identified as respondents by reference to their being members of a specified class, for example:

“The owners of the cargo lately laden aboard the Ship [name] and all other persons claiming or being entitled to damages or compensation by reason of the collision…etc”

The initiating process need not be served on respondents identified in that way. At least one of the respondents actually named must be served.

It is then usual for an application to be brought before the court for a determination of the entitlement of the shipowner to limit liability. An application to have the proceeding set down for hearing (or to deal with the matter in default of appearance) must be supported by an affidavit setting out the name and, if known to the applicant, the address, of each other person who, to the knowledge of the applicant, has, or may have, a maritime claim against the applicant arising out of or connected with the matter in respect of which liability is to be limited: Rule 61

A determination by the court that a shipowner is entitled to limit its liability is traditionally referred to as a limitation decree. At the time of making a decree, the court is to order how the decree must be advertised and fixing a period within which any person who asserts that they have a claim in respect of which liability has been limited, may either prosecute the claim or apply to set aside or vary the decree: Rules 62, 64

The Fund

Article 11(2) of the Limitation Convention provides:-

“A fund may be constituted, either by depositing the sum, or by producing a guarantee acceptable under the legislation of the State Party where the fund is constituted and considered to be adequate by the Court or other competent authority.”

There is no legislation relating to guarantees in this context. It is therefore debatable whether the provision of a guarantee is sufficient to properly constitute a fund in Australia. The conventional view seems to be that it is necessary to pay the amount into court to properly constitute the fund and get the protection of the convention.

A shipowner may seek to establish its entitlement to limit without first constituting a fund. However, until it does so, it will not be entitled to the protection against other actions afforded by Article 13. If this approach is followed, then the court, when making the limitation decree, will order the constitution of a fund.

Calculation of the Limit

For the purpose of the calculation of the limitation amount, claims can conveniently be divided into:

• Passenger (personal injury and death) claims (Article 7 claims);
• Other Claims (Article 6 claims), divided into:

• other personal injury and death claims;

• property damage and other claims.

For passenger claims, the amount if calculated by reference to the number of passengers the ship is licensed to carry. For other claims, the amount if calculated by reference to the tonnage of the ship.18

The limit in respect of claims for loss of life or personal injury to passengers of a ship, is 175,000 units of account (SDR’s)19 multiplied by the number of passengers that the ship was authorised to carry in accordance with the ship’s certificate.20

For claims for loss of life or personal injury other than to passengers, the limit is:

• 2 million SDR’s up to 2,000 tons, plus
• 800 SDR’s for each ton from 2,001 to 30,000 tons; plus
• 600 SDR’s for each ton from 30,001 to 70,000 tons; plus
• 400 SDR’s for each ton in excess of 70,000 tons.

For other claims, the limit is:

• 1 million SDR’s up to 2,000 tons, plus
• 400 SDR’s for each ton from 2,001 to 30,000 tons; plus
• 300 SDR’s for each ton from 30,001 to 70,000 tons; plus
• 200 SDR’s for each ton in excess of 70,000 tons.

Therefore, as an example, in the case of a passenger ship of 80,000 tonnes licensed to carry 1,000 passengers, the limitation amounts as at 21 October 201021 would be:

• For passenger claims: 175,000,000 SDR’s (USD 275,898,000)
• For other personal injury and death claims: 52,000,000 SDR’s (USD  81,981,120)
• For other claims: 26,000,000 SDR’s (USD 40,990,560).

These limits might seem rather high and of limited application in the general run of cases. But it should be noted that for a vessel licensed to carry, say, 10 passengers, the limitation amount for passenger claims would presently be approximately  USD2,758,980.00.

Under Article 8, the date for conversion of SDR’s to local currency is when the fund is constituted, payment is made or security given.

Just as separate limits apply for passenger claims, other personal injury claims and property damage and other claims, so must separate funds be constituted in respect of the three categories of claims.

In the case of a fund constituted for personal injury and death claims under Article 6, where the fund is insufficient to meet all such claims, then the balance may be recovered from the fund constituted in respect of property damage and other claims. The balance of personal injury and death claims will rank rateably with claims for property damage and other claims. 

The limits apply to the aggregate of claims against all persons entitled to limit that arise out of any distinct occasion.22 The fact that claims may be brought against a number of persons connected with the operation of the ship (master, crew, owners, charterers for example) does not mean that multiple limits apply.

The amount limited does not include any costs that may be ordered to be paid.23

Effect of Limitation

Once a fund is constituted in accordance with Article 11, any person who makes a claim against the fund is barred from exercising any right in respect of such claim against any other assets of the shipowner who constituted the fund: Article 13

After a limitation fund has been duly constituted, provision exists for any ship or other property, belonging to a person on behalf of whom the fund has been constituted, which has been arrested or attached for any claim That could be made against the fund, to be released by order of the court.

In other words, once a fund is properly established the claims that theretofore might have been enforced against a shipowner personally or against the vessel in rem are limited to an amount payable out of the fund.24

Once the fund is established, it stands in place of the ship as the res against which claims may be brought. The ship is freed from all maritime liens that attached in respect of claims that are subject to limitation.25

Breaking the Limit

By Article 4 of the Convention, a shipowner is not entitled to limit liability where it is proved that the loss resulted from the shipowner’s personal act or omission which was committed with the intent to cause such loss or recklessly and with knowledge that such loss would probably result. This requires foresight of the very loss that actually occurs, not just the type of loss that occurs.26

It can readily be seen that the test to deny a shipowner the right to avail itself of the limit will be difficult for a claimant to establish.27 The claimant bears the onus of establishing that the circumstances are such as to deny the right to limit.

Conclusion

Whilst the limitation of liability provisions are conceptually straightforward, the application of the convention has given rise to some complex questions that have been recently litigated.

Whilst it may seem that the application of the regime relates more to major maritime incidents, the limits can operate to provide an effective limit even in more routine cases.

Adrian Duffy

Footnotes

1. Civil Aviation (Carriers Liability) Act 1959 (Cth)
2. Victrawl Pty Limited v Telstra Corporation Limited (1995) 183 CLR 595
3. See for example: Protection of The Sea (Civil Liability For Bunker Oil Pollution Damage) Act 2008 (Cth) implementing the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001; Protection of the Sea (Prevention of Pollution From Ships) Act 1983 (Cth) and Transport Operations (Marine Pollution) Act 1995 (Qld)  giving effect to provisions of  MARPOL
4. Protection of the Sea (Civil Liability) Act 1981 (Cth) giving effect to provisions of  the International Convention on Civil Liability for Oil Pollution Damage.
5. For a history of the limitation regimes, see Shipping Law (3d) Davies & Dickey, pp 451-456; for discussion of the purposes of the convention, see Strong Wise Ltd v Esso Australia Resources Pty Ltd & Ors (2010) 267 ALR 259, [50]-[52] ; see also Lord Mustill, “Ships are Different — Or Are They?” [1993] LMCLQ 490; David Steel QC, “Ships Are Different: The Case For Limitation of Liability” [1995] LMCLQ 77; Canada Pacific Railway Co v The Sheena M [2000] 4 F.C. 159; Schiffahrtsgesellschaft MS “Merkur Sky” mbH & Co KG v MS Leerort NTH Schiffahrts GmbH & Co KG, (“The Leerort”) [2001] 2 Lloyd’s Rep 291; China Ocean Shipping Co v. South Australia (1979) 145 CLR 172 at 185 per Barwick CJ
6. Aegean Sea Traders Corporation v Repsol Petroleo SA & Anor (“The Aegean Sea”) [1998] 2 Lloyds Rep 39
7. Kirmani v Captain Cook Cruises Pty Ltd (No 1) (1985) 159 CLR 351, 369, 457
8. Article 15(5)
9. Limitation of Liability for Maritime Claims Act 1989,  s.7
10. Loss may be consequential upon damage to property even where the property damaged is not the property of the party suffering the consequential loss: Qenos Pty Ltd s the Ship “APL Sydney” (2009) 260 ALR 692
11. The exemption referred to in Article 3(b) has no application in the case of a discharge of oil from a cargo carrying ship, because the International Convention on Civil Liability for Oil Pollution Damage only applies to ships as defined in that Convention: “‘Ship’ means any seagoing vessel and any seaborne craft of any type whatsoever, actually carrying oil in bulk as cargo.”
12. see Navigation Act 1912, s.59B
13. The Breydon Merchant [1992] 1 Lloyds Rep 373 at 375; Meeson, Admiralty Jurisdiction and Practice, Lloyds of London Press, 1993, p 228; CMA CGM SA v Classica Shipping Co Ltd [2004] 1 Lloyd’s Rep 460 CA, Longmore LJ at [9] et seq; The Aegean Sea [1998] 2 Lloyds Rep 39 Thomas J at p. 51
14. Qenos Pty Ltd s the Ship “APL Sydney” (2009) 260 ALR 692
15. Limitation of Liability for Maritime Claims Act 1989, s 9; Admiralty Act 1988, s 25
16. Victrawl Pty Limited v Telstra Corporation Limited (1995) 183 CLR 595 at 619; James Patrick & Co Ltd v Union Steamship Co of New Zealand Ltd (1938) 60 CLR 650, 673; Strong Wise Ltd v Esso Australia Resources Pty Ltd & Ors (No2) (2010) 185 FCR 237
17. Article 1(7); Caspian Basin Specialised Emergency Salvage Administration v Bouygues Offshore SA (No 4) [1997] 2 Lloyds Rep 507
18. The gross tonnage calculated in accordance with the International Convention on Tonnage Measurement of Ships 1969, Schedule 8 to the Navigation Act 1912.
19. A Unit of Account is the Special Drawing Right (“SDR”) as defined by the International Monetary Fund: Article 8 of Limitation Convention
20. Article 7. Note that the amount was substantially increased by the 1996 protocol.
21. Based upon SDR valuation of USD 1.57656- see http://www.imf.org/external/np/fin/data/rms_sdrv.aspx
22. Article 9(1); Strong Wise Ltd v Esso Australia Resources Pty Ltd & Ors (2010) 185 FCR 149
23. Newcastle Port Corporation v Pevitt & Ors (2003) 58 NSWLR 548
24. Victrawl Pty Limited v Telstra Corporation Limited (1995) 183 CLR 595 at 600-601 per Brennan J
25. The Tolten [1946] P 135, 144, 153; Strong Wise Ltd v Esso Australia Resources Pty Ltd & Ors (No2) (2010) 185 FCR 237
26. Schiffahrtsgesellschaft MS Merkur Sky mbH & Co KG v MS Leerort NTH Schiffahrts GmbH & Co KG (“the Leerort”) [2001] 2 Lloyds Rep 291, [13]
27. It has been described as a “virtually unbreakable” limit: Strong Wise Ltd v Esso Australia Resources Pty Ltd & Ors (2010) 185 FCR 149, [43]-[45]