limitation of liability: the 1976 limitation convention · limitation of liability: the 1976...

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Limitation of Liability:The 1976 Limitation Convention

Mr Leong Kah WahRajah & Tann14 April 2005

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Background

• Limitation is based on the policy that a shipowner should be liable according to the size of his ship. Historically, a small ship has a small value,and correspondingly, a low measure of liability.

• With effect from 1st May 2005, Singapore will adopt the Convention on Limitation of Liability for Maritime Claims, 1976 (“the 1976 Limitation Convention”) by way of recent amendments to the Merchant Shipping Act. For incidents before 1st May 2005, the old law based on the 1957 Convention is still applicable.

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Main Features of the 1976 Limitation Convention

• Categories of claims subject to limitation have been enlarged slightly to cover loss of life/personal injury/damage to property due to salvage operations and also for delay in carriage of goods/passengers.

• Limitation fund is based on the ship’s gross tonnage and a scale based on the Special Drawing Rights (SDRs) as defined by the International Monetary Fund. Higher monetary limit as compared to the 1957 Convention.

• More difficult to break limitation as compared to the 1957 Convention.

• Automatic release of the Vessel upon provision of security equal to the limitation fund.

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Comparison with the 1957 Limitation Convention

Calculation of the limitation fund:1957 Limitation Convention

– For loss of life / personal injury:• 3,100 gold francs for each ton of the ship’s tonnage

– For loss or damage to property or infringement of rights:• 1,000 gold francs for each ton of the ship’s tonnage

– Notes:• Tonnage is defined as the net tonnage (probably as measured by the 1947

Tonnage Convention) of a ship with the addition, if any, of the engine-room space deducted for the purpose of ascertaining that tonnage. Minimum tonnage of 300 tons.

• Pursuant to the Merchant Shipping (Limitation of Liability) (Singapore Currency Equivalents) Order, S$484.73 has been specified as the equivalent of 3,100 gold francs and S$156.36 has been specified as the equivalent of 1,000 gold francs.

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– For loss of life or personal injury:• Up to 500 tons 333,000 SDR

Plus for each additional ton:• 501 to 3,000 tons 500 SDR/ton• 3,001 to 30,000 tons 333 SDR/ton• 30,001 to 70,000 tons 250 SDR/ton• 70,001 tons upwards 167 SDR/ton

– For loss or damage to property or infringement of rights:• Up to 500 tons 167,000 SDR

Plus for each additional ton:• 501 to 30,000 tons 167 SDR/ton• 30,001 to 70,000 tons 125 SDR/ton• 70,001 tons upwards 83 SDR/ton

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– Notes:• Tonnage is defined as Gross Tonnage as measured by the International

Convention for Tonnage Measurement of Ships, 1969.

• A sliding scale proportionate to the size of the ship.

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Calculation of the limitation fund:Comments:

– Problems with the 1957 Limitation Convention:• Tonnage of ships today are measured pursuant to the 1969 Tonnage

Measurement Convention. Practical difficulty to re-measure a ship without a pre-1969 tonnage certificate.

• Fund is insufficient to cover claims, resulting in forum shopping.– Both problems have been addressed in the 1976 Limitation Convention:

• Tonnage defined as Gross Tonnage as measured in accordance with the 1969 Tonnage Convention.

• Value of SDR is based on daily rates set by the International Monetary Fund. (see http://www.imf.org/external/np/fin/rates/rms_sdrv.cfm)

• Makes Singapore a more attractive forum.

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Higher Limitation Fund• The 1976 Limitation Convention provides for a significantly higher limitation

fund.

– Example : Limitation for damage to cargo on board a ship (GT 64,502, NT 33,033)

• 1957 Convention:(using NT as a rough equivalent of NRT)

1,000 gold francs x 33,033= S$156.36 x 33,033= S$5,165,039.88

• 1976 Convention:167,000 SDR +(167 SDR x 29,500) +(125 SDR x 34,502)= 5,128,127 SDR=US$7,743,984.58 (NB : SDR1 = US$1.51010)=S$12,772.850.72 (NB : US$1 = S$1.64939)

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Breaking Limitation• Article 4, 1976 Convention:

Conduct barring limitationA 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.”

• In order to break limitation, two elements must be proved by the claimant:-– The loss resulted from a personal act or omission of the shipowner; and– The act or omission was committed intentionally or recklessly with

knowledge that the loss would result.– Under the 1957 Convention, the shipowner could limit if he can prove

that the loss was caused without his actual fault or privity. Significant shift in the burden of proof in the 1976 Convention to the claimant.

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Breaking the Limit:“A Personal Act or Omission”The meaning of “a personal act or omission” is the probably the same

as that of “actual fault or privity” in the 1957 Convention.

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Breaking the Limit:“A Personal Act or Omission”• The test of what amounts to “actual fault or privity” was set out by Lord Denning MR in

The Eurysthenes [1976] 2 Lloyd’s Rep 171 at 178–179 as follows:“This historical survey shows to my mind that, when the old common lawyers spoke of a man

being “privy” to something being done, or of an act being done “with his privity”, they meant that he knew of it beforehand and concurred in it being done. If it was a wrongful act done by his servant, then he was liable for it if it was done “by his command or privity”, that is, with his express authority or with his knowledge and concurrence. “Privity” did not mean that there was any wilful misconduct by him, but only that he knew of the act beforehand and concurred in it being done. Moreover, “privity” did not mean that he himself personally did the act, but only that someone else did it and that he knowingly concurred in it. … Without his “actual fault” meant without any actual fault by the owner personally. Without his “privity” meant without his knowledge or concurrence.

…[W]hen I speak of knowledge, I mean not only positive knowledge but also the sort of

knowledge expressed in the phrase “turning a blind eye” If a man, suspicious of the truth, turns a blind eye to it, and refrains from the enquiry – so that he should not know it for certain – then he is regarded as knowing the truth. This ‘turning a blind eye’ is far more blameworthy than mere negligence. Negligence in not knowing the truth is not equivalent to knowledge of it”

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Breaking the Limit:“A Personal Act or Omission”The Impact of the ISM Code

The ISM came into full force on 1 July 2002 and:

– Imposes a duty on the shipowner to develop, implement and maintain a safety management system; and

– Requires the appointment of a Designated Person / Persons who will be the link between the highest level of management and the officers/crew on board the ship.

– Relevance to 1976 Convention, and prevailing ship operations/management practices.

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Breaking the Limit:“A Personal Act or Omission”The Impact of the ISM Code• As a consequence, the ISM Code :-

– Creates a paper trail evidencing the manner in which the vessel was operated;

– Establishes the alter ego of the shipowner for the purposes of purposes of safety and seaworthiness.

“There is a special problem where the shipowning company has formally transferred responsibility for the operation of the ship to another organisation or person, such as a manager or bareboat charterer and has registered that transfer with the Flag State. I would suggest, tentatively, that this amounts to the formal creation of an alter ego of the shipowner with all the consequences that would imply.”

- per Lord Donaldson, 1st Cadwallader Lecture, 26 March 1998

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Breaking the Limit:“A Personal Act or Omission”The Impact of the ISM Code• Ultimately, the effect of the ISM Code is to make it easier for a claimant to

assign liability / knowledge to the Owners (i.e. to show “a personal act or omission”)

“It is clear from the cases I have cited that, over the years, the courts have whittled down the protection available to a shipowner from the 1957 Convention and s 136 of the Merchant Shipping Act. There is hardly a reported case after The Norman where an owner has managed to show that his systems of management of the vessel were such that they in no way contributed to any negligence on the part of the crew of the vessel. Thus, the purpose of s 136 has to a great extent been negatived and the protection it offers to shipowners is, largely, illusory.”

– per Justice Judith Prakash in The “Sunrise Crane” [2004] 4 SLR 715

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Breaking the Limit:“Committed intentionally or recklessly”

• In view of the ISM Code and the consequential erosion of the protection offered by the 1957 Convention, the second requirement that the act must have been “committed intentionally or recklessly with knowledge that such loss would probably result” is included in the 1976 Convention to protect the shipowners .

“Under the 1976 Convention, the monetary limits are much higher but the benefit to theshipowner is that, in almost every case, he will be able to limit because the right to limit is only lost if it is proved that the loss sued for “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”. That phraseology makes it very difficult for a claimant to break limitation.”– per Justice Judith Prakash in The “Sunrise Crane” [2004] 4 SLR 715

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Breaking the Limit:“Committed intentionally or recklessly”• “Intentionally” : Save for a situation where a shipowner or the designated

person(s) under the ISM Code took a course of action with a view to scuttling the vessel, it is difficult to prove that the act or omission was done intentionally with knowledge that such a loss would result.

• However, it is conceivable that a claimant may be able to establish that the act or omission was done recklessly with knowledge that such a loss would result. For example:

A defect in an item of machinery is detected on board and was reported to the designated person. The decision taken was to defer repairs / replacement until the next docking. If the defective machinery subsequently caused a casualty, a claimant with a sizeable claim might seek discovery of the shipowner's files and records and these would reveal that the highest level of management knew of the problem but deferred dealing with it for commercial reasons. It is likely that the claimant in such a case would argue that such conduct was sufficient to constitute recklessness, with knowledge that such a loss would result.

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Breaking the Limit:• There is, as yet, no reported case where the impact of the ISM Code

has been considered in respect to the shipowners’ right to limit under the 1976 Convention.

• However, there have been indications that whilst it may be difficult to break limitation under the 1976 Convention, the Court are prepared to do so in an appropriate case.

In The Saint Jacques II, the English High Court considered a case were a tanker navigated against the flow of traffic in a traffic separation scheme in order to supply fuel oil to other fishing vessels in advance of her competitors. There were five previous instances where the tanker had taken a similar course and it appeared to have committed a repeated flagrant breach of the Convention on the International Regulations for Preventing Collisions at Sea 1972. Although the right to limit is generally accepted in collisions, the Court felt that it was an exceptional case and directed that the issue of whether the tanker owners were entitled to limit liability should be decided at a trial.

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Automatic Release of the Vessel

– Under the 1976 Limitation Convention, a vessel will be released when the limitation fund has been constituted. This is irrespective of whether the shipowners’ right to limit his liability is being challenged.

– Under the 1957 Limitation Convention, the shipowner will first have to show that he is entitled to limit his liability. If this is disputed, the Court can refuse to release the vessel even though the limitation fund has been constituted.

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Impact of the 1976 Limitation Convention• Brings Singapore’s limitation regime in line with the limitation regime in most

major shipping nations.

• Extends coverage to claims related to salvage, delay and expense incurred to minimise / avert the loss.

• Removes existing difficulties faced with the calculation of the limitation fund.

• Increased monetary limits in exchange for greater protection for shipowners.

• No impact on insurance as insurers are already covering shipowners’exposure up to the 1976 Limitation Convention.

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Conclusion

Singapore’s ratification of the 1976 Limitation Convention and the

amendments to the Merchant Shipping Act to apply the same in Singapore

should be welcomed by shipowners and claimants alike. It will go far to

eliminate the uncertainties experienced with the 1957 Limitation Convention

and to bring Singapore in line with the rest of the shipping nations.

Some nations have already ratified the 1996 Protocol which provides for

even higher monetary limits.

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