PUSHING THE LIMITS: IMO ANNOUNCES INCREASE IN THE LIMITS OF LIABILITY FOR SHIP-OWNERS

The IMO recently announced an increase in ship-owners’ limits of liability under the 1976 London Convention on Limitation of Liability for Maritime Claims (“LLMC”), as amended by the 1996 LLMC Protocol. The change has been prompted by recent incidents in which claims have exceeded the existing limits. Though these cases were few in number, a notable feature was bunker pollution: this attracted public attention and led to concerns among governments that

increases were needed.

The same incidents have also revealed that limitation laws are not necessarily operating in all contracting states in the manner originally intended. There has long been a link between increases in limits and measures to reduce uncertainty as to whether or how they apply. This article summarises the changesand identifies issues that governments could usefully address when giving effect to the increases in their national laws.

The Limitation Conventions

A century ago, there was no international regime for the limitation of ship-owners’ liability for maritime claims. Various national laws reflected different approaches to the subject, and the first attempt at a uniform system, the Geneva Convention of 1924, was based on the concept of “abandonment”.  Though

it is still in force,  the 1924 Convention did not gain widespread support, and tonnage-related limits were introduced in the more popular 1957 Brussels Convention.  That too was felt to have its shortcomings, and the LLMC regime, adopted by the IMO almost two decades later, has now almost universally

replaced it.  LLMC provides for tonnage-related limits applying to most types of maritime claim, other than those covered by other regimes, such as claims for oil pollution damage from tankers under the Civil Liability Convention 1992.

Limitation under LLMC

LLMC was adopted to meet the concern of many governments that the limits set by the 1957 Convention were out of date and too low, due chiefly to high levels of inflation over the years subsequent to its introduction. LLMC introduced significant increases but also made the right to limit liability more secure. Under the 1957 Convention, it had become increasingly onerous for ship-owners to satisfy courts that damage had occurred without  their “actual fault or privity”, as was necessary to establish the right of limitation. LLMC redressed the balance by (1) entitling ship-owners to limit their liability unless the loss resulted from their personal act or omission, committed with the intent to cause the loss, or recklessly and with knowledge that such loss would probably result; and (2) reversing the onus of proof so as to place it on the party challenging the right to limit. The right of limitation under LLMC is available to ship-owners and salvors. The Convention sets out a wide definition of parties qualifying as a “ship-owner”, including not only registered owners but also charterers, managers and operators of a sea-going ship.  In a 2008 case, it was held that slot charterers also qualify in English law. Liability for claims under LLMC is limited to an aggregate amount calculated by reference to the tonnage of the ship, the amounts in national currency being converted from Special Drawing Rights (“SDRs”) as the unit of account. Higher limits apply to personal claims as opposed to property claims. LLMC lists the types of maritime claim for which liability can be limited, the most notable being claims for loss of life, personal injury or loss of or damage to property caused in the operation of a ship, and  claims for loss from delay in the carriage by sea of cargo, passengers or their luggage. Whilst the Convention has improved certainty by making the right of limitation harder to “break”, a degree of uncertainty remains as to the types of claim that are limitable. This applies

particularly to pollution cases, partly because the list of limitable claims does not expressly refer to pollution or the environment, and partly due to an unintended relationship with wreck removal provisions, as discussed below.

The 1996 LLMC Protocol

By the LLMC Protocol of 1996, the liability limits under the 1976 Convention were raised for claims in contracting states arising out of occurrences after the Protocol’s entry into force. The Protocol also provided for the limits to be updated in future by means of the tacit acceptance procedure, which is now a

feature of many IMO instruments.

The new limits

On 19 April 2012, the IMO announced new limits to take effect in accordance with this procedure in 2015. For ease of comparison, examples of the existing and new limits are set out in the table below:

Bulk carriers    Approximate limits for property  Approximate current limits  Approximate

and their             claim under LLMC (in US$)             for property claim under       future limits

gross                                                                                         1996 Protocol (in US$)            for property

tonnage                                                                                                                                               claim under

new limits (in US$)

Handysize of     387,000                                               1,500,000                                        2,334,000

1,000

Panamax             8,835,000                                        21,167,000                                      31,961,500

of 35,000

Capesize of         27,136,000                                      65,200,000                                     98,451,000

160,000

These latest increases were first proposed as a result of the Pacific Adventurer incident off Queensland, Australia, in 2009. The case involved a container vessel that lost a number of  boxes during a powerful cyclone, resulting in hull damage that allowed some 230 tonnes of bunker oil to escape into the sea. The cost of the clean-up was reported as some US$ 27.5 million. Under the 1996 Protocol limits, the ship-owners were entitled to limit their liability to about US$15.5 million. As a result of this incident, the Australian Government submitted a proposal to the IMO Legal Committee that the Protocol limits be increased. In response to a request from the Committee to provide relevant data, the International Group of P&I Clubs submitted information to the effect that only eight incidents since 2000 (or 1.34% of the total in that period involving ships entered in Group Clubs) had given rise to pollution claims above the 1996 Protocol limit applicable to the vessel concerned. Nonetheless Australia, supported by a number of other States, including the UK,argued that in order to ensure that the limits were maintained at a sufficient level they should be raised by 147%, this being the maximum increase permittedunder the formula prescribed by the LLMC Protocol. Other States, led by Japan, proposed a more modest increase of 45%, based on changes in monetary values during the period since the limits were previously set. Pointing out that the limits were not concerned solely with pollution, they argued that the limits should not be at a level that negated the concept of limitation of liability, since otherwise liability would be effectively unlimited. This latter view prevailed, though Japan’s proposal was adjusted to 51%, to take account the further period before entry into force. The contracting States were notified of the adoption of the new

limits in June 2012. In the absence of any objections from governments within 18 months of notification, the new limits are expected to enter into force 18 months thereafter, under the “tacit acceptance procedure” (i.e. a total of 36 months after notification of the adoption). This is expected to be on 8 June

2015.

Limitation of liability for bunker spills

As was pointed out in the Legal Committee, limitation under LLMC and the Protocol is not all about pollution. Nonetheless, as pollution is a subject of particular concern to governments, and as pollution incidents drove much of the debate, it is worth noting other limitation issues that have been highlighted by the self-same cases, and suggesting that national administrations take the opportunity of addressing these in their domestic laws. In the case that brought the subject onto the agenda, the Pacific Adventurer incident, there was no dispute that the ship-owners were entitled to limit liability to US$15.5 million compared with the US$27.5 million that the Queensland and national authorities were claiming as the cost of the clean-up. However, the owners were part of an industrial group that had other business interests in Australia, and political pressure was exerted on them, by representatives of both the State and Federal Governments, to waive limitation rather than leave the excess to be borne by the taxpayer. This pressure put the ship-owners in an invidious position. For one thing, it failed to respect their legal rights, as well as treaty obligations to do so, and threatened to set an unfortunate

precedent encouraging others to do likewise. There were also important principles of insurance at stake: P&I cover is designed to protect against legal liabilities only, and any amounts paid without liability would normally have to be funded from the ship-owner’s own pocket. Few would see this as a viable way of funding compensation for oil spills. In the event, without waiving limitation, the ship-owners agreed to pay an additional US$6.5 million as a donation to a charitable environmental trust set up specifically for the purpose. The shortfall in recovery of clean-up costs was later reimbursed to

the authorities from the Australian Protection of the Sea Levy, funded by the shipping industry through an Australian marine protection environment tax, which in turn was increased with the aim of recouping this amount over the following five years. When the subject was tabled at the IMO, governments showed their usual diplomatic reluctance to criticise each other across the conference floor. Nonetheless, concerns were aired in the margins about the wider potential consequences that a case of this kind could have. Though it raised legitimate concerns about the level at which the limits were set, in some quarters it was seen as a setback for all who have campaigned in recent years for greater respect to be accorded to internationally recognised legal rights of ship-owners and seafarers. It is believed that these concerns have been fully appreciated by all involved, and that the case is not considered to be a precedent to be followed in future. As was pointed out, the very concept of limitation envisages rare cases where claims will be capped, and the episode serves as a reminder of the need for governments to consider appropriate domestic arrangements to cover these if and when necessary. A second significant bunker pollution incident occurred later the same year, on 31 July 2009, when the bulk carrier Full City dragged her anchors in a storm off Langesund, Norway, and ran aground spilling her bunker fuel. It was Norway’s biggest ever oil spill. Both the Bunkers Convention and the 1996 LLMC

Protocol were in force in Norway, but the Norwegian Maritime Code provided that claims for bunker oil pollution clean-up costs were to be treated in the same way as wreck removal costs. The Code made these subject to a separate limit of Norway’s own choosing, which is significantly higher than the

limit under the Protocol. This presupposes that clean-up costs, unlike other bunker pollution claims, are not limitable under LLMC. Given that clean-up expenses are commonly the largest element in the overall cost, this is a controversial proposition and one that can produce anomalous results. The background to this situation goes back to the 1976 Conference, when disagreement arose over a draft provision that would limit liability for wreck removal. A number of States insisted on maintaining a policy of unlimited liability for these claims. A compromise was reached by including wreck removal as a limitable claim, in Article 2.1(d), whilst allowing States the right to opt out of it when implementing the Convention in their national laws.  A number of States have exercised this option, including Norway and the UK. The possibility of this having unintended consequences appears to have been first noted in the early 1990s, when the UK Government proposed to introduce national legislation imposing strict liability for bunker spills, whilst expressing the view that this new liability would be limitable under LLMC. In some quarters, it was questioned whether this right of limitation was as clear as intended.

The type of limitable claim closest to bunker pollution clean-up costs was that specified in Article 2.1(d), the text of which allows limitation of liability for “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”. This gave rise to the concern that in States that had opted out of this provision in their national laws, limitation for bunker pollution clean-up rests on Article 2.1(a) in respect of property damage. Its wording supports the inclusion of pollution, as it does not specify any particular mechanism by which the damage must occur, and it includes reference to “waterways”, something which can obviously be damaged by pollution. However, as Article 2.1 makes no express reference to pollution, the position was not entirely certain. In these circumstances, a provision was included in the UK Merchant Shipping Act which expressly stipulates that claims for bunker pollution were to be treated as claims for property damage limitable under LLMC Article 2.1(a). The same issue arose on an international level when the IMO undertook the preparatory work for the Bunkers Convention.

Both at the beginning and at the end of the process, it was raised by the CMI and other NGOs, which urged that a clarifying provision be adopted similar to that in the UK. In the early stages, this proposal was seen as a detail to be shelved until after wider issues of principle had been decided, and in the final

negotiations, under pressure of time, it was viewed as unnecessary tinkering with the text: The Diplomatic Conference intended that all claims for bunker pollution were to be limitable under LLMC in contracting states, and none of the governmental delegations present envisaged any problem in this respect.

By this time there was a degree of judicial support for the view that Article 2.1(a) covered all pollution claims including clean-up costs.  A later Australian case is also relevant: Though not concerned with pollution, the court emphasised that “damage to property” in Article 2.1(a) is to be construed on a broad rather than technical basis, taking into account the Convention’s function as an international instrument to be applied in a uniform manner within a variety of national legal systems. There are accordingly ample grounds for concluding that the effect of LLMC, based both on judicial interpretation and on the common intention and practice of States, is that all claims for bunker pollution are limitable. The contrary proposition – that governments are free to stipulate that their claims for clean-up costs are subject to some higher limit of their choosing, or no limit at all, while the claims of private parties are capped in the normal way – is the opposite of the well-established practice of governments “standing last in the queue” until private claimants are paid.

Comment

Over the years, increases in the limits of liability have gone hand in hand with measures to increase certainty as to how and when they apply. The latest increases were prompted by bunker pollution incidents which have highlighted not only the case for higher limits, but also a need for greater certainty that due effect will be given to them as intended. As was pointed out in the recent IMO debates, the very concept of limitation envisages rare cases where claims will be capped. Pressurising ship-owners to waive limits is not a viable way of funding supplemental compensation for oil spills, and governments need to consider other appropriate arrangements to apply if and when necessary. Similarly, States in which national legislation negates the right to limit liability under LLMC for clean-up costs, or leaves it open to question, are open to the charge of failing to fulfil their treaty obligations. Those concerned to avoid this can easily put the position beyond doubt, when implementing the latest increases, by adopting in national instruments a short additional provision based on the formula in section 168 of the UK Merchant Shipping Act 1995. If you wish to receive further information please contact the authors or your usual Ince & Co contact.

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Авторы: Colin de la Rue Partner, London, colin.delarue@incelaw.com

Kevin Cooper Partner, London, kevin.cooper@incelaw.com

Chloe Townley Trainee, London, chloe.townley@incelaw.com

Источник: http://incelaw.com/documents/pdf/legal-updates/new-limits-of-liability-august-2012