Brookes & Co. - News - Limitation of Liability

There are two International Conventions which govern a shipowner’s right to limit his liability in relation to specific kinds of claim. For many years, the principal convention was the International Convention Relating to the Limitation of the Liability of Owners of Sea-Going Vessels 1957 ("The 1957 Convention"). The 1957 Convention still applies in many jurisdictions. The second is the Convention on Limitation of Liability for Maritime Claims 1976 ("The 1976 Convention"). The United Kingdom and a number of other countries have adopted the 1976 Convention.

Under the 1976 Convention a salvor or a shipowner (which includes a charterer, manager or operator) of seagoing vessels can limit his liability in respect of certain claims. Until recently, pursuant to Article 13 of the Convention, shipowners facing a claim which fell under the 1976 Convention could set up a limitation fund within a convention country and continue trading in the knowledge that the claimants were barred from arresting ships belonging to the shipowner while liability was being determined and a limitation decree granted.

Indeed, the Rules of the English Admiralty Court specifically provide that a shipowner who has constituted a fund under the 1976 Convention can stop arrests of his ship pending determination of both the liability and limitation issues.

In a recent case, however, the Court of Appeal held that constituting a fund will not suffice to stop arrests. The claimant is not barred from arrest until both the shipowner’s liability is established and the limitation decree established.

The Court of Appeal has applied to the 1976 Convention (which is the law in England) a previous Court of Appeal case which was decided under the 1957 Convention. In our opinion the Court of Appeal was wrong in its decision as it is in conflict with the Rules of Court. We are confident that this decision will not be followed in future cases.

However, the Court of Appeal upheld two other decisions of the Commercial Court in the same case.

The case stems from an incident when a tug lost connection of a barge in rough seas off Cape Town. The barge was swept ashore and lost. The owner of the barge claimed damages against the owner of the tug, its charterer and the operator of the Port of Cape Town. Proceedings were commenced both in South Africa and London. The barge owner’s aim was to have both liability and limitation of liability determined in South Africa because South Africa still applies the 1957 Limitation Convention which has very low limits but is easy to break. The 1976 Convention, which applies in England, sets higher limits which are almost impossible to break.

The tugowners and charterers commenced limitation proceedings in England. The barge owners objected (amongst other reasons) on the grounds that:-

	the tugowner had during the fixture negotiations misrepresented the tug’s certified bollard pull and break horsepower, and,
	the limitation proceedings be stayed in favour of the South African proceedings.

The Court of Appeal upheld the decision of the Commercial Court on both of the above issues giving the following reasons:-

	Article 2 of the 1976 Convention is wide enough to protect the tugowners despite the allegations of fraudulent misrepresentations; and
	limitation proceedings form a special class of action and are therefore not subject to the rule of stay.

The most interesting aspect of the Court of Appeal’s decision relates to the first issue, namely as to whether a shipowner can limit liability in circumstances where there are allegations of fraudulent misrepresentations. There is presently very little case law on this issue and therefore this case is likely to be of importance in future actions.

However, it is noteworthy that under Article 4 of the Convention a shipowner is not 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 loss or recklessness and with knowledge that such loss would probably result. Proving such conduct is almost impossible but of course each case is decided upon its own facts and circumstances.