Limitation of Liability

Concept

• Limitation of Liability allows shipowners and their

representatives to limit their liability for damages
which occur in maritime adventures in respect of
claims that can be brought against them.
Objective:

• By exercising the right to limit their liability up to

maximum sum, regardless of actual amount of damages,

• not only shipowners preserve their financial existence,

• but also claimants are granted certain payments from

liability funds established by persons liable.
Reason:

• the responsibility of the shipowner was spread not just in

respect to cargo and passengers and their goods, but also in
terms of pollution, wrecks etc.

• unlimited liability could have led to the bankruptcy of even

those merchants whose assets extended well beyond the
carrying vessel.
 International attempt for creating uniform rules
• The first attempt - done by Comité Maritime International (CMI), which
came up with the 1924 Convention:

International Convention for the Unification of Certain Rules relating to the

Limitation of Liability of Owners of Sea-going Vessels, 1924

• Then 1957 Convention:

The International Convention Relating to the Limitation of Liability of

Owners of Seagoing Ships, 1957
The Convention on Limitation of
Liability for Maritime Claims,
1976
Reason:

• Inflation noted in the middle of 20th century required new

solutions.

• limitation amounts appeared practically low.

• the market had became dominated by bigger ships and

• new categories of the ship operators appeared (e.g. salvors), who

were supposed to take their place in limitation of liability regimes.
• Inter-Governmental Consultative Organization – IMCO (later
known as International Maritime Organization - IMO) and
CMI made efforts to revise the 1957 Convention led to the
adoption of completely new convention – the 1976 LLMC
Convention.

• The Convention on Limitation of Liability for Maritime

Claims, 1976, entered into force 1 December 1986
The 1996 LLMC Protocol:

• The 1996 LLMC Protocol was adopted to increase the 1976 LLMC
Convention’s limits, but also to facilitate the up-dating of such limits.

The 2012 Amendments to the 1996 LLMC Protocol

• increased the 1996 LLMC Protocol‟s limits of liability through

Resolution LEG.5(99) adopted on 19 April 2012 through the tacit
acceptance procedure. (based on proposal from Australia after Pacific
Adventurer incident off Queensland, Australia, in 2009.)
 Persons entitled to limit liability
According to Article 1 LLMC Convention, the
persons entitled to limit liability are: -
• shipowners (which term can be interpreted as including the
owner, charterer, manager and operator of a seagoing ship), -
• salvors (which include any person rendering services in direct
connection with salvage operations, also including operations
referred to in Article 2, paragraph 1(d),(e),(f)), -
• any person for whose act, neglect or default the shipowner or
salvor is responsible, and –
• insurers of liability (to the extent as the assured himself).
 Claims that can be subjected to limitation
• (a) loss of life or personal injury or loss of or damage to property

• (b) loss resulting from delay in the carriage by sea of cargo, passengers or their
luggage;

• (c) other loss resulting from infringement of rights other than contractual rights,

• (d) raising, removal, destruction or the rendering harmless of a ship.

• (e) removal, destruction or the rendering harmless of the cargo of the ship;

• (f) 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.
• However, claims set out under paragraph 1(d), (e) and (f)
shall not be subject to limitation of liability to the
extent that they relate to remuneration under a
contract with the person liable.
 Exempted Claims
Article 3 of the Convention states which claims are excepted from limitation.
• (a) claims for salvage, including, if applicable, any claim for special compensation
under Article 14 of the International Convention on Salvage 1989, as amended, or
contribution in general average;
• (b) claims for oil pollution damage within the meaning of the International
Convention on Civil Liability for Oil Pollution Damage,

• (c) claims subject to any international convention or national legislation governing or

prohibiting limitation of liability for nuclear damage;
• (d) claims against the shipowner of a nuclear ship for nuclear damage;

• (e) claims by servants of the shipowner or salvor whose duties are connected with
the ship or the salvage operations, including claims of their heirs, dependants or
other persons entitled to make such claims, if under the law governing the contract
of service between the shipowner or salvor and such servants
 Conduct barring limitation
Article 4 of the Convention provides a case when 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.
 Counter Claims

• Where a person entitled to limitation of liability under the

rules of the Convention has a claim against the claimant
arising out of the same occurrence, their respective claims
shall be set off against each other and the provisions of the
Convention shall only apply to the balance, if any.
 The limits of liability
(a) in respect of claims for loss of life or personal injury,

• (i) 3.02 million Units of Account for a ship with a tonnage not exceeding
2,000 tons.

• (ii) for a ship with a tonnage in excess thereof, the following amount in
addition to that mentioned in
• for each ton from 2,001 to 30,000 tons, 1,208 Units of Account;
• for each ton from 30,001 to 70,000 tons, 906 Units of Account; and
• for each ton in excess of 70,000 tons, 604 Units of Account,
(b) in respect of any other claims,

• (i) 1.51 million Units of Account for a ship with a tonnage not exceeding
2,000 tons,

• (ii) for a ship with a tonnage in excess thereof, the following amount in
addition to that mentioned in
• for each ton from 2,001 to 30,000 tons, 604 Units of Account;
• for each ton from 30,001 to 70,000 tons, 453 Units of Account; and
• for each ton in excess of 70,000 tons, 302 Units of Account
• This means that the limits are calculated on the
basis of tonnage of ship and in terms of Units of
Accounts.

• Also separate calculations were given for Claims

for loss of life or personal injury and other claims
 Units of Accounts
• Units mentioned in previous articles are the Special Drawing Right as defined
by the International Monetary Fund.

• Also, the amounts mentioned shall be converted into national currency of the
State in which limitation is sought, according to the value of that currency at
the date the limitation fund constituted, payment is made, or security is given
which under the law of that State is equivalent to such payment.

• Art 8 provides for the methods for evaluation of national currency in terms of
SDC for member and non-member of IMF separately.
 The limits for passengers claims
• Convention establishes a global limit of liability for loss of life or
personal injury to passengers, which is completely separate and
distinct from the limits established and as mentioned before.

• It is being calculated by multiplying an amount of 175,000 Units of

Account by the number of passengers which the ship is authorized
to carry according to the ship's certificate.
 Limitation Fund
• A limitation fund can be constituted to settle the claim.

• Any fund constituted shall be distributed among the claimants in

proportion to their established claims against the fund.

• any person having made a claim against the fund shall be barred from
exercising any right in respect of such claim against any other assets
of a person by or on behalf of whom the fund has been constituted.
• It is noteworthy that the Convention does not require
constitution of a fund as a condition for exercising right to limit
liability.

• However, a State Party may provide in its national law to be

mandatory for person liable to constitute fund for invoking right
of limiting the liability
 Merchant shipping Act,1958
PART XA – LIMITATION OF LIABILITY – (2002 Amendment)
Section 352 – 352FA
India is a signatory to the Convention on Limitation of Liability for Maritime Claims
1976 (the 1976 Convention) and the Protocol of 1996 to amend the 1976 Convention
(the 1996 Protocol).
Procedure:
• Legal Proceedings are instituted in respect of claims subject to limitation
• Then owner may apply to High Court for setting up of a limitation fund to limit his
liability to such amount mentioned in convention.
• High court may determine the amount of owner’s liability and require him deposit
such amount or produce guarantee. (This Constitute Limitation Fund).
• Release of Ship
• After constitution of fund, no person shall be entitled to exercise any rights against
any other asset of the owner.
• The High Court may distribute the fund rateably among different claimants.
P.S. There is complete omission in the Act of Article 4 (Conduct barring
limitation) and Article 10 (Limitation of liability without constituting a
limitation fund) of the Convention.

Rules under Sec 352FA – Merchant Shipping

(Limitation of Liability for Maritime Claims) Rules,
2015 – provides rules for calculation of limits in respect
of claims for loss or personal injury and in respect of
any other claims etc.
Case study

• The case of Murmansk Shipping Company v Adani Power Rajasthan Ltd concerned the Russian-
flagged vessel, the MV Yuriy Arshenevsky which was carrying project cargo in 2011 from Tianjin
to Mundra and Mumbai

• when she encountered a typhoon leading to the partial loss and damage to the cargo.

• Upon discharge of the cargo at Mundra, the vessel was arrested by multiple claimants and
security was posted for her release.

• The shipowner, anticipating the arrest of its ship by cargo claimants, promptly applied to the
Bombay High Court on the same day that the first order of arrest was obtained to constitute a
limitation fund in accordance with the limits prescribed by the 1976 Convention.
Legal analysis
• Despite strident objections from cargo claimants, the owner argued that its right to limit was absolute
and unconditional as all it needed to demonstrate was that the claim was capable of limitation under
Section 352 A of the Act.
• Section 352 A of the Act corresponds broadly to Article 2 of the 1976 Convention. As it was undisputed
that the claim was one for loss/damage to property, ie it was a claim capable of limitation, it was
submitted that the court’s scrutiny was limited to determining whether there was any statutory
exception to limitation such as conduct barring limitation as envisaged by Article 4 of the 1976
Convention.
• The court, after carefully considering the statutory provisions of the Act, concluded that Article 4 was
wholly absent from the Act and that there was no equivalent statutory provision in the Act
excluding or suggesting any exception to limitation.
• The court therefore rejected the cargo claimant’s argument to read into or add Article 4 of the 1976
Convention to the Act as it would be tantamount to judicial legislation.
• The court held that the object of the 1976 Convention was to make limitation virtually ‘unbreakable’.
The omission of Article 4 of the 1976 Convention from Part XA of the Act would not therefore make
any meaningful difference in practice as was contended by the liability claimants.
• In respect of the issue as to whether the figures of limitation are to be calculated on the basis of the
1976 Convention or the 1996 Protocol, the court rejected the shipowner’s argument that the lower
limits of the 1976 Convention should apply, which the owners contended was based upon a lack of any
domestic legislation or amendment to the Act giving effect to the increased limits of the 1996
Protocol..
• The court held that the expression ‘Convention’ as defined by the Act expressly
included amendments made to it from time to time.
• In the result, the Court had no hesitation in finding that the 1996 Protocol
was, in fact, an amendment to the Convention which was already embraced
by the Act.
• The limitation action was accordingly decreed and the owner permitted to set
up a limitation fund.
• Security posted by the owner was ordered to be returned to it upon deposit of
the higher amounts contemplated by the 1996 Protocol.