Limitation of Liability for Maritime Claims

• Author: Edgar Gold; Aldo Chircop; Hugh M. Kindred; William Moreira
• Pages: 959-990

959

CHA PTER 22

LIMITATION OF

LIABILITY FOR

MAR ITIME CLAIMS

A. INTRODUC TION

An important rule in maritime law that sets shipping apart from all other

branches of industry and commerce is that the shipowner and certain

other persons can limit their liability for loss or damage for their negli-

gence. Broadly stated, the rule is that the owner of a negligent ship need

not necessarily compensate fully those who have suffered as a result of a

ship damaging another vessel or property or causing loss of life or per-

sonal injury to passengers or other personnel. Usually the shipowner can

limit liability according to the size of the ship. Although of very old origin,

the rule was probably f‌irst codif‌ied at the time of Louis XIV in the seven-

teenth century. The great Dutch publicist and legal scholar, Hugo Grotius

promoted it as a matter of public policy and it quickly gained accept-

ance at a time of growth in international trade. Essentially it was a public

policy decision and was probably one of the f‌irst examples of state support

for the shipping industry. The rationale behind it was that the shipowner

undertook great risks in the maritime adventure and was not necessarily

in control over what happened to the ship and cargo at the hands of the

master and crew. The early rule allowed the shipowner to limit liability to

the value of the ship and freight in cases of cargo theft. Eventually with

the Merchant Shipping Act, 1894, the application of the rule was extended

to include collision liability and a tonnage formula was used.1 It was in

1 Merchant Shipping Act, 1894 (UK), 57 & 58 Vict, c 60. Shipping in Canada was

governed by this Act until the Statute of Westminster, 1931 (UK), 21 & 22 Geo V,

PART VI: COLLISIONS, POLLUTION, AND LI ABILITY960

the interests of trade to encourage shipowning, to protect shipowners

from ruin, and ultimately to promote a climate of ascertainable risk that

would encourage insurability.2 A cost associated with such a benef‌it was

the very real possibility that those who suffered loss as a result of the

negligence of the shipowner or her servants might not get full compen-

sation, possibly resulting in injustice. But, Lord Denning noted in The

Bramley Moore, “there is not much justice in this rule; but limitation of

liability is not a matter of justice. It is a rule of public policy which has its

origins in history and its justif‌ication in convenience.”3 As a result, the

rule continues to be controversial.

The old rule was that the shipowner could limit liability as long as

she was not in actual fault or privity in causing the loss. If limitation

was granted, the burden of absorbing a marine loss often fell unfairly

on those suffering the loss. In collision cases, it was virtually axiomatic

that, until the case of The Lady Gwendolen, if the cause of a collision

arose out of navigational error on the part of the master or crew, lim-

itation of liability would be granted. The Lady Gwendolen applied an

objective standard of the ordinarily reasonable shipowner and a para-

mount concern for safety of life at sea as a test to assess the conduct of

the shipowner in the management and control of a ship or f‌leet.4 Since

this case, many English cases, such as The England, followed the trend

against the limitation of liability.5 Similarly, many Canadian cases, such

c 4, s 3, enabled the enactment of the Canada Shipping Act.

2 As Clyne J explained, “[b]efore the f‌irst limitation Act was passed in England in

1734 it was possible for a shipowner to sustain ruinous losses because of the acts

of the master in some remote part of the world where the shipowner was unable

to exert any actual control and, as a matter of policy to encourage and maintain

shipping, it was deemed advisable to limit the liability of the owner to the value

of the ship and her freight where there was theft of cargo by the master or crew.

By successive statutes the right to limitation was extended to other cases until

it has reached its present form.” Vancouver v Rhodes, [1955] 1 DLR 139 at 140

(BCSC). Similarly, Ritchie J said: “[t]he limitation of liability provisions . . . are

expressly designed for the purpose of encouraging shipping and affording protec-

tion to shipowners against bearing the full impact of heavy and perhaps crippling

pecuniary damage sustained by reason of the negligent navigation of their ships

on the part of their servants or agents.” British Columbia Telephone Co v Marpole

Towing, [1971] SCR 321 at 338.

3 Bramley Moore (The), [1963] 2 Lloyd’s Rep 429 at 437. The tragic case of Princess

Victoria (The), [1953] 2 Lloyd’s Rep 619, illustrates this point. In this case, the mas-

ter refused to sail an unseaworthy ship, but the shipowner told the master that he

would be f‌ired unless he sailed. The ship sailed and sank in bad weather, and 133

people lost their lives. Regardless, the shipowner was still able to limit his liability.

4 Lady Gwendolen (The), [1965] 1 Lloyd’s Rep 335.

5 Rederij v England (The), [1973] 1 Lloyd’s Rep 373 [The England].

Limitat ion of Liability for Mar itime Claims 961

as The Farrandoc6 and The Kathy K,7 demonstrated the change in the

courts’ attitudes in favour of f‌inding fault and privity on the part of

shipowners by applying the provisions of the old Canada Shipping Act.

In The Kathy K, the court found fault because the shipowner acquiesced

in the tug and tow being left in inexperienced hands, thus exposing

other traff‌ic to foreseeable potential danger. Other courts probed into

the shipowner’s management of the ship, found negligence, and there-

fore denied limitation. Actual fault or privity entailed the shipowner’s

actual involvement or knowledge, as distinct from vicarious liability

for the acts of agents or servants. In several cases where the owner was

the negligent master, the courts at times denied the “owner” the right

to limit as “master” by applying an objective standard.8 The Supreme

Court re-examined the right to limitation in The Rhône,9 where it grant-

ed limitation, but a radical change in favour of the right to limitation

would occur only with legislative intervention.

The rationale for letting shipowners limit their liability was no longer

as valid as it had been in the past. In the early days of shipping, a ship-

owner often did not hear of her ship’s whereabouts for months at a time;

hence, the shipowner had little or no control over her vessel. It would

have placed a heavy burden on shipowners to make them liable for the

acts of their ships on the other side of the world. Today, however, com-

munication has advanced to the point where a shipowner can be in almost

constant contact with her ship. As well, underwriters are now far more

willing to underwrite risks than they were in the past. To remedy some of

the hardships that fell on claimants, it was felt that a new convention on

liability limitation was necessary to f‌ind a new balance between the need

to encourage shipowning on the one hand, and appropriate compensa-

tion for those who suffer loss on the other.

In 1976 a conference held in London, England, produced the Con-

vention on Limitation of Liability for Maritime Claims, 1976.10 This con-

vention struck a new balance among a nearly (but not quite absolutely)

unbreakable right to limit liability, the ability for the shipowner to ob-

tain insurance cover, and a higher amount of compensation that could

be recovered, the limits of which could be revised from time to time.

6 Robin Hood Flour Mills v NM Patterson & Sons Ltd, [1967] 1 Ex CR 431 [The

Farrandoc].

7 Stein v Kathy K (The), [1972] FC 585 (TD), rev’d [1974] 1 FC 657, aff’d (1975),

[1976] 2 SCR 802 [The Kathy K].

8 Chernoff v Chilcott (1988), 27 BCLR (2d) 283 (CA); Conrad v Snair (1995), 131

DLR (4th) 129 (NSCA).

9 Rhône (The) v Peter AB Widener (The), [1993] 1 SCR 497 [The Rhône].

10 19 November 1976, 1456 UNTS 221 [LLMC 1976].