Limitation of Liability for Maritime Claims

AuthorEdgar Gold; Aldo Chircop; Hugh M. Kindred; William Moreira
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,
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
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].

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