Limitation of liability in maritime law: an anachronism

~ U T T E R W O R T H E I N E M A N N

Marine Policy, Vol. 19, No. 1, pp. 65-74, 1995 Copyright ~) 1995 Elsevier Science Ltd

Printed in Great Britain. All rights reserved 0308-597X/95 $10.00 + 0.00

Limitation of liability in maritime law: an anachronism?

Gotthard Gauci

One characteristic of maritime law is the availability of limitation of liability for shipowners and some others connected with shipping. This article, besides discussing the law on limitation of liability, examines the arguments for and against the privileged status of shipowners, and concludes that there is no justification for such a system. Nevertheless, it is quite clear that recent Conventions and municipal statutes based on such Conventions have enhanced the right to limit liability; however, one American federal statute - the Oil Pollution Act of 1990 - has to an extent eroded the right to limitation of liability in cases of damage caused by oil pollution. It may be the case that this statute is indicative of future developments in maritime law.

Dr G. Gauci is a Lecturer in Maritime Law, University of Wales, Cardiff Law School, PO Box 427, Cardiff CF1 lXD, UK.

1j. j . Donovan, 'The origins and develop- ment of limitation of shipowners' liability', Tulane Law Review, No 4, June 1979, p 1000. See also W.W. Eyer, 'Shipowners' Limitation of Liability - - New Directions for an Old Doctrine', Stanford Law Review, Vol 16, 1984, p 370; K.C. McGuffie, The Law of Collisions at Sea, London: Stevens, 1976, para. 168-174; D.W. Abecassis (editor), Oil Pollution from Ships, 2nd edition, London: Stevens, 1985, p 185. ~O.W. Holmes, Jr, The Common Law(New Edition by Mark De Wolfe Howe) London: Macmillan, 1985, p 8. There is also a pas- sage in the Exodus (XXl 28) cited by Holmes, op cit, p 7 where a similar principle is applied: 'If an ox gore a man or a woman, that they die: then the ox shall be surely stoned, and his flesh shall not be eaten; but the owner of the ox shall be quit.' Similar principles existed in early systems of law. For a full discussion, see

continued on page 66

Introduction Unlike most individuals in business, shipowners and some others connected with shipping can rely on a very favourable concession granted to them by a number of statutes; this privilege is limitation of liability. The notion of limitation of liability in maritime law is of uncertain origin, 1 although it may possibly be linked to the Roman Law notion of n o x a e d e d i t i o 2 in terms of which an owner could discharge liability for damage to another individual by giving up the offending instrument. 3 There are strong similarities between the Roman institution of n o x a e d e d i t i o and the implementation of limitation of liability in current United States Federal maritime law, which provides for limitation of liability up to the salved value of the ship and freight. 4 Although it may be impossible to definitely link the said system of limitation of liability with any Roman legal principle, one may draw certain parallels between the two concepts. Both involve the abandonment , or giving up, of an item which has been the cause of loss for another person. A closely related but distinctly relevant institution is that of abandonment of a vessel in marine insurance. 5 It has been stated that the doctrine of limitation was articulated as early as 1625 by Grotius, 6 and that limitation of liability in civil law jurisdictions can be traced as far back as the eleventh century. 7

The main law relating to limitation of liability in English maritime law is the Convention on Limitation of Liability for Maritime Claims 1976, which is incorporated as Part I of Schedule 4 of the Merchant Shipping Act 1979. 8 This provides for the limitation of liability of the owner, charterer, manager or operator of a seagoing ship in a number of cases, the most noteworthy of which is the case of 'claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connection with the operation of the ship or with salvage operations, and consequential loss resulting therefrom'. 9 A shipowner may also, in the right circumstances, limit liability under other Conventions: the Convention Relating to the Carriage of Goods by Sea which is incorporated in Part I of Schedule III of the Merchant Shipping Act 1979, ~° the Hague-Visby rules incorporated in the Carriage of Goods by Sea Act 1971,11 and the International

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Limitation o f liability in maritime law: G Gauci

continued from page 65 O.W. Holmes, op cit, pp 1-38. See also, K.C. McGuffie, The Law of Collissions at Sea, London: Stevens, 1976, para. 172. aParallels may also be drawn with the law relating to the in rem action; in English Admiralty law the rule appears to be that so long as the action remains exclusively in rem the liability is limited to the res. See D.C. Jackson, Enforcement of Maritime Claims, London: Lloyd's of London Press, 1985, p 375, where reference is inter alios made to the cases, The Burns (1907) p. 137. See, however, The Conoco Britan- nia (1972) 2 QB 543. 4Limitation Act 1851. The first Act to limit liability in English law was a statute dated 1734 (7 Gro. 2, c.15). According to L.J. Scott in The Tolten (1946), p135, at pp 151-156, the said Act 'was passed for limiting shipowners' liability for loss of the cargo caused by negligence of the master and crew to the value of the ship and freight.' SSee M.J. Mustill and J.C.B. Gilman, Arnould's Law of Marine Insurance and General Average, 16th Edition, London: Stevens, 1981, § 1259. 6J.G. Gissberg, Civil Liability for Oil Pollu- tion Damage from Tankers and other Ocean-Going Vessels, PhD dissertation, University of Michigan, 1971, p 93. 7W. Tetley, 'Shipowners' limitation of liability and conflicts of law: the properly applicable law', Journal of Maritime Law and Commerce, Vol 23, No 4, October 1988. a1979 c. 39. 9Convention on Limitation of Liability for Maritime Claims, 1976, Article 2, paragraph 1. 1o1979, c. 29. 111971, c. 19. 121971, c. 59. 130p cit, § 183. 14public Law 101-380 [H.R. 1466]. 15K.E. Roberts, 'For retention of limitation of liability for shipowners', American Bar Association Section of Insurance, Negli- gence and Compensation Law 1967 Pro- ceedings 1968, pp415-423; J.G. Giss- berg, Civil Liability for Oil Pollution damage from Tankers and other Ocean Going Ves- sels, PhD dissertation, p 179. See also W.W. Egar, 'Shipowners' limitation of liability - - new directions for an old doctrine', Stanford Law Review, Vo116, 1964, p 370; K.C. McGuffie, The Law of Colli- sions at Sea, para. 171. 16p. Wetterstein, 'Damage from international disasters in the light of Tort and Insurance Law' General Reports, Aida 8th World Congress, Copenhagen, Denmark, p 99; N. Gaskell et al., Chorley and Giles, Shipping Law, Eighth Edition, London: Pit- man, 1987, p 394. 17281 F. Sup. 228 (1968). laU.S.C., Title 46 Chapter 8, §183 provides: "(a) The liability of the owner of any vessel, whether American or foreign, for any embezzlement, loss or destruction by any person of any property, goods, or


Convention on Civil Liability for Oil Pollution Damage 1969 (CLC, 1969), which is implemented into English law by the Merchant Shipping (Oil Pollution) Act 1971.12

United States federal law provides for the limitation of liability of shipowners in Title 46 Chapter 8 ~3 of the United States Code. Reference will here be made in particular to the federal Oil Pollution Act of 1990.14 This draconian statute provides for limitation of liability of the owner or operator of a vessel from which oil is discharged or spilt. Although one may get an initial impression that limitation of liability is readily available in terms of the said statute, the truth is that an analysis of both federal and state oil pollution law will reveal that the privilege of limitation of liability is being substantially eroded.

L i m i t a t i o n o f l iabil ity: s h o u l d the s y s t e m be re ta ined?

It is the argument in this article that limitation of liability is an unjustly discriminatory attempt to subsidize the shipping industry at the expense of other interests. The arguments purporting to justify limitation of liability will be dealt with seriatim.

Limitation of liability has been justified on protectionist and historical grounds. 15 It has been said that:

The aim was to strengthen the international competitiveness of national merchant fleets. Since shipping was a risky enteprise and a shipowner lacked effective means of communication with his vessel, potential entrepreneurs might easily be dissuaded from entering shipping. Consequently efforts were made by means of global limitation of liability to attract people to invest in the branch and so build up a competitive mercantile marine.16

While such an incentive may have been necessary in the early days of shipping, it is no longer so today. Investment in shipping may be considered as widespread enough not to require any discriminatory stimulant. A limitation statute can also produce grotesque results, as in the case of the Torrey Canyon 17 where the limitation ceiling was US$50 as salved value, i.e. the value of one lifeboat, is Moreover , the widespread use of insurance and particularly third party insurance consider- ably reduces any possible risk. 19

Another argument for the retention of limitation of liability is that it would be very difficult to obtain any insurance coverage in respect of claims which are not protected by limitation of liability. E° Indeed, it has been said that the insurance industry relies on the principle of limitation of liability. 2a This argument is particularly used with reference to cases where CLC (1969) applies, i.e. where statute has imposed compulsory insurance. 22 Moreover , this line of reasoning possibly relies on the practice in pollution legislation regimes: an insurer would be protected in terms of CLC (1969) by limitation of liability even where there is actual fault or privity of the owner, without prejudice to the rights of the victim against the owner himself. 23 Prima facie this seems to be a very reasonable argument; however, one can also validly argue that in the case of unlimited liability allocated against a shipowner, there is nothing to prevent the underwriter from protecting himself by inserting in the insurance policy a ceiling beyond which claims cannot proceed. The argument that insurance can be divorced from limitation of liability has been addressed by Professor Wetterstein (1990), who states that:

The role played by insurance costs in competition . . . seems to have been

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continued from page 66 merchandise shipped or put on board of such vessel, or for any loss, damage or injury by collision, or for act, matter, or thing, loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of such owner or owners, shall not, except in the cases provided for in subsection (b) of this section, exceed the amount or value of the interest of such owner in such vessel, and her freight then pending.' (b) In the case of any seagoing vessel, if the amount of the owner's liability as limited under subsection (a) of this section is insufficient to pay all losses in full, and the portion of such amount applicable to the payment of losses in respect of loss of life or bodily injury is less than $600 per ton of such vessel's tonnage, such portion shall be increased to an amount equal to $60 per ton, to be available only for the payment of losses in respect of loss of life or bodily injury. If such portion so increased is insufficient to pay such losses in full, they shall be paid therefrom in propor- tion to their respective amounts.' (emphasis added). 19p. Wetterstein, op cit, p 100. See also A.G. Adler, 'For abolition or liberalization of present limitation of liability statutes', American Bar Association Section of Insur- ance, Negligence and Compensation Law 1967 Proceedings 1968, p 409 at p 411. 2°See K.E. Roberts, 'For retention of limitation of liability', American Bar Asso- ciation Section of Insurance, Negligence and Compensation Law 1967 Proceedings 1968, p 115 at p 422. 21L. Buglass, 'Limitation of liability from a marine insurance viewpoint', Tulane Law Review, Vol 53, 1979, p 1364. 22See CLC 1969, Article VII. 23CLC 1969, Article V, paragraph 11. OPA 1990 §1016 (g) caps guarantor's potential liability at the maximum amount of financial responsibility required under that chapter. 249. Wetterstein, 'Damage from international disasters in the light of tort and insurace law', at pp 102--103 of AIDA 8th World Congress Cophenhagen 1990, General reports. 25See D,W. Abecassis (editor), Oil Pollu- tion from Ships, p 507; see also Confer- ence Report No. 93-924, reported in 1973 U.S. Code Cong. & Adm. News at pp 2530-31, where it is stated that '[s]trict liability is primarily a question of Insur- ance.' 26This may eventually be extended to areas other than pollution. See Lloyd's List, 27/10/92, p 1, 'Unlimited P & I cover may end' by J. Mulrenan. 27West's Florida Statutes Annotated, Vol 14, 1993 Cumulative Annual pocket Part, para. 376.12. 28Such as California. 29West's Annotated California Codes, Vol. 32B., Government, 1992, Chapter 7.4, § 8670.56.5 and §8670.37.53 (b). 3°It has been stated that since 1/1/1984, a



exaggerated in international discussion. The introduction of unlimited liability would mean only a marginal - if even that - increase in costs. I cannot accept insurance costs as a key argument for limitation of maritime liability. Such arguments are not normally acceptable in other fields and, furthermore, there exist other means to give favourable treatment to national merchant fleets and to improve their international competitiveness. This should not be at the expense of the injured party/ies. 24

It would appear that no insurer would be willing to give unlimited coverage for oil pollution liabilities, z5 Indeed, Protection and Indemnity (P&I) Clubs specifically insert a ceiling in relation to oil pollution liabilities towards third parties; z6 in this respect, pollution liability insurance can well be said to be an exception. However , even if limitation of liability for oil pollution were to be lifted, that would not mean that compulsory insurance would be affected. A solution which, to a certain extent, may be acceptable would involve the imposition of strict and unlimited liability accompanied by compulsory insurance up to a specific amount.

Unlimited liability for oil pollution damage is not unknown. Florida imposes limited liability in respect of clean-up and abatement ; there is no limitation in respect of other damages. 27 A number of US States impose unlimited liability on tanker-owners for both clean-up costs and for damage to natural resources and to third parties. 28 One may here refer to the legislation of California, where there is an imposition of unlimited liability on a shipowner for an oil spill; there is also a requirement for a certificate of financial responsibility up to a specific amount , which at the momen t is fixed at $500 million. 29 Moreover , aside f rom American legislation, compulsory limited insurance coverage coupled with unlimited liability is no longer a mat ter reserved for academics; it has been applied in the field of liability for nuclear damages in Swiss Law. 3°

Fur thermore , it has been said that limitation of liability is not exclusive to shipowners, and hence shipowners are as much justified to benefit f rom it as anyone else. It is a concept which is widespread in the law relating to the t ransportat ion of goods, 3~ and indeed, limitation of liability is available in respect of t ransport by air and rail as well as t ransport by sea. However , the fact that limitation of liability also exists in the non-mari t ime context can in no case rule out the argument that it is an institution which is legally unjustifiable, discriminatory and, in effect, in certain instances, provides for deprivation of proper ty or the enjoyment thereof without due compensation.

One writer 32 refers to ' the near inevitability of a relatively high number of routine accidents coupled with the likelihood of occasional serious incidents' in one of the many at tempts to justify limitation of liability in mari t ime law. 33 According to the same author, 34 the term 'perils of the sea ' has some significance; it may be said to be indicative of the typical risks appertaining to sea-transportation. This 'perils of the sea' argument is hardly justifiable as all other methods of transportat ion are also fraught with dangers, including those perils described by the term 'Act of God ' . The possible argument that carriage by sea is more dangerous than transport by air, an assertion which can be interpreted in a number of ways, may be indicative of the real possibility that actual safety standards at sea are unsatisfactory, and that bet ter enforcement measures should be implemented. Possibly, it may be more conducive to safety at sea if limitation of liability were abolished. Indeed, the

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Limitation of fiabifity in maritime law: G Gauci

continued from page 67 nuclear operator is liable in terms of Swiss law without any benefit of limitation for nuclear damages which are occasioned by nuclear materials in his installation; obliga- tory insurance is limited to a specific amount. See H. Schattke, 'The legal aspects of the equitable distribution of limited indemnification amounts' Nuclear Third Party Liability and Insurance, Munich Symposium, Status and Prospects, Paris: OECD, 1985, Vol 97, pp 100-101. 31R.C. Seward, 'The insurance viewpoint', in The Limitation of Shipowners' Liability: The New Law, Institute of Maritime Law, University of Southampton. London: Sweet and Maxwell, 1986, pp 165-166. 32Supra, op cit, p 166. 33A similar justification for limitation of liability is given by W. Tetley who states that 'Limitation of Shipowners' liability is a universal concept amongst shipping nations and recognizes the potentially peri- lous nature of maritime transport 'Ship- owners' limitation of liability and conflicts of law: the properly applicable law', Journal of Maritime Law and Commerce, Vol 23, No 4, 1993, p 585. 340p cit, p 166. 35Acronym for Tanker Owners Voluntary Agreement concerning Liability for Oil Pollution. 36A similar argument is used by L. Buglass in 'Limitation of liability from a marine insurance viewpoint', Tulane Law Review, Vol 53, 1979, at p 1367. 37R.C. Seward, 'The insurance viewpoint' The Limitation of Shipowners' Liability: The New Law compiled by the Institute of Maritime Law, University of Southampton, London: Sweet & Maxwell, 1986, p 166. 3elbid. 391bid. 4°In the case of the Torrey Canyon oil spill, (i) the Owner was Barracuda Tanker Cor- poration (a Bermuda Corporation); (ii) the vessel was on a full bareboat charter to Union Oil Company of California; and (iii) the vessel was voyage chartered to BP. This apparently widespread system of corporate structuring has been heavily criticized. In this respect the following has been stated: " . . . the practice has been taken to an unreasonable extreme in the maritime field through the creation of a 'one-ship company'. Being totally under- capitalized, the new corporation buys its vessel with a guarantee (a 'bankable' charter) from a major oil or shipping company, repayment being in the form of an assignment to that company of much of the revenue to be derived from the charter services of the ship. The oil or shipping company itself then contracts to charter the boat on a long-term 'bareboat' or time charter. As the legal shipowner has no capital and often that one ship as an asset, should the ship be destroyed in an acci- dent, no funds are available from him for compensation. The fact that the owning company is a separate corporate entity


attempts by owners and bareboat charterers in the T O V A L O P 35 contract to increase their responsibility for oil pollution damage beyond the limited liability conferred by statute can possibly be interpreted as a means whereby the shipowning industry tries to neutralize potential offensives against the principle of limitation of liability. 36

Reference has also been made 37 to ' the complexity of most incidents and the difficulty of sorting out ownership and responsibilities for various cargoes and damages on a voyage which may involve a multitude of different parties in many countries. ' The sorting out of ownership and other responsibilities can hardly be a good reason for retaining limitation of liability. Considering the probability that the sorting out will have to be concluded through the intervention of underwriters and adjusters, one cannot see the validity of such an argument, as insurers and adjusters should be capable of such matters whether liability is limited or unlimited.

Another at tempted justification for limitation of liability is based on the 'deep pocket ' argument to the effect that ' the shipowner is peculiarly exposed in that he owns or controls a highly visible and valuable asset, which is notoriously easy to arrest ' .38 On the basis of the said argument, courts and legislatures may view a shipowner and his ship as a readily available solvent target. 39 Although the asset may be pr ima facie substantial, it is possible, and in certain instances probable, that a victim of a maritime incident may be only one of a list of substantial claimants with claims against the vessel possibly ranking ahead of that of the said victim. Moreover , the shipowner will invariably have protected his personal interests through a highly complex and effective corporate structure, as in the case of the Torrey Canyon. 4° Furthermore, the allegation that courts and legislatures use shipping assets as readily available deep pockets, if well-founded, may be indicative of an incorrect judicial or legislative attitude, which is possibly a product of the same legal milieu that created limitation of liability in the first place.

Another argument is that ' the international shipowner is by definition dealing with many different countries and by reason of the trading movement of the ships he may well find himself subject to the jurisdiction of almost any maritime nation'. 41 Hence, the argument goes, it is desirable to have an international standard of liability. However , an international standard may also be one which provides for unlimited liability, i.e. one which repeals the archaic and anachronistic institution of limitation of liability available in maritime law. As discussed earlier, a number of state statutes relating to oil pollution in the United States provide for unlimited liability in respect of clean-up expenses, damage to natural resources and third party liability.

An argument quite similar to that contained in the preceding paragraph is that limitation of liability is conducive to the uniformity of maritime law worldwide. 42 One writer states that this is the only possible justification for the retention of this regime. 43 However, ubiquity of application of an anachronistic law can hardly justify such a law.

It could also be argued that the privilege of limitation of liability for the benefit of a shipowner is counterbalanced by the attachment in a number of instances of a maritime lien, a unique maritime law concept. Though this argument is to some extent valid, it has to be noted that limitation of liability, besides applying in all cases of maritime liens, 44 applies in other cases as well, e.g. in the case of claims in respect of which the Supreme Court Act 1981 creates a mere statutory right in

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continued from page 68 protects the other company by means of the 'corporate veil'. Not only can that company not be sued - it can not even be identifiedT" RM. M'Gonigle and M.W. Zachar, Pollution, Politics and International Law, California: University of California Press, 1979, p 150. 41R.C. Seward, op cit, p 166. 42K.E. Roberts, 'For retention of limitation of liability for shipowners', American Bar Association Section of Insurance, Negli- gence and Compensation Law, 1967 Pro- ceedings 1968, p 421. ~W.W. Eyer, 'Shipowner's limitation of liability - - new directions for an old doctrine', Stanford Law Review, Vol 16, 1964, p 370 at p 391. 4"Subject to the loss of the right to limit. 4SSupreme Court Act [1981 c. 54], 20(2)(e) and 20(5). "6Established in terms of the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971. "TAcronym for 'The Tanker Owners Volun- tary Agreement Concerning Liability for Oil Pollution. ~Acronym for 'Contract Regarding an In- terim Supplement to Tanker Liability for Oil Pollution. 4911963] 2 Lloyd's Rep. 429, at p. 437. 5°[1984] 2 Lloyd's Rep. 37, at p. 44. 5~This was the section providing for limitation of liability prior to the Merchant Ship- ping Act of 1979. 5211971] 1 Lloyd's Rep., 341, at p. 347, per Lord Atkin. 531953 AMC Vol. XXXll 827 at p 859. S4(Nos. 88-8728; 88-2730, May 17, 1989), as cited in the United States Code Congressional and Administrative News, 1015t Congress - second session, 1990, Vol 5, p 725.

Limitation of liability in maritime law: G Gauci

rem, an example of which would be the case of a claimant for pollution damage in terms of CLC (1969). 45

Pro-limitation arguments seem to be well-motivated, and would obviously find the support of ship-owning interests. However, it is hard to justify any of these arguments on a legal basis. Aside from what has been mentioned earlier, the basic reason is that a person who damages or causes damage to the property of another should pay for it, or at least the law should provide some form of remedy which leads to restitutio in integrum. One counter-argument to this may be that in the field of oil pollution, International Conventions provide for a regime of strict liability, and shipowners should get a recompense for this added burden. However, it would appear that the imposition of a regime of strict liability is legally primafacie compatible with the transportation of a hazardous cargo like oil, and strict liability need not be counterbalanced by the statutory imposition of limitation of liability.

In so far as the oil pollution situation is concerned, the fact of the existence of the International Oil Pollution Compensation Fund, 46 T O V A L O P 47 and CRISTAL 48 is an indication that a compensation system based exclusively on the limited liability regime provided by CLC (1969) is generally considered not to be adequate.

J u d i c i a l a t t i t u d e s to l i m i t a t i o n o f l i ab i l i ty

In The Bramley Moore, Lord Denning confessed that the shipowner's righ to limit liability 'is not a matter of justice[, i]t is a rule of public policy which has its origin in history and its just i f icat ion in convenience'. 49 In a similar vein, Griffiths, in The Garden City No. 2 stated that:

[Limitation of liability[ . . . is of long standing and generally accepted by the trading nations of the world. It is a right given to promote the general health of trade and in truth is no more than a way of distributing the insurance risk. 5°

Similarly, in the leading salvage case, The Tojo Maru, it was stated:

It has been said that statutory provisions providing for the limitation of ordinary common-law liability should be construed strictly. But I would not approach the construction of sect. 503 of the Merchant Shipping Act, 1894, 51 in that way. Its provisions must have been based on public policy that there should be no unnecessary discouragement of the operation of small vessels by companies of limited financial resources, by subjecting them to the risk of crippling damages if a large vessel should sustain extensive damage by reason of the negligent navigation of one of their vessels by their employees. 52

A number of American judges have expressed viewpoints which con- trast with the above dicta. In Maryland Casualty v. Cushing, Mr Justice Black, in his dissenting judgment, whilst referring to the 1851 Limita- tion Act, stated:

Judicial expansion of the Limited Liability Act at this date seems especially inappropriate. Many of the conditions in the shipping industry which induced the 1851 Congress to pass the Act no longer prevail. And later Congresses, when they wished to aid shipping, provided subsidies paid out of the public treasury rather than subsidies paid by injured persons. If shipowners really need an additional subsidy, Congress can give it to them without making injured seamen bear the cost. s3

Poss ib ly the mos t v i t r io l ic cr i t ic ism of l imi t a t ion of l iabi l i ty was m a d e in the A m e r i c a n case Esta Lataer Charters, Inc. v. Ignacio. 54 w h e r e J u d g e

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Limitation of liabifity in maritime law: G Gauci

Kozinski, in the Ninth Circuit Court of Appeals , referred to the 1851 federal Limitation of Liability Act, and stated:

Misshapen from the start, the subject of later incrustations, arthritic with age, the Limitation Act has 'provided the setting for judicial lawmaking seldom equalled.' *** [T]his is an area that could profit from modern legislative attention.*** Congress might be well advised to examine other approaches or to consider whether the rationale underlying the Liability Act continues to have vitality as we enter the last decade of the twentieth century. 55

It would appear that the statements of some American judges are indicative of an anti-limitation stance. Indeed, this is in line with the stance taken by a number of State legislatures which, as will be discussed below, eliminated the right of limitation of liability in respect of damage caused by an oil spill. The right of States to impose liability for oil pollution damage beyond O P A (1990) is not preempted by the said federal statute; O P A (1990) in Section 1018(a)(1) expressly states that neither it nor the Limitation Act of 1851 shall 'affect, or be construed or interpreted as preempting, the authority of any State or political subdivision thereof from imposing any additional l i a b i l i t y . . . ' .

SSAs cited in United States Code Congres- sional and Administrative News, 101st C o n g r e s s - second session 1990, Vol 5, p 726 5~'Recklessly' has been said to mean 'something more than mere negligence or inadventure. I think it means deliberately running an unjustifiable risk.' (Reed and Co. v. London & Rochester [1954] 2 Lloyd's Rep. 463, at p. 475. See also Goldman v. Thai Airways International Ltd [1983] 3 All E.R. 693 (CA), where the meaning of the term 'reckless' in Article 25 of the Warsaw Convention [Convention for the Unification of Certain Rules Relating to International Carriage by Air] was described in the following words: When conduct is stigmatised as reckless, it is be- cause it engenders the risks of undesirable consequences. When a person acts recklessly he acts in a manner which indicates a decision to run the risk or a mental attitude of indifference to its existence. This is the only meaning of the word as I understand i t . One cannot therefore decide whether or not an act or omission is done recklessly without considering the nature of the risks involved' (Ioc. cit., p 699). 5~[57 & 58 Vict. c. 60]. SSThe wording in the said section was drafted in terms of Article 1 of the Interna- tional Convention Relating to the Limitation of the Liability of Owners of Sea-Going Ships 1957. 5%oc cit, Article V, para 2. 6°Paragraph 2 of Article 6 of CLC Protocol 1992.

Loss of right of limitation

The likelihood of a litigant holding on to his or her right to limit liability depends on how easy or difficult it is for such right to be lost. As will be discussed below, whereas the likelihood of losing such right appears to have been strengthened by recent International Conventions, Amer ican legislation has effectively almost demolished the whole structure of the shipowners ' privileged status in relation to oil pollution.

UK law

In relation to the loss of the right to limit liability, the 1976 Convention on Limitation of Liability for Marit ime Claims in Article 4 provides:

Conduct barring limitation. A person 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 56 and with knowledge that such loss would probably result. (emphasis added)

The wording in this provision is distinguishable in a significant way from the wording in Section 503 of the Merchant Shipping Act 189457 which provided for limitation of liability where the loss had not been caused by the actual fault or privity of the owners. 58 Like the 1894 statute, CLC (1969) refers to actual fault or privity of the owner:

If the incident occurred as a result of the actual fault or privity of the owner, he shall not be entitled to avail himself of the limitation provided in paragraph 1 of this Article. 59

CLC Protocol 1992 adopts the 1976 Limitation Convention approach, and provides for the replacement of Article IV of the 1969 text inter alia

by the following provision:

2. The owner shall not be entitled to limit his liability under this Convention if it is proved that the pollution damage resulted from his personal act or omission, committed with the intent to cause such damage, or recklessly and with knowledge that such damage would probably result. ~

A basic distinction between the two approaches, i.e. the one adopted in

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61p. Griggs and R. Williams, Limitation of Liability for Maritime Claims, Second Edi- tion, London: Lloyd's of London Press, 1985, p 40. 8211983] 3 All E.R. 683. e~Convention for the Unification of Certain Rules Relating to International Carriage by Air. 64Similar comments can be made in relation to Hague-Visby Rules incorporated into English Law by the Carriage of Goods by Sea Act 1971, and the Athens Conven- tion. See also The Lion [1990] 2 Lloyd's Rep. 144, and The Bowbelle [1990] 3 All E.R. 476. 65See M. Bundock, 'Oil spillages at sea', Solicitors" Journal, 1993, 97 at p 98, where reference is made to the case Goldman v. Thai Airways [1983] 3 All E.R. 693. 6611914] 1 K.B. 419, at p432 67See The Lady Gwendolen [1965] 1 Lloyd's Rep. 335. e~See P. Griggs and R. Williams p31, where reference is made to the Lennard's Carrying Co. case reported at [1915] A.C. 705. See further The Lion, [1990] 2 Lloyd's Rep. 144. 6911984] 2 Lloyd's Rep. 1 (HL). Other relevant cases include The Norman [1960] 1 Lloyd's Rep. 1; The Lady Gwendolen [1965] 1 Lloyd's Rep. 335 (CA); The Eng- land [1973] 1 Lloyd's Rep. 373. Z°Loc cit, p 3. 71Loc cit, p7. 72This case dealt with section 503 of the Merchant Shipping Act 1894. 7311983] 2 Lloyd's Rep. 156 at p 158. 741bid.


section 503 of the 1894 Ac t and C L C (1969) on the one hand, and that in the 1976 Limita t ion Conven t ion and the C L C Protocol 1992 on the o ther , would appear to lie in the area relating to the onus probandi . It has been suggested. 61 that , under the new regime, the burden of p roo f relating to facts which would prevent a sh ipowner f rom benefi t ing f rom limitation o f liability lies on the plaintiff claimant, i.e. the person trying to prevent the sh ipowner f rom limiting liability. This suggest ion is made on the basis of the case of G o l d m a n v. Thai A i r w a y s , 62 which dealt with the similar l imitation wording conta ined in the Warsaw Convent ion . 63 In this respect , it would appear that the regime of l imitation of liability in mar i t ime claims has been s t rengthened in favour of the shipowner. 64 It has also been suggested that the new wording, unlike the previous wording, brings about the result that the limit is also unbreakable . 65

A n y discussion on the loss of the right to limit liability requires an analysis of the phrase 'actual fault or privity ' . Buckley, L.J . , in Asiat ic Pe t ro leum Co.v. Lennards Carrying Co. L td , stated the legal posi t ion relating to the term 'actual fault or privity ' in the following words:

• . . the words 'actual fault or privity' in my judgment infer something personal to the owner, something blameworthy in him as distinguished from constructive fault or privity such as the fault or privity of his servants or agents. But the words 'actual fault' are not confined to affirmative or positive acts by way of default. If the owner be guilty of an act or omission to do something which he ought to have done, he is no less guilty of an 'actual fault' than if the act had been one of commission. To avail himself of the statutory defence, he must shew that he himself is not blameworthy or been privy to something. It is not necessary to shew knowledge• If he has means of knowledge which he ought to have used and does not avail himself of then, this omission so to do may be a fault, and, if so, it is an actual fault and he cannot claim the protection of the sec t ion . . .66

A n u m b e r of cases have held that in the case of a c o m p a n y or corpora t ion actual fault or privity on the par t of the alter ego of the c o m p a n y , i.e. the control l ing brain, would be sufficient to prevent a sh ipowner f rom limiting liability. 67 It is not sufficient mere ly to show that there is fault or privity of someone who is a servant or agent for w h o m the c o m p a n y is liable. 68

In the case of the Marion , 69 the vessel of that name was owned by appellants Grand C h a m p i o n Tankers Ltd and managed by F .M.S .L . whose Managing Direc tor is specifically referred to in the judgment• The vessel caused damage to a submerged pipeline and there was a claim for l imitation of liability. One can read in the repor t of the said case that the fifth c o m m o n g round before the Lords was the following:

Since the appellants had delegated the management and operation of Marion to an English company . . . . [F.M.S.L.], the person whose fault would constitute, as a matter of law, the actual fault of the appellants, is the managing director of F.M.S.L. 7°

L o r d Brandon , 71 by way of obiter, states that the fault of the managing director of the m a n a g e m e n t c o m p a n y const i tuted in law actual fault or privity 7z of the appel lant shipowners. This point was also c o m m o n g round in the Cour t of Appea l , 73 where D u n n is repor ted as saying:

Certain matters were common ground in this Court. It was agreed that where as here the vessel was owned by one limited company and managed by another limited company, the court looks to the managing company when considering whether the owners are guilty of actual fault•

R e f e r e n c e is m a d e TM in the above case to Lennard ' s v. As ia t ic

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7s[1915] A.C. 705. 7611921] 9 LI. L Rep, 341. 77As to the requisites for a finding of sub- sidiarity between two companies, see The Tiburon [1990] 2 Lloyd's Rep. 418, particularly at p. 421. 7a[1921] 9 LI. L. Rep. 341, at p 342. 7911976] 2 Lloyd's Rep. 171. S°See P. Griggs and R. Williams, Limita- tion of Liability for Maritime Claims, Second Edition, London: Lloyd's of Lon- don Press, 1991, p36; D.W. Abecassis (editor), Oil Pollution From Ships, Second Edition, London: Stevens, 1985, p404, footnote 13. 811992 AMC 913, at p 940. 8211984] 2 Lloyd's Rep. 304, United States District Court Northern District of Illinois, Eastern Division, April 18, 1894, per Judge Frank McGarr.

Petroleum, 75 and The Charlotte. 76 In Lennard's case, Mr Lennard was director of both the owning company and the ship-managing company. 77 He was also registered as in charge of the management of the ship. These peculiar circumstances of the Lennard case may indicate that that case is not authority for the proposit ion that, if a ship is owned by one company and managed by another which is completely separate f rom the former, then in such case, privity of a director of the latter can be used to impute privity to the shipowning company. However in The Charlotte, 78 the Court held that Lennard's case was authority for the proposit ion that when a ship is managed by a firm of two partners, there would be fault or privity of the owner if there is fault or privity on the part of any one of the two partners.

It may appear to be pr ima facie arguable that the reference to 'personal ' act or omission appearing in the 1976 Convention on Limita- tion of Liability and in CLC Protocol (1992) rules out any possibility of an application of the alter ego formula, and hence further strengthens the right to limit liability. Although this is true in part , it would appear that the formula is applicable mutatis mutandis in the case of a shipowning company. The search for the ego of the company, as distinct f rom the alter ego t raceable through a management company, would have to be pursued through an exercise similar to that carried out by Lord Denning in The Eurysthenes 79 in dealing with Section 39(5) of the Marine Insurance Act 1906; 80 in that case, Lord Denning stated, with reference to 'privity' in that section of the Act, that '[t]he knowledge must also be the knowledge of the shipowner personally, or his alter ego,

in the case of a company, its head man or whoever may be considered their alter ego.'

It may be said that, in terms of the 1976 Limitation Convention, it is now more difficult for a shipowner to lose the right to limit liability. Contrary to the system in the United States, which will be discussed below, the liability regime in the 1976 Convention has provided a system which is more favourable to the shipowner.

United States legislation

Loss of the right to limit liability was an issue addressed in the A m o c o Cadiz litigation. It would appear f rom that case that American judges are more likely to deprive a shipowner of the right to limit liability than their English counterparts . In that case it was stated:

Privity or knowledge is not tantamount to actual knowledge or direct causation. All that is needed to deny limitation is that the shipowner, 'by prior action or inaction set[s] into motion a chain of circumstances which may be a contributing cause even though not the immediate or proximate cause of a ca sua l ty . . . ' Tug Ocean Prince, Incv. United States, . . . The recent judicial trend has been to enlarge the scope of activities within 'the privity or knowledge' of the shipowner, including imputing to corporations knowledge or privity of lower-level employees . . .81 (emphasis added)

Loss of the right to limit liability in an oil pollution case took place in The A m o c o Cadiz. 82 It was there held that the nominal owner of the oil tanker, i.e. 'Transpor t ' , had 'failed to meet its burden of proving that it was free from privity and knowledge with respect to the negligence which proximately caused the grounding of the vessel. ' The nominal owner had failed in the exercise of the non-delegable duty to ensure that the vessel was seaworthy. Hence the corporat ion was held to be liable without limitation to plaintiff claimants. In the same case, another

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aalbid., at p 338. No limitation of liability was granted. Besides, Standard, AIOC and Transport were allocated with joint and several liability. Confirmed on appeal [1992 AMC 913] (United States Court of Appeal for the Seventh Circuit, January 24, 1992). a"ld., at pp 338-339. as1992 American Maritime Cases 913 at pp 937-941. a6See CLC 1969 Article V and OPA 1990 Section 1004. aTA.J. Rodriquez and P.A.C. Jaffe 'The Oil Pollution Act of 1990' Tulane Maritime Law Journal, Vol 15, No 1, 1990, pp 24-25. aa'lncident' is defined by § 1001 (14) of OPA 1990 as 'any occurrence or series of occurrences having the same origin, in- volving one or more vessels, facilities or any combination thereof, resulting in the discharge or substantial threat of discharge of oil.' agLegislative history of OPA 1990 indicates that an attempt by environmentalists to lower the threshold for breakage of limitation from gross negligence to simple negligence was unsuccessful (Congressional Quarterly, July 28 1990, Vol 48, No 30 p 2403, middle column). 9°According to paragraph 32(A) of § 1001 of OPA (1990), responsible party in the case of a vessel means any person owning, operating or demise chartering the vessel. 91C.F.Goria, 'Compensation for oil pollution at sea: an insurance approach', San Diego Law Review, Vo112, 1975, pp 741- 742. 92'A summary of American State oil pollution statutes', European Transport Law, Vol 26, Nos 1/2, 1991, pp 237-265.


subsidiary company, A I O C (Amoco International Oil Co.), was also held liable without limitation:

AIOC failed to make Amoco Cadiz seaworthy prior to the last voyage and, for that reason among others, cannot limit its liability. 83

The parent company, Standard, was also held to be liable without the benefit of limitation of liabilityfl 4 An earlier opinion of the same court had held that Standard and A I O C , not being owners, did not have a right to limit liability. The right to limit liability of Standard and A I O C was also denied in the appellate court, s5

O P A (1990) marks a significant move away from the limits of liability provided for in CLC (1969). The limit of liability in O P A (1990) is higher than that in CLC (1969), s6 and the mechanism for the loss of the right to limit is different. One may here refer to a provision which existed in the House of Representat ives Oil Pollution Bill which would have provided for ratification of the international oil pollution conventions by the United States as well as providing for the higher federal and state limits, s 7 0 P A (1990) provides details as to when the right to limit is lost; Section 1004 of that statute details the limits of liability and the exceptions thereto; subsection (c) thereof provides the exceptions, i.e. the cases where the responsible party of the vessel loses the right to limit liability. Limitation is not allowed where:

the incident s8 was proximately caused by:

(A) gross negligence s9 or wilful misconduct of, or (B) the violation of an applicable Federal safety, construction, or operating regulation by, the responsible party, an agent or employee of the responsible party, or a person acting pursuant to a contractual relationship with the responsible party (except where the sole contractual arrangement arises in connection with carriage by a common carrier by rail).

According to paragraph (2) of section 1004(c) of O P A (1990), the right to limit is lost where:

the responsible party 9° fails or refuses (A) to report the incident as required by law and the responsible party knows or has reason to know of the incident; (B) to provide all reasonable co-operation and assistance requested by a responsible official in connection with removal activities; or (C) without sufficient cause, to comply with an order issue under subsection (c) or (e) of section 311 of the Federal Water Pollution Control Act (33 U.S.C. 1321) . . . .

The last three items are instances where there may possibly be no link of causation between the pollution damage and the actions giving rise to the forfeiture of the right to limit liability.

US State legislation relating to oil pol lut ion and the right to limit

In an article published in 19759~ a proposal was made for the abolition of liability limits applying to cleanup costs, but to retain the right to limit for private proper ty claims. Such a policy has been adopted in a number of State Statutes dealing with oil pollution damage. Indeed, a study published recently 92 indicates that the policy in relation to the imposition of unlimited liability for clean-up expenses, damage to natural resource and damage to third parties varies from one State to another. Some other States eliminate all limitation in relation to oil pollution damage liability; for example, there is no limitation of liability in respect

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of clean-up expenses, third party damage, and damage to natural resources in terms of the law of California. 93 The right of States to impose additional liability beyond that imposed in OPA (1990) is expressly granted by section 1018 (a)(1) of OPA (1990). This would mean that the limit of liability imposed in OPA (1990) is of little relevance when a claimant is allowed to utilize a State statute imposing unlimited liability. Moreover , a person responsible for an oil spill in terms of such a State statute is not permitted to utilise the 1851 Limitation Act by virtue of section 1018 (a)(1) referred to above. 94

93West's Annotated California Codes, Vol. 32B, Government, 1992, section 8670.56.5. 94prior to the coming into force of OPA 1990, the federal 1851 Limitation Act was a valid defence to liability under state oil pollution legislation. See The Shamrock, 335 F. Supp. 1150.

Conclusion

It would appear safe to say that there are a number of reasons to justify the argument that limitation of liability should be assigned to maritime history.

There are some indications that in American law limitation of liability could be on the way out. As a counterweight to this, there is the regime currently adopted in the 1976 Limitation Convention, CLC Protocol 1984, and CLC Protocol 1992, which as submitted earlier, strengthens the position of the shipowner who is seeking the privilege of not losing the right to limit liability. It is hoped that the American Oil Pollution Act of 1990 turns out to be the statute which sounded the death-knell of maritime limitation of liability.

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Limitation of liability in maritime law: an anachronism

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