Breaking The Limitation Under the 1976 London Convention

SHIPOWNER’S RIGHT TO LIMIT LIABILITY AND BREAKING THE LIMITATION UNDER THE 1976 LONDON CONVENTION

Attorney at Law Barış Erkan Çelebi

PREAMBLE

Limiting the liability of shipowners in maritime commerce has always been the subject of hot debates. On one hand, shipowners make considerable investments, due to the value of their ships, and therefore seek to obtain some kind of assurance that their investments will return profit. It is only fair that shipowners demand protection against the perils of sea in the form of limited liability.

On the other hand, injured parties and claimants expect the compensation of their losses arising from the acts or omissions of shipowners and/or their servants and agents. Limiting the liability of shipowners too low might result in unfairly unsatisfactory indemnities for justified claims of non-faulty parties.

It is difficult to strike a balance between the competing interests of claimants and shipowners. What is even more difficult is to stabilize this balance against the changing factors of the market and inflation over time.

1976 London Convention is aimed at finding this balance by adjusting the liability limits as high as shipowners could cover by insurance at a reasonable cost while making the limit exceptionally difficult to break.

The scope of this study covers the justifications for limiting the liability of a shipowner, conditions for breaking this limit and finally the precedence of breaking the limit.

I. HISTORICAL BACKGROUND

A. Development of Limitation Of Liability In Maritime Law

1. Justifications for Limiting the Liability of Shipowners

The debate on limiting the liability of shipowners goes as far back as the maritime commerce itself[1]. Due to the considerable worth of the vessels and the sizable cost of their upkeep maritime commerce has always demanded major investments and the courage to do so[2]. Therefore shipowners (and their investors, since from the founding of limited liability companies) have always sought protection against the perils of the sea and the risks of the business.

Up until the 20th century sea transport was the only alternative to the road transport which often proved to be time-intensive, impractical and even outright impossible over long distances. Therefore sea transport and the investments therein needed to be encouraged by the states and their lawmakers. In this respect the most important incentive came in the form of limitation of liability.

Although the limitation of liability of shipowners at first seems contradictory to the right of merchants to be compensated for losses and therefore a fundamental breach of the basic principles of Civil Law[3], when taken at face value it is simply an allocation of the risks of sea transport[4]. If the shipowners had not had the right to avail themselves of limitation of liability, the freight rates would undoubtedly be a lot higher due to the fact that either shipowners or their insurers would have had to bear the risk of unlimited loss and therefore adjust the freight rates or premiums accordingly[5]. Therefore merchants are considered to forfeit the right to be compensated beyond a certain limit in exchange for reduced freight rates[6] and thus the risk of transport at sea is allocated between the merchants and the shipowners. Besides, since the foundation of insurance companies, merchants have always been free to obtain insurance for the cargo value which exceeds this limit and use the savings from the reduced freights to pay the premiums[7]. While the liability of the insurer is also subject to a limit, the coverage, it raises the question: If insurers are entitled to limit their liability, why should shipowners be deprived of the same right?

2. First Instances of the Limitation of Liability in National Laws

The exact date of the foundation of limited liability is difficult to deduce since it evolved into many forms before becoming the modern notion of strict limitation which we are familiar with. However, its roots can be traced back to Ancient Rome and to “noxae deditio” principle under Roman law[8]. As per this principle, the owner of a property could satisfy a claim by surrendering the property (be it a slave or an animal etc.) which caused the loss[9]. The first instances of limited liability in sea transport was through the application of this principle to the property of the shipowners, the ships.

In 11th century in Italy, shipowners created a common fund system, Amalphitan Table, under which the claimants could claim their losses not against the shipowners but the portion of the common fund contributed to that specific voyage[10].

In 13th century in Spain, El Consolat de Mar de Barcelona[11] allowed the shipowners to limit their liability to their share in the ships.

Thereafter the idea that the liability of the shipowner should be limited to the value of the ship spread throughout Europe. Germany and Sweden in 17th century, The Netherlands, England and France in 18th century and finally United States in 19th century all adopted[12] several regulations which limited the liability of the shipowner to his ship and allowed the shipowners to be released from all claims by abandoning their ships (sometimes freight or goods on board the vessels were included to the limited liability).

The earlier forms of limited liability did not include all kinds of claims but only claims arising from specific kinds of disputes. For instance, in 18th century during a sea transport, the master of an English ship stole the Portuguese gold carried on board and the shipowner was ordered to compensate the entire loss of the shipper[13]. Troubled by this judgment, shipowners petitioned the English Parliament which as a result passed the Responsibility of Shipowners Act of 1734, limiting the liability of shipowners in cases of theft by the crew or the master[14]. Soon after this act, more demands for limitation of liability were raised over cases where huge losses were suffered for reasons other than theft or when theft was committed by third parties due to the acts or omissions of the crew or the master[15]. In order to include such cases in the limitation, the Parliament passed the Responsibility of Shipowners Act of 1786[16] which limited the liability of shipowners in cases where the loss occurred by the act or omission by the master or crew without the “privity of the shipowner”. In other words, a shipowner’s liability was only limited for the acts or omissions of the crew or the master of the ship; shipowners continued being unlimitedly liable for their own acts and omissions.

BIBLIOGRAPHY

DAMAR, Duygu, Wilful Misconduct in International Transport Law, Max-Planck-Institut für ausländisches und internationales Privatrecht, Hamburg 2011

GRIGGS, Patrick / WILLIAMS, Richard / FARR, Jeremy, Limitation of Liability for Maritime Claims, Fourth Edition, London 2005

BERLINGIERI, Francesco, International Maritime Conventions, V.2, New York 2015

MILDE, Michael, The Problems of Liabilities in International Carriage by Air, Praha 1963

YETİŞ ŞAMLI, Kübra, Uluslararası Kara, Hava Ve Deniz Yolu İle Eşya Taşımalarında Taşıyıcının / Taşıyanın Sınırlı Sorumluluktan Yararlanma Hakkının Kaybı, İstanbul Üniversitesi Sosyal Bilimler Enstitüsü Yüksek Lisans Tezi

YAZICIOĞLU, Emine, Deniz Ticareti Hukuku Temel Bilgiler, İstanbul 2014, V.1