LIMITATION OF LIABILITY

 A concept which entitles the shipowners to limit their liability for maritime claims up to a
limited sum regardless of the actual amount of the claim. Shipowner is entitled to limit
liability arising from various casualties including collision, oil pollution, cargo damage and
personal injury.

HISTORICAL DEVELOPMENT OF LIMITATION OF LIABILITY CONCEPT (if essay

question)

 The first instance of the development of the concept of limitation of liability of shipowners
in the form of a statute in common law came with the case of Boucher v. Lawson whose
outcome led to a petition in the Parliament by Shipowners and Merchants for protecting
their interests. Thus came into being the Responsibilities of Shipowners Act 1733 which
clearly states in the reasons and justifications for the Act that it is for the promotion of the
shipping industry. Before the enactment of the Responsibility of the Shipowners Act, the
shipowners liability was comparable to Strict liability, wherein the Shipowner assumed
sole responsibility as the carrier and insurer.

 Lord Denning in The Bramley Moore: limitation of liability is a rule of public policy which
has its origin in history and justification in convenience.

 The rationality of imposing such limitation of shipowner’s liability in the industry was
mentioned by Prakash J in the Sunrise Crane (2004) when she referred to Chorley & Giles’
Shipping Law (8th edition, 1987) at pp 394-3951. This is because the “shipowner can obtain
adequate insurance to cover for the third party claims if his insurers can calculate their
maximum exposure with certainty” whereby liability shall not exceed the ship’s tonnage.
In other words, it actually protects the interest of third party for claims of damages in
balance with the shipowner’s interest to limit his liability, thus creating a win-win situation
in maritime claims.

 Until the enactment of the UK Merchant Shipping Act 1894, limitation of liability was
based on the value of the ship immediately prior to the incident. Merchant Shipping Act
introduced the concept of limiting liability based on the tonnage of the ship rather than the
value of the ship.

 The act of invoking limitation of liability was not considered as an admission of liability
on the part of shipowner in relation to the incident.

1
The Sunrise Crane [2004] SGCA 42, p 430.
INTERNATIONAL CONVENTIONS ON LIMITATION OF LIABILITY

International Convention Relating to the Limitation of the Liability of Owners of Seagoing Ships
1957 (the 1957 Convention)

 Limitation of shipowner’s liability based on ship tonnage as long as the loss or damage
was sustained without his actual fault or privity.

*if the question is an essay question, proceed to the 1976 Convention and 1996 Protocol.

IN MALAYSIA

 The Merchant Shipping Ordinance (“MSO”) 1952: gave effect to 1957 Limitation
Convention via the definition of “Convention” under s 358.

 Sections 358 to 365A of the MSO 1952 are the relevant provisions with regards to
shipowner’s liability.

 The limitation of liability normally applies in situations where there is damage or loss of
life, personal injury, goods or merchandise due to the navigation and management of the
ship, carriage and discharge of cargo and carriage and discharge or persons, etc. The main
section is Sec 360 which refers to the limitation of owner’s liability in certain cases such
as loss of life, injury or damage.

 If the owners are able to prove that the loss or damage had occurred independent of their
actual fault or privity, they make seek to limit their liability based on the tonnage of their
ship as elaborated under section 360(1).

 (if essay question…) The Minister of Transport may from time to time by Order to be
published in the Gazette specify the amount equivalent to 3100 gold francs and 1000 gold
francs. This has been specified in Section 2 of the Merchant Shipping (Limitation of
Liability) (Malaysian Ringgit Equivalent) Order 1993 which was enacted pursuant to Sec
360 (2) (b), that 3100 gold francs is equivalent to RM629.51 and 1000 gold francs is
equivalent to RM203.07.

ACTUAL FAULT OR PRIVITY

 Actual fault: the shipowner’s personal fault (The Eurysthenes)

 Privity: he knew it fact beforehand’ or the act of his servants were ‘done with by his
command or privity’ that is with his ‘express authority’ or ‘knowledge and concurrence’
(The Eurysthenes) or the owner have been aware of the fault.
 The burden is on the owner to prove, in his defences, that the loss or damage occurred
without their actual fault or privity; that he did all he reasonably could to avoid the act
causing the loss or damage. Failure to do so will cause him to be liable to the full sum
claimed against him.

 Illustration:
1. As Lord Denning in The Eurythenes: “If a man, suspicious of the truth, turns a blind
eye to it and refrains from enquiry -- so that he should not know of it for certain --
then he is to be regarded as knowing the truth. This turning the blind eye is far more
blameworthy than mere negligence.” It does not only include positive knowledge
but also negative knowledge such as “turning a blind eye”.

2. The Sunrise Crane (2004): Mr. Kashiwagi argued that he was entitled to limit his
liability because he had employed master and chief officer that were experienced
chemical tanker officers who had received special training in chemical and
hazardous cargo pursuant to the requirements of the Standards of Training,
Certification and Watchkeeping 1995. However, the appellant was unable to prove
to the court what it did to ensure that the master and those on board complied with
the duty to warn recipients of the dangerous nature of goods received. Therefore,
the appellant was not entitled to the limitation of liability provided by section 136
of the MSA.

3. The Marion (1984): There was no system in place for the owners to supervise and
ensure that the master updated the charts. Failed to prove the loss was without their
actual fault.

4. Liong Ung Kwong v Kee Hin (1997): Damage was caused to the cargo on board the
ship when she listed during loading because her hull was punctured by H-beam
structures embedded in the seabed where the vessel berthed her loading. The H-
beam structures were no indicated in any admiralty charts and hence, considered as
external causes which the owners would not have known their presence. Therefore,
the owners were entitled to limit their liability.

5. Sarawak Shell Bhd v The Owners or Other Persons Interested in the Ship or Vessel
The Red Gold (2011):
LIMITATION ACTION

 2 ways:
1. More than one claimant: commence a limitation action praying for a decree
and the constitution of a limitation fund, supported by affidavit by the
person seeking to limit his liability; that on a balance of probabilities the
damage or loss was without his actual fault or privity. If successful, the
limitation fund will be constituted and all claimants will have a share in the
fund.
i. The procedure is laid out in O 70, r 35 to 38 of the ROC
2012. Proceeding is instituted via a writ. The person
claiming limitation will be the plaintiff while the claimants
of damages will be the defendant.

2. One claimant only: the shipowner may plead limitation as part of his
defense or counterclaim since the issue of limitation is only to be dealt
with by a single claimant and the shipowner, as allowed under O 18, r 23 of
the ROC.

PERSONAL INJURY CASES (optional)

 The Anonity [1961] 1 Lloyd’s Rep. 203, Dayspringe Case [1968] 2 Lloyd’s Rep. 204:
Court refused to accept that shipowner is released from liability just because clear
instructions were given to commit/ omit an act.

THE LIMITATION FUND

 Under s 360 MSO, liability is limited by vessels' tonnage as defined as her registered
tonnage with the addition of any engine room space deducted for the purpose of
ascertaining the tonnage. Once the limitation tonnage is ascertained, then the next step is
to calculate the amount to which the shipowner is liable under the limitation fund.

 Once the limitation fund has been constituted under O 70, r 36A, if any other ship or
property is arrested in connection with a claim which is subject to tonnage limitation or
security is given to obtain release of that ship or property form such arrest, the court has a
discretion to release the ship or property proof of certain conditions illustrated in s 361
MSO 1952 are met. Security can include bank guarantees, P & I Club guarantees or
payment of money or bail into court.

 The first condition is that security must have been given, in Malaysia or elsewhere, in
respect of such liability or any other liability incurred the same time. The court must be
satisfied that, if the claim is established, the amount for which the guarantee was given or
 the part of it that corresponds to the claim, will be available to the claimant. Secondly, the
guarantee must be for an amount not less than the limit. Thirdly, security if given outside
Malaysia, must be in a state that applies the 1957 Convention, for example, Singapore.

 The desired objective of the provision in The Putbus Case: If a ship is involved in a
collision in circumstances in which the owner is entitled to limit liability, then he should
only be compelled to provide a limitation fund once and for all. If he makes it available in
one country to meet all the limited claims in another country; or if he is compelled to do
so, he should be able to get additional security released.

 Once the conditions of s 361 are satisfied, s 362 empowers the court to bar any enforcement
of any judgment or decree obtained for a claim against any other assets of the shipowner
with the exception of costs once he had already constituted his limitation fund or put up
security.

*Limitation of Liability for Maritime Claims (LLMC) 1976

 The reason for a new convention was that the rules relating to the limitation of liability for
maritime claims in the 1957 Limitation Convention required changes to embrace an
increase in the limitation figures due to the problem of inflation. Further, due to the effect
of depreciation in monetary values, limitation amount had become practically low. Also
the size of the ships had increased due to technological advancement and economic
preferences.

 LLMC 1976 imposed a higher limit of liability; that the burden of proof now rests on the
party seeking to break the limit and that the burden is intentionally a heavy burden (as
mentioned by Gross J in the Margolle v Delta Maritime (2003)).

 The unit of measurement for monetary liability used is the Special Drawing Right (SDR).
SDR is an interest-bearing international reserve asset created by the IMF. 1976 LLMC
provided for a practicably unbreakable system of limiting liability by imposing on the party
challenging the right to limit the burden of proving that the loss resulted from the
shipowner’s “personal act or omission, committed with the intent to cause such loss, or
recklessly and with knowledge that such loss would probably result” (art 4).

o D in a limitation action must prove: reckless conduct and knowledge of the

relevant loss would probably result (David Steel J in the MSC
Mediterranean Shipping Case (2000)). Both are separate but must exist
together.
 o Recklessness: acts in a manner which indicates a decision to run the risk or
a mental attitude of indifference to its existence (Eveleigh J in Goldman v
Thai Airways International Ltd (1983)).
o Knowledge: Actual, not construction knowledge (Auld J in Nugent v
Michael Goss Aviation Ltd (2000)).

 The limits liability for personal injury claims were set at SDR 333,000 for ships up to 500
tonnes. Ships with tonnage in excess thereof were computed on the provided basis. The
limits for property damage claim were fixed at SDR 167,000 for ships up to 500 tonnes.

1996 PROTOCOL

 The 1976 LLMC limits were eventually eroded by inflation and by a reduction in the
average purchasing power of the SDR and as a result new limits were adopted under the
1996 Protocol which were approximately 250% higher than the limit prescribed under the
1976 Convention.

 Revised Limit of Liability for Personal Injury Claim were set at SDR 2million for ships up
to 2,000 tonnes. Revised Limitation of Liability for Property Damage Claim were set at
SDR 1 million for ships up to 2,000 tonnes.

 The tonnage limitation provision will not apply in cases where there is a discharge or
escape of oil from the bulk cargo carried by a vessel.