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Limitation of Liability for Maritime Claims
New Limits Come Into Force

For the past twenty years or so the right of shipowners or charterers to limit their liability for the payment of damages has, in the UK, been determined by reference to the Convention on Limitation of Liability for Maritime Claims 1976 ("the 1976 Convention"). In exchange for giving to shipowners and others an almost unbreakable right to limited liability, the 1976 Convention requires that they establish limitation funds for the benefit of those to whom they are liable that are much higher in amount than those previously required. Forty or so other countries, including most of the leading maritime nations, have also adopted the 1976 Convention.

However, at a diplomatic conference held in the Spring of 1996 at the IMO headquarters in London, the delegates recognised the need to update the 1976 Convention limits. They then agreed the terms of a Protocol, which was to come into force ninety days after its provisions had been ratified by ten States. On 13 February 2004 Malta became the tenth State to agree to be bound by the Protocol which, therefore, becomes part of English law on 13 May 2004.

The New Limits

The existing requirement that limits of liability are to be calculated in Special Drawing Rights ("SDR") by reference to the gross tonnage of the vessel concerned (in accordance with the Tonnage Measurement Convention 1969) is not altered by the Protocol. Changes have, however, been made to other provisions in the 1976 Convention, which will have the effect of increasing the limits by about 250% on average - and in some instances the increase will be as high as 600% or so.

(1) The tonnage of a vessel for limitation purposes

In an effort to take account of the potential for small ships to inflict disproportionate damage the 1976 Convention makes provision for a minimum limitation fund, calculated by reference to a notional gross tonnage of 500 tons. The Protocol increases the minimum gross tonnage for these purposes to 2,000 tons - the same figure as has been adopted for similar limitation purposes in the Hazardous Noxious Substances Convention 1996. However, the UK has traditionally taken advantage of a right conferred to State parties by the 1976 Convention to make special provisions in national laws with respect to vessels of less than 300 tons. That policy continues under the new regime, which provides that the limit for all vessels below 300 gross tons will effectively be 50 per cent of the minimum prescribed by the Protocol for vessels with a tonnage that does not exceed 2,000 tons.

(2) Limits for claims (excluding loss of life or personal injury)

The new limits will vary according to the size of the ship as follows:

(i)	less than 300 tons	??	500,000 SDR
(ii)	301 to 2,000 tons	??	1,000,000 SDR
(iii)	for each ton from 2001 to 30,000 tons	??	an additional 400 SDR
(iv)	for each ton from 30,001 to 70,000 tons	??	an additional 300 SDR
(v)	for each ton in excess of 70,000 tons	??	an additional 200 SDR

Illustration: On 14 May 2004 a collision between Ship A and Ship B, for which Ship A is responsible, results in the loss of Ship B and her cargo. Ship A has a gross tonnage of 35,000 tons. Consequently, Ship A's limitation fund under English law will be 13,700,000 SDR calculated as follows:

First Tranche: (0 to 2,000 tons)	??	1,000,000 SDR
Second Tranche: (2,001 to 30,000 tons @ 400 SDR)	??	11,200,000 SDR
Third Tranche: (30,001 to 35,000 tons @ 300 SDR)	??	1,500,000 SDR
		13,700,000 SDR

At current exchange rates, this equates to a sum in the region of ?11,145,000, US$19.783,000 or ?16,627,000 - an increase of almost 240% compared to the fund that would have been required prior to these changes in English law.

(3) Limits for loss of life or personal injury claims (excluding passengers)

These limits will also vary according to the size of the ship as follows:

(i)	less than 300 tons	??	1,000,000 SDR
(ii)	301 tons to 2,000 tons	??	2,000,000 SDR
(iii)	for each ton from 2001 to 30,000 tons	??	an additional 800 SDR
(iv)	for each ton from 30,001 to 70,000 tons	??	an additional 600 SDR
(v)	for each ton in excess of 70,000 tons	??	an additional 400 SDR

(4) Limits for passenger claims

The 1976 Convention enables a shipowner to limit liability for passenger claims resulting from death or personal injury by providing a limitation fund calculated by reference to the number of passengers the vessel is authorised to carry according to her certificate, up to a maximum of 25 million SDR. The Protocol makes two important changes. First, the amount per passenger is increased from 46,666 SDR to 175,000 SDR; second, the maximum limit of 25 million SDR is abolished. In future, therefore, the maximum fund will be determined only by the number of passengers that the vessel is licensed to carry. The abandonment of the maximum limit of 25 million SDR will have a significant impact on the exposure of the owners of cruise ships and large ferries, many of which are permitted to carry 1,000 passengers or more. For example, in the case of a vessel authorised to carry 1,000 passengers the limit of liability under the new arrangements will be 175 million SDR - an increase of 600% on the abandoned maximum of 25 million SDR.

This is, however, another topic in relation to which State parties are permitted to adopt an alternative system. The UK has again taken advantage of that entitlement by making a distinction between seagoing and non-seagoing vessels. The limitation amount applicable to non-seagoing vessels will be the 175,000 SDR per passenger limit summarised in the previous paragraph. However, where the vessel is seagoing there is no right to limit liability in respect of claims for loss of life or personal injury to passengers (although the owners of seagoing vessels may be able to benefit from the limitation provisions applicable to passenger claims contained in the Athens Convention).

Claims against Salvors

As was demonstrated some years ago in the case of The Tojo Maru, salvors may incur liabilities in the course of salvage operations which are not directly related to the use of a tug or any other vessel. The 1976 Convention therefore provides that in circumstances where, for example, a liability is incurred as a result of salvage personnel working on board the casualty, the salvors may limit liability by reference to a notional tonnage of 1,500 tons. Under the Protocol the salvor's limit is fixed at 2 million SDR in respect of loss of life and personal injury claims and 1 million SDR for property damage and other claims.

(The UK government has taken the opportunity to amend the 1976 Convention, as enacted in this country, in order to make it clear that claims for salvage - including any claim for special compensation under Article 14 of the Salvage Convention 1989 - and for contribution to general average are matters in respect of which there is no right to limit liability.)

Interest

In addition to providing limitation funds calculated in accordance with the provisions summarised above, shipowners and others have to pay interest on those funds from the date of the incident giving rise to the claims until the limitation fund is constituted. By an Order which took effect from 1st January 2004 the rate of interest is fixed at 1 per cent above the Bank of England Base Rate quoted from time to time.

If you have any queries concerning the above, please do not hesitate to contact Mark Lloyd.

May 2004

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Emergency Contact Numbers

Christopher J. Dunn:
+44 (0)7595 117 380
David A. Perry:
+44 (0)7595 117 381
Mark A. Lloyd:
+44 (0)7595 117 382
Andrew D. Purssell:
+44 (0)7595 117 383