Compensation Regimes Analysis Compensation Regimes Limiting Owner’s Strict Liability to Pay

lawzmag.comThe 1976 Convention on Limitation of Liability for Maritime Claims underlines nature of Shipping as Maritime adventure. It provides for owner/ operator to limit amounts payable, unless it is proved “that loss resulted from his personal act or omission, with intent to cause such a loss, or recklessly and with knowledge that such loss would probably result.” 1989 International Convention on Salvage, altered the principle of ’no cure, no pay’ and provides for Special Compensation, up to 30% of salvor’s costs, which may be increased up to 100% by arbitrators if deemed worthy, as incentive, if environmental damage is minimised or prevented by Salvors. Compensation for Claims against oil pollution damages, plus loss and costs of preventive measures, is provided through Civil Liability and FUND Conventions.

Hague and Hague Visby rules, incorporated in B/L’s through Carriage of Goods by Sea Acts (COGSA) of many countries, cater to claims against carrier when Cargo is damaged. Many exceptions protect carrier’s interests such as “Perils of the Sea” “Errors of Navigation,” but are under attack for need to integrate multi-modal transportation liabilities. These and other marine risks are insured by cargo interests routinely. Hamburg Rules are favoured by Cargo interests, but International support for them is lacking. Though much trade is concluded without claims, few that happen, get embroiled in forum shopping for lenient convenient jurisdiction & prolonged litigation sometimes as test cases. Arbitration & ADR e.g. Mediation & Conciliation could be used, but not usually under COGSA. A ship can be arrested under the ’99 Arrest Convention for claims against non-payment for necessary services rendered under “right in Rem” against the res, (thing) till payment is made or security put up. Failing this she can be auctioned for settlement. Indian ships cannot be arrested in India by Indian firms as other assets can be pursued against.

Case of Den Norske Bank ASA v Acemex Management Co Ltd “The Tropical Reefer”, gives useful guidance on principles applicable in mortgagees, by enforcing their security by arrest and sale of mortgaged vessel, and damage the interests of mortgagors. The judge held that so long as mortgagee acts in good faith he can arrest the ship to obtain repayment, notwithstanding that it might harm interests of mortgagor.” Mortgagee does not owe the mortgagor a general duty in negligence or in equity to take reasonable care in dealing with the ship. J I MacWilliam Co, of Boston, US, sued MSC for “irreparable” damage to four containers holding printing machinery carried by MSC from Durban to Boston. It argued that its claim is subject to Hague-Visby package limitation, which is more generous than the $500 per package limit under US COGSA 1936.

The bill issued at Durban was ‘non- transferable’, naming MacWilliam as sole consignee. MSC insisted it was not a ‘bill of lading’ under Hague-Visby Rules. Therefore only US package limits apply. English Court of Appeal unanimously held that a ‘straight consigned,’ or non-negotiable, bill of lading is both a ‘bill of lading’ and a ‘document of title’ for purpose of Hague and Hague Visby Rules, AND UK Carriage of Goods by Sea Act 1971. This case went before House of Lords, to settle once and for all, the controversial question whether a ‘straight consigned’ B/L comes within the Hague-Visby Rules regulating carriage of goods by sea. House of Lords upheld the Court of Appeals Judgment. In “Jutha Rajpruek” v Steamship Mutual, Bermuda, concerning interpretation of words “competent court” in a P&I Club’s letter of undertaking, Court of Appeal, upheld the first instance judgment that a court was competent in respect of ‘inrem’ proceedings if it could entertain subject matter of the claim. It was not necessary that it became seized of the proceedings by reason of the vessel or a sister ship being physically within its jurisdiction.

A ship can be arrested under the ’99 Arrest Convention for claims against non- payment for necessary services rendered under “right in Rem” against the res, (thing) till payment is made or security put up. Failing this she can be auctioned for settlement. Indian ships cannot be arrested in India by Indian firms as other assets can be pursued against.

In Trafigura Beheer BV v. Golden Stavraetos Maritime Inc. on meaning of ‘delivery’ under Article III Rule 6 of Hague/Hague-Visby Rules, receivers had rejected the cargo at contractual discharge port. Charterers arranged for cargo to be on-carried on same ship to a different port of discharge. Charterers commenced proceedings within one year from discharge at the actual port of discharge, but more than one year after the time at which the cargo “should have been discharged” at the contracted port of discharge. Overturning the judgment in favour of shipowners at first instance, Court of Appeal allowed charterers’ appeal, holding that in theses circumstances, delivery at actual port of discharge was delivery under Article III Rule 6. Court of Appeal concluded that “if, looking at all the circumstances of the case, it can fairly be said that there was delivery under the contract of carriage, even if that contract has been varied in some respects in light of problems that have arisen during the voyage, it will be appropriate in general to hold… that there has been ‘delivery’ within the meaning of Article III Rule 6. But if delivery is under an entirely separate and distinct transaction, it will in general be appropriate to hold that there has been no such ‘delivery’.”

The High Court decided that the word “damage” in the 1987 Act meant “a sudden change in the condition of the ship or its equipment that was the instantaneous consequence of some event where the event was external or internal to the ship or its equipment’.

On Dec 1, 1996, the vessel Sitka II was unloading a cargo of bags in Lord Howe Island off New South Wales coast, using ship’s crane, when a hydraulic hose fitted to the crane ruptured. About 15 litres of oil escaped and five litres flowed over ship’s side into sea alongside. Hydraulic pump was turned off and an operation supervised by local authorities ensured that the spill was cleaned up in about two hours.

Master and owner were prosecuted under section 8(1) of Marine Pollution Act. Question was whether section 8(1) applied if oil had escaped as a result of damage, other than intentional damage, to the ship or its equipment, and all reasonable precautions were taken after the damage or discovery of discharge to prevent or minimize the escape of oil and whether they had a statutory defence on the meaning of the word ‘damage’ under section 8(2)(b), in the Marine Pollution Act 1987, which includes the words fair wear and tear. Prosecution’s case was that meaning of the word “damage” under the Act, and International Convention for Prevention of Pollution from Ships 1973, which was basis of the Act, does not include fair wear and tear. At first instance, the NSW Land and Environment Court decided that word “damage” included fair wear and tear and master and owner had a statutory defence. The finding was upheld by the NSW Court of Criminal Appeal. Special leave was then obtained by the prosecutor to appeal to the High Court of Australia for ruling on the definition of the word “damage”

The High Court decided that the word “damage” in the 1987 Act meant “a sudden change in the condition of the ship or its equipment that was the instantaneous  consequence of some event where the event was external or internal to the ship or its equipment’. As a result of that decision, the master and owner of Sitka II, withdrew their defence and entered pleas of guilty, leaving the Land and Environment Court to consider only questions of the penalty and costs, asking the court to apply Section 10 of the Crimes (Sentencing Procedure) Act 1999, under which a person could be found guilty but a court could order the charge be  dismissed if, among others, the offence was trivial, there were extenuating circumstances and the defendants had no previous conviction for a similar offence.

The court noted that Master and owner had no actual knowledge that the hose may rupture when the crane was being used and they also had no reason to believe that it may rupture. The crane was fitted by experts six months before the incident, tested by a classification society and used during that period without incident. Visual inspection of the hose, at the point where it ruptured, was physically possible by use of a torch and by peering into the pedestal. But that may not have reveled the abrasion and chafing, being one of eight hoses in that position. The offence was one of strict liability but that did not mean that there can never be an application of section 10. The judge also took into account the fact that neither the master nor the owner had any prior conviction for any marine pollution offence.

Capt. A. K. Bansal

The author is a Master Mariner, Bar-at-Law and An Arbitrator in many Maritime matters

5 thoughts on “Compensation Regimes Analysis Compensation Regimes Limiting Owner’s Strict Liability to Pay”

  1. om says:

    nice article

  2. om says:

    good one

  3. kanta says:


  4. ishani says:

    nice one

  5. om says:

    Thanks for sharing

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