All change! The limits of compensation payable by ship owners (or other entities entitled to limit) for a maritime incident under the 1996 Protocol (Protocol) to the 1976 Convention on Limitation of Liability for Maritime Claims (LLMC) will increase from 8 June 2015. The rise is substantial, at some 51%.

Background

A proposal to raise the limits was made to the IMO Legal Committee (by Australia) in 2010. This followed a particularly costly clean-up of bunker oil, lost following a heavy weather incident to PACIFIC ADVENTURER off Australia in 2009, which greatly exceeded the value of the vessel’s limitation fund. Raising limits to “keep pace with the real costs of compensating victims” was a factor considered by the IMO, although higher limits than those coming into force in June 2015 were ruled out on the basis that the increase had to be reasonable to ensure affordable insurance was available. On 19 April 2012, the Legal Committee of the IMO agreed to amend the Protocol, and it is this amendment (the Revised Protocol) which enters into force on 8 June 2015.

Enactment into local law

When the limits were increased from the LLMC, the Protocol updated the limits but the terms of the Protocol had to be enacted into local law to become effective. To avoid the necessity for further revisions to limits having to go through the same process, the Protocol introduced a “tacit acceptance” procedure for updating the limits at a later date.

As a result, the Revised Protocol does not need enabling domestic legislation to bring the new limits into force, as the Protocol is deemed automatically updated. If a State does not wish to adopt the new limits, our understanding is that they will have to take positive steps under their national law not to apply the increase. Local law advice may be needed for confirmation on a State by State basis.

Incidents subject to the new limits

The date that a fund is constituted sets its value, in accordance with the value of the Special Drawing Rights (SDR) of the International Monetary Fund on the date the fund is constituted (Article 8.1 of the LLMC). This basic position needs to be refined, however, as it would seem to be unjust for a limiting party, for an occurrence before the 8 June 2015, to have to constitute a larger fund because the necessary steps were not taken to limit until after 8 June 2015.

When the limits were increased from the LLMC to the Protocol, the new limits applied to claims arising out of occurrences which took place after the entry into force of the Protocol in the relevant Member State (Article 9.2 of the Protocol). Such a clarification is not provided in the Revised Protocol although the relevant legislation in England, the Merchant Shipping Act 1995, Section 185 (2E), makes it clear in the context of providing for the increased limits under the Protocol that the (then) new limits do not apply to incidents which occurred before the date the new limits came into force.

Our view is that, as a matter of English law, the increased limits in the Revised Protocol only apply to occurrences after the date it comes into force. The position in other jurisdictions, though, should be checked.

The new limits

The Revised Protocol increases the limit of liability for property claims for ships not exceeding 2,000 gross tonnage to 1.51 million SDRs (up from 1 million SDRs). For larger ships, the following additional amounts will be used in calculating the limitation amount:

  • For each ton from 2,001 to 30,000 tons, 604 SDR’s (up from 400 SDR’s).
  • For each ton from 30,001 to 70,000 tons, 453 SDR’s (up from 300 SDR’s).
  • For each ton in excess of 70,000 tons, 302 SDR’s (up from 200 SDR’s).
  • For loss of life or personal injury claims the new limit for a ship not larger than 2,000 gross tonnage is 3.02 million SDRs (up from 2 million SDRs), with the following additional amounts for larger vessels:
  • For each ton from 2,001 to 30,000 tons, 1,208 SDR’s (up from 800 SDR’s).
  • For each ton from 30,001 to 70,000 tons, 906 SDR’s (up from 600 SDR’s).
  • For each ton in excess of 70,000 tons, 604 SDR’s (up from 400 SDR’s).

For example:

  • A Panamax bulker (assuming a GT of 40,000) will have a limitation fund for property claims of 22,952,000 SDRs (up from 15,200,000 SDRs). At the current SDR/US$ value, this means a monetary property damage fund of about US$32,350,000 (as against US$21,425,000).
  • A VLCC of 160,000 GT will have a limitation fund for property claims of 63,722,000 SDRs (up from 42,200,000 SDRs). At the current SDR/US$ value, this means a monetary property damage fund of about US$89,800,000 (as against US$59,500,000).

Breaking limitation

The terms of the LLMC made it almost impossible, under English law, to break limits. In that respect nothing has changed under either the Protocol or the Revised Protocol.

Further rise

The limits will not be revisited until at least 2020 and, if or when they are raised again, at least a further three years are likely to elapse before those limits come into force.