On 26 February 2015, the Deputy Prime Minister and Minister for Infrastructure and Regional Development, The Hon. Warren Truss, presented to the Commonwealth of Australia House of Representatives the Limitation of Liability for Maritime Claims Amendment Bill 2015 (the Bill) and its explanatory memorandum.

The Bill is to increase the liability limits for ship owners and salvors for maritime claims relating to ship-sourced damage to more adequately reflect the costs of such incidents.  The Bill brings into force in Australia the increase in these liability limits by the International Maritime Organisation following the Federal Government’s submission subsequent to the Pacific Adventurer incident.

Limitation of liability in maritime claims

International shipping transports about 90% of global trade to peoples and communities all over the world.  Shipping is the most efficient and cost-effective method of international transportation for most goods; it provides a dependable, low-cost means of transporting goods globally, facilitating commerce and helping to create prosperity among nations and peoples.[1]

In the Second Reading Speech for the Bill, Mr Truss acknowledged the international policy considerations of limitation of liability in maritime claims.

To ensure international shipping continues to be an economically viable proposition, shipowners are generally entitled to limit their liability in respect of claims arising from damage caused by their ships.  This means that if a ship is involved in an incident which causes damage to persons, property or the environment, there is a limit on the maximum amount of compensation that a court can order the shipowner to pay.  The maximum liability of a shipowner is usually calculated based on the size of the ship involved in the incident and has no relationship to the amount of damage caused by the incident.  The rationale for allowing shipowners to limit their liability in respect of ship-sourced damage is to encourage shipping and trade.  This involves balancing the competing objectives of compensating anybody who suffers loss or damage caused by shipowners or their representatives, while ensuring that ship operators are able to access commercially available insurance to cover their liability for that damage.

Limitation of Liability for Maritime Claims Act 1989 (Cth)

The Limitation of Liability for Maritime Claims Act 1989 (Cth) (the LLMC Act) gives the force of law in Australia to the Convention on Limitation of Liability for Maritime claims 1976 (the 1976 Convention), as affected by the 1996 Protocol to amend that Convention (the 1996 Protocol).

The 1976 Convention was negotiated against a long history of earlier regimes providing some protection to shipowners by permitting them to limit their liabilities.[2]  It is administered by the International Maritime Organization (IMO), a specialist agency of the United Nations.

In the negotiations for the 1976 Convention, the delegates realised that the level and availability of insurance were related to the degree to which the ability of claimants to ‘break’ limitation, could be constrained.  Hence, the 1976 Convention created a virtually ‘unbreakable’ limit of liability on any distinct occasion.[3]

Australia is a party to the 1996 Protocol, which outlines limits based on gross tonnage of ships for claims:

  • for loss of life or personal injury; and  
  • other claims, such as damage to ships, property or harbour works.  

Other international maritime conventions adopt the limits of liability in the 1996 Protocol and apply them to shipowners for the purpose of limiting their liability under those conventions.  This includes the International Convention on Civil Liability for Bunker Oil Pollution Damage which limits the liability of shipowners for pollution damage caused by bunker oil spills and requires shipowners to maintain liability insurance in respect of such damage up to the limit of their liability.

Pacific Adventurer incident and IMO increase in liability limits

On 11 March 2009, the Hong Kong registered ship Pacific Adventurer was sailing from Newcastle to the Port of Brisbane when weather conditions from Cyclone Hamish caused it to lose 31 containers of ammonium nitrate.  Two containers damaged the hull and over 250 tonnes of fuel and oil spilled from the ship.

In response to the incident, a clean up operation was initiated by the Queensland Government, with funding assistance from the Federal Government.

The costs for cleaning up the spill were estimated at $34 million.  However, under the 1996 Protocol (and therefore under the LLMC Act) the shipowner was legally entitled to limit its liability to approximately $17.5 million.

Following the Pacific Adventurer incident, Australia sought international support to raise shipowner liability for bunker spills by submitting a paper to the IMO for an increase of 147% to the liability limits under the 1996 Protocol.

On 19 April 2012, the Legal Committee of the IMO adopted amendments to the 1996 Protocol which reflected an increase of 51% of the liability limits under the 1996 Protocol.  These new limits will come into force on 8 June 2015.

Under the amendments to the 1996 Protocol, the limits are raised as follows by reference to Special Drawing Rights (SDR), a foreign exchange reserve asset defined and maintained by the International Monetary Fund.

Click here to view the table.

Based on conversion rates as at February 2015, the financial liability for a medium sized vessel of 50,000 gross tonnes 'in respect of claims for loss of life or personal injury' amounts to an increase of approximately $33.6 million.  A claim for the same sized vessel made 'in regard to any other claim' amounts to an increase of approximately $16.8 million.

Debate on the Bill in the House of Representatives has been adjourned.

Comment

Article 1.2 of the 1976 Convention provides that the term ‘shipowner’ means ‘the owner, charterer, manager and operator of a seagoing ship’.  The word ‘seagoing’ requires that the ship be at sea.  The ‘shipowner’ is entitled to limit its liability whether that liability arises in tort, contract or by statute  This is subject to excluded claims such as claims subject to any international convention or national legislation governing or prohibiting limitation of liability for nuclear damage[5]; or claims against the shipowner of a nuclear ship for nuclear damage.[6]

Despite Australia’s position as a trading nation, and not a ship-owning nation, the Federal Government claims in its financial impact statement within the Bill that shipping companies consider that channelling liability through a global, capped scheme supports the availability of insurance and the polluter pays principle.

While the Bill may receive bipartisan support in the House of Representatives, noting that the former Labor Government produced the paper to the IMO, any difficulties in the Senate will only maintain the status quo.

In readiness for 9 May 2015, ‘shipowners’ should review their insurance and contractual indemnity arrangements.