The new Water Act (587/2011) entered into force on January 1 2012. The act is welcome news for the shipping industry, as it clarifies the confusing and uncertain situation whereby, in certain circumstances, two conflicting legal regimes may determine a shipowner's non-contractual liability. The first of these regimes is based on the Maritime Code, which presupposes negligence, while the second is based on the Water Act (164/1961), which presupposes that liability arises irrespective of negligence (ie, strict liability is imposed on the shipowner). The relevant paragraph of the Maritime Code is as follows:
"The shipowner or the operator ('laivaisäntä'/'redare') is, if not otherwise stipulated in this code or elsewhere in the law, liable for loss of damage which the master, any member of the crew or a pilot or any other person not belonging [to] the crew, while working in the vessel's service on request of the shipowner, the operator or the master, causes through fault or neglect in the performance of his duties."(1)
The relevant paragraphs of the Water Act are as follows:
"Damage caused by a colliding ship or by a ship's wave by sparks emitted by a steamer, or otherwise by passage in a water, to someone else's land, facility, storage, timber-floating equipment, traps or other property shall be compensated by the shipowner, taking into account the separate provisions on limitation of a shipowner's liability and on liens under maritime law, even when said damage is not caused by negligence in the steering or management of the ship... (2)
If the damage has been caused by the fact that the damaged property is not in proper condition or properly cared for, the owner of the vessel shall be released from liability to compensate, either entirely or to the extent corresponding to the deficiency."(3)
There have been different opinions and considerations as to whether the Water Act or the Maritime Code has priority. The liability regime of the code has been seen, quite logically, as lex specialis (special law) for damages caused through the operation of a ship. Further, it has been argued that the origin of the Water Act's strict liability rule reflects a time when steamships, which were considered dangerous in those days, were evolving. Under the Water Act, shipping is regarded as a dangerous enterprise for which strict liability is required. The relevant question has always been: to what kind of property does the strict liability actually apply? According to the 1913 commentary, the purpose of the strict liability was to protect constructions which were based on land and covered by water.
The case law has been somewhat ambiguous. The traditional practice favoured the application of strict liability under the Water Act, but later the requirement of negligence was accepted (eg, when it came to damages to constructions in a port). Pursuant to a 1974 appeal court case, a port's claim for a damaged conveyor belt was dismissed because the claimant could not prove that the vessel had acted negligently, despite the fact that it had hit the conveyor belt while berthing. The question as to whether the Water Act applies to damage caused at sea was discussed by the Supreme Court in Case KKO 1983-II-40, in which the vessel had hit a lift bridge. In that case, the court found that the act was not applicable, since the passage of the vessel through or under the bridge also required the manual operation of the damaged bridge. However, in Case KKO 1996:150, which involved a vessel that had hit a radar beacon in the open sea, the Supreme Court reached the opposite conclusion and found that the act should apply. According to the court, there were pros and cons when it considered applying the Maritime Code. Apparently, the court reached its decision by:
- exploring how the paragraphs were written;
- considering that the act's scope of application was not restricted anywhere in the legislation; and
- considering that the paragraph of the code was reversionary.
The Supreme Court also mentioned the international liability conventions on which the Maritime Code is based, but held that they had no superseding meaning herein.
The district and appeal courts had applied the code on the grounds that it was lex specialis, and that application of the act instead would have nullified the requirement of negligence that the code imposes.
Case KKO 1996:150 caused much bewilderment. It meant that a shipowner could be found liable for direct material damages in accordance with the Water Act, and for other kind of damages in accordance with the Maritime Code, if it were also the operator. In instances where the shipowner and the operator were not the same, their liabilities were subject to different liability regimes: the shipowner was subject to strict liability, while the operator's liability required negligence. Irrespective of the trend towards strict liability (eg, with regard to oil pollution), this was an unfair situation because shipping risks are usually connected to the operation and manoeuvring of the ship and it is therefore more logical to expose the person who is in charge of the operation to liability.
The new Water Act has corrected this situation by eliminating a shipowner's strict liability. The relevant paragraph reads as follows:
"If not otherwise stipulated in the Maritime Code (674/1994), the shipowner is liable for loss of benefit caused in navigation in waterways, if loss of benefit has caused by intentional or negligent conduct. The compensation is determined in accordance with this Chapter. Shipowner's and operator's right to limit liability and liens are subject to the Maritime Code."
The reasoning as to why strict liability was amended to ordinary negligence in the Government Bill (277/2009) is interesting, as it echoes the reasoning adopted by the Supreme Court 13 years earlier; however, the conclusion is different. The bill states that the liability rules do not reflect the development of the liability regime which has taken place in the shipping industry, and that these developments are connected to international conventions. The bill emphasises that shipowners' liability rules in the Maritime Code are mainly based on negligence, even though certain damages are subject to strict liability. The bill also states that damages to which the Water Act's strict liability regime should apply are usually those where liability is not particularly difficult to prove; thus, this amendment does not substantially weaken the position of the injured party.
This amendment is interesting, given that the prevailing trend of the legal environment is increasingly moving towards strict liability. Since January 1 2012, the legal basis for shipowners' liability has been unambiguous. Thus, the much-debated Case KKO 1996:150 has been consigned to the history books.
For further information on this topic please contact Matti Komonen or Herman Ljungberg at Hammarström Puhakka Partners, Attorneys Ltd by telephone (+358 9 474 2207), fax (+358 9 474 2247) or email ([email protected] or [email protected]).
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