Introduction

This article has been prompted by a recent decision of the Supreme Court of Canada with respect to the limitation of liability for maritime claims and wilful misconduct. Canadian maritime law is in many respects closely aligned with English maritime law, and frequently the maritime law of Australia and other commonwealth nations. In this recent case, however, there was ample discussion concerning the extent to which the findings of both the Supreme Court and the lower courts aligned with, or departed from, decisions in a number of jurisdictions. In view of this, and in light of the issues raised in the Canadian decision, we now briefly canvass the law on limitation of liability for maritime claims and wilful misconduct in marine insurance in five jurisdictions around the world in order to highlight the key similarities and differences.

Canadian law – Peracomo Inc. v. Telus Communications Co. (the Realice), 2014 SCC 29

Under the Convention on Limitation of Liability for Maritime Claims 1976, as incorporated into Canadian law, a person is not entitled to limit their liability if their conduct is “committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. Under s. 53(2) of the Canadian Marine Insurance Act, S.C. 1993 c. 22, “an insurer is not liable for any loss attributable to the wilful misconduct of the insured”.1 In theRealice, the Supreme Court of Canada addressed whether a shipowner was entitled to (a) limit its liability and (b) coverage under its insurance policy.

Mr. Vallée, the operator of a fishing vessel, Realice, which he owned through his company, snagged a submarine cable while fishing. After he raised the cable that was entangled in his gear, he proceeded to cut it with an electric saw in the belief that it was not a live cable. He held this belief on the basis of a handwritten note he had seen on a map in a museum a year earlier. His belief was wrong, and the telecommunications company commenced an action seeking approximately C$1 million in damages.

The Judge at trial held that the chart on board the Realice was 20 years old, that the cable has since been included in notices to mariners and was clearly indicated on more recent charts. Finding Mr. Vallée had a duty to be aware of the cable, that he was “reckless in the extreme” and that he intentionally cut the cable, the Judge therefore held that Mr. Vallée was not entitled to limit his liability nor was he entitled to coverage under the policy. The Court of Appeal upheld the trial Judge.

The majority of the Supreme Court allowed the appeal in part. As to limitation, the Supreme Court unanimously held that it was not sufficient that Mr. Vallée had intended to cut the cable. Rather, it must be proved that he intended to cause the loss or was reckless and acted with the knowledge that such loss would probably result. Given that it was held at trial that Mr. Vallée honestly believed the cable was not in use, he could not have intended to cause “such loss”, i.e. the repair costs of an active cable. The Supreme Court held that any lesser test would undermine theConvention’s purpose of establishing a virtually unbreakable limit on liability.

As to wilful misconduct, this was the first time the Supreme Court was interpreting the concept in the context of marine insurance and in particular in the context of s. 53(2) of the Marine Insurance Act. The majority of the Supreme Court held that the test for wilful misconduct is of a lesser standard than that under the Convention. Relying on Canadian insurance law and certain English law authorities, the majority held that wilful misconduct excluding cover under a policy includes not only intentional wrongdoing but also other misconduct committed with reckless indifference in the face of a duty to know. It was held that Mr. Vallée failed miserably in his duty to be aware of the cable, his conduct was indifferent to the risk that the cable was live, and the fact that he believed the cable was not in use was beside the point.

The dissenting Justice, however, also relied on English law authorities but arrived at a different view. The fact that Mr. Vallée believed that the cable was not in use meant that his act could not have been “wilful” within the meaning of the authorities. Justice Wagner opined that subjective knowledge of the risks is a pre-requisite for wilful misconduct. Consequently, any recklessness must be subjective, i.e. the person is conscious of the risk. As Mr. Vallée was never conscious of the risk, believing that the act would cause no loss, his misconduct could not be characterized as “wilful”. Justice Wagner was of the view that the majority of the Supreme Court was creating an objective standard, meaning one where it was sufficient that a reasonable person would have seen the risk.

To conclude, although Justice Wagner found that both the Convention and the Marine Insurance Act require proof of the same fact, namely knowledge of the harmful consequences of the act, the majority of the Supreme Court of Canada felt otherwise.

The English law perspective

The holding of the Supreme Court of Canada in respect of limitation of liability is in line with the position under English law. Interestingly, with respect to willful misconduct, both the majority of the Supreme Court of Canada, and the dissenting Justice Wagner, rely on English law, in part, to support their position.

Section 55(2)(a) of the English Marine Insurance Act 1906, contains identical language to s. 53(2) of the CanadianMarine Insurance Act, because the 1906 Act was in many respects the template for the Canadian legislation. Not unlike Canada, the question of what constitutes “wilful misconduct” of the insured has been the subject of little discussion under English law, as the majority of the jurisprudence has dealt with cases where the acts of the insured were deliberate.

As to the knowledge of the insured, whilst the point is not without some ambiguity, it would appear that the weight of authority is more in line with Justice Wagner’s view than that of the majority of the Supreme Court of Canada.2 For willful misconduct, an element of knowledge is required in most instances, such that the insured realized the risk or knew the conduct to be wrongful. In other words, subjective knowledge or awareness of the wrongful conduct and nevertheless deliberately proceeding to take such a risk. This has also been the position in the context of English cases concerning the carriage of goods by road under the Convention on the Contract for the International Carriage of Goods by Road, where wilful misconduct will preclude a carrier from limiting its liability.

The Australian law perspective

There have been no Australian decisions on point. However, there has been a recent High Court of New Zealand decision arising from the Rena incident which considered how specifically the loss must have been intended in order to amount to conduct barring limitation.

In Daina Shipping Company v Te Runanga O Ngati Awa [2013] 2 NZLR 799, the Court was required to consider theConvention on Limitation of Liability for Maritime Claims 1976, as incorporated into New Zealand law. The relevant New Zealand provision states: “no person shall be entitled to limitation of liability in respect of claims… where the act or omission was committed, or omitted, with intent to cause such loss or injury or damage, or recklessly and with knowledge that such loss or injury or damage would probably result”. In its interpretation of the application of this provision, the Court found that there is an obligation to prove knowledge of “the very loss that actually occurred”.

It is likely that an Australian court would follow this position because under Australian law it must be shown that the shipowner subjectively intended to cause the loss or knew that the loss would probably result from its reckless conduct.

This high standard of intent is not replicated in the context of proving wilful misconduct under marine insurance law in Australia. The Queensland Supreme Court of Appeal case of Wood v Associated National Insurance Co Ltd (1985) 1 Qd R 297 considered whether conduct that is less than intentional, such as an act of reckless disregard or indifference can amount to ‘wilful misconduct’ within the meaning of the Marine Insurance Act 1909 (Cth) (which mirrors the UK provisions in this respect).

In Wood’s case the master abandoned his ship leaving it with a crew who were, to his knowledge, unable to handle the ship in the emergency of cyclonic winds. The crew also abandoned the ship and it grounded causing substantial damage to the hull and fittings.

In the leading judgment, McPherson J accepted that there had been “wilful misconduct” on the basis there was a reckless exposure of the ship to the perils of navigation by the shipowner. McPherson J also relied on the first instance decision of Kennedy J in Trinder Anderson & Co v North Queensland Insurance Co 8 Asp MLC 301 which found that “wilful” includes “a reckless disregard of possible risks”.

It is uncertain whether McPherson J’s intrepid test of “wilful misconduct” which introduces a lesser form of misconduct, that of recklessness, will be applied in contemporary Australian courts faced with claims for losses arising from maritime incidents.

The United States’ law perspective

The United States is not a party to any of the international conventions governing limitation of liability for maritime casualties. Limitation in the United States is governed by a federal statute, the Limitation of Shipowners’ Liability Act, 46 U.S.C. §§ 30512 (2006) (the U.S. Act). Originally passed in 1851, the U.S. Act provides that shipowners may limit certain liabilities up to the value of the owner’s vessel after the casualty, plus pending freight, if the fault that caused the loss occurred “without the privity or knowledge of the owner.” Under U.S. law, the standard for breaking limitation is, in general, whether the shipowner personally participated in the acts or knew or should have known of the acts, negligence, or unseaworthiness that caused the loss.

There is no federal marine insurance act in the United States. The United States Supreme Court has held that individual state law and the language of the insurance policy will govern whether a shipowner is entitled to insurance coverage in the event of a maritime casualty.

The South African law perspective

South Africa has not acceded to any of the international conventions governing limitation of liability. It has however incorporated the provisions of the International Convention relating to the Limitation of Liability of Owners of Seagoing Ships 1957 into the Merchant Shipping Act (1951), pursuant to which a shipowner will lose the right to limit if the loss is caused by its “actual fault or privity”. This has been interpreted in line with the position under English law before that country acceded to the 1976 Convention.

Under South African law, there is no equivalent of Section 53(2) of the Canadian Marine Insurance Act. An insurer is entitled, at common law, to avoid liability for a claim under a policy in certain circumstances. The insured is covered if the loss was caused by its negligence, even if gross, but is not covered if it was caused by its recklessness or for a loss or occurrence intentionally caused.

Conclusion

From a Canadian perspective, only time will tell whether the affirmation of the virtually unbreakable limit of liability as compared to the commensurate softening of the willful misconduct standard will result in increased litigation as between insurers and their insureds. From a global perspective, whilst there are similarities across a number of jurisdictions, it is clear that the treatment of limitation of liability for maritime claims and wilful misconduct in respect of marine insurance policies is far from uniform.