Scratched Porsches and broken noses: a few peculiarities of limitation regimes
Limitation of liability is used in a variety of manners to limit the liability of shipowners. This creates certainty for owners and claimants and unlimited liability would discourage companies from investing in shipping. The limitation regimes in South Africa and other African countries can give rise to peculiar outcomes.
Limitation regimes fall into two broad categories. The first allows shipowners to limit their total liability for all claims by reference to the size of the ship. The second allows shipowners to limit their liability to cargo interests by reference to the amount of cargo carried.
Limitation is dealt with, in the main, either by reference to the 1957 or 1976 Conventions. Six African countries have acceded to the former and twelve have acceded to the latter Convention. Other countries either don’t have a limitation regime or incorporate the provisions of one of the Conventions without having acceded to either of them.
South Africa has incorporated the principles of the 1957 Convention into the Merchant Shipping Act but with higher limits. The Act provides one limit if there are claims for only damage to property, a higher limit if there are claims for personal injury or loss of life and the same higher limit if there are claims for both damage to property and loss of life/personal injury.
Where there is a mixture of claims, the personal injury/loss of life claimants enjoy preference in respect of a portion of that limitation fund. In certain cases this creates a peculiar position if claims arise for both loss of property and personal injury. This is best illustrated by way of an example based on a recent case.
The owners of a 40 000 ton ship are faced with a US$10 million claim for damage to port facilities and a claim of US$5 000 from a sailor who broke her nose following an allission. The Merchant Shipping Act allows the owner to limit its liability for claims for damage to property to US$3.5 million but increases that limit to US$11 million if there are both damage to property and personal injury claims. The personal injury claimant would be paid for the extent of her $5 000 claim and the balance in the limitation fund of US$10 995 000 is then available to pay the damage to property to claim in full. Had the seafarer not been injured, the property claimant would only receive US$3.5 million. As a result of the minor injury, the property claimant will receive full payment.
A similar anomaly arises in the various cargo carriage regimes which provide that a cargo carrier can limit its liability to an amount calculated by reference to the weight of the cargo damaged.
For example, a bill of lading provides for the carriage of 10 Porsches weighing 1000 kg each. One Porsche is destroyed and the other nine suffer minor scratches. The shipowner is obliged to calculate its limitation by reference to the weight of all ten Porsches even though the claim on the nine scratched Porsches is far less than the limitation on each one. This means that the additional limitation on the scratched Porsches is available to effect payment of the claim for the destroyed Porsche.
The anomalies create opportunities for claimants. A claimant facing tonnage limitation in South Africa (and possibly other African countries with similar legislation) should make every effort to find a personal injury claimant as that will increase the amount available for execution.
For a claimant where a valuable component has been damaged, the package limitation must be calculated by reference to all of the damaged items and not just the weight of the valuable one.