Isle of Man: Limitation Of Liability Convention For Maritime Claims (Update)

The Courts in the Isle of Man have again upheld the right of a shipowner resident in the Isle of Man to limit their liability under the 1976 Convention on Limitation of Liability for Maritime Claims and the 1996 Protocol to the 1976 Convention (the LLMC).

The Judgment of January 7 2014 in the Baltic Highway v Others ORD 2012/78¹ followed the principles in The Dominator (Yacht XTC of London) v Others CLA 2008/12² (both available at www.judgments.im) and confirming that a Manx incorporated shipowner can limit their liability in the Isle of Man which enabled them to include wreck recovery costs within the limitation fund and to establish that fund by way of a letter of undertaking.

Once a shipping casualty, collision or incident has been notified to insurers and probably still being dealt with by the owner, master and crew of the vessel or vessels, matters concerning the recovery of any losses will already be set in motion. Inevitably, such losses can be huge.

When dealing with such losses it has long been a unique feature of shipping law that shipowners (and also charterers, managers and operators of a sea-going ship) are entitled, subject to certain conditions, to limit the extent of their liability in the event of a claim being made against them.

The limit of their liability is based on the tonnage (size) of the ship involved in the incident giving rise to the claim and the type of claim being made. The limit is much higher for personal injury or loss of life.

Examples of limiting liability can be found in many charter agreements. However, where third parties are affected such as in collisions, fires etc., the owner will rely on the 1976 Convention on Limitation of Liability for Maritime Claims and the 1996 Protocol to the 1976 Convention (the LLMC) to limit their liability.

The LLMC is a strict regime which provides for a virtually unbreakable system of limiting liability. The only situation where a shipowner will not be able to limit their liability is when:

In the Baltic Highway decision, His Honour the First Deemster Doyle noted:

Although such limitation may appear, in other commercial spheres, quite harsh, the rationale behind the concept is that most ships and yachts are (usually) insured against losses and so insurers are able to cap the provisions they have to make in the event of an accident.

In the earlier Dominator decision in the Isle of Man, the owner of the Yacht XTC of London, which caught fire in the Marina Port Vell, Barcelona in 2008, was able to limit its liability to a sum in the region of £500,000 (around €564,000) for the whole incident and in the Baltic Highway case, which involved a car carrier sinking in the North Sea in 2012 resulting in major loss of life, the owners were able to limit their liability at £9 million.

In both cases the limitation fund included wreck recovery costs and the limitation funds were established by way of a letter of undertaking. By virtue of being domiciled in the Isle of Man both shipowning companies were able to bring a pre-emptive limitation action under Article 10 of the LLMC, before the High Court in the Isle Man.

This figure is lower than one which might have been decided upon by the Courts in England or Spain, because of how the Isle of Man has enacted the LLMC into the national law. Whilst the Isle of Man is not a signatory to the LLMC, the UK is, and the Isle of Man has enacted the relevant UK law giving effect to the LLMC into Manx Law by virtue of the Merchant Shipping Act 1995 application order and the Merchant Shipping (Convention on the Limitation of Liability for Maritime Claims) (Application) Order 2000.

The Courts in the Isle of Man have also as a matter of Manx law allowed the ship owners to establish the limitation funds by way of a letter of undertaking to the Court rather than having to make a payment into Court.

The unique advantage that the Isle of Man offers is:

• Whilst other countries have reserved the right to exclude wreck from the limitation of liability the Isle of Man has not
• The Isle of Man has its own provisions for vessels less than 300 tons. This has set a limited of 500,000SDR³ in respect of a claim not involving personal injury or loss of life; considerable less than the LLMC standard limit of 2,000,000SDR
• The limitation fund can be established by a letter of undertaking acceptable to the Isle of man court rather than having to make a payment into Court.

The Baltic Highway Judgment clearly shows the Isle of Man is a suitable jurisdiction to bring such claims and adds to the Isle of Man's growing reputation as a "Shipping Centre of Excellence" being home to international companies offering specialist maritime services in both ship and yacht management, finance, maritime insurance, maritime law and company formation.

The Isle of Man Ship Registry is the driving force behind the success and statistics by Clarkson's, which monitors world shipping fleets, show the Isle of Man moved into 14th place in the table of world registers by tonnage. The fleet is international with more than 40 per cent of the tonnage on the Manx register Asian-controlled. The commercial yacht register also continues to perform with more than 100 of the world's most prestigious yachts registered in the Isle of Man.

Footnotes

1. Simcocks instructed by Owners through English Solicitors Holman Fenwick and Willan and instructing Simon Rainey QC

2. Simcocks instructed by a Defendant party acting for Yacht "Three Sisters"

3. Special Drawing Rights – A figure produced by the International Monetary Fund which converts the SDR to the currency of the Court or Country where the limitation is established that is 1SDR = $US1.5.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.