An unusual, and often misunderstood, feature of maritime law - arising under international convention and adopted into Australian law - is the ability of shipowning and operating interests to limit their liability in certain situations.
The underlying policy is said to be to protect shipowners from the sometimes disproportionate liability risks they face, and also to provide a distinct limit that makes potentially spectacular losses insurable.
The size of the limitation fund is calculated by reference to the tonnage of the ship involved or, in relation to passenger claims, to the number of passengers the ship is licensed to carry. If claims made exceed the limitation fund, they are paid on a proportionate basis. Most claims for injury and loss of life, infringements of rights and damage to property are limitable. Common claims that are not limitable include those for salvage, and wreck removal.
Limitation does not occur frequently as only the most serious incidents produce losses higher than the applicable limits. However in matters involving major casualties, the limitation fund and therefore the owner's maximum legal liability can be significantly less than the full amount of potential claims against the owner or operator. Limitation has been invoked in Australia in two recent cases, each highlighting a different issue.
Following the "Pacific Adventurer" oil spill in 2009 the vessel's well known owners could invoke limitation but came under tremendous political and popular pressure not to do so. The situation resolved but not before the owners indicated that they would both set up a limitation fund and make an extremely substantial donation to a government controlled environmental trust. In future, will "brand name" shipowners involved in high profile incidents in Australia find it practical to limit their liability?
In late 2008 the "APL Sydney" dragged its anchor across a submarine gas pipeline in Port Phillip Bay, allegedly causing extremely large losses. The owners moved to limit. A limitation fund covers all claims arising "on any distinct occasion". Although there was what could be seen as one overarching (but drawn out) casualty, claimants argued that the course of the ship's entanglement with and extrication from the pipeline - first damaging, and then rupturing it - constituted more than one "distinct occasion". The Federal Court agreed and concluded there were two distinct occasions (or incidents), such that the shipowner effectively had to establish two limitation funds, each for the full limitation amount.
Marine casualties resulting in claims for limitation will now more than ever be closely scrutinised by claimants seeking to classify the casualty as not a single occurrence but rather as a series of incidents.
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.
