A recent judgment of the High Court of Justice of the Isle of Man has added to the Island's growing reputation as a jurisdiction of choice for ship and superyacht owners.

The judgment in Dominator v Gilberson & otrs (case reference CLA 2008/12) handed down on 23 June 2011 by Deemster Doyle (the Island's Chief Justice) confirmed the position under Isle of Man law in relation to the Convention on the Limitation of Liability for Maritime Claims 1976 as amended by the 1996 Protocol thereto (the "Limitation Convention"). The case affirmed significant advantages which apply to claims for limitation commenced in the Island over those commenced in some other jurisdictions.

Facts of the Dominator case

The Dominator case concerned an application to the High Court by an Isle of Man company which owned the yacht XTC of London to limit its liability to third parties following an incident in Barcelona on 2 February 2008. The much publicised incident involved a catastrophic fire on board XTC of London which resulted not only in its total loss, but also in the sinking of three other vessels and damage to a further five. The total losses (including the loss of XTC of London) were estimated at around US$10 million. The cost of recovering the wrecks was estimated at US$700,000.

However, the way in which the Limitation Convention operates in the Isle of Man enabled the owner of XTC London to limit its liability to 500,000 Special Drawing Rights ("SDR") (an International Monetary Fund unit of account used in some international treaties and agreements which is equivalent to US$1.59 as at 19 July 2011). This figure is significantly lower than the limit which would likely have been set in other relevant jurisdictions.

What is a maritime limitation claim?

Where an incident such as a collision or a fire affects a third party, the owner who is, or is likely to be, the target of claims for compensation may rely upon the Limitation Convention to limit his liability. The limit of the owner's liability is assessed by reference to the tonnage of the vessel and the type of damage giving rise to the claim, with much higher limits applying to claims relating to personal injury or death.

It is clear that the provisions of the Limitation Convention provide a robust system for limiting liability which can only be broken if the circumstances set out in Article 4 apply. Article 4 provides:-

"A person liable shall not be entitled to limit liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such a loss or recklessly and with knowledge that such loss would probably result."

Thus there is a heavy burden on those seeking to break the principle of limitation. Deemster Doyle referred to the comments of Lord Phillips in The Leerort [2001] 2 Lloyds Law Reports 291 where he referred to the provisions of Article 4 and stated:

"It seems to me that this requires foresight of the very loss that actually occurs, not merely of the type of loss that occurs."

Deemster Doyle went on to state that the "burden under Article 4 of the Limitation Convention is indeed a very heavy burden".

Advantages of bringing a maritime limitation claim in the Isle of Man

There are a number of advantages of bringing a claim for limitation under the Limitation Convention in the Isle of Man over other jurisdictions. Firstly, the Isle of Man has used the provisions of the Limitation Convention to set its own limit on liability in claims involving vessels under 300 tons; the limit set, 500,000 SDR, is significantly lower than the Limitation Convention standard limit of 1,000,000 SDR for non personal injury claims. Secondly, unlike many other countries, the Isle of Man has chosen not to reserve the right to exclude the cost of wreck recovery from the limit; as is demonstrated by the figures above, these costs can be extremely high, particularly where commercial vessels are involved. Thirdly Dominator confirmed that the Isle of Man courts accept the right of an owner to limit his liability pre-emptively, rather than after having received details of claims for damages from aggrieved parties.

We have to sound a note of caution, however, about the Dominator judgment. It was a judgment given in an uncontested hearing. Rather unusually, none of the nine defendants chose to appear at the hearing (despite some appearing in earlier first instance and appeal proceedings regarding jurisdiction and forum conveniens). Therefore, it is of course possible that an appeal will be lodged or that the Isle of Man Court could decide a similar case differently in the future following a full contested hearing. For now, though, the Dominator case is the applicable law in the Isle of Man regarding maritime limitations claims.

DQ's specialist shipping and yachting team

For further information on the Dominator case or any shipping or yachting matter, please contact any of the directors in our shipping and yachting team:Tom Maher, Mark Dougherty or Giles Hill.

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.