Limitation Of Liability For General Maritime Claims: A Nigerian Case Study
The shipping industry can unarguably be classified as the most important industry in any economy, and this is because the sea occupies over 70% of the earth, it permeates the 5 (five) continents of the world and it connects all the countries of the world together. Also, more than 90% of goods which are traded between various countries are usually transported by sea.
Given that our dear country, Nigeria, is largely dependent on revenue generated from the export of crude oil to various countries of the world2 ; it goes without saying that the shipping industry plays a significant role in the economy of Nigeria since a major chunk of Nigeria’s revenue is generated from the exportation of crude oil through the sea. Furthermore, the fact that Nigerians are majorly dependent on consuming goods imported3 from abroad further underscores the importance of the shipping industry to Nigeria’s economy.
Shipping is regarded as a high profile international business involving sophisticated technology, management and operations—it is also a major contributor towards creation and development of global wealth5 . Thus, it simply goes without saying that shipping as a business is central to human existence.
The concept of Limitation of Liability is very important to the continued existence of the shipping industry and it is as a result of this significance that I have decided to provide a bird’s eye view on the concept of limitation of liability for general maritime claims using Nigeria as a case study in this paper. I shall therefore discuss the following sub-topics in the manner in which they appear below:
- Meaning of Limitation of Liability and the need for Limitation of Liability in General Maritime Claims.
- Laws and conventions applicable to limitation of liability in Nigeria.
- Jurisdiction of courts in limitation of liability proceedings.
- Comparison between the International Convention Relating to the Limitation of Liability of Owners of Sea-going Ships 1957 (“the 1957 Convention”) and the Convention on Limitation of Liability for Maritime Claims, 1976 (“the 1976 Convention”).
- Instances where limitation of liability by shipowners would be permitted.
- Instances where the limitation of liability would be broken.
- Claims excluded from limitation of liability in Nigeria.
- Procedure for commencing a limitation of liability proceedings in Nigeria.
- Practical tips to consider in limitation of liability proceedings.
Meaning of Limitation of Liability and the need for Limitation of Liability in General Maritime Claims
Limitation of liability in maritime claims generally refers to a statement in writing where the liability of a shipowner is capped to a certain sum regardless of the extent of the loss/damage which the other party to the transaction or which any other third party must have suffered. Thus, if the vessel of Party A damages the house of Party B, and Party B spends the sum of N30,000,000.00 in repairing his house, the sum of money which Party A would be entitled to pay to Party B as indemnity for the repairs would be determined by the provision of the law on Limitation of Liability in general maritime claims—in most cases, the limitation amount contained in the Limitation of Liability Laws is usually lower than the actual sum which the other party must have incurred as a result of the damage caused by the shipowner.
A limitation of liability clause can either be provided for in a contract between parties6 or in a statute or convention. The type of limitation of liability which we shall however focus on in this paper is the statutory type of limitation of liability.
It is important to emphasize that limitation of liability is very essential to the continued existence of the shipping industry because without limitation of liability, most shipowners would go bankrupt, and countries as well as businessmen would therefore not have access to a sufficient number of ships to transport their cargoes from one port to the other. This is because the business of shipping is extremely capital intensive7 and if shipowners are mandated to always compensate third parties fully for any damage caused by their ships, shipowners will not have access to any other funds for the management of their businesses because they would have spent all their working capital in compensating various third parties whom their ships must have caused damaged to in one way or the other.
Furthermore, shipowners would not be able to secure the services of insurance companies to insure their third-party liabilities if there is no cap to the liability which a shipowner can incur.
Thus, it is important for the liability of shipowners to be capable of being limited in respect of general maritime claims8 to a certain sum depending on the size of the vessel because this is the only way to ensure that the business of shipping worldwide does not go into extinction.
It must be pointed out at this juncture that scholars in a different school of thought however argue that limitation of liability is unjust, anachronistic and overprotective to shipowners and their shipowners9 . Asides from the fact that the views of scholars in this school of thought are in the minority, advocates of Limitation of Liability in maritime claims have argued that the concept of limitation of liability is about public policy and not about justice or fairness.
“…limitation of liability is very essential to the continued existence of the shipping industry because without limitation of liability, most shipowners would go bankrupt, and countries as well as businessmen would therefore not have access to a sufficient number of ships to transport their cargoes from one port to the other.”
In the case of The Bramley Moore10Denning held thus:
“The principle underlying limitation of liability is that the wrongdoer should be liable according to the value and it should have a correspondingly low measure of liability, even though it’s towing a great liner and does great damage. I agree there is not much room for justice in this rule; but limitation of liability is not a matter of justice. It is a rule of public policy which has its origins in history and its justification in convenience” (Emphasis provided)
The importance of limitation of liability to general maritime claims was also reiterated by David Steel, QC (now Admiralty Judge in the UK) where he stated thus:
“… There is much to be said for the continuing availability of limitation:
- It still has a role to play in the encouragement of investment worldwide;
- It helps ensure a level playing field for international competition;
- It affords a considerable degree of comfort to the insurance industry that the catastrophic exposure will be capped;
- It tends to impose a discipline on claimants and discourages the developments of a system of recovery based on punishment rather than compensation.
There is nothing to be ashamed about in repeating and acting on the truism that it is better for the victim to have a limited claim which he can be certain that can be paid than to have an unlimited claim against an insolvent party.” 11 (Emphasis supplied)
In the English case of The Garden City12 Justice Staughton (as he then was) whilst explaining the importance of limitation of liability to the shipping industry held thus:
“The reasoning behind the convention may now be that shipowners should be encouraged to insure against liability, and limitation makes it easier for them to do so; but limitation should not be tolerated in the case of outrageous conduct, such as deliberately or recklessly causing loss. However, the historical reason for the introduction of limitation appears to have been to enable British ships to trade on equal terms with those of other nations.”
It is therefore as a result of the importance of the concept of Limitation of Liability to the shipping industry that the International Convention Relating to the Limitation of Liability of Owners of Sea-going Ships was introduced in Brussels on 10th October 1957.
Laws and conventions applicable to limitation of liability in Nigeria.
The following are the laws and conventions applicable to limitation of liability in Nigeria:
- Merchant Shipping Act, 200714
- Admiralty Jurisdiction Act
- Nigerian Maritime Administration Act, 2007
- Admiralty Jurisdiction Procedure Rules 2011
- United Nations Convention on Carriage of Goods By Sea (Ratification and Enforcement) Act, 2005
- Convention on Limitation of Liability for Maritime Claims, 1976
Jurisdiction of Courts in Limitation of Liability Proceedings in Nigeria.
Section 1 (d) of the Admiralty Jurisdiction Act provides that the Federal High Court shall have admiralty jurisdiction in respect of:
“any action or application relating to any cause or matter by any ship owner or aircraft operator or any other person under the Merchant Shipping Act or any other enactment relating to a ship or an aircraft for the limitation of the amount of his liability in connection with shipping or operation of aircraft or other property.”
Section 9 (1) of the Admiralty Jurisdiction Act further provides thus:
“A person who apprehends that a claim for compensation under any law, including the Merchant Shipping Act, that gives effect to a liability convention may be made against him by some other person, may apply to the court to determine the question whether the liability of the first- mentioned person in respect of the claim may be limited under that law.”
The implication of the above provisions is that it is the Federal High Court of Nigeria that has jurisdiction to entertain limitation of liability proceedings in Nigeria. Thus, a shipowner who decides to commence a limitation of liability proceedings in Nigeria would be expected to commence his action at a Federal High Court in the Judicial Division where the Defendant resides or where the cause of action arose.
It should however be noted that the fact that the cause of action in a limitation proceedings arose in Nigeria does not necessarily mean that a shipowner MUST commence his limitation of liability proceedings in Nigeria. This is because where there are several claimants who commenced actions claiming damages from the shipowner in several jurisdictions in respect of a particular incident, the shipowner would have the liberty to select one out of the several jurisdictions as the venue to commence the limitation of liability proceedings.
In The Western Regent Clarke, LJ held that a shipowner has the liberty to decide where to commence the limitation action because if there are several claimants in the action, they might all decide to commence actions against the shipowner in different jurisdictions.
Furthermore, Article 13 (2) (a)-(d) of the Limitation Convention 1976 permits a shipowner to commence a limitation of liability proceedings in any of the following places:
- At the port where the occurrence took place, or if it took place out of port, at the first port of call thereafter; or
- At the port of disembarkation in respect of claims for loss of life or personal injury; or
- At the port of discharge in respect of damage to cargo; or
- In the state where the arrest is made
Comparison between the International Convention Relating to the Limitation of Liability of Owners of Sea-going Ships 1957 (“the 1957 Convention”) and the Convention on Limitation of Liability for Maritime Claims, 1976 (“the 1976 Convention”).
The 1957 Convention was the predecessor to the 1976 Convention which is currently in force in Nigeria by virtue of its incorporation by Part 25 of the Merchant Shipping Act, 2007. The 1957 Convention was never acceded to by Nigeria, but the provision of this convention was applicable in Nigeria at the time, by virtue of Section 363 of the Merchant Shipping Act of 1962.
Although the 1957 Convention is no longer applicable in Nigeria, it is important for us to compare some of its provisions with the provisions of the 1976 Convention because the 1957 Convention is still in force in some maritime countries.
There are three significant differences between the 1957 and 1976 Conventions, and these differences shall be briefly highlighted below.
Firstly, under the 1957 Convention, the Claimant was entitled to the full compensation for his claim unless the shipowner, who seeks to limit his liability, provides evidence to the court to show that the loss which the Claimant suffered was caused without his actual fault or privity. Thus, under the 1957 convention, the burden of proof was on the shipowner to prove that he was entitled to limit his liability, and if he failed to establish this burden of proof, the Claimant would be fully compensated for his claim. It can therefore be seen that it was very difficult for a shipowner to limit his liability under the 1957 regime.
The term, actual fault or privity, was explained by Muhammad, J, in The Leliegracht where his Lordship held thus:
“From the brief discussion of the above cases, the words “actual fault or privity” infer something personal to the shipowner as distinguished from constructive fault or privity such as the fault or privity of his servants or agents and in respect of a company it must be the fault or privity of somebody in the company whose action is the very action of the company itself.”
The 1976 Convention however provides that the liability of a shipowner would be limited as a matter of course unless the Claimant is able to prove that the loss resulted from the personal act or omission of the shipowner, or other person liable, committed with intent to cause such loss, or recklessly and with knowledge that such loss would probably result.
Thus, unlike the 1957 Convention, the burden of proof under the 1976 Convention now lies upon the Claimant to adduce evidence showing why the liability of the shipowner should not be limited. It should therefore be noted that under the 1976 Convention, it is now almost impossible for a Claimant to prevent a shipowner from limiting its liability because before a Claimant can successfully prevent the limitation of liability by a shipowner, he must adduce evidence showing that the loss resulted from the personal act or omission of the shipowner, or other person liable, committed with intent to cause such loss, or recklessly and with knowledge that such loss would probably result.
Secondly, under the 1957 Convention, the calculation of the limitation sum was based on gold francs. Thus, the Minister had to use his power under the Old Merchant Shipping Act, 1962, to determine a Naira equivalent for gold franc. As at 1971 when Naira was introduced as the official currency of Nigeria, the value of one Gold Franc was N47 per ton of the ship’s tonnage. 23 Conversely, under the 1976 Convention, the Gold Franc was discarded and the calculation of the limitation sum is now based on SDR.
Thirdly, under the 1957 Convention, the limitation sum which third parties are entitled to receive is very minimal unlike under the 1976 Convention where the limitation sum which third parties are entitled to receive has been significantly increased.
Instances where limitation of liability would be permitted
Section 351 (1) of the Merchant Shipping Act, 2007 provides that shipowners and salvors shall be able to limit their liabilities in respect of certain claims provided in the Act.
Section 352 (1) (a)-(g) of the Merchant Shipping Act, 2007 then goes ahead to provide for the circumstances where the liabilities of shipowners and salvors can be limited as follows:
- “Claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connection with the operation of the ship or with salvage operations, and consequential loss resulting therefrom;
- Claims in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;
- Claims in respect of loss resulting from infringement of rights other than contractual rights, occurring in direct connection with the operation of the ship or salvage operations;
- Claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship;
- Claims of a person other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with this part of this Act, and further loss caused by such measures;
- Claims in respect of floating platforms constructed for the purpose of exploring or exploiting the natural resources of the sea-bed or the subsoil thereof;
- Claims in respect of the raising, removal, destruction or
- The rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship.”
The implication of the provisions stated above is that where a shipowner is able to establish that the claim against him falls under any of the categories mentioned above, such a shipowner would be permitted to limit his liability in line with the provisions of the Merchant Shipping Act, 2007; but if the claim does not fall under any of the sub-heads mentioned above, the shipowner would be precluded from limiting his liability.
Section 356 of the Merchant Shipping Act, 2007 goes further to provide the extent of the limitation of liability of shipowners in respect of the claims mentioned above. Under Section 356 (1) (b) (i) of the Merchant Shipping Act, 2007, the limitation sum for a ship with tonnage not exceeding 2,000 tons shall be 1 Million Units of Account (SDR).
Instances where the limitation of liability would be broken
Although it will be extremely difficult for a Claimant to prevent a shipowner from limiting his liability in respect of a particular claim under the 1976 Convention, a shipowner would nevertheless be prevented from limiting his liability if the Claimant is able to prove that the loss or damage resulted from his personal act or omission or the act or omission of his servants or agents acting within the scope of their employments committed with the intent to cause such loss or damage or recklessly and with knowledge that such loss would probably result.
In the case of Complaint of Watershed Marine28 the court refused a petition for the limitation of liability on the ground that the vessel was unseaworthy since the shipowner employed a Master and Pilot who were not fully trained in the use of Automatic Radar Plotting Aid (ARPA). The vessel, the SEAPRIDE II, whilst sailing on the Delaware River in fog became involved in an accident with a lower supporting highvoltage transmission wires across the river. The shipowner equipped his vessel with an ARPA as required by Chapter V Regulation 12 of the Treaty on Safety of Life at Sea (SOLAS) but the court held that mere equipping of the vessel with ARPA was insufficient. The court also held that the shipowner had a nondelegable duty to also provide his vessel with persons trained in ARPA operation and failure to do so rendered the vessel unseaworthy. The Court further held that the unseaworthiness was imputed to the shipowner and found to be within his privity and knowledge because of his failure to select a proper crew at commencement of the voyage.
Furthermore, it should be noted that the court will not permit a shipowner to limit his liability where the shipowner had voluntarily settled the claims of the Claimant before deciding to institute a limitation of liability proceedings. In The Leliegracht,29the court held that the Plaintiff could not limit its liability because it had voluntarily settled the claims of the Defendants’ before it decided to institute the limitation of proceedings action. Muhammad, J held as follows:
“The mode of obtaining this limitation of liability is for the shipowner to pay the statutory amount into court, in an action in which he asks for a decree limiting his liability to that sum. The various claims are then ascertained, and the fund is distributed rateably. A shipowner must first come to court and obtain a limitation decree. Where a shipowner settles with the Claimants, it is my opinion that he cannot turn around and invoke the limitation provided by S. 383 of the Merchant Shipping Act, 1962.” 30 (Emphasis supplied)
Claims excluded from limitation of liability in Nigeria.
As stated earlier, not all claims against a shipowner are susceptible to limitation of liability. The 1976 Convention31 as well as the Merchant Shipping Act, 2007 make adequate provisions on claims which are excluded from limitation of liability.
Section 353 of the Merchant Shipping Act, 2007 provides that the liability of a shipowner shall be excluded from limitation in respect of the following:
- “Claims for salvage or contribution in general average;
- claims for oil pollution damage within the meaning of the International Convention on Civil Liability for Oil Pollution Damage or of any amendment thereto which is in force;
- claims subject to any International Convention or national legislation governing or prohibiting limitation of liability for nuclear damage;
- claims against the shipowner of a nuclear ship for nuclear damage;
- claims by servants of the shipowner or salvor whose duties are connected with the ship or the salvage operations, including claims of their heirs, dependants or other persons entitled to make such claims, if under the law governing the contract of service between the shipowner or salvor and such servant the shipowner or salvor is entitled to limit his liability in respect of such claims, or if he is by such law only permitted to limit his liability to an amount greater than that provided for in section of this Act.”
It is therefore submitted that where a claim against a shipowner falls under any of the categories mentioned above, such a shipowner would not be able to limit his liability, and he would consequently be entitled to compensate the Claimant for his full claim if the Claimant is able to establish that the damage which he suffered was caused by the shipowner’s vessel.
It should further be noted that Section 27 (1) of the National Environmental Standards and Regulations Enforcement Agency (Establishment) Act, 2007 makes it a criminal offence for any individual or corporate body (this includes a shipowner) who discharges harmful quantities of any hazardous substance into the air or upon the land and the waters of Nigeria or at the adjoining shorelines except where such discharge is permitted or authorized under any law in force in Nigeria.
It therefore goes without saying that asides from not being able to limit his liability, a shipowner would also be liable to be prosecuted for a criminal offence where the subject-matter of a Claimant’s claim against the shipowner involves the discharge of harmful quantities of hazardous substance such as oil pollution damage into the waters of Nigeria.
Procedure for commencing a limitation of liability proceedings in Nigeria.
The Admiralty Jurisdiction Procedure Rules, 2011 provides that an admiralty action filed at the Federal High Court can only be commenced either by a Writ of Summons or an Originating Summons.
Order 15 Rule 1 (4) of the Admiralty Jurisdiction Procedure Rules, 2011 however provides that a limitation of liability proceedings shall be commenced through the filing of an Originating Summons at the registry of the Federal High Court— and the Originating Summons is expected to be accompanied by the following processes: (a) an affidavit setting out the facts relied upon; (b) copies of all the exhibits to be relied upon; and (c) a written address.
It is important to note that the Federal High Court Rules, 2007 does not make provision for the filing of a written address in support of an Originating Summons—it is therefore a positive development that the Admiralty Jurisdiction Procedure Rules, 2011 makes it mandatory for a written address to be filed in support of an Originating Summons in respect of admiralty actions at the Federal High Court.
As discussed earlier in this paper, a shipowner has an option to bring the limitation of liability proceedings at the Judicial Division where the incident which gave rise to the limitation proceedings occurred or at the Judicial Division where any of the Claimants’ reside or at the Judicial Division where the shipowner’s vessel was arrested by any of the Claimants
After the service of the Originating Summons upon the Claimant, the court shall decide on whether or not the liability of the shipowner ought to be limited and it shall also decide the extent of the liability. Once the court grants an order limiting the shipowner’s liability and setting up the limitation fund, the court shall proceed to grant an order mandating the shipowner to place an advertorial of the order setting up the limitation fund in a National Newspaper in order to enable other members of the public who might have suffered a loss/damage to their property from the incident which gave rise to the limitation proceedings to make a claim to the limitation fund—the order usually states that interested members of the public must make a claim to the limitation fund within a given period of time.
Upon the expiration of the time for making a claim to the limitation fund, the court shall assess the strength of the Claimants’ claim and make an order distributing the limitation fund based on the strength of the Claimants’ case.
It should be noted that a limitation fund which has been duly setup in respect of an incident shall cover the aggregate of all the claims arising from the incident which gave rise to the setting up of a limitation fund . Thus, a shipowner would only be obliged to setup just one limitation fund in respect of an incident even if there is a cavalcade of Claimants who suffered damages/losses as a result of the incident which led to the setting up of the limitation fund.
Practical tips to consider in limitation of liability proceedings
Where a solicitor is acting on behalf of a shipowner in respect of an accident or collision which results in the damage of another vessel, loss of life or serious injury to any person, the first steps for such a solicitor to take will be to obtain all the relevant facts surrounding the incident (name of vessel, flag of vessel, time the incident occurred, likely cause etc.) from the shipowner, contact a marine surveyor to survey the vessel and assess the extent as well as cause of the damage, ensure that the master of the vessel makes a report of the incident to the minister’s representative (NIMASA) as failure to report such an incident is a criminal offence under Section 275 (4) of the Merchant Shipping Act, 2007. The solicitor is also expected to file a caveat37 against arrest in respect of the vessel which was involved in the incident and its sister vessels. The solicitor should thereafter proceed to file a limitation of liability action in court where the claim falls under the categories of claims which can be limited.
A solicitor who is acting on behalf of a Claimant must take cognisance of the following:
- Investigate whether the vessel was seaworthy at the time of the incident. 39
- Investigate whether the incident falls under the category where the shipowner can limit its liability.
- Ensure his client prepares a comprehensive, convincing, simple and detailed report of all the expenses which it has incurred as a result of the incident which gave rise to the institution of the limitation of liability proceedings.
- That actions against a shipowner to enforce any claim must be commenced within 2 (two) years from the date the cause of action arose.
In conclusion, it is respectfully submitted that the mere fact that the 1976 Convention on Limitation of Liability and the Merchant Shipping Act, 2007 makes it very easy for a shipowner to be able to limit his liability in respect of certain claims should not act as a form of encouragement for Nigerian shipowners to manage their fleet of vessels recklessly or to make use of unseaworthy vessels in transporting cargoes from one port to the other.
…the mere fact that the 1976 Convention on Limitation of Liability and the Merchant Shipping Act, 2007 makes it very easy for a shipowner to be able to limit his liability in respect of certain claims should not act as a form of encouragement for Nigerian shipowners to manage their fleet of vessels recklessly or to make use of unseaworthy vessels in transporting cargoes from one port to the other.