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Limitation of Liability

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Accidents happen. When it happens on the high seas, the law limits the liability of the shipowner to the post-casualty value of the vessel plus pending freight. This limitation allows shipowners to avoid otherwise costly payments.

Shipowner’s Limitation of Liability Act

The Shipowner’s Limitation of Liability Act provides a vessel owner with the right to limit its liability in a maritime casualty. A vessel owner can limit its liability for any loss, damage, or injury by collision or any other act caused “without the privity or knowledge of the owner.” The plain English meaning of the term is that the accident occurred without the fault or involvement of the owner.

When the owner is an individual, the application of that test is relatively straightforward. If the owner was not operating the vessel, did not direct the operations of the vessel, and provided a seaworthy vessel with a reasonably competent crew, then any accident that arises due to a crew mistake or circumstances beyond the reasonable control and knowledge of the owner, will be subject to limitation.

Corporation

The question becomes complex when the owner is a corporation or similar legal entity, such as a limited liability company. A corporation can only make decisions and act through certain employed persons. Therefore, the question becomes what people are “mere” employees whose acts a court would deem to be “without the privity or knowledge” of the owner, and those whose acts and knowledge are deemed to be those of the owner.

The standard that has developed is that the acts and knowledge of officers, directors, and managers will be attributed to the owner-company. The acts of persons who are ministerial personnel, meaning people who perform the tasks they are assigned, are not attributable to the owner-company for purposes of the Limitation of Liability Act. In other words, for limitation of liability to apply, the accident must have occurred solely due to the negligence or wrongful act of a non-managerial employee or agent.

Must Be Seaworthy

The vessel owner’s obligation to provide a seaworthy vessel is absolute and non-delegable under maritime law. The importance of providing a seaworthy vessel is so significant that the owner is held personally liable for any failure to do so.

That obligation of seaworthiness applies to the vessel itself, it must be fit for its intended service, and must be in good repair with the proper equipment. In addition, it must be crewed with competent and duly licensed officers, and must have a competent and suitable crew.

Just because an accident occurs does not mean that the owner failed its obligation to provide a competent crew. However, if the vessel master does not hold the appropriate licenses to operate the vessel, or has a known drinking problem, or if a crew member is known to have dangerous propensities, then a court could find that the owner failed its duty to provide a seaworthy vessel.

If you are involved in a maritime accident contact the maritime law firm of Forrest & Kolodny, experienced maritime lawyers.

 

(image courtesy of Emily Beeson)

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