Limiting shipowner liability: how to have your cake and eat it

Limiting shipowner liability: how to have your cake and eat it
Emeka Akabogu 02 January 2019 https://www.internationallawoffice.com/Newsletters/Shipping-Transport/Ni...

Introduction

Imagine that a ship has caused damage and the claims to which the shipowner will be exposed are significant. The claimant has yet to arrest the vessel, but is likely to do so at any time. The shipowner will not want its vessel to be arrested, but it also will not want to pay damages to the extent of the actual claim.

Luckily, shipowners can ensure that their ships are not arrested and at the same time significantly limit the total amount payable. In addition, shipowners do not have to accept liability. If this is not having your cake and eating it, then nothing is.

Limitation of liability

The concept of limitation of liability is firmly rooted in Nigeria's maritime laws. Under the Merchant Shipping Act 2007, a number of claims can be subject to limitation of liability, including claims concerning:

loss of life or personal injury;
loss of or damage to property;
loss resulting from a delay in the carriage of cargo, passengers or luggage by sea;
loss resulting from the infringement of rights other than contractual ones;
the removal, destruction or rendering harmless of a ship's cargo; and
the raising, removal, destruction or rendering harmless of a sunken, wrecked, stranded or abandoned ship.

However, the good news for non-shipowners and other non-ship interests is that not all claims are subject to limitation of liability, including claims arising from conduct against which limitation of liability is barred. Parties should consult a solicitor to determine the claims in respect of which limitation is applicable.

Liability in respect of a claim is not limited as a matter of course. A party that thinks that a claim may be made against it can immediately apply to the courts to determine whether their liability may be limited in law.

Minimum limitation amount

The Merchant Shipping Act includes a minimum limitation amount. However, this is dependent on the extent of the claim. The minimum limitation amount in respect of a claim for loss of life is 2 million units of account (approximately N1 billion), while for other claims it is 1 million units of account (approximately N500 million). Given that these amounts are considerable by Nigerian standards, limitation proceedings are seldom commenced in court in respect of claims which are deemed to be dispute worthy. They may be more readily commenced where the incident leading to the claim resulted in considerable loss of life, personal injury or environmental damage or where major infrastructural or asset damage has occurred. The limit of liability as determined by the court will apply to the aggregate of all claims arising from a distinct event.

Comment

While there are advantages to limitation, such proceedings are not always easy. A determination of an entitlement to limit may be set aside or bind only one category of persons, leaving the shipowner open to the risk of liability by indeterminate parties. Parties which may be entitled to claim out of a court-constituted limitation fund must be aware of certain outcomes, including the court-ordered advertisement of a determination. In all circumstances, affected parties should tread carefully and consult solicitors skilled in Nigerian admiralty proceedings.