Limitation of liability for maritime claims – an unbreakable limit?

On 26 May 2021, the Maltese Court of Appeal delivered a judgment in Mare Blu Tuna Farm Limited v Dr Ann Fenech as special mandatory for the vessel MV Coral Water.

Facts

In 2006, the MV Coral Water departed from Porto Torres, Sardinia for Tuzla, Turkey and stopped at Malta to take bunkers. Shortly after taking bunkers and setting sail – at night and in winds of five to six on the Beaufort scale – the vessel's propeller got caught in the mooring ropes of an aquaculture zone (which was not visible on the navigational chart that the master was using at the time).

The fish farm owners alleged that as a direct consequence of this collision, the vessel had torn the netting around one of its tuna cages, causing approximately 207 gross tonnes of blue fin tuna to escape. The claimant alleged that this amounted to a catastrophic loss of nearly €2 million on top of the claim for physical damage suffered to the cage, which the owners quantified at approximately €70,000.

The owners commenced an action for damages and requested the court to declare that the alleged loss had occurred as a result of gross recklessness and with the knowledge that the incident was likely to occur. The first court dismissed the claim on the ground that the claimant had failed to prove that the MV Coral Water was solely responsible for the incident due to gross negligence and, at the same time, had acted with the knowledge that an incident of this sort was likely to occur.

Decision

The plaintiff company appealed. In May 2021, the Court of Appeal determined that the master's failure to use the appropriate charts amounted to gross negligence on his part. The Court thus went on to partially overturn the first-instance court's findings, determining that the claimant's first request was merited.

However, in delivering its decision, the Court of Appeal found that this was largely a "fictitious claim", dismissing the majority of the plaintiff's claim and throwing out its €2 million claim for the alleged loss of tuna. The Court relied upon the extensive evidence produced by the defendant vessel that proved that at the time of the incident, the relevant tuna cage was in fact empty and therefore no tuna could have been lost. Nonetheless, the Court ordered the defendant vessel to pay the sum of €15,000 in damages caused, to replace the damaged equipment and cover the cost of labor. The Court found that the incident was caused due to negligent passage planning by the MV Coral Water's captain.

Analysis – limitation of liability

In this instance, the amount of damages awarded was minimal and did not trigger the vessel's need to limit its liability. Accordingly, the Court made no findings on the issue of limitation of liability. However, by accepting the claimant's first request, the Court appears to have, perhaps inadvertently, equated gross negligence with the requirements to break the limitation found under article 4 of the Convention on Limitation of Liability for Maritime Claims (LLMC). This gives rise to the question of if the damages awarded had been greater, could the Court's finding of gross negligence have led to the inability of the ship owner to limit its liability?

As stated by Lord Denning in The Bramley Moore, the limitation of liability "is not a matter of justice, it is a rule of public policy which has its origin in history and its justification in convenience". It has also been described as a concept whereby "the principle of limited liability is that full indemnity, the natural rights of justice, shall be abridged for political reasons".

Indeed, limitation of liability provisions are:

expressly designed for the purpose of encouraging shipping and affording protection to shipowners against bearing the full impact of heavy and perhaps crippling pecuniary damage sustained by reason of the negligent navigation of their ships on the part of their servants or agents.

Malta is a party to the LLMC, which was incorporated into Maltese legislation by means of Schedule 4 into Subsidiary Legislation 234.16, entitled "Limitation of Liability for Maritime Claims Regulations" (the regulations).

Article 1 of the regulations defines which persons may be entitled to limit liability. It refers to:

• ship owners – defined as "the owner, charterer, manager and operator of a seagoing ship";
• salvors; and
• persons for whose act, neglect or default the shipowner or salvor are responsible ("relevant persons").

Article 2 of the regulations states that a person entitled to limit liability may do so in respect of:

• loss of life;
• personal injury; or
• loss resulting in damage to property that occurs on board or in direct connection with the operation of the ship, and consequential loss resulting therefrom.

The regulations specify that the limit of liability for a claim arising on any distinct occasion shall be calculated according to a sliding scale based on the vessel's tonnage as measured in units of accounts, which is then converted into a monetary figure by reference to special drawing rights, as established by the International Monetary Fund.

However, the right to limit liability is not absolute. Article 4 of the regulations, which replicates ad verbatim the provisions of article 4 of the LLMC, reads as follows:

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

The threshold to break limitation is necessarily a high one, as it would otherwise defeat the purpose of such a limitation. The following elements must exist:

• a person liable;
• a personal act or omission by the liable person;
• a loss caused by the personal act or omission; and
• an intent or recklessness by the liable person, with the knowledge that the action would likely cause such loss.

Article 4 of the regulations refers to the persons who are entitled to limit liability – namely, the relevant persons mentioned under article 1 of the regulations. This would include persons for whose act, neglect or default the shipowner is liable. Under article 347 of the Merchant Shipping Act, Chapter 234 of the Laws of Malta, the shipowner is responsible "for any damages caused by acts or omissions in the navigation or management of the ship". Thus, the act or omission by a vessel's captain to conduct an adequate appraisal of a passage plan could satisfy the first two criteria listed above.

With respect to the third requirement, the Court of Appeal dismissed the claimant's allegations that it suffered a loss of €2 million as false. That said, technically, the Court did conclude that a loss was caused by the incident, albeit a minimal one of approximately €15,000. Thus, while the damages sustained fell way short of any sum that would trigger the limitation of liability, it could be argued that the third element of loss also existed.

It is the fourth element, that the claimant would have had difficulty proving. In the case of the MV Coral Water, no specific intent to cause the loss was ever alleged. However, the claimants had accused the vessel of gross negligence, and the Court of Appeal had agreed. However, the regulations provide for recklessness with knowledge to cause such loss, rather than gross negligence – are the ramifications the same?

Under Maltese law, gross negligence is interpreted as being more than just negligence on a higher degree. Maltese courts have held that "gross negligence" is equivalent to culpa lata (ie, denoting an absence of any degree of care and acting with reckless disregard to the safety or property of another).

The Maltese concept of gross negligence thus goes somewhat beyond the common law concept of "recklessly", which:

connotes either carelessness or utter heedlessness of consequences with the result that the perpetrator is deemed to have considered neither the probability nor even the possibility of a likely result.⁽⁴⁾

Nevertheless, gross negligence should not in itself mean that there was specific knowledge to cause a particular loss, as is required to break the right of limitation of liability.

The wording in article 4 of the regulations suggests that the right to limit liability is barred only if the "the type of loss intended or envisaged by the person liable is the actual loss suffered by the claimant".

Comment

It is arguable that gross negligence alone is insufficient to break a ship owner's right to limitation under article 4 of the LLMC. It would be reasonable to argue that a Maltese court would need to ascertain that the defendant not only acted or failed to act in a manner that disregarded the consequences, or in a manner where it could be reasonable to expect a particular type of damage to be suffered, but that said defendant had specific knowledge that the actual damage that was suffered would occur. In this case, the master did not know or realise that there was an aquaculture zone in the vicinity. Therefore, it would seem unreasonable to argue that his conduct could be said to satisfy the requirement of article 4 of the LLMC, triggering the exclusion of the right to limit liability.