Limitation of Liability

Limitation of Liability

Note: Where a limitation amount is expressed in SDRs we have used an exchange rate of 1 SDR=Cdn$1.75. This rate does however fluctuate. The current rate of exchange can be found at various internet sites including here.

Introduction

Limitation of liability is dealt with in Part 3 of the Marine Liability Act. Part 3 of the MLA implements the 1976 Convention on Limitation of Liability for Maritime Claims and the 1996 Protocol but with Canadian amendments and limits. These provisions originally became part of Canadian law on August 10, 1998 when they were enacted as amendments to Part IX of the Canada Shipping Act. Prior to 10 August 1998, Canada adhered to the 1957 limitation Convention which had lower limits but it was also much easier to break limitation. Immediately below is a brief summary of the limitation provisions of the Marine Liability Act.

Persons Entitled to Limit

As is well known, the 1976 Convention as amended by the 1996 Protocol regulates the limitation of liability of shipowners. Article 1 sets out the persons entitled to limit liability. They are: the owner, charterer, manager and operator of seagoing ships and salvors. Article 1(4) extends the right to limit to employees and agents of such persons. Article 1(6) extends the benefits to liability insurers of persons entitled to limit.

The MLA further extends the list of persons entitled to limit their liability beyond that allowed in the Convention. Section 25(1)(b) of the MLA extends the right to limit to owners, charterers, managers and operators of all ships and not just “seagoing” ships and further to any person with an interest in or possession of a ship. With these amendments the right to limit applies to pleasure craft on lakes and rivers as well as “seagoing” ships.

Claims Subject to Limitation

Article 2 of the Convention sets out the claims that are subject to limitation of liability. These are:

(a) 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 connexion with the operation of the ship or with salvage operations, and consequential loss resulting therefrom;
(b) claims in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;
(c) claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connexion with the operation of the ship or salvage operations;
(d) …;
(e) claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship;
(f) 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 Convention, and further loss caused by such measures.

Article 2(d), which is omitted from the above list, is "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". We have omitted it because Article 18 Convention allows states to make certain reservations as to the claims for which limiation of liability is available. In Part 3 of Schedule 1 to the MLA Canada has made such a reservation in respect of art. 2(d). Therefore, in Canada, there is no limitation of liability for wreck removal claims.

Article 3 sets out the claims excepted from limitation. The excepted claims are limited. They are: claims for salvage, claims for oil pollution damage governed by the 1969 Convention on Civil Liability for Oil Pollution, claims for nuclear damage, and claims by employees if the applicable law does not permit limitation.

Conduct Barring Limitation

Article 4 sets out the circumstances under which a person will lose their right to limit. In order to prevent a defendant from limiting his liability the plaintiff must prove that the loss resulted from the personal act or omission of the defendant “committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”. This is a very strict test and the author is not aware of any case where the test has been met. In fact, the Supreme Court of Canada described it as "a virtually unbreakable limit" in Peracomo Inc. v. Telus Communications Co., 2014 SCC 29.

The Limits

The general limits of liability are established by Article 6 of the Convention and by section 29 of the MLA. Section 29 of the MLA sets out special Canadian limits for vessels of less than 300 gross tons. For vessels of more than 300 gross tons the limitation amount is governed by the Convention. The table below summarizes the limits applicable to all claims with the exception of claims by passengers. The limits of liability for passenger claims is dealt with in Article 7 of the Convention and section 28 of the MLA. These limitations are dealt with in the next section.

Limitation Amounts – Non-Passenger Carriage

Table Notes:
(1) The amounts apply to the aggregate of all claims arising on any distinct occasion.
(2) The amounts for ships over 300 tons derive from art. 6 of Schedule 1 to the MLA. For ships less than 300 tons, the amount is stipulated in s. 29 of the MLA.
(3) As as of 8 June 2015 the limitation amounts were increased pursuant to SOR/2015-98. These new amounts are indicated in the appropriate column.
(4) SDRs are converted to CDN$ at a rate of 1 SDR=CDN$1.75. This rate does however fluctuate. The current rate of exchange can be found here.

It should be noted that pursuant to Article 6(2) where the limitation amount applicable to a personal injury claim is insufficient to satisfy all such claims the amount applicable to property damage claims shall be made available to satisfy the personal injury claims. (This does not apply to vessels under 300 tons which are governed by s. 29 of the MLA, not the convention.)

Pursuant to Article 6(4) the limits of liability applicable to a salvor not operating from a ship are to be calculated according to a tonnage of 1,500 tons.

Limits of Liability for Fatalities and Personal Injuries to Passengers

The limits of liability for claims by passengers (including participants in adventure tourism activities as defined in s. 37.1(1) of the MLA) and persons carried on board a ship are set by Article 7 and by section 28 of the MLA. Article 7 establishes the maximum liability at 175,000 SDR (C$306,250) multiplied by the number of passengers the ship is authorized to carry by her certificate. This provision, of course, requires that a ship have a certificate. It is unworkable where the ship carries passengers but is not required to have, and does not have, a certificate. In such cases, section 28(1) of the MLA provides that the limitation amount is the greater of 2,000,000 SDR (C$3,500,000) and 175,000 SDR (C$306,250) multiplied by the number of passengers on board the ship. Sections 28(2) applies a similar limit to claims for loss of life or personal injury to persons carried on a ship “otherwise than under a contract of passenger carriage”. By virtue of the exceptions in section 28(3) these limits do not apply to the master, crew, stowaways and shipwrecked persons carried out of necessity. The passenger limitation amounts also do not apply to persons carried on ships used for pleasure purposes.

Owners of Docks Canals and Ports

Section 30 of the MLA includes special limitation provisions applicable to owners of a dock, canal or port including any person having the control or management of the dock, canal or port and any ship repairer using the dock, canal or port. Such persons are entitled to limit their liability for loss caused to a ship or to any cargo or property on board the ship. The limitation amount is calculated by multiplying $1,000 by the tonnage of the largest ship to have used the dock in the last five years but is subject to a minimum of $2 million. As with claims under the Convention, the right to limit liability is lost if it is proved that the loss resulted from the personal act or omission of the person seeking to limit and “committed with intent to cause the loss or recklessly and with knowledge that the loss would probably result”.