Article by Michael Thomas
The rule that a shipowner can limit his liability to persons suffering loss or damage through the negligent navigation of his ship is one which sets shipping apart from all other branches of industry and commerce. Whatever may have been the case on the Continent, where the rule is said by writers of authority to have been part of the general maritime law, in England the rule has always been the creature of statute, with its foundation in public policy; Lord Denning, Master of the Rolls, said recently: "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."
The history of the rule can be traced back to 1733. In that year, a shipowner was held liable for the loss of a cargo of bullion taken on board in Portugal and subsequently stolen by the master. Following that decision a number of London shipowners petitioned Parliament complaining that they,
when they became owners of ships, did not apprehend themselves exposed to such hazard, or liable as owners to any greater loss than that of the ships and freight; and of the insupportable and unreasonable hardships to which our laws in this case subject them; and to which no owners of ships are exposed in other trading nations.
They went on to represent to the House "that, unless some provision be made for their relief, trade and navigation will be greatly discouraged, since owners of ships find themselves, without any fault on their part, exposed to ruin." As a result of that petition, the Responsibility of Shipowners Act was passed in 1734, limiting a shipowner's liability for loss of cargo by theft by the master or crew to the value of the ship and freight. The policy of Parliament was made clear by its preamble:
WHEREAS it is of the greatest consequence and importance to this Kingdom, to promote the increase of the number of ships and vessels, and to prevent any discouragement to merchants and others from being interested and concerned therein; And whereas it has been held, that in many cases, owners of ships or vessels are answerable for goods and merchandise shipped or put on board the same, although the said goods and merchandise, after the same have been so put on board, should be made away with by the masters or mariners of the said ships or vessels, without the knowledge or privity of the owner or owners, by means whereof merchants and others are greatly discouraged from adventuring their fortunes, as owners of ships or vessels, which will necessarily tend to the prejudice of the trade and navigation of this Kingdom . . . .
The protection offered by the statute was extremely limited in nature, a fact that was brought home by Sutton v. Mitchell. In that case a ship moored in the Thames was forcibly plundered during the night by a gang of robbers. The thieves acted on information supplied by one of the seamen on board, who later shared in the plunder. It was only the latter fact that enabled the shipowner to limit his liability; had the robbers acted otherwise than in collusion with one of the men on board, the owner's liability would have been unlimited. Alerted by this case to the dangers that they faced, a number of shipowners again petitioned Parliament, as a result of which another Responsibility of Shipowners Act was passed in 1786. This Act not only extended the relief afforded by the previous Act to cases of theft by persons other than the crew, but also provided, firstly, that owners should not be liable for any loss or damage resulting from a fire on board and, secondly, that no owner or master should be liable for the loss of any "gold, silver, diamonds, watches, jewels, or precious stones" unless the value of the same had been inserted in the bill of lading or otherwise declared to the master in writing at the time of shipment.
In 1813 yet another Responsibility of Shipowners Act was passed. It was confined to registered British seagoing ships, and once again the preamble made it clear that the privilege of limitation was granted for reasons of public policy, not justice. Although dealing mainly with the mechanics of limitation proceedings, the Act for the first time extended the events with regard to which the privilege could be claimed to loss or damage arising from collision. The limit provided by the 1734 Act was retained—the value of the vessel proceeded against and the freight she was earning or under contract to earn. Where there was more than one incident causing loss or damage during a particular voyage, a separate fund of that amount was available for each separate incident.
The principle was further extended by the Merchant Shipping Act, 1854, to cases involving loss of life and personal injury. The limit of liability was to be calculated as before, except that in those cases alone, a minimum value of £ 15 per registered ton was placed upon all seagoing vessels. However, with the exception of those cases, the owners of badly maintained or inferior ships had an advantage over the owners of well-maintained ones in that the limit of their liability, calculated by reference to, inter alia, the value of their ship, was much less. Clearly it was not the purpose of the legislature, in granting the privilege of limited liability, to encourage owners to operate inferior vessels. Accordingly, the method by which the limit of an owner's liability was to be calculated was altered by the Merchant Shipping Act Amendment Act, 1862, which struck a rough average value for all ships at £ 15 or £ 8 per ton, with the valuation to be at the higher or lower rate according to whether or not the incident was accompanied by loss of life or personal injury. Further, the 1862 Act extended to foreign ships the privilege of limitation, but not the privilege of excluding liability.
The provisions of the 1854 and 1862 Acts regarding limitation were, in substance, reenacted in the Merchant Shipping Act, 1894 (hereinafter referred to as the 1894 Act). The general law regarding limitation of liability is currently to be found in Part VIII of the 1894 Act, as subsequently amended by the Merchant Shipping Acts, 1906 and 1921, and the Merchant Shipping (Liability of Shipowners and Others) Acts, 1900 and 1958. The Merchant Shipping (Liability of Shipowners and Others) Act, 1958 (hereinafter referred to as the 1958 Act), was enacted, in the main, to give effect to the International Convention relating to the Limitation of the Liability of Owners of Seagoing Ships, signed at Brussels on October 10, 1957. No steps have yet been taken to give statutory effect to the International Convention of 1976.
About the Author
Michael Thomas. Queen's Counsel, Barrister-at-Law of the Middle Temple; LL.B. (Hons) Lond.
The author acknowledges that this paper has been compiled with the valuable assistance of Jeremy Russell, Barrister-at-Law of the Middle Temple, LL.M. (Lond.).
[Author's note: Subsequent to the presentation of this paper, the United Kingdom Parliament enacted the Merchant Shipping Act, 1979, which provides for the repeal of much of the legislation referred to in this paper. The Act also provides that, subject to certain specified additions and variations, the International Convention on Limitation of Liability for Maritime Claims, 1976, will have the force of law in the United Kingdom. When these provisions of the 1979 Act are brought into force, this summary will be primarily of historical interest.]
Citation
53 Tul. L. Rev. 1205 (1979)