The principle of limitation of liability
The Convention on Limitation of Liability for Maritime Claims, 1976, as amended by its protocol of 1996 (LLMC), allows shipowners and certain other parties to limit their liability for particular claims by constituting a so-called limitation fund. The amount of the fund depends on the type of claim and the tonnage of the ship.
Article 2 (1)(a)-(f) of the LLMC lists the types of claims that may be subject to limitation. Article 3 of the LLMC determines which claims are excluded from limitation.
Under Article 18 of the LLMC, states can reserve the right to exclude the application of Article 2 (1)(d) and (e) of the LLMC on wreck and cargo removal claims. This means that if a state has made a reservation on the basis of Article 18 of the LLMC, it is not possible to limit liability for these claims, unless limitation of liability is provided for through other mechanisms. The Netherlands has chosen to make a reservation under Article 18 of the LLMC and has opted to lay down in national law that limitation of liability for wreck and cargo removal claims can be done through constituting a separate so-called "wreck fund", to be distinguished from the property and persons claims fund. The amount of the wreck fund equals the amount of the property fund. This means that in case of an incident which involves wreck and/or cargo removal, these claims do not have to compete with the other claims in the property fund.
Classification of claims
Since multiple funds may be constituted, the question may arise as to how to classify the claim in accordance with Article 2 (1) of the LLMC in order to determine which fund is available for payment of each separate claim.
In a recent judgment, the Dutch Supreme Court ruled on how to determine which claims are paid out of the property fund and which are paid out of the wreck fund if a party has chosen to constitute both funds. The Netherlands has recently issued a legislative proposal which aims to abolish the wreck fund introducing unlimited liability for wreck and cargo removal claims. This development makes the Supreme Court judgment even more relevant.
The Supreme Court judgment dated 2 February 2018
The description of claims subject to limitation of liability set out in Article 2 (1)(a) of the LLMC ("claims in respect of loss of life or personal injury or loss of or damage to property and consequential loss resulting therefrom") is broad. As a result, certain claims can be classified as a claim set out in Article (1)(a) of the LLMC, but also as a claim set out in Article 2 (1)(d) or (e) of the LLMC.
In October 2008, the Dutch inland vessel RIAD collided with the Dutch seagoing vessel WISDOM on the Oude Maas. As a consequence the RIAD sank. The owner of the WISDOM had limited liability by establishing a property fund as well as a wreck fund. The Dutch state initially ordered the removal of the wreck. Cargo interests of the RIAD provided security to the amount of EUR 600,000 to the state for the costs which could be incurred due to the wreck and cargo removal operation. The Dutch state eventually took matters into its own hands and paid for the wreck and cargo removal operation, following which it obtained payment under the guarantee to the amount of EUR 560,790.72. The cargo interests of the RIAD wished to recover these costs from the wreck fund. The owner of the WISDOM argued that the claim of the cargo interests should instead be paid out of the property fund. According to the owner of the WISDOM, the claim of the cargo interests is a recourse claim and therefore strictly speaking not a claim for the raising, removal, destruction or the rendering harmless of a ship which is wrecked or her cargo.
The Supreme Court ruled that (in order to determine which fund is made available for payment of each claim) the subject of the claim is the decisive factor, and not the legal basis of that specific claim. As a consequence, limitation of liability for wreck and cargo removal claims can only be achieved by constituting a separate wreck fund even if instituted by way of a recourse claim.
The Supreme Court considered that the wording and context of Article 2 of the LLMC should be interpreted in accordance with Articles 31-33 of the Vienna Convention on the Law of Treaties, even though the wreck fund as such is a rule of Dutch law. Article 2 of the LLMC refers to specific subjects of the claim, and in addition mentions these subjects with the remark "whatever the basis of liability may be" and the remark "even if brought by way of recourse or for indemnity under a contract or otherwise". In addition, the Supreme Court considered that a special regime created pursuant to a reservation in accordance with Article 18 of the LLMC takes precedent over Article 2 (1)(a) of the LLMC because this regime is then to be regarded as lex specialis.
The Supreme Court further considered that due to the nature and objective of Article 18 (1) of the LLMC, the ability to claim in the wreck fund is not limited to official waterway authorities.
Legislative proposal
The idea behind the new legislative proposal appears to be that the Dutch state will no longer be confronted with limitation of liability in case of claims for a wreck or cargo removal operation. However, this recent Supreme Court judgment shows that the wreck fund is also there for recourse claims from the other parties involved, providing a possibility to quickly resolve and settle disputes. Abolishing the wreck fund may have an impact on the approach taken by parties such as the owners and underwriters after an incident and lead to a less favourable position for the Dutch shipping industry. At the time the Netherlands made the reservation under Article 18 of the LLMC and the wreck fund was introduced, this was considered a decisive argument.
It remains to be seen whether, failing a special regime for wreck and cargo removal claims, such claims will still be classified in the same manner. Such claims may then be regarded as property claims resulting in more claims having to share in a single fund.
Conclusion
The Dutch special regime for limitation of liability for wreck and cargo removal claims offers parties an efficient way to settle their claims. It provides for multiple funds, meaning that property claims and wreck and cargo removal claims are paid out of separate funds even if instituted by way of a recourse claim and independent of the claim's legal basis. From a maritime industry point of view, this regime is to be preferred over unlimited liability. From a government point of view, this should also be preferred as unlimited liability may lead to more insecurity in respect of recourse possibilities, especially in view of the fact that there are also countries that do not have the reservation under Article 18 of the LLMC in place.
If you have any questions about this subject, please do not hesitate to contact Vivian van der Kuil or Liselotte Meijer.
The principle of limitation of liability
The Convention on Limitation of Liability for Maritime Claims, 1976, as amended by its protocol of 1996 (LLMC), allows shipowners and certain other parties to limit their liability for particular claims by constituting a so-called limitation fund. The amount of the fund depends on the type of claim and the tonnage of the ship.
Article 2 (1)(a)-(f) of the LLMC lists the types of claims that may be subject to limitation. Article 3 of the LLMC determines which claims are excluded from limitation.
Under Article 18 of the LLMC, states can reserve the right to exclude the application of Article 2 (1)(d) and (e) of the LLMC on wreck and cargo removal claims. This means that if a state has made a reservation on the basis of Article 18 of the LLMC, it is not possible to limit liability for these claims, unless limitation of liability is provided for through other mechanisms. The Netherlands has chosen to make a reservation under Article 18 of the LLMC and has opted to lay down in national law that limitation of liability for wreck and cargo removal claims can be done through constituting a separate so-called "wreck fund", to be distinguished from the property and persons claims fund. The amount of the wreck fund equals the amount of the property fund. This means that in case of an incident which involves wreck and/or cargo removal, these claims do not have to compete with the other claims in the property fund.
Classification of claims
Since multiple funds may be constituted, the question may arise as to how to classify the claim in accordance with Article 2 (1) of the LLMC in order to determine which fund is available for payment of each separate claim.
In a recent judgment, the Dutch Supreme Court ruled on how to determine which claims are paid out of the property fund and which are paid out of the wreck fund if a party has chosen to constitute both funds. The Netherlands has recently issued a legislative proposal which aims to abolish the wreck fund introducing unlimited liability for wreck and cargo removal claims. This development makes the Supreme Court judgment even more relevant.
The Supreme Court judgment dated 2 February 2018
The description of claims subject to limitation of liability set out in Article 2 (1)(a) of the LLMC ("claims in respect of loss of life or personal injury or loss of or damage to property and consequential loss resulting therefrom") is broad. As a result, certain claims can be classified as a claim set out in Article (1)(a) of the LLMC, but also as a claim set out in Article 2 (1)(d) or (e) of the LLMC.
In October 2008, the Dutch inland vessel RIAD collided with the Dutch seagoing vessel WISDOM on the Oude Maas. As a consequence the RIAD sank. The owner of the WISDOM had limited liability by establishing a property fund as well as a wreck fund. The Dutch state initially ordered the removal of the wreck. Cargo interests of the RIAD provided security to the amount of EUR 600,000 to the state for the costs which could be incurred due to the wreck and cargo removal operation. The Dutch state eventually took matters into its own hands and paid for the wreck and cargo removal operation, following which it obtained payment under the guarantee to the amount of EUR 560,790.72. The cargo interests of the RIAD wished to recover these costs from the wreck fund. The owner of the WISDOM argued that the claim of the cargo interests should instead be paid out of the property fund. According to the owner of the WISDOM, the claim of the cargo interests is a recourse claim and therefore strictly speaking not a claim for the raising, removal, destruction or the rendering harmless of a ship which is wrecked or her cargo.
The Supreme Court ruled that (in order to determine which fund is made available for payment of each claim) the subject of the claim is the decisive factor, and not the legal basis of that specific claim. As a consequence, limitation of liability for wreck and cargo removal claims can only be achieved by constituting a separate wreck fund even if instituted by way of a recourse claim.
The Supreme Court considered that the wording and context of Article 2 of the LLMC should be interpreted in accordance with Articles 31-33 of the Vienna Convention on the Law of Treaties, even though the wreck fund as such is a rule of Dutch law. Article 2 of the LLMC refers to specific subjects of the claim, and in addition mentions these subjects with the remark "whatever the basis of liability may be" and the remark "even if brought by way of recourse or for indemnity under a contract or otherwise". In addition, the Supreme Court considered that a special regime created pursuant to a reservation in accordance with Article 18 of the LLMC takes precedent over Article 2 (1)(a) of the LLMC because this regime is then to be regarded as lex specialis.
The Supreme Court further considered that due to the nature and objective of Article 18 (1) of the LLMC, the ability to claim in the wreck fund is not limited to official waterway authorities.
Legislative proposal
The idea behind the new legislative proposal appears to be that the Dutch state will no longer be confronted with limitation of liability in case of claims for a wreck or cargo removal operation. However, this recent Supreme Court judgment shows that the wreck fund is also there for recourse claims from the other parties involved, providing a possibility to quickly resolve and settle disputes. Abolishing the wreck fund may have an impact on the approach taken by parties such as the owners and underwriters after an incident and lead to a less favourable position for the Dutch shipping industry. At the time the Netherlands made the reservation under Article 18 of the LLMC and the wreck fund was introduced, this was considered a decisive argument.
It remains to be seen whether, failing a special regime for wreck and cargo removal claims, such claims will still be classified in the same manner. Such claims may then be regarded as property claims resulting in more claims having to share in a single fund.
Conclusion
The Dutch special regime for limitation of liability for wreck and cargo removal claims offers parties an efficient way to settle their claims. It provides for multiple funds, meaning that property claims and wreck and cargo removal claims are paid out of separate funds even if instituted by way of a recourse claim and independent of the claim's legal basis. From a maritime industry point of view, this regime is to be preferred over unlimited liability. From a government point of view, this should also be preferred as unlimited liability may lead to more insecurity in respect of recourse possibilities, especially in view of the fact that there are also countries that do not have the reservation under Article 18 of the LLMC in place.
If you have any questions about this subject, please do not hesitate to contact Vivian van der Kuil or Liselotte Meijer.