Saving Grace for Shipowners – The “Tonnage Limitation” Principle
Most commercial vessels today are not owned by a single company but by a fund, which involves multiple persons or companies buying a ship together, resulting in shared ownership and risk. To avoid the heavy burden of managing the ships themselves, most of the shipowners would lease their ships to ship management companies, who will normally be tasked with procuring the necessary approvals from classification societies, operating the ships and providing technical, commercial and crewing management of the ships.
Since ship management companies operate ships under the employment of the shipowners, shipowners may be vicariously liable for the damage caused by the negligence of the ship management companies. This at times seemed unfair for the shipowners, as shipowners often do not have control over how the ships are to be operated by the ship management companies. In this article, we attempt to explore what many describe as the ‘saving grace’ for shipowners – the Tonnage Limitation Principle.
Tonnage Limitation Principle
The Tonnage Limitation Principle is found in the Sixteenth Schedule and Section 360 of the Merchant Shipping Ordinance 1952 (“MSA 1952”), as amended by Merchant Shipping (Amendment and Extension) Act 2011 (“MSA 2011”). The MSA 2011 adopts the “Convention on Limitation of Liability of Maritime Claims – as amended by the Protocol of 1996” in Peninsular Malaysia and Labuan.
The Tonnage Limitation Principle provides that shipowners are entitled to limit their liabilities for the following claims (whatever the basis of liability is), as set out in Article 2, Sixteenth Schedule of the MSA 1952 –
- loss of life or personal injury or loss of or damage to property, occurring on board or in direct connection with the operation of the ship;
- consequential losses resulting from the above;
- loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;
- other loss resulting from infringement of rights other than contractual rights, occurring in direct connection with the operation of the ship;
- claims in respect of the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned; or
- claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship; (collectively, “Applicable Claims”).
provided that these occurrences are not results of the shipowners’ personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.
Limits of liability
Under the MSA 1952, the limits of liability for the shipowners in respect of the Applicable Claims are calculated based on the “Units of Account”. These Units of Accounts are special drawing rights (“SDR”) set out by the International Monetary Fund against the national currency, ie. Ringgit Malaysia. As of 22.6.2021, 1000 Special Drawing Rights are equivalent to RM 5,921.91.
The limits of liability for Applicable Claims, as set out in Article 6 of the MSA 1952, are summarized below –
| Type of Claims | Calculation of General Limits |
| Loss of life or personal injury | (a) 2 million SDRs for a ship with a tonnage not exceeding 2,000 tons;
(b) For a ship with a tonnage in excess thereof, the following amount in addition to that mentioned in (a): (i) For each ton from 2,001 to 30,000 tons, 800 SDRs; (ii) For each ton from 30,001 to 70,000 tons, 600 SDRs; and (iii) For each ton in excess of 70,000 tons, 400 SDRs. |
| Other claims (as set out in Article 2, Sixteenth Schedule) | (a) 1 million SDRs for a ship with a tonnage not exceeding 2,000 tons;
(b) For a ship with a tonnage in excess thereof, the following amount in addition to that mentioned in (a): (i) For each ton from 2,001 to 30,000 tons, 400 SDRs; (ii) For each ton from 30,001 to 70,000 tons, 300 SDRs; and (iii) For each ton in excess of 70,000 tons, 200 SDRs.
|
As can be seen from the above, under the Tonnage Limitation Principle, the limits of shipowners’ liability are derived based on a ship’s tonnage, which is a measurement of the overall size of a ship in tons.
For example, a shipowner of a 2000-ton ship will be entitled to a limit of liability of 2 million SDRs (for loss of life or personal injury occurring on board of the ship), which when converted to MYR, amounts to approximately RM11.8 million (as at 22.6.2021). In other words, the shipowner will not be liable for claims arising from loss of life or personal injury in the excess of RM 11.84 million.
Exception to the Tonnage Limitation Principle
As mentioned above, there is an exception to the applicability Tonnage Limitation Principle, which bars shipowners from limiting their liability. This exception is found in Article 4 of the MSO 1952, which states that –
“A person 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”
In other words, in order to prevent a shipowner from limiting its liability under MSO 1952, the onus is on the claimant to prove that –
- the loss was caused by the personal act or omission of the shipowner; and
- the personal act or omission were committed intentionally, or both recklessly and with knowledge that the loss would probably result.
[MSC Mediterranean Shipping Co SA v Delumar BVBA [2000] 2 All ER (Comm) 458]
At the moment, there is no reported case law in Malaysia that discusses the nature and extent of such burden. However, as the case laws in the UK indicate, the burden on a claimant to prevent the shipowners from limiting its liability is a heavy and onerous one. In The Bowbelle [1990] 3 All ER 476, Sheen J, when discussing the effect of the Tonnage Limitation Principle, reckoned that it is ‘almost an indisputable right [for shipowners] to limit their liability’. Similarly, in Margolle & Anor v Delta Maritime Co Ltd [2003] 1 All ER (Comm) 102, Gross J held that in practical terms, it was likely that only in truly exceptional cases would any real prospect of defeating a shipowner’s right to limit arise.
However, more recently, in Kairos Shipping Ltd and another company v Enka & Co Ltd and others, the English Admiralty Court dismissed a limitation decree by a shipowner, as there was evidence that the loss was deliberately caused by the alter ago of the shipowners. In this case, the vessel was deliberately sunk by the master and chief engineer on the instruction of the shipowners, which resulted in the loss of cargo. The Court held that this is a clear case whereby the loss of cargo was resulted from the personal act of the shipowners, committed with the intent to cause such loss.
Conclusion
In short, the Tonnage Limitation Principle acts as a saving grace for shipowners, as it seeks to protect them from the losses beyond their control by placing a limit on their liabilities. This allows for a more robust shipping industry to function, as ships’ activities will not be restrained solely by the fear of unlimited liabilities towards third parties.
Having said that, the law is also fair. It strikes a balance between the rights of the shipowners to limit liability, and the rights of the victims. This balance comes in the form of protecting victims from irresponsible or reckless behaviour of shipowners. If the shipowners were to intentionally cause loss to victims, or acted in gross recklessness without regard to the rights of others, then the law lifts the veil of protection accorded to shipowners under the Tonnage Limitation Principle. It is hence important for shipowners to take heed that the saving grace is only for the blameless and worthy.
If you have any queries on the above, please feel free to contact the authors of the article via enquiry@jasperhee.com.
Published by JHP Publications.