In the Wake of the Montreal Convention: Why Maritime Law Should Abolish Limited Liability for Personal Injury and Death Claims

• Author: Maxwell Smith
• Position: Student, BA/LLB(Hons), University of Auckland. I am grateful to Associate Professor Paul Myburgh of the University of Auckland for his valuable assistance in the completion of this paper
• Pages: 36-52

(2015) 29 ANZ Mar LJ

36

IN THE WAKE OF THE MONTREAL CONVENTION:

WHY MARITIME LAW SHOULD ABOLISH LIMITED LIABILITY

FOR PERSONAL INJURY AND DEATH CLAIMS

Maxwell Smith*

1 Introduction

In 2002 a small inflatable boat operated by Yachting New Zealand collided with American windsurfer

Kimberley Birkenfeld off the coast of Greece.1 Ms Birkenfeld suffered severe injuries as a result of the collision

and is now a tetraplegic suffering from post-traumatic stress disorder. She brought a claim for NZD 15 millio n

in damages in the High Court of New Zealand. Yachting New Zealand brought a separate action and

successfully limited their liability to less than NZD 400 000 on application of a tonnage formula.2

Given that the average first year costs alone associated with tetraplegia in California are between USD 700 000

and 1.2 million, the award to Ms Birkenfeld was consequently totally inadequate compensation for her injuries.3

She went from being a professional athlete to someone confined to a wheelchair for the rest of her life. The

tragic nature of this accident and her failure to receive full compensation demonstrates the injustice that can

result from maritime limitation of liability in a personal injury context.

Limitation of liability is the rule that allows the owner, charterer, manager or operator of a seagoing ship

(hereafter referred to collectively as ‘shipowners’) to limit their liability for ‘claims in respect of loss of life or

personal injury or loss of or damage to property’.4 Following an accident for which they are liable, the

shipowner puts up a set fund in the amount of the liability limit.5 This can be done either by making a cash

payment to the court or by presenting a letter of undertaking from a protection and indemnity (P & I) club.6 The

funds are then distributed among claimants in proportion to their origin al claims (as been proved in court), so

the amount of a ctual recovery depends on the number of claimants and the size of their respective claims.7 This

payment constitutes full and final settlement.8

There are two situations where this system produces objectionable results. The first is where there is a

catastrophic event in which there are numerous claimants and the limitation fund is exhausted. The second is

where a small ship causes serious harm or fatality and its liability is determined by the application of a tonnage

formula, as was seen in Birkenfeld. In both situa tions a claimant, having suffe red harm at the hands of another,

may be prevented from receiving full compensation.

I will argue that the limitation of liability is an unjust, discriminatory, and archaic rule that subsidises the

shipping industry at the expense of those injured by vessels. The concept has been justified on protectionist and

historical grounds that are no longer relevant. It is particularly difficult to defend its continuation following the

passage of the Convention for the Unification of Certain Rules for International Carriage by Air (the ‘Montreal

Convention’).9 This convention introduced unlimited liability to the aviation industry 15 years ago and provides

useful evidence of the viability of an unlimited liability scheme.

I will first outline the historical origins of the concept and the various international limitation of liability

instruments. Next, I will trace developments in aviation law and draw analogies with the maritime industry.

Then, I will discuss the arguments put forward supporting limitation, including the need to protect the industry,

* Student, BA/LLB(Hons), University of Auckland. I am grateful to Associate Professor Paul Myburgh of the University of Auckland for

his valuable assistance in the completion of this paper.

1 Yachting New Zealand Inc v Birkenfeld [2005] NZAR 727 (HC).

2 The result was unsuccessfully appealed to the Court of Appeal in Birkenfeld v Yachting New Zealand Inc [2007] NZCA 314; [2007] 1

NZLR 596. Leave to appeal to the Supreme Court was denied in Birkenfeld v Yachting New Zealand Inc [2006] NZSC 93; [2007] 1 NZLR

596.

3 Joseph Farzam Law Firm, Paralyzed Accident Lawyer California (2014) Joseph Farzam Law Firm -cord-

injury-lawyer/>.

4 Gotthard Gauci, ‘Limitation of Liability in Maritime Law: An Anachronism’ (1995) 19 Marine Policy 65, 65.

5 Either by making a separate application or by pleading it as a defence to proceedings: High Court Rules (NZ) r 792.

6 Cosmotrade SA v Kairos Shipping Ltd [2014] EWCA Civ 217 (6 March 2014); [2014] CP Rep 28.

7 Riaz Zaman, ‘Sailing on Troubled Waters - Antiquated US Maritime Liability Limits for Death and Injuries of Ship Passengers: Options

for Reform’ (2013) 42 Denver Journal of International Law and Policy 41, 56.

8 Serge Killingbeck, ‘Limitation of Liability for Maritime Claims and its Place in the Past Present and Future: How Can it Survive?’ (1999)

3 Southern Cross University Law Review 1, 2.

9 Convention for the Unification of Certain Rules for International Carriage by Air (Montreal Convention), 1999, 2242 UNTS 309.

Why Maritime Law Should Abolish Limited Liability for Personal Injury and Death Claims

(2015) 29 ANZ Mar LJ

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the ability to get insurance, and the avoidance of litigation. Finally , I will discuss the ethical arguments against

limitation and consider the purpose of private law. I will conclu de by recommending the adoption of a two-

tiered system of liability based on the Montreal Conven tion.

2 Historical Background

Limitation of liability arose originally as a European concept dating back to the 17th century.10 However, the

United Kingdom did not adopt limited liability until the decision of Boucher v Lawson.11 In that case, a

shipowner was held fully liable for a load of gold bullion stolen by the ship’s master, despite having no

knowledge of the theft. Shipowners consequently petitioned Parliament in 1733 complaining that the common

law exposed them to:12

… insupportable and unreasonable hardships to which no owners of ships are exposed in other nations …

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.

At this time, the United Kingdom’s trade frontiers were expanding and the shipping fraternity was becoming a

powerful lobby.13 It was argued that the common law would discourage investment in the English merchant

marine and put them at an unfair advantage with their European competitors. Consequently, the Responsibility

of Shipowners Act 1733 was enacted with the express intention of assisting the shipping industry to flourish: 14

[It was] of the utmost consequence and importance to the general welfare of this kingdom, to promote the

increase of the number of ships and vessels, and to prevent any discouragement to merchants… which

will necessarily tend to the prejudice of the trade and navigation of this kingdom.

The policy underlying the limitation of liability legislation was thus to protect a fledgling maritime trade and

encourage investment in the shipping industry. This is clearly reflected in a statement of the Privy Council: ‘the

principle of limited liability is that full indemnity, the natural right of justice, shall be abridged for political

reasons.’ 15 Similarly, Lord Denning stated in The Bramley Moore that ‘[l]imitation of liability is not a matter of

justice. It is a rule of public policy which has origins in history and its justification in convenience… ’ 16

Although initially confined to claims arising from the dishonest acts of masters, the limitation of liability was

extended to personal injury and loss of life in 185417 following the enactment of the Fatal Accidents Act 1846

(‘Lord Campbell’s Act’).18 That legislation gave surviving relatives a right of action and coincided with an

increase in the number of sea-going passengers.19

3 International Limitation of Liability Instruments

Being an international business, shipowners were keen to make the laws governing the limitation of liability

uniform. Certainty in outcome would mean parties could operate shipping ventures with full knowledge of their

rights and duties: this being conducive to international trade and investment.20 This has been achieved, to some

extent, through international conventions that provide the basis for national law. Today almost all maritime

jurisdictions have limitation of liability for maritime claims.

The first international instrument relating to the limitation of liability was the 1924 International Convention for

the Unification of Certain Rules to the Limitation of Liabilities of Owners of Sea-Going Ships.21 This provided

shipowners the right to limit their liability for the acts or faults of the master, crew, pilot or any other party

10 Killingbeck, above n 8, 3.

11 Boucher v Lawson (1733) 95 ER 53 (KB).

12 Lord Mustill, ‘Ships Are Different – Or Are They?’ [1993] Lloyd’s Maritime and Commercial Law Quarterly 490, 496.

13 Killingbeck, above n 8, 4.

14 Responsibility of Shipowners Act 1733 (GB).

15 Cail v Papayanni (The Amalia) [1863] 15 ER 778, 780 (PC).

16 The Bramley Moore [1964] 1 WLR 1330, 1334 (PC).

17 Merchant Shipping Act 1854 (UK) s 504.

18 Fatal Accidents Act 1846 (UK).

19 Nigel Taylor, ‘Limitation of Liability of Aircarriers to Aircrash Victims - Has the Warsaw Convention Reached its Retirement Age?’

[1994] Journal of Personal Injury Litigation 113, 117.

20 Bevan Marten, ‘Limitation of Liability for Personal Injury in New Zealand: ACC Meets the Sea’ (2006) 20 Australia and New Zealand

Maritime Law Journal 16, 17.

21 International Convention for the Unification of Certain Rules to the Limitation of Liabilities of Owners of Sea-Going Vessels, 1924, 120

LNTS 123.