Limitation of Liability as a Risk Allocation Mechanism in Maritime Law

• Author: The Honourable Justice Alan MacKenzie
• Position: Judge of the High Court of New Zealand
• Pages: 1-7

(2015) 29 ANZ Mar LJ

1

The 41stAnnual MLAANZ Conference

QUEENSTOWN

11 September 2014

Frank Stuart Dethridge Memorial Address

LIMITATION OF LIABILITY AS A RISK ALLOCATION MECHANISM

IN MARITIME LAW

Justice Alan MacKenzie

*

The theme which I have chosen for this address is ‘limitation of liability as a risk allocation mechanism in

maritime law’. It is currently a topical subject, in New Zealand at least, which I hope will make it of some

interest.1But that topicality carries with it some dangers for an address such as this. There will be many among

you in this audience who are directly involved in limitation issues, on all sides. It would be hazardous for a

sitting judge to venture into the reefs and shoals of the specifics. I hope to navigate clearer waters by directing

my remarks at a more general level. I will discuss the development of the concept of limitation by examining its

history, and the policy considerations which underlie it. I will then describe the limitation of liability regimes in

place on a global basis. Finally, I will venture some thoughts on the current relevance of the concept in this

modern age.

The basic concept of limitation of liability is simple. Those involved in the ownership of a ship are entitled to

limit their lia bility in respect of claims arising out of their operations, to a total sum which is fixed by the law.

The limit is not, as is more usual, set by the practical reality of the financial capacity of the party concerned, or

the extent of his insurance cover.

Limitation in this way is not the norm for the law in allocating risk between those responsible for causing

damage and those suffering that damage. In most situations, the law serves the function of prescribing the

circumstances in which the person causing damage w ill, or will not, be liable to compensate persons harmed.

The application of the law on a claim by claim basis will determine the extent of that liability in financial terms.

The law does not, in fields other than maritime law, apply an overarching limit on the total amount to which the

wrongdoer may be subjected, when the wrongdoing from a single event or circumstance leads to a multitude of

claims.

That is not to say, of course, that the victims of accidents which cause widespread damage to many claimants, in

the non-maritime arena, will always, in the end result, be fully compensated for the amount which the law

determines as just recompense for the loss. As I have noted, the capacity of the wrongdoer to pay damages,

either directly from its own resources or from insurance, sets a de facto limit to the amount which individual

claimants will receive. In allocating the total resources available among all such claimants, the law generally

operates on a ‘first up, best dressed’ basis. The plaintiff who is quickest off the mark in enforcing his claim will

be paid ahead of his more tardy fellow sufferers.2

When the law does intervene to alter that case by case determination of liability, and the satisfaction of it, it

generally does so in a way quite the reverse of limitation of liability. The usual mechanism for addressing the

issues in volved is to provide n ot that the liability of the wrongdoer be limited, but rather that the wrongdoer

must maintain a specified level of resources, by insurance or some others means, to meet the expected liability.

In contrast, in the maritime environment, the extent of liability is fixed by law, and the law prescribes the way

the amount available is allocated among claimants. Why the n has maritime law developed a concept of limiting

*Judge of the High Court of New Zealand.

1See for example Daina Shipping Company v Te Runanga O Ngati Awa [2013] NZHC 500; 2 NZLR 799.

2Foran example of the operation of that p rinciple, seeCox v BanksideMembers AgencyLtd[1995]

2 Lloyd’s Rep437 (CA).