SHIP AND LIABILITY – an introduction to Norwegian Maritime Law

Andreas Meidell, partner, dr juris

3 September 2013

Overview

1. Maritime law – characteristics and sources

2. Ship and liability – the issues most relevant for marine insurers

3. Case scenario – a typical ship collision case

4. General rules on liabiliy

5. Collisions and strikings

6. Pollution liability

7. Claims from passengers

8. Cargo claims

9. Limitation of liabilities

10. Marine accidents

11. Salvage and wreck removal

12. Claims Handling

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1. Maritime law – characteristics and sources

Maritime law is a denotation encompassing the rules and regulations applicable to shipping activities, both private and public rules of law

Marine insurance is the cover of risks involved in shipping activities

Some characteristics of maritime law: Seagoing vessels and their cargoes represent large movable

values Large seagoing vessels may cause severe damages to

persons, property and the environment Maritime legal issues will typically involve many parties from

different legal jurisdictions Maritime codes are by far based on international conventions,

and international standard contracts are extensively used

1. Maritime law – characteristics and sources, cont’d

The main sources of Norwegian maritime law are:

◦ The Maritime Code of 1994 and the Ship Safety Act of 2007 (including preparatory works, international conventions, etc)

◦ Published case law (including arbitral awards when published)

◦ Commercial contracts (including standard forms)

Owner(Bareboat charterer)

Manager

Passengers

Crew(Time

charterer)

(Sub charterer)

Class

Public authorities

Insurers

(Voyage charterer)

Cargoowner

Injured parties

Stevedores

2. Ship and liability, the issues most relevant for marine insurers

Our focus here is on the parts of maritime law that are most relevant for marine insurers.

It is important to understand the liability exposures of the insured interests:

◦ Hull & Machinery

◦ P&I

◦ Loss of Hire

◦ Cargo

◦ Defence

2. Ship and liability, the issues most relevant for marine insurers, cont’d

There is a close link between the liability a shipowner may incur, and the liability insurance coverage:

◦ Collisions

◦ Third party damages

◦ The scope of P&I cover similar to the scope of shipowners’ liability (”rederansvaret”)

3. Case scenario – a typical ship collision case

Cargo liability

Collision liabilities

Salvage

Marine accident

responses

Crew injuries

Third party damages (pollution)

A typical ship collision case normally involves many maritime legal issues:

4. General rules on liability

Marine accidents leads to damages, which again leads to losses of various kinds

Shall ”the losses lie where they fall”, or can someone (tortfeasor) be held liable?

Three basic requirements for liability in tort:◦ Financial loss

◦ Basis for liability

◦ Causation between the basis for liability and the financial loss

4. General rules on liability, cont’d

Basis for liability:◦ Culpa and the vicarious liability

◦ Strict liability

◦ Contractual liability

Culpa – negligence; general priciple in tort law

The vicarious liability:◦ MC sec 151

Strict liability:◦ E.g. pollution – MC sec 183

4. General rules on liability, cont’d

Contractual liability regulation:◦ E.g. ”knock-for-knock” provisions

Financial loss: ◦ Measure of damages in money

Causation:◦ Proximity of causes and contractual limitations

5. Collisions and strikings

Rules found in the MC Chapter 8 (based on the Collision Liability Convention of 1910)

Convention has a wide international application, however, not ratified by the US

Basis principles:◦ The principle in MC sec 161 (1): The ”reder” is liable if he or his

servants has acted negligently, thereby causing a loss.

◦ The ”Rules of the Road” are the ”traffic rules” of the sea, adopted by the international regulation for preventing collisions at sea, Convention of 1972 with later amendments.

◦ There is no room for strict liability in collision cases, see MC sec 162

5. Collisions and strikings, cont’d

Both to blame collisions, MC sec 161 (2) and (3):◦ Liability ”pro-rata” for loss/damage to goods in a both-to-blame

collision

◦ Joint and several liability for loss of life/injury to persons (MC sec 161 (3 in fine))

Collisions with other structures, such as quay structures, floating objects etc are not covered by MC Chapter 8, and must be determined according to ordinary rules on liability and tort.

Some particular issues:◦ Prescription

◦ Maritime liens

◦ Insurance cover

6. Pollution liability

Three various but similar liability regimes applicable to difference sectors:◦ Oil pollution from tankers

◦ Bunker oil pollution

◦ Liability for hazardeous and noxious substances

The international legal frame work:◦ Civil Liability Convention 1969

◦ Fund Convention 1971

◦ Civil Liability and Fund Conventions 1992

◦ Bunker Oil Convention 2001

6. Pollution liability, cont’d

MC Chapter 10: implements the 1992 and 2001 Conventions.

US Oil Pollution Act 1990 (OPA)

Scope of cover of the Convention based rules

Strict liability:◦ The starting point – Tankers: MC sec 191 (1)

– Bunker oil: MC sec 183 (1)

◦ Exceptions in MC sec 192 (1); war, natural phenomenons, third party damage, lights and navigational aids etc.

Some remarks on contributory negligence

6. Pollution liability, cont’d

Channeling of liability◦ The party strictly liable: the shipowner

◦ Channeling the liability to the shipowner, thereby protecting other groups (MC sec 193 (2))

Protection broken if cause intentionally or grossly negligently with knowledge (MC sec 191 (2))

Protection also against indemnity claims from owner (MC sec 193 (3), but categories C and D)

6. Pollution liability, cont’d

Compulsory insurance:◦ Ships carrying more than 2,000 tons of oil (MC sec 197-199)

◦ Unconditional right of direct action (MC sec 200)

The international oil pollution compensation fund(MC sec 201)◦ Scope of cover

◦ Liability for the fund

◦ Limit of liability

◦ Financing of the fund

7. Claims from passengers

Basis of liability: culpa/negligence (MC sec 418)

Burden of proof (MC sec 421):◦ Claimant has the burden of proving basis for liability and

causation.

◦ If damage has arisen from or in connection with ship wreck, collision, stranding, explosion, fire, or a defect in the ship, the carrier has the burden of proving that no fault or neglect has occurred.

Contributor or negligence by passengers (MC sec 420)

Who can claim damages (MC sec 428)

8. Cargo claims

Contracts for the carriage of goods: liner trade and general cargo:◦ Carriage of goods from one port to another

◦ The transortation documents: Bills of Lading or Sea Waybills

◦ Governed by MC sec IV Chapter 13

Chartering of ships:◦ The ship is contracted out on a voyage or timecharter and the

charterer takes care of the commercial management.

◦ The contracts: voyage or timecharter party

◦ Governed by MC sec IV Chapter 14

8. Cargo claims, cont’d

Parties to the transportation contracts:◦ Carriage of general cargo/liner trade (MC sec 251)

◦ Chartering of ships (MC sec 321)

Transportation documents/contracts:◦ Bills of Lading (MC sec 292/296)

◦ Seawaybills (MC sec 308/309)

◦ Voyage charters (MC sec 321)

◦ Time charters (MC sec 321 (Offhire sec 392))

◦ (Bareboat charters)

8. Cargo claims, cont’d

Liabilities for damage, loss or delay of cargo:

◦ Contractual freedom – mandatory provisions: MC sec 254

◦ Conventions: Hague/Hague-Visby/Hamburg/Rotterdam

◦ Basis for liability: MC sec 275

Fault/negligence Reversed burden of proof Carrier’s duty of care (MC sec 274)

8. Cargo claims, cont’d

Liability exceptions:

◦ Nautical fault and fire: MC sec 276

◦ Fault by the injured party

◦ Concurrent causes: MC sec 275(3)

◦ Cargo on deck: MC sec 263

◦ Live animals: MC sec 277

◦ Dangerous cargo: MC sec 257 and 291

◦ Norwegian domestic trade: MC sec 276(3) and 280

8. Cargo claims, cont’d

Delay:

◦ Loss may occur in two ways: The goods are damaged or destroyed because the transport

takes too long: MC sec 275-277

The goods arrive too late, and in the meantime market conditions have changed: MC sec 277

◦ Determining whether or not there has been a delay, and whether the carrier can be blamed

Liability for the information in the Bill of lading: Carrier’s duties: MC sec 298 and 299(3) Carrier’s liability: MC sec 300

8. Cargo claims, cont’d

Liability for wrongful delivery of goods

Voyage charters: MC sec 347

Time chartering: Freedom of contract: MC provides background rules of

law Cargo damage claims Liability under Bills of Lading: MC sec 382(1) Recourse against the time charterer

9. Limitation of liabilities

General and special limitation regimes:◦ Global limitation

◦ Limitation of oil pollution liability

◦ Limitation of bunker oil liability

◦ Limitation of cargo liability

◦ Limitation of passenger liability

The limitation regimes are based on international conventions but not applicable in all jurisdictions.

Why allow limitation of liability?◦ The traditional explanation

◦ The catastroph view point

◦ The insurance view point

9. Limitation of liabilities, cont’d

Who has the right to limit his liability (MC sec 171)?

◦ The ”reder”

◦ The shipowner

◦ The charterer

◦ The manager

◦ The salvor

◦ The employees of the ”reder”, shipowner, etc

◦ The liability insurer (P&I)

9. Limitation of liabilities, cont’d

Scope of global limitation (MC sec 172)

◦ The claim must relate to a specific ship

◦ Basis for liability, in principle not relevant

◦ The claim must be covered by the categories in MC sec 172 nos.1-4, typically loss of life or injuries to persons, loss of or

damage to property, damages resulting from delays, etc.

9. Limitation of liabilities, cont’d

The principle of single liability (MC sec 172 (2)):◦ Certain claims excepted from limitation (MC sec 173)

◦ Conduct barring limitation (MC Sec 174)

Limits of liability (MC sec 175)

Procedural rules – establishment of limitation fund (MC sec 177-179 and Chapter 12)

10. Marine accidents

Types: ◦ Colllisions, groundings, fire, explosions etc

Causes: ◦ Machinery problems, navigational errors, weather/sea

conditions, etc

Authorities:◦ Coastal administration

◦ Police

◦ National Marine Accident Investigation Board (”Havarikommisjon”)

◦ Flag state

Casualty investigation and report Forum Shopping

11. Salvage and wreck removal

Salvage: MC Chapter 16 (based on the 1989 Salvage Convention)

Overview: Four main conditions for obtaining a salvage award:◦ Interests capable of being solved

◦ ”In danger”

◦ Useful result

◦ Salvage under contract (Lloyds’ Open Form (LOF) 2000)

◦ Salvage: Interests capable of being solved Vessel and property: MC sec 441 Persons: MC sec 445 Environmental damage: MC sec 449 Liability and loss of time in general: No

11. Salvage and wreck removal, cont’d

Salvage: ”In danger” MC sec 441 Risk of total loss or (extensive) physical damage Must the danger be real? The degree of danger

Salvage: Useful result No cure – no pay-principle: MC sec 445 But: Damage to the environment Unsuccessful effort: Special compensation equivalent to expenses

(MC sec 449(1)) Successful effort: Special compensation equivalent to expenses plus

30-100% (MC sec 449(2))

11. Salvage and wreck removal, cont’d

Salvage: Under contract Legal rules may be set aside: MC sec 443(1) A salvage contract may be annulled or modified: MC sec 443(3) LOF 2000

Assessment of salvage award: MC sec 446◦ No preference for any one factor on the list

◦ But: skill and effort in preventing damage to the environment specifically mentioned

Apportionment between salvors:◦ Apportionment between independent salvors: MC sec 448

◦ Apportionment between owner, master and crew: MC sec 451

◦ Apportionment between the owner and time charterer: MC sec 386(2)

11. Salvage and wreck removal, cont’d

Wreck removal:

◦ Public authorities may order a wreck removal Ports and Fareway Act sec 35 Pollution Contract Act sec 7 and 37

◦ Public authorities may remove the wreck and claim compensation from the ”responsible party”

◦ Liability for wreck removal subject to global limitation: MC sec 172 a), cf 175 a)

12. Claims handling

Basis for liability/coverage? Is the liability limited? Different limitation amounts? (Forum Shopping)

◦ Short limitation periods for many maritime claims: MC sec 501

Recourse claims:◦ Recourse against charterer/shipowner?

◦ Are public authorities or other third parties liable for the loss?

◦ Maritime lien – safeguarding certain parties/persons

Arrest Direct action Dispute resolution