Shipowners Limitation of Liability

Shipping is a global business which involves many parties in day to day running of the business. It involves ship owners, ship management companies, agents and crew. Every ship that sails around the world has an Owner and in most cases ship management is entrusted to another company.

The Merchant Shipping Ordinance (“MSO”) 1952 is the bible of the Malaysian Shipping law as it has 531 sections to be exact, dealing with ship registry, ship licensing, Masters & Seamen, safety, liability of ship owners etc. Malaysia is a party to the 1957 Limitation Convention (“Convention” means the International Convention relating to the limitation of the Liability of owners of sea going ships signed in Brussels on the 10th October 1957). As such in determining the ship owner’s liability, reference has to be made to Part IX of the Merchant Shipping Ordinance 1952 and the 1957 Limitation Convention.

Sections 358 to 365A of the MSO 1952 are the relevant provisions with regards to ship owner’s liability. The limitation of liability normally applies in situations where there is a damage or loss due to the navigation of the ship, carriage of cargo and discharge etc.

The main section for ship owners’ limitation of liability under Part IX of the MSO 1952 is Sec 360, which states that, where any loss of a life or personal injury is caused to any person being carried in a ship; where any damage or loss is caused to any goods, merchandise or other things whatsoever on board the ship; where any loss of life or personal injury is caused to any person not carried in the ship through the act of any person, whether on board the ship or not, in the navigation or management of the ship, or in the loading, carriage or discharge of her cargo, or in the embarkation, carriage or disembarkation of her passengers, or through any other act of any person on board the ship; or where any loss or damage is caused to any property, other than any property mentioned in paragraph (b), or any rights are infringed through the act of any person, whether on board the ship or not, in the navigation or management of the ship, or in loading, carriage or discharge of her cargo, or in the embarkation, carriage or disembarkation of her passengers, or through any other act of any person on board the ship, shall not be liable for damages without his actual fault or privity beyond certain amounts as mentioned in Section 360(1 ) (aa) & (bb) of the MSO 1952.

Sec 360 (1) (aa) provides that in respect of loss of life or personal injury, either alone or together with such loss, damage or infringement as stated in Sec 360 (1) (a) and (d), an aggregate amount not exceeding an amount equivalent to 3100 gold francs for each ton of the ship’s tonnage. On the other hand sec 360 (1) (bb) provides that in respect of such loss, damage or infringement as mentioned in Sec 360 (1) (b) & (d) of the MSO 1952, whether there is an additional loss of life or personal injury or not, an aggregate amount not exceeding an amount equivalent to one thousand gold francs for each ton of the ships tonnage.

The Minister of Transport may from time to time by Order to be published in the Gazette specify the amount equivalent to 3100 gold francs and 1000 gold francs. This has been specified by the Minister of Transport in Section 2 of the Merchant Shipping (Limitation of Liability) (Malaysian Ringgit Equivalent) Order 1993 which was enacted pursuant to Sec 360 (2) (b), that 3100 gold francs is equivalent to RM629.51 and 1000 gold francs is equivalent to RM203.07.

In the recent case of SARAWAK SHELL BHD v THE OWNERS OR OTHER PERSONS INTERESTED IN THE SHIP OR VESSEL THE “RED GOLD” AND ANOTHER ACTION (2011) 1 MLJ 239 High Court of Kuala Lumpur, the issue was about Limitation of liability in a collision between a ship and an offshore oil platform, which was owned by Sarawak Shell Bhd. The Ship – The Red Gold was chartered by Sarawak Shell to deliver supplies to its offshore platforms and it is owned by South Sumatra Richfiled Marine Pte Ltd (the Owners) and was managed and operated by Pacific Richfield marine (S) Pte Ltd (PRM). For the period in question it was on sub-charter to Petrokapal Sdn Bhd who had entered into a spot charter with Sarawak Shell. On 4th February 2002, the vessel collided with the platform. The issues before the Court were whether the collision was due to the negligence of the ship owners and whether the doctorine of res ipsa loquitor applies here and also whether the owners are entitled to limit their liability?

When a Claimant alleges negligence the legal burden throughout remains on the Claimant, however when the Claimant pleads res ipsa loquitor in its claim, the onus of proof then shifts on the party against whom a claim is brought. In Sarawak Shell’s case the burden was on the Owner’s to rebut the presumption of fault upon them by adducing evidence to show that no amount of reasonable care and skill would have prevented the collision and that it was in fact, an inevitable accident, which therefore relieves the owners from liability. The test on the owners was that of a reasonable explanation.

The High Court of Kuala Lumpur decided in favor of Sarawak Shell and made its decision as follows:

“The principle of res ipsa loquitor was relevant and applicable on the facts of the instant case, given that the collision was occasioned in broad daylight between the ship and the offshore oil platform. Even if res ipsa loquitor did not apply on the facts of this case, Sarawak Shell had established negligence and/or breach of duty on the part of the owners in relation to the collision. The onus therefore shifted to the owners to rebut the charge of negligence and breach of duty by showing that the cause of the collision was a cause not produced by them but one the result of which they could not avoid. Therefore whether by application of the presumption of res ipsa loquitor or applying the standard test for establishing negligence, the onus shifted to the owners to establish, as they have pleaded, inevitable accident.”

The Merchant Shipping Ordinance 1952 makes provisions for the owners to limit their liability if the collision is not caused by their actual fault or privity (the words actual fault and privity in sec 360 implies something personal i.e. the owner is personally blamed and not his agents or servants). The burden lies on the owner to establish the absence of actual fault or privity. The owner will have to show and discharge the burden of showing that he did all that he could reasonably do to avoid the collision. Privity does not mean that the owner personally did a wrongful act but it is done by someone else and the owner concurred in it. Therefore an owner can only limit his liability if the act is done without his actual “fault or privity” in other words there is no personal fault, knowledge or concurrence on the owner’s part, without the owner’s “privity” means without his knowledge or concurrence.

If an owner sends an unseaworthy ship to the sea with knowledge and concurrence that the ship is not fit to encounter the ordinary perils of the sea, the insurer will not be liable for any loss or damage attributable to unseaworthiness and this is because the assured turned a blind eye which is far more blameworthy than mere negligence.

It is therefore important for the shipowner to understand and take note that Part IX of the MSO 1952 and the 1957 Convention does not give an absolute right or an automatic right for a shipowner to limit his liability in Malaysia. In a legal suit, a shipowner has to plead limitation in his defense, failing to do so will make the Owner liable to pay the full sum.

By Rahayu Partnership, Malaysia
Law Firm Website: www.rahayupartnership.com