2 The concept of “consequential losses” within the scope of sections 172 and 172a of the Code
The claim in question – shipowner A’s claim for recovery of wreck removal costs against shipowner B – would probably be labelled a claim for consequential loss under the ordinary terminology of the law of damages. The primary loss would be that related to the property damage caused to ship A, while the subsequent event of shipowner A having to incur wreck removal costs would constitute a consequential loss.(1) I use the term «consequential loss» as translation of the term “konsekvenstap” which in the context of Norwegian law on tort and damages is used interchangeably with “følgestap” (secondary loss) and “avledet tap” (derivative loss), see e.g. Lødrup. Erstatningsrett, Oslo, 2009, pages 457-59. Such consequential loss is recoverable subject to ordinary principles of foreseeability and remoteness (“påregnelighet og adakvans”). In our case it seems obvious that a consequential loss in terms of the incurrence of wreck removal costs would as such be considered recoverable, i.e. not too remote. For the purpose of this paper there is however no need to go further into this.
These brief remarks are of some significance, since when the 1976 Convention was ratified by Norway, Norway made no reservation as to the items of loss relating to wreck removal in Article 2, 1 (d)(2) The provision reads: “claims in respect of the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship”. and removal of cargo in Article 2, 1 (e)(3) The provision reads: «claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship». of the Convention - such right of reservation being provided for in article 18, 1. Hence when implemented into the Maritime Code,(4) By Act 27 May 1983 no. 30. Article 2 was in its entirety transformed into the then section 235.
Moreover, when commenting on the various provisions of Article 2 in light of the corresponding section 235, the then Maritime Law Commission, headed by professor Brækhus, remarked on the relationship between, on the one hand, claims under Article 2, 1 (a) dealing with property damage and personal injury(5) The provision reads: “claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connexion with the operation of the ship or with salvage operation, and consequential loss resulting therefrom”. and, on the other hand, claims under Article 2, 1 (d) and (e) relating to wreck removal.(6) In the following I use the term “wreck removal” as a collective term for that covered by Article 2, 1 (d) and (e). The Commission took the view that costs or liability involved in wreck removal would ordinarily fall within Article 2, 1 (a) as consequential loss to property damage,(7) See also Article 2, 1 (a) in line with the explicit reference to “… consequential loss resulting therefrom”. and that Article 2, 1 (d) and (e) had a correspondingly limited scope, being applicable merely to instances where wreck removal was not a consequence of property damage; in other words, that such costs formed part of a claim for mere financial loss.
These remarks had however little practical significance at that time, since the Convention was adopted in its entirety. In other words, whether costs for wreck removal were placed within one or other of the sub-provisions of Article 2 (and the corresponding section 235) had no impact on what limitation amount was to be applied. The views expressed by the then Commission are nevertheless of interest, since they formed part of the later discussion when Norway - pursuant to the 1996 Protocol to the Convention - did make a reservation to Article 2, 1 (d) and (e), which led to the current section 172a.
The Commission expressed the following view (NOU 1980:55 page 17) with which the Ministry concurred (Ot prp nr 32 (1982-83) page 25):(8) This and the following quotes in my translation – the emphasis in this and later quotes are mine.
“The raising etc. [of a wreck] concerns “a ship”(9) The quotation refers to the wording in Article 2, 1 (d). which is sunk, stranded etc. It is probably first and foremost aimed at the ship for which the shipowner seeks to limit his liability; this ship is for example sunk in the entrance to a port as a consequence of grounding and it is ordered to be removed by the authorities on the basis of the Harbour Act 1933 section 55(10) Now the Harbour Act 19/2009 section 35. or corresponding provision under foreign law. The indeterminate form, “a ship”, as compared to the determinate form “the ship” in litra e) of the Convention, indicates however that liability for removal of other ships may also be subject to limitation where such liability has the required nexus to the ship for which limitation is claimed. In many instances liability for removal etc. of other ships may be a liability for consequential losses(11) Norwegian: «avledede følger». of a physical damage to this other ship, for example in connection with a collision. If so, the liability seems limitation-wise to fall under section 235 first paragraph no. 1 in its entirety.(12) Corresponding to Article 2, 1 (a). Liability for wreck removal of another ship ought to be allocated to [section 235 first paragraph] no. 4(13) Corresponding to Article 2, 1 (d). only in cases where it cannot be claimed as a loss consequential to property damage.(14) Norwegian: «avledet tingsskadekrav». It may for example be the case that port authorities in a country have a legal basis for claiming joint and several liability for wreck removal costs against the shipowners of two colliding ships, even if the collision is not caused by negligence by either of the ships. If the shipowner of ship A in such situation is made liable for removal of the wreck of the meeting ship B, he must be entitled to limitation of liability under section 235 first paragraph no. 4.”(15) Corresponding to Article 2, 1 d).
Hence, in a situation of ship collision it is taken as a starting point that if liability towards the other ship includes wreck removal of the other ship, this would be considered a loss consequential to property damage, and in that sense placed on the same footing as other consequential losses following a collision, for example a claim for loss of time/earnings suffered by the shipowner whose ship is damaged (NOU 1980:55 page 16).
Moreover, it is worth noting that the Commission found it unnecessary to insert into the Code Article 2, 2. of the Convention, which states: “Claims set out in paragraph 1 shall be subject to limitation of liability even if brought by way of recourse, or for indemnity under a contract or otherwise”.The Commission held that the content of this passage followed already from the introductory wording to each sub-paragraph in Article 1 (“… claims in respect of …”), which was considered wide enough to cover whatever basis of such a claim (NOU 1980:55 page 16). Therefore, irrespective of the terminology of shipowner A’s claim against shipowner B in our above example,(16) See footnote 1. a claim for costs incurred in wreck removal would have fallen within the ambit of Article 2, 1 (d) (or the corresponding section 235 no. 4) if it had not been for the significance given to the category of consequential losses to property damage.
In summary: at this initial stage of legislation, a claim for recovery of costs of wreck removal by shipowner A against shipowner B in our example, would be categorized as a consequential loss to property damage and with limitation being governed by the then section 235 first paragraph no. 1, corresponding to the now section 172 first paragraph no. 1.
However, although perhaps correct from a legal-systematic approach, such a restrictive scope of Article 2, 1 (d) and (e) might seem questionable in view of the right of reservation of contracting States to enact specific national rules covering wreck removal. In other words, it would make limited sense if contracting States were at liberty to regulate limitation of wreck removal costs at variance with the Convention, while at the same time such claims were to be construed as falling within those parts of the Convention from which contracting States were not at liberty to depart.
Not surprisingly this point was raised once again when Norway did later make reservation(17) By Royal Decree 27 May 2002. to Article 2, 1 (d) and (e)(18) By way of Article 18 to the Convention as amended by the 1996 Protocol whereby a right of reservation existed not only at the time of signature, ratification, approval or accession but also “any time thereafter”., and with the then Maritime Law Commission, now headed by Professor Selvig, creating draft legislation following Norway’s reservation (NOU 2002:15). The Commission was asked to consider various alternatives to national rules in the form of either: unlimited liability, a higher limitation amount than under the Convention, or priority being given to wreck removal claims within the limitation of the Convention (NOU 2002:15 page 7-8). As will be known, the Commission proposed the alternative of an increased limitation amount, leading to the current sections 172a, 175a, 178a and 179.(19) Implemented by Act no. 88/2005.
With respect to our discussion of how to categorize A’s claim for wreck removal costs against B, it is first of all worth noting some remarks by the Commission on the meaning of the concept of consequential loss to property damage, and how a given construction of it would dramatically limit the scope of contracting States to enact specific rules relating to wreck removal, (NOU 2002:15 page 15):
“In case of maritime accidents which lead to damage to harbour facilities, basins, waterways and navigational aids,(20) See the corresponding list of enumerated damages in Article 2, 1. (a). the costs of removal of ship and cargo etc., may however be conceived of as part of the liability for the property damage. If ordinary rules of assessment of damages are applied, such costs will form part of a claimant’s overall claim for damages. In NOU 1980:55 page 17 the view is therefore taken that the claim for damages will fall in its entirety within the Maritime Code section 172 no. 1. If this construction is correct, section 172 first paragraph nos. 4 and 5 will only apply to situations where the claimant has suffered no property damage, and therefore claims damages exclusively for costs and other loss as a result of removal or failure to remove ship and cargo etc.
Under the governing law it is without significance whether a claim is allocated to one or other of the sub-provisions in section 172. If a claim as mentioned in section 172 first paragraph no. 4 and 5(21) Corresponding to Article 2, 1. (d) and (e), and the earlier section 235 first paragraph nos. 4 and 5, see above. is taken out of the list, the question concerning the scope of section 172 first paragraph no. 1 concerning claims pertaining to property damage, is, however, no longer of mere theoretical interest. If the view is adopted as laid down in NOU 1980:55 page 17, the scope of the reservation to the Convention becomes correspondingly restricted. The delimitation between these provisions ought therefore to be assessed anew. In the view of the Commission the better reasons point in the direction of instead drawing the line based on a distinction between, on the one hand, the specific property damage(22) In Norwegian: «selve tingsskaden». and its economic consequences and, on the other hand, the costs relating to removal and cleaning-up as required by the maritime accident.”
The essence of this is therefore that property damage is separated from whatever consequential loss in terms of subsequent wreck removal, and that these latter costs fall within the scope of section 172a.
The Ministry concurred with the views of the Commission, stating (Ot prp nr 79 (2004-2005) page 42): “The Ministry agrees with the Maritime Law Commission on this point. The Ministry assumes(23) In Norwegian: “legger til grunn”. that section 172a covers all measures taken to remove, destroy or render harmless the ship or anything which has been onboard the ship”.
The Ministry however then continues with a passage which is partly obscure:
“This also concerns measures directly relating to an incident of property damage, for example removal of bunker oil spill from a quay.(24) The use of an example of bunker oil, as opposed to oil carried as cargo, stems from the latter being governed by the specific rules relating to oil pollution, see the Maritime Code chapter 10. Section 172a applies generally, without regard to what type of damage is avoided or rectified by the said measures, whether this concerns for example mere environmental damage or property damage. By removing bunker oil from a quay the owner of the quay may, for example, claim loss of income from being deprived of the use of the quay by reason of the oil spill, based on section 172. If the loss of income is, on the other hand, a result of damage to the quay caused by measures falling within section 172a, the loss is covered by section 172a. This follows from the fact that such consequential damage from these measures will be “claims in respect of such measures.”
It is hard to grasp the delimitation being attempted to be made here. It seems, firstly, that a different concept of property damage is used than in the earlier discussion by the Commission. Secondly, the discussion mainly concerns consequential losses in terms of loss of use, which in any event is of limited relevance to our case, in the sense that whatever loss of time/earnings relating to ship A, would in our scenario clearly be a loss consequential to the property damage, falling within section 172 (Article 2, 1 (a)). We therefore go no further into the meaning of this passage.
Returning to our case, it seems clear that what must be considered decisive is that the claim by shipowner A is of the nature of wreck removal costs. There is no indication in the preparatory work that an exemption should be made dependent on whether a claim relating to wreck removal pertains to the liable shipowner B’s ship, or to a colliding ship for which shipowner B is liable. In other words, the whole “package” of the earlier section 172 (Article 2, 1 (d) and (e)) is lifted out and made subject to national rules by way of section 172a.
This view also seems to be supported by the fact that when adopting the new sections 172a/175a, the legislator chose to distinguish between vessels of tonnage beyond and below 300 tons. Claims for costs of wreck removal relating to ships below 300 tons fall under the lower limitation contained in section 172.(25) See section 172 i.f. The reason for this solution was that such smaller ships were deemed to have limited financial resources and access to appropriate P&I insurance, while at the same time not posing the threat of excessive clean-up costs, NOU 2002:15 page 37-39. There is clearly no room for applying different concepts of what constitutes claims relating to wreck removal, depending on whether one is faced with wreck removal situations involving ships below or beyond 300 tons.
This result of having all claims “in respect of” wreck removal allocated to section 172a,(26) Or section 172 if the ship is below 300 tons. also seems to make good sense from a perspective of policy consideration (reelle hensyn). To stick to the scenario of our case, albeit with the facts slightly twisted: If shipowner A were not to incur the costs of wreck removal of ship A, but, for some reason, the authorities were instead to incur those costs on shipowner A’s behalf, section 172a would clearly apply in relation to such removal costs being claimed by the authorities against shipowner A.(27) See NOU 2002:15 pages 17-23 discussing i.a. situations of the «responsible party» (den ansvarlige) being subject to orders and/or claims for recovery by the authorities under the Harbour Act and the Pollution Act. If shipowner A, as in our case, were then entitled to claim recovery against shipowner B, it would make little sense if this claim by shipowner A against shipowner B is made subject to the lower limitation amount under sections 172/175. Shipowner A would then be caught in the middle, having to bear the excess of the lower limitation amount, despite the claim clearly arising from a situation of wreck removal.
Moreover, the fact that in our case the above view may result in a split up of shipowner A’s respective items of claim against shipowner B, is clearly nothing extraordinary. Such a split up may occur also in other instances, for example as stated in NOU 2002:15 page 15: a claim for property loss caused by damage to port facilities would be covered by section 172, whereas clean-up or wreck removal costs relating to the same incident and claimed by the same party, would be covered by section 172a. Similarly in our case: shipowner A’s claim for damages relating to physical damage to, or the loss of, ship A would be covered by section 172 while the claim by shipowner A for recovery of wreck removal costs would be covered by section 172a.