1.4 Erosion of the global limitation system
The traditional global regime for legal limitation of shipowner liabilities, as contained in the 1957 Convention, was originally relevant primarily for claims in respect of damage caused to ships, cargoes and other marine property. These claims usually related to damage already covered against marine risks by direct insurance contracted by the property owners. Accordingly, the original legal limits of liability only reflected a level of third party liability generally expected to be insurable by shipowners at reasonable cost. Obviously, the purpose of any of the international limitations regimes has never been, and even at present is not, generally, to provide – consistent with the general principles of the law of torts – full compensation to injured parties.
International developments over the years, however, created a new and quite different situation. This explains why international limitation conventions adopted during the last 30-40 years actually initiated a gradual erosion of the original global limitation system for maritime claims. It became obvious that international shipping also presented substantial risks of serious damage to other – and largely uninsured – interests in society, particularly in coastal states. Accordingly, the view emerged – and prevailed – that the costs of such damage resulting from risks of international shipping were expenses generally to be attributable to and covered by the shipping industry itself. The obvious key to achieving this was to combine substantial changes to the existing legal limitation regime(s) with a new important role for the insurance of the legal liabilities by shipowners. Essentially, this meant that the liability insurance contracted by shipowners would also serve as the vehicle for payments of appropriate compensation to third parties for the various claims for damage resulting from risks attributable to the shipping industry. (5) In hindsight, the conclusion is that the “global limitation” approach reflected in the 1957, 1976 and 1996 Conventions – even after substantial increase of the limits – actually proved to be too ambitious to address adequately the challenges emanating from internationalized or globalized shipping and trade.
(1) One reason for this was that the substantial increases of the monetary limits of liability provided for in the 1957, 1976 or 1996 conventions proved soon to be outdated in real terms. One reason was the unavoidable effect of inflation. Already in 2012, it was necessary to increase the general 1996 limits by ca. 50 %. In addition, a view widely held in many countries was that the internationally agreed limits proved to be by far too low to provide acceptable compensations to injured parties in cases of serious damage and loss resulting from international shipping. This became particularly apparent as structural changes to the shipping industry gradually entailed both substantial increase of risks and sizable losses for other private and public sectors of modern societies. In general, most losses suffered by such parties were not covered – or coverable – by direct insurance.
Internationally, the resulting concerns initially provoked recurrent, prolonged and controversial discussions of new substantial increases to the monetary values of the limits of liability, designed primarily to counter the effects of significant inflation over the years. However, although substantial – limited – increases of the limitation amounts followed after the 1976 and the 1996 conventions, this was not sufficient to meet the demands for significantly better protection against particular types of costly damage caused by ships to uninsured non-shipping interests in coastal areas. In principle, such losses ought to be recoverable under the legal regimes applicable to the shipping industries, and not – after heavy limitation – to remain in general with the injured parties within society. The major driving forces were strong private and in particular public proponents of the need for adequate protection against damage to the environment and other interests of coastal states.
The remedy eventually agreed was to exempt these types of claims from the traditional and treaty-based “global limitation” system. This would allow for such claims instead to be subject to separate international or national limitation regimes with limits of liability ordinarily sufficient to generally provide full compensation to most of the exempted claims. (6) Furthermore, such restrictions on the applicable limitation regimes would also provide a new and firm basis for substantially extending the liability insurance of shipowners in order to ensure – indirectly – an appropriate insurance coverage for the sizeable losses covered by the claims so exempted (infra 1.7).
The result of this approach is that the limitation regime of the 1996 Convention – as a matter of international treaty law – is binding and applicable only for limitation of claims in respect of damage to property such as ships, cargoes and harbours, traditionally exposed to marine risks insurable by direct insurance. In many 1996 states, therefore, claims in respect of pollution and environment damage and the cost of clean-up operations resulting from marine casualties are now subject to limitation according to internationally and nationally established limitation regimes, ordinarily based on limits of a size largely adequate to cover most of such claims. (7)
(2) The first important exception to the “global limitation” system came in the early 1970s, with the adoption of a new international liability regime for oil pollution damage resulting from casualties to laden crude oil tankers, later redrafted in 1992. Internationally, such pollution claims, including removal and clean-up costs, are now subject to the particular limitation regime contained in the dual 1992 civil liability and international fund conventions. Consequently, these pollution claims fall outside the scope of the “global limitation” regimes of the 1976/1996 conventions. The 1992 liability regime is now included in the MC chapter 10, part II and exempted from the general limitation regime contained in MC chapter 9 (MC § 173), cf. 1996 Convention Article 3 and MC §§ 191 and 183 paragraph 10. Nevertheless, when implementing the limitation regime for oil pollution damage contained in the 1992 Conventions, the provisions of the 1976 Convention served as a model for the particular provisions on limitation fund for oil pollution claims against laden tankers as now set out in MC §§ 194-196. This also explains why the particular provisions in MC chapter 12 are generally applicable to such limitation funds (MC § 231).
(3) Another, most important exemption to the global limitation principle subsequently appeared in the 1976 and – later – the 1996 Conventions. By Article 18 No.1 of both conventions, state parties are allowed to “reserve the right to exclude the application of Article 2, paragraphs 1(d) and 1(e)” from these conventions (infra 2.1). A great number of state parties, including the Nordic and most European states, have actually adhered to the 1996 Convention subject to this reservation, thereby delimiting their treaty obligations under the Convention so as to relate solely to the remaining types of claims listed in Article 2, paragraphs 1 (a)-(c) and (f), cf. MC § 172. Essentially, this reservation to the 1996 Convention provides a national basis for exempting all claims against the owner of a ship sunk, wrecked or stranded in respect of the raising, removal and other cleaning up work relating to such ship, including anything that is or has been on board the ship. Generally, state parties to the 1996 Convention thereby retain the right to determine through national law to what extent such types of claims by public authorities and other third parties shall be subject to limitation. This is particularly important in relation to casualties suffered in coastal waters by ships other than laden crude oil carriers (MC §§ 183 and 185). A significant number of state parties, including Norway, have adopted such national legislation (MC §§ 172a, 175a and 179).
Norway ratified the 1996 Convention subject to the reservation permitted by its Article 18 No. 1 and the 1996 IMO Protocol Article 7. For Norway as a shipping state it was important to become a party to the 1996 Convention while, at the same time, safeguarding as a costal state the right to establish nationally acceptable alternative limits for the liabilities imposed particularly by the national Pollution Act (1981) §§ 7, 28 and 74-76. The latter was particularly important for liabilities for bunker-oil pollution in coastal waters resulting from casualties to ships other than laden crude oil carriers (MC § 183), but it also allows generally for the recovery of the cost of removing such ships and other clean-up operations. (8) For laden tankers, even claims in respect of bunker-oil pollution were already subject to the liability regime for oil pollution damage of the 1992 Liability Convention (MC chapter 10, part II), cf. MC § 191, paragraph 2. Accordingly, MC chapter 10, part I, implementing the 2001 Bunker convention, is not applicable to bunker-oil pollution caused by laden tankers, cf. MC § 183, paragraph 10.
(4) The implementation of the 1996 Convention, as delimited by the reservation permitted by its Article 18, paragraph 1, obviously required comprehensive redrafting of the 1976 regime for limitation of maritime claims then contained in the Maritime Code. In brief, the amendments to the MC, adopted in 2005, provided that the sum of claims listed in Article 2, no. 1 (a)-(c) and (f) of the 1996 Convention remained subject to the treaty-based limitation regime, and that another new national limitation regime applied to the sum of the claims listed in Article 2, no. 1 (d) and (e). (9) However, the new limitation regime – while providing for substantially higher limits than the 1996 Convention – was in most other respects modelled on the principles of the “global limitation” system of the 1976/1996 Conventions (infra 2.3.2). As a matter of treaty law, however, the legal character of the two limitation regimes is different. In principle, the provisions of the MC defining the national limitation regime are subject to ordinary national interpretation practices, while Norway – a state party to the 1996 Convention – generally has a paramount duty to treaty conform application and interpretation of the provisions of the MC implementing the 1996 treaty-based limitation regime (supra 1.1).