Rights, Liability and Limitation of Liability of Shipowners under International and Indian Legal Framework

This article by Hafsa Shaikh deals with the Rights, Liability and Limitations of Liability of Shipowners under International and Indian Legal Framework.

Introduction

Internationally, around 90% of the world's trade transportation depends on the Shipping Industry. Shipping is considered the lifeline of the global economy. As per the latest data, about 11 billion tons of goods are transported by ship each year. In India, according to the Ministry of Shipping, around 95% of India’s trading by volume and 70% by value is done through maritime transport. As a maritime country, India’s waterways are one of the busiest sea lanes in the world. This calls for the enforcement of the law to maintain stability on the sea.

The shipping industry includes the carriage of goods or cargo from one place to another using ships. Ultimately, shipowners play an essential role in the industry. Shipowners either operate their ships by themselves or are chartered by the other shipping lines for commercial gains. This is usually called a Charter Party, which is a document containing a contract of affreightment between the owner and the charterer to carry the cargo on the ship or provide the whole or part of the ship for the same. Bill of lading is also another form of contract.

When a shipowner enters into a charter party or bill of lading, he enjoys several rights which depend upon the clauses incorporated in it. Whereas he enjoys the rights, he has to adhere to a number of liabilities imposed on him by international and national laws. Let’s look into this in detail.

Rights of Shipowners under International Laws

The shipowner chartered his ship either on a time charter or on a voyage charter. NYPE charter is widely used. They enjoy the following rights under this agreement:

1. Right to withdraw: The charterer is obligated to pay the hire regularly and on time. Failure to do so, the shipowner is expressly granted with the right to withdraw the vessel from the service. In the event of this, the charter party is terminated.
2. Right to Suspension of Service: In exercising this right, the shipowner can hold the service to secure the freight payment or hire as the instalments fell due. Clause 11 of NYPE have been enlarged so that the owner has the right to withhold the discharge of cargo as a lawful counter-action. Unlike withdrawal, suspension of service does not terminate the contract.
3. Lien on cargo: The lien on cargo is a possessory lien. Under common law or contractual clause, the owner is entitled to the right to demand unpaid charter hire by retaining possession of cargo. Most charter parties provide this right in the interest of the owner until the sum covered under the lien is paid. In the bill of lading, the lien is not recognised as such in the jurisdiction.
4. Lien on sub-hire/sub-freight:
   If expressly provided under the charter party, the owner has the right to lien on sub-freight either in case of freight due to the charter under the sub-charter party or a bill of lading issued by the charterer. If the hire due to the owner has not been paid by the charterer, he is allowed to exercise lien by giving notice to the sub-charterer to pay directly to the owner any sub-freight or hire due to the charterer.
5. Right of Indemnity: Indemnity clauses can be either implied or expressed in a charter party. The shipowner has implied the right to seek indemnity against the charterer if he faces any consequences of loss, financial burden or the charterer’s non-payment of bunker supplies.

Liability of Shipowner under International Laws

International laws of maritime under different conventions provide for liabilities to be imposed upon the owner in the event of an accident or damage that occurred due to the negligence of the concerned operator.

Liability for Collision: According to International Convention for the Unification of Certain Rules of Law with respect to Collisions between Vessels Signed at Brussels, 1910 provides that the shipowner is liable for the damages caused due to the collision of vessels in proportion to the extent of each owner’s fault.

Oil in bulk as cargo: Article 3 of the International Convention on Civil Liability for Oil Pollution Damage, 1992 states that if the pollution damage caused in the meaning of Article 1 (6) which is contamination caused by the oil spill, the shipowner is liable for damages at the time of an incident or of first such occurrence of an incident. If the incident involves more than one vessel, then the damage will be liable jointly and several which is not reasonably separable.

Liability for Salvage: If a salvor has successfully carried out a salvage operation, the ship owner is liable for the payment of reward in proportion to the interested salved property or vessel as per Article 13 of the International Convention on Salvage, 1989. Also, the owner is entitled to pay special compensation to the salvor if the salvage operation carried out according to Article 14 in which the concerned vessel or its cargo is hazardous to the environment and has failed to obtain a reward under Article 13.

Wreck Removal: As per Article 11 of Wreck Removal Convention, 2007, the owner is liable for the cost of locating, marketing and removal of wreck under article 7, 8, and 9 respectively unless proved otherwise or subject to exceptions.

Hazardous and Noxious Substance: In the context of the International HNS Convention, Article 7 states that the owner is liable for the damages caused by accident of the vessel containing the hazardous and noxious substance. Article 7 has certain exceptions and also, if the accident occurs in series originating from the same ship, the owner is liable since the first such occurrence. And if the accident caused involved two vessels both of which carrying hazardous and noxious substance, then both the owner will be jointly liable to pay the damages.

Bunker oil: If a sea-going vessel caused pollution damage by having on board any bunker oil, once or in a series of incident, then the shipowner is liable for such damages, according to Article 3 of the Bunker Convention. Also, if it involves two or more, then the liability is joint, several and not reasonably separable.

Sick and Injured Seafarers: Shipowners are responsible for the seafarer’s health and medical care while working on board. They are liable to support seafarers in case of sickness and injury according to Maritime Labour Convention, 2006.

1. The Shipowner is liable for seafarers if they fall sick or get injured in between their date of reporting of duty and termination, or died from such sickness or injury.
2. The Shipowner is liable to pay the compensation in the event of death or long-term disability due to illness, injury or hazard as specified in national laws or agreements.
3. If the seafarer is incapable of work due to the sickness or injury, the owner is liable to pay the expense of necessary medical care on board or away from home until he is cured or is declared to be permanently character.
4. If the death of the seamen occurred when he is on board or at the time of his death was under the period of employment, then the owner is liable to pay such expenses.
5. The owner will pay full wages until the sick or injured seafarer remain on board or until the time of departure of such seafarer. Also, liable to pay wages as per national laws or collective agreement from the time seafarer departed or until recovery since landing or entitled to cash benefits under the legislation.
6. Shipowners are responsible for the property left on board by the seafarers and return it to them or their families.

Limitation of Liability under International Laws

In maritime law, Shipowners along with other characters concerned with the operation of ships enjoy the special privilege of limiting their liability. A shipowner while exercising the right to limit can control or reduce his legal and financial liability towards damage. Limitation of liability provides for the ship owners to reduce their personal exposure and protect their property where the ship’s master or crew has acted in negligence or intentionally. But not entitled to exercise when the negligence is of his own.

Convention on Limitation of Liability for Maritime Claims recognised the shipowner’s right to limit liability in accordance with the following claims:

1. claims regarding the loss of life or personal injury, or there occur a loss or damage to property which is present on board or related to the operation of the ship or with salvage operation accompanying a severe loss. [Article 1 (a)]
2. claims associating with the delay of cargo, passenger or their luggage through carriage by sea. [Article 1 (b)]
3. claims in respect of other loss arising out of infringement of rights taking place in direct connection with the operation of the ship or with salvage operation other than contractual rights. [Article 1 (c)]
4. claims in regard of a ship which is wrecked, sunk, stranded or abandoned require removal, raising, destruction or rendering harmless along with anything present on board. [Article 1 (d)]
5. claims regarding the cargo of the ship which requires removal, destruction or rendering harmless. [Article 1 (e)]
6. Claims of non-compliance with this Convention include but are not limited to those made by a person other than the person liable may limit his liability in respect of measures taken to protect against such an incident, i.e. loss or damage caused by such measures. [Article 1 (f)]

The claims given above are subject to the limitation of liability even if brought as a result of recourse or indemnification. Nevertheless, the claims laid out in paragraphs 1(d), (e), and (f) are not subject to the limitation of liability to the extent that they relate to remuneration under a contract with the person accountable. Further, it provides the amount to be calculated in accordance with claims in order to limit liability.

The shipowner is entitled to limit the liability in respect of any incident of oil pollution damage to an aggregate amount calculated given under Article 5 of the International Convention on Civil Liability for Oil Pollution Damage, 1992.

The shipowner may limit his liability under Maritime Labour Convention with respect to the expenses of medical care of sick or injured seafarer on board or lodging which shall not be less than 16 weeks from the day of injury or commencement of sickness. The same applies to limited liability in paying wages to a seafarer no longer on board. National laws may exempt liabilities of defray of expenses of medical care, board, lodging and burial so far there are public authorities to assume such liabilities.

Liability and Limitation of Liability of shipowner under Indian Laws

Merchant Shipping Act, 1958 provides for the liability and right to limit the liability of shipowners in different circumstances.

Collision: Liability for the damages or loss caused to cargo, vessel or property arising out of a collision between two or more vessels is enshrined in Part X of the Act. The liability shall be apportioned equally owing to the degree of each vessel’s fault. Also, if there is a loss of life or personal injury suffered by a person on board due to a fault of a ship or ships, the liability of owners will be joint and several.

Oil Pollution: Part XB of the Act states that the owner is liable for the damages caused by oil pollution and may limit his liability subject to conditions which are the same as given under International Convention on Civil Liability for Oil Pollution Damage, 1992 as India has ratified it.

Salvage: India is a party to International Convention on Salvage, 1989. As per section 402 0f MSA, the owner is liable to pay the salvor for services provided in assisting a vessel, saving a cargo or equipment of a vessel or saving a wreck which is wrecked, stranded or in distress at any place within or near the coast of India. Also, payable in regards to preservation of life on board during the operation.

Wreck Removal: India has acceded to the Nairobi International Convention on the Removal of Wrecks, 2007. So the liability conferred upon a shipowner provided in Part XIII is similar to under the convention. The owner is under the obligation to pay the receiver the expenses incurred for the recovery, preservation or safety of the wreck, along with his fees.

Wreck removal within limits of Port: Indian Ports Act, 1908 impose liability on the owner of any vessel in section 14 to pay the expenses incurred in the process of raising or removing a vessel which is wrecked, stranded or sunk within the limits of port and creating an obstruction for navigation.

Limitation of Liability: Part XA of MSA adopts the Convention on Limitation of Liability for Maritime Claims, 1976 with certain exceptions. The shipowner may limit his liability for the following claims:

1. claims regarding the loss of life or personal injury, or there occurs a loss or damage to property which is present on board or related to the operation of the ship or with salvage operation accompanying a severe loss. [Article 1 (a)]
2. claims associating with the delay of cargo, passenger or their luggage through carriage by sea. [Article 1 (b)]
3. claims in respect of other loss arising out of infringement of rights taking place in direct connection with the operation of the ship or with salvage operation other than contractual rights. [Article 1 (c)]
4. Claims of non-compliance with this Convention include but are not limited to those made by a person other than the person liable may limit his liability in respect of measures taken to protect against such an incident, i.e. loss or damage caused by such measures. [Article 1 (d)]
5. claims for the loss of life or personal injury to passengers of a ship brought by or on behalf of any person under the contract of passenger carriage or with the consent of the carrier is carrying a live animal covered by the contract are classed as non-preliminary and subject to approval by the Indian government. [Article 1 (e)]

The claims given above are subject to the limitation of liability even if brought as a result of recourse or indemnification. Nevertheless, the claim laid out in paragraph 1(d) is not subject to the limitation of liability to the extent that they relate to remuneration under a contract with the person accountable.

India has also ratified the Maritime Labour Convention, so liability and limitation of liability provided under this convention also apply in India.

Conclusion

Though shipowners have rights, they are not absolute. Under the international legal frame, it depends upon the type of charter party used and the kinds of clauses incorporated. So the owners have to be careful while dealing with the charterers. In India, a lien on cargo is a statutory right provided under the Major Ports Trust Act, 1960. Also, every liability and the right to limit liability comes with exceptions.

There are certain claims which are excepted from limiting the liability, such as salvage, nuclear shipowner causing nuclear damage, any international or national laws governing or prohibiting limitation of liability for nuclear damage or claim by any servant connected to the duties of the ship, including claims of their heirs, dependents or other persons entitled to make such claims, having a contract in force between the servant and shipowner.

Originally Published on: Jul 1, 2022

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References

1. Convention on Limitation of Liability for Maritime Claims, 1976
2. The Nairobi International Convention on the Removal of Wrecks
3. International Convention on Civil Liability for Oil Pollution Damage, 1992
4. International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001
5. Maritime Labour Convention, 2006
6. International Convention for the Unification of Certain Rules of Law with respect to Collisions between Vessels Signed at Brussels, 1910
7. International Convention on Salvage, 1989
8. International HNS Convention
9. Merchant Shipping Act, 1958
10. Indian Ports Act, 1908
11. (Owners’ remedies – contractual rights vs reality, 2019)

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