An exceptional feature of maritime law is the privilege awarded to shipowners and charterers in some cases to limit the amount of their liability under certain circumstances, in respect of tort and contract claims. In certain countries like the USA, apart form the claims for personal injury and wrongful death, the limits are the value of the ship and the earnings of the voyage on which it was engaged at the time of the casualty. On the other hand, in the United Kingdom and the other countries that have ratified the Brussels Limitation of Liability Convention of 1957 or enacted domestic legislation admitting to its terms and conditions, the limit is £28 or its equivalent, multiplied by the adjusted net weight of the vessel, regardless of its actual value.
The primary condition of the privilege is that the party claiming it must be free from “privity or knowledge”, if we go by the words of the United States statute, or “actual fault or privity,” in the words of the convention. Generally speaking, this formula means that the shipowner is entitled to limit his liability for the negligence of the master or crew, but not for his negligence or that of his managerial staffs. Apparently, the limited liability of shipowners may be compared to the limited liability that any investor may achieve by incorporating his enterprise.
However, limited liability in maritime law long predates the development or invention of the modern corporation or limited company. Its initial appearance in maritime law may be taken as an acknowledgement of the extraordinary hazards of seaborne commerce and the need to protect the adventurous shipowners from the extreme burden of liability, that is, in the days before even the earliest forms of insurance had been made available. Some modern commentators have suggested that the peculiar features of maritime limitation of liability have outlived their usefulness and that the development of insurance and the modern limited liability company has radically altered the conditions out of which the privilege of the shipowners originally grew. Although no maritime country has yet gone to the extent of abolishing limitation of liability, ship owning interests appear to have become concerned about the possibility of such a development.
In most maritime countries the principle of limitation of liability was considered to be a part of the general maritime law. The idea that developed in Europe, generally stated that a shipowner entitled to limitation could satisfy his liability by abandoning the ship and its pending freight to claimants. Since the privilege of limitation was, and is, typically invoked following a large-scale maritime disaster, the abandonment theory meant that claimants got the value of the ship as it was following the disaster. If the ship had sunk or was a total loss with no freight pending, the claimants got nothing. This theory was carried over into the law of many South American countries.
The Great Britain and the United States were once the only maritime countries that refused to admit the principle of limitation as part of the general maritime law. In both countries, however, the competitive needs of the shipping industry compelled its introduction by statute.
In general, the limitation law of any country will be applied by its courts in favour of foreign shipowners as well as citizens. From the point of view of ship owning interests, however, a major weakness of limitation law has been the fact that limitation proceedings were not given international recognition. That has meant that a shipowner whose ships moved in international trade could find himself sued in several countries as a result of one disaster and forced to set up limitation funds in each country. The Brussels Convention of 1957 makes limitation decrees delivered by admiralty courts in ratifying countries internationally effective, i.e., a shipowner is required to set up only one limitation fund, out of which all claims are to be paid no matter in how many countries proceedings might be instituted against him. Thus, the convention, which increases the liability of shipowners in most countries, does offer in return this considerable advantage to shipowners.
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