Independent Contractors Facing Unlimited Liability!

JD Irving Ltd v. Siemens Canada Ltd (The SPM 125) 2016 FC 287 (Federal Court of Canada)

 The shipowners, JDI, engaged a firm of marine consultants to prepare stability calculations in respect of the loading of a cargo of large industrial equipment on and off the barge SPM125. During the loading process, the cargo was damaged and the owner of the cargo brought an action against the carrier claiming damages (CAD$45,000,000). The cargo owner also brought an action against the firm of marine consultants and the naval architect (who was the principal of that firm and had carried out the calculations) for the same amount.

The question that arose in this case was whether the firm of consultants had a right to limit their liability under the Convention on Limitation of Liability for Maritime Claims 1976, as amended by the Protocol of 1996, which has been incorporated into Canadian law by Part 3 of the Marine Liability Act.

Article 1(4) of the Convention stipulates:

If any claims set out in Article 2 are made against any person for whose act, neglect or default the shipowner or salvor is responsible, such person shall be entitled to avail himself of the limitation of liability provided for in this Convention.

There is no firm judicial reasoning on this point and differing opinions have been expressed in text books. The Court has subscribed to the view that Article 1(4) would afford limitation to a person if the shipowner or salvor has vicarious liability for the actions of that person. This would be the case when the negligence of a master or crew member gives rise to a claim by a third party against the owner or salvor. The crew or master in that case would accordingly have a right to limit their liability under the Convention. However, the relationship between an employer and an independent contractor would not usually give rise to a claim for vicarious liability and on that basis, such contractors are not afforded a right to limit their liability under Article 1(4) of the Convention. Applying this reasoning, it was held that the marine consultants in the present case could not enjoy the right of limitation.

The decision is a significant one as it adopts a new yardstick in determining whose actions a shipowner and/or salvor is responsible for in the context of the application of Article 1(4) of the Limitation Convention 1976 as amended by 1996 Protocol. The relevant party is able to limit its liability if the shipowner and/or salvor has vicarious liability for the actions of that party. Apart from marine consultants, classification societies, freight forwarders and logistics experts are likely to fall under this category. The judgment is not binding on English courts but obviously its reasoning needs to be considered carefully when the issue does arise, in addition, it sends a strong warning to the liability insurers of independent contractors as lack of the prospect of limitation would mean a huge increase in the exposure that they might face!

 

Breaking the unbreakable. Owners’ limitation claim scuttled.

 

Under article 4 of the 1976 LLMC the right to limit is lost if the party challenging limitation can prove that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result. This is an extremely high hurdle to surmount and the right to limit has been regarded as virtually unbreakable – until now.

 

In The Atlantik Confidence Kairos Shipping Ltd & Anor v Enka & Co LLC & Ors [2016] EWHC 2412 (Admlty) (11 October 2016) Teare J. held that the right to limit was lost in circumstances where the cargo was lost following a decision by the owners to scuttle the vessel. Cargo had managed to establish that the vessel was lost due to a deliberate starting of a fire by the master and chief engineer upon the instructions of the  alter ego of the Owners, Mr. Ahmet Ali Agaoglu, the sole shareholder and director. Teare J. concluded: “In those circumstances the loss of the cargo resulted from his personal act committed with the intent to cause such loss. The loss of the cargo was the natural consequence of his act as he must have appreciated. There can be no doubt that he intended the cargo to be lost just as much as he intended the vessel to be lost.”

The EU Referendum. Part Three. Losing our Directives?

 Since 2000 the EU has become increasingly active in the maritime sphere as regards safety and the environment. This has led to a series of Directives, set out below, which will cease to have effect under the implementing statutory instruments in the UK on repeal of the European Communities Act 1972.

First off, there is the series of Directives generated under the third maritime safety package, known as ERIKA III, which entered into force on 17th June 2009.

–  Directive 2009/21/EC on compliance with flag state requirements

– Directive 2009/15/EC and Regulation (EC) No. 391/2009 on common rules and standards for ship inspections and survey organisations

–  Directive 2009/16/EC on port State control

– Directive 2009/17/EC establishing a Community vessel traffic monitoring and information system

– Directive 2009/18/EC establishing the fundamental principles governing the investigation of accidents in the maritime transport sector

– Directive 2009/20/EC on the insurance of shipowners for maritime claims

This gives Member States the power to expel from their ports vessels which do not have a certificate showing liability for maritime claims up to the limits in the 1976 LLMC as amended by the 1996 Protocol.

Erika III also produced a Regulation.

Regulation (EC) No. 392/2009 on the liability of carriers of passengers by sea in the event of accidents. This brought the 2002 Protocol to the Athens Convention into force within the EU in 2012. The UK has ratified the Protocol and on 28 May 2014 brought it into domestic law through a statutory instrument The Merchant Shipping (Convention Relating to the Carriage of Passengers and their Luggage by Sea) Order 2014 deriving from the powers conferred by sections 183(4) and (6) and 184(1) and (3) of the Merchant Shipping Act 1995

 Other notable Directives in the maritime sphere are

Directive 2005/35/EC of the European Parliament and of the Council of 7 September 2005 on shipsource pollution and on the introduction of penalties for infringements

This criminalises ship source pollution in cases of ‘serious negligence’ and was the subject of a decision of the ECJ in 2008 in the Intertanko case C-308/06 in which it decided that the legality of the Directive could not be assessed in the light of either MARPOL or UNCLOS.

Directive 2012/33/ on the Sulphur Content of Maritime Fuels.

This came into effect on 1 January 2015 and requires ships sailing in the English Channel, the North Sea and the Baltic Sea (the North European emission control area) to use bunker oil with a maximum 0.1% sulphur or apply alternative methods in order to achieve the same effect.

Directive 2013/30/EU on the safety of offshore oil and gas operations and amending Directive 2004/35/EC

This was the EU response to the ‘Deepwater Horizon’ blowout in 2010. The Directive aims to prevent the occurrence of a ‘Deepwater Horizon’ in offshore installations in the EU but also addresses, in part, the response should such an incident occur, through three provisions. First, art. 38 extends the territorial scope of the Environmental Liability Directive 2004 (the ‘ELD’) from coastal waters to waters within the exclusive economic zone or the continental shelf of Member States, up to 370 km from shore. Second, art.7 requires Member States to ensure that the licensee is financially liable for the prevention and remediation of “environmental damage” – i.e. damage falling within the ELD – caused by offshore oil and gas operations carried out by, or on behalf of, the licensee or the operator. Third, art.4 requires Member States “to require the licensee to maintain sufficient capacity to meet their financial obligations resulting from liabilities for offshore oil and gas operations.” and, when granting or transferring licenses, to take due account of, inter alia, “the applicant’s financial capabilities, including any financial security, to cover liabilities potentially deriving from the offshore oil and gas operations in question including liability for potential economic damages where such liability is provided for by national law”. These provisions came into effect on 19 July 2015.

It is, of course, open for Parliament to provide for the continuation of the statutory instruments implementing these Directives.

The House of Commons Briefing Paper of 30 June suggests (p14):

There might be some over-arching legislation saying, for example, that all UK laws implementing any EU Directive were repealed (perhaps with specified exceptions); or that they would all remain in force (again perhaps with exceptions). If the ECA were repealed, any secondary legislation based on s2(2) ECA would need to be saved from lapsing if it was to continue in force. EU Regulations, which are directly applicable (i.e. they do not need further implementation in the UK to come into force) will cease to have effect if the UK were to repeal the ECA.

There is no reason why EU-based UK law could not remain part of UK law, but the Government would have to make sure it still worked without the UK being in the EU.

The Government would probably come up with a mechanism for allowing changes to be made to secondary legislation (Statutory Instruments) made under the ECA or other ‘parent’ acts. There could also be general amendments, such as replacing references to ‘the Commission’ or ‘Council’ with references to ‘the Secretary of State’.

The devolved legislatures would have to deal with EU legislation they have transposed into Scottish, Welsh or Northern Irish laws. It would also be necessary to amend the relevant parts of the devolution legislation, which might require a Legislative Consent Motion under the Sewel Convention.

The 1976 LLMC in Denmark and India.

Two recent decisions of foreign courts as to the effect of the 1976 LLMC. The first is the decision of the Danish Maritime and Commercial Court in the MOL Comfort that the constitution of a limitation fund in Japan, another state party to the 1976 LLMC, does not bar proceedings before it in relation to the loss resulting in the constitution of the fund. The legal effect of the constitution of the fund in Japan would not come into force until enforcement of the judgment is sought. In the UK Schedule 7, paragraph 8(3) of the Merchant Shipping Act 1995 gives the court power to “stay any proceedings relating to any claim arising out of that occurrence which are pending against the person by whom the fund has been constituted.”

The second is the decision in The Yuriy Arshenevskiy of the Indian High Court (LMLN 946 – 04 March 2016) that it was not a pre-condition for maintainability of a suit for constitution of a limitation fund that there should have been a prior proceeding in the Indian court against the vessel or her owner. This is the position previously reached in the English Court of Appeal in The Western Regent [2005] 2 Lloyd’s Rep 359. The court also decided that: section 352 of the Merchant Shipping Act 1958 as amended by the Amendment Act 63 of 2002 meant that the shipowner had an absolute right to limit, and; the expression “as amended from time to time” used in the definition of the “Convention” in section 352B of the Merchant Shipping Act 1958 captured all future amendments to the 1976 Convention, and accordingly the 1996 Protocols applied, although they came into effect after the 2002 Act came into force. The court also held that the shipowners were not estopped from establishing a limitation fund because they had made an earlier application to establish a fund in China which had been withdrawn.