All clear now? A unified interpretation on breaking limitation under LLMC 1976 and 1992 Protocol, and 1992 Protocol to CLC.

On 15 December 2021 the International Maritime Organization adopted two resolutions on the interpretation of Art 4 of LLMC 1976 and of the 1996 Protocol to LLMC 1976. The resolution is framed as a statement by the State Parties to the LLMC 1976. As such,  it would have binding effect as between the State Parties. Article 31(3) (a) of the 1969 Vienna Convention on the Law of Treaties provides: “There shall be taken into account, together with the context (a) any subsequent agreement between the parties regarding the interpretation of the treaty of the application.” Domestic courts must “take into account” the subsequent agreement when interpreting the treaty but are not required to so. The two resolutions, which are identical, state that the test for breaking limitation of liability under LLMC is to be interpreted as follows:

“(a) as virtually unbreakable in nature, i.e. breakable only in very limited circumstances and based on the principle of unbreakability;

(b) to mean a level of culpability analogous to wilful misconduct, namely:

(i) a level higher than the concept of gross negligence, since that concept was rejected by the 1976 International Conference on Limitation of Liability for Maritime Claims;

(ii) a level that would deprive the shipowner of the right to be indemnified under their marine insurance policy; and

(iii) a level that provides that the loss of entitlement to limit liability should begin where the level of culpability is such that insurability ends;

(c) that the term “recklessly” is to be accompanied by “knowledge” that such pollution damage, damage or loss would probably result, and that the two terms establish a level of culpability that must be met in their combined totality and should not be considered in isolation of each other; and

(d) that the conduct of parties other than the shipowner, for example the master, crew or servants of the shipowner, is irrelevant and should not be taken into account when seeking to establish whether the test has been met;”

The interpretation largely reflects the existing interpretation of Art 4 under UK law, but the linking of culpability in (b) to a level analogous to wilful misconduct and the loss of insurance cover under a marine insurance policy is a new factor in determining when the right to limit liability is to be lost. In Canada in Peracomo Inc. v. TELUS Communications Co., [2014 SCC 29, [2014] 1 S.C.R. 621, Wagner J dissenting in part.] the Supreme Court held that Art 4 imposes a higher standard of fault than does the insurance exclusion in s. 53(2) of the Marine Insurance Act1993, the provision  equivalent to s.55(2) (a) of the UK Marine Insurance Act 1906,and that the shipowner who had been guilty of wilful misconduct in cutting a submarine cable could limit their liability but the loss was excluded from coverage under their marine insurance policy.

Cromwell J, at para 67, identified the distinction as follows

“While the threshold to break liability under the Convention requires intention or recklessness with knowledge that the loss will probably occur, wilful misconduct under the Marine Insurance Act does not require either intention to cause the loss or subjective knowledge that the loss will probably occur.  It requires, in the context of this case, simply misconduct with reckless indifference to the known risk despite a duty to know.”  

A third resolution adopted the same interpretation as regards Art 6 of the 1992 Protocol to the CLC.