THE LEGAL concept of limitation of liability in the world of transport often seems difficult to justify. When one party has caused damage to others and is liable, why should they be entitled to limit that liability?
A recent decision by the Full Federal Court of Australia might be considered by most to be ‘fair’ but we may need to look a bit deeper to determine how limitation works and why. The decision was quite a technical one around a very specific section of maritime legislation, and it is possible the decision will be appealed.
The CSL vessel Goliath allided with two tugs and the wharf in Devonport, Tasmania. The two tugs sank at the wharf and TasPorts, as owners of the assets, incurred costs of approximately $23m. Around $17m of these costs were incurred in the removal of the two wrecks and their fuel. CSL submitted that it was entitled to limit liability to approximately $15.7m.
The first court to hear the case agreed with CSL that it was entitled to limit its liability. Some might consider this to be unfair on TasPorts. The tugs and the wharf were stationary, effectively ‘minding their own business’, when they were hit by Goliath. Why should TasPorts be out of pocket to the tune of $7m?
TasPorts and its lawyers argued that CSL can limit its liability on some aspects of the claim, but not the wreck and fuel removal costs. The Full Federal Court recently agreed with TasPorts and confirmed it is not possible to limit liability in terms of those costs, meaning TasPorts could effectively recover all its losses from CSL.
The original idea behind limitation was that an individual ship owner could not reasonably be held liable for all losses the ship caused without limit. Without some form of limit to liability investors would be discouraged and effectively no one would want to take the risk of running a ship.
To an extent this still holds true today across many areas. Many companies are limited to avoid investors having unlimited liability for all losses. Air carriers, road carriers and rail carriers often limit liability whether under legislation or contract. Insurers offer cover to these entities on the understanding that in most cases they will be protected by these arrangements.
Take the example of a large container ship. The value of the cargo being carried far outstrips the value of the vessel and so it would not be reasonable to expect that the ship would be liable for loss and damage to all cargo while in its care. International conventions on the carriage of cargo have developed over the last 100 years or so to provide a well understood legal regime that enables the carrier to exclude and limit liability in some circumstances.
A factor to consider is that generally most of these losses are insured. You would expect that damage to the wharf and tugs, plus the cost of wreck removal would all be insured by property insurers, Hull & Machinery insurers and a P&I Club respectively. Goliath would also have to be insured by a P&I Club. This means that the argument over limitation is ultimately between insurers (although the insureds also have an interest in protecting their insurance loss history).
The International Group of P&I Clubs, who insure liabilities of the majority of the world's shipping fleet, pool losses together and then also purchase reinsurance for very large losses. The system works well and provides very high limits of liability coverage to ship owners. When large claims do occur the P&I Clubs and their reinsurers require additional premiums which of course feeds down through the shipping lines and cargo owners to us as consumers.
An extreme example of the exposures a vessel could face is the Dali allision with the Francis Scott Key Bridge in Baltimore. The losses arising could be multiple billions of US dollars. Owners/operators of Dali have argued limitation in that case is USD43.7m however they have already paid over USD100m and are facing multiple additional claims. If those claims are allowed by the US courts this would impact the shipping industry and its insurers, even though the damage to the bridge and much of the consequential loss incurred would already be insured, spreading the risk across multiple parties and their insurers. Without the protection of limitation, insuring ships for liability becomes a very high-risk business, putting additional pressure on the cost of operating.
When we consider the reasonable transfer of risk, we need to revert to the initial purpose of limitation: is it reasonable for a single company (and the shipping industry through its P&I Clubs and reinsurers) to have exposure to unlimited liability when operating a ship? The ship is usually moving cargo that ultimately benefits the general population. Dali was moving containers of goods, Goliath would be moving cement to enable the building industry to function, so is it better to have that risk spread over a wider range of entities? The party that has suffered a loss due to an incident might say no, but from a public policy perspective and to enable the continuing insurance of vessels, the answer might need to be yes.
This article appeared in the June-July 2025 edition of DCN Magazine