Carrier's right to limit

English

Newsletter

Published 16 November 2020
News image

The Norwegian Maritime Code (NMC), section 283, provides that the limitation of liability regime otherwise protecting carriers for cargo liabilities (2 SDR per kg), shall be set aside if it is shown that the carrier itself caused the loss intentionally or recklessly (in Norwegian: "grov uaktsomhet") and with knowledge that such loss would probably arise. This is line with the Hague-Visby Rules section 4 (5) (e).

In the recent decision in matter LB-2019-079711 ("Norrland"), the Norwegian Court of Appeal (Borgarting Lagmannsrett) gave useful guidance to the application of NMC Section 283 and the circumstances in which the right for a carrier to limit liability may be lost.

The Court of Appeal also discussed the distinction between failures on the part of servants or employees of the carrier on the one hand, and systematic failures and/or errors at management level within the carrier on the other.  The Court of Appeal found that the lack of general guidelines and routines for sea fastening on the part of the carriers in the case, was not sufficient to prevent the carriers from relying on their right to limit liability under the NMC, as there was no causal link between the lack of such general guidelines and routines and the damage suffered.

The facts of the case – background

The case concerned the multi-modal transport of an ROV-cable (belonging to Nexans), from Stavanger (Norway) to Wallsend (England). The cable drum was carried on an open semi-trailer, which was loaded onto the roro-vessel MV "Norrland". The vessel encountered heavy weather during the sea passage to England, causing the cargo to shift and become a total loss.

The contractual carriers offered compensation calculated based on the Hague-Visby limitation amount, as incorporated into the NMC section 180 (i.e. 2 SDR per kg). The offer was however rejected by the cargo owner, who claimed full compensation pursuant to the Norwegian Carriage of Goods by Road Act.

The cargo interests were successful in the District Court and in the first round of the Court of Appeal, which both based its decisions on the Carriage of Goods by Road Act. However, in May 2019 on appeal to the Supreme Court, Road Act overturned the decision of the Court of Appeal, with the Supreme Court concluding that the carrier's liability for the cargo damage was subject to the provisions of the NMC, and not the Carriage of Goods. The Court of Appeal's first decision was therefore set aside and the case remitted back to the Court of Appeal to consider on the basis of the NMC being applicable.

The court's findings

In the second round before the Court of Appeal, it was agreed between the parties that the cargo owners were entitled to compensation up to the limitation of liability of 2 SDR per kg, as per the NMC section 180. The issue before the Court was whether the cargo owners were entitled to more, in other words whether the requirements under section 283 were met.

In addressing this issue, the Court of Appeal started its evaluation by reference to the wording of the NMC section 283, reading as follows (free translation):

"A responsible party may not limit his liability if it is proven that the person in question has caused the loss intentionally or recklessly and with the understanding that such loss would probably occur".

According to the Court of Appeal, section 283 sets three requirements that all need to be fulfilled in order for the carrier to lose its right to limit liability:

First, there is a basic requirement of intent or recklessness, which means that a marked and highly reprehensible deviation from normal prudent conduct needs to be demonstrated. There must at least be "grov uaktsomhet", i.e. dangerous behaviour that shows that the carrier is not caring about risks and possible losses that he is conscious of.

Second, section 283 also requires the carrier to have realised that a loss of the kind that actually materialised, would probably occur.

Third, the Court explained that the "responsible party" whose misconduct is relevant in the context of section 283 is the company/carrier as such, rather than individual employees or servants. Misconduct emanating from the company's corporate bodies and the top administrative management will meet that test, as the 'alter ego' of the company, as will senior staff with independent responsibility for the management of the part of the business involved.

The Court also made clear that the right to limit will be retained in the event of misconduct by employees in the performance of their duties, such as the ship's crew, but also the captain of the vessel and the person responsible for the loading and unloading of the cargo (normally the Chief Officer).

In the view of the Court of Appeal, the requirements for setting aside the right to limit offered by the NMC section 180 will only be met in special cases. The trade-off is that the carrier will in most cases be liable up to the limitation amount in the NMC section 280 since the NMC section 275 first paragraph sets a strict standard of care with a reversed burden of proof. The idea is that the system as a whole will be balanced and facilitate efficient claims resolution and insurance settlements.

The Court of Appeal then moved on to consider the facts of the specific case. The Court noted that the parties were in agreement that the cable drum had not been adequately secured, whether for road or sea transport, but that the stowage and securing was particularly deficient with a view to the prospective sea leg of the voyage. Further, the court stressed the very significant potential damage that could follow from bad stowage of the cargo, putting not only the drum and other cargo at risk but also potentially the vessel herself. The fact that the trailer had not been fixed to deck was clearly visible and easy to ascertain, but nothing was done to secure the trailer and the drum before the sea transport. On that basis, the Court of Appeal found that the stowage and securing had to be described as reckless according to the NMC section 283.

A mere finding of recklessness is not, however, by itself enough. It must also be shown that the misconduct was that of the company itself or its alter ego. In the Norrland case, the Court of Appeal was not convinced that this requirement had been satisfied and it was therefore held that the carriers were entitled to limit their liability, for the following reasons:

  • The damage to the cable drum was most likely due to negligence on the part of the individual employees who performed and controlled the specific loading and securing operation of the cable drum on MV Norrland.
  • The cargo interests had not demonstrated that the carriers' systems and procedures deviated significantly from the current relevant IMO regulations. In addition, even if the manuals had been defective and/or should have been updated, it was considered unlikely that this would have had a bearing on the outcome.
  • The Court of Appeal acknowledged that the cargo interests were able to demonstrate a history of claims and accidents with ships involving the same carrier, but according to the Court these incidents were of a different magnitude and could not be said to indicate defective systems or routines on the part of the carriers.

Closing remarks

The Norrland decision clarifies an important aspect under the NMC. Carriers, and their insurers, will welcome the confirmation that, in practice, it is only in the rarest of circumstances that the right to limit will be lost.

The Norrland decision also brings Norwegian law broadly in line with English law in this area, including the decision in The European Enterprise [1989] 2 Lloyd's Rep. regarding the identification of the 'the carrier' whose misconduct is relevant.