The Limitation of Shipowner’s Liability Act (“Act”) is designed to encourage investment and protect vessel owners from unlimited exposure to liability. The Act aims to limit the liability of the shipowner, but does not to give any immunity to the owner from the liability.[i]
Generally, a vessel owner is made liable for the acts of the master or crew of the vessel. Even if the acts done were without the vessel owner’s knowledge the owner will be held liable. In such cases, the Act limits the liability of the owner to the value of the vessel and freight pending[ii].
When determining a vessel owner’s liability limits, the courts consider the following points:
- If negligence or unseaworthiness caused the accident, and
- If the ship owner had the knowledge of the act.
In suits brought pursuant to the Limitation of Shipowner’s Liability Act, federal district courts are granted exclusive jurisdiction. The scope of exclusive federal jurisdiction is proportional to the federal interest in protecting the vessel owner’s right to seek limitation of liability. The federal district courts exercise jurisdiction over actions arising under the Limitation of Liability Act when a vessel owner limits liability for damage or injury, occurring without the owner’s privity or knowledge, to the value of the vessel or the owner’s interest in the vessel.
Otherwise, under two circumstances a district court can allow a state court to proceed. They are[iii]:
- When the total amount of the claims does not exceed the shipowner’s declared value of the vessel and its freight; and
- When all claimants stipulate that the federal court has exclusive jurisdiction over the limitation proceeding, and the claimants will not seek to enforce a damage award greater than the value of the ship and its freight until the shipowners right of limitation has been determined by the federal court.
However, if the district court finds that the vessel owner’s right to limitation will not be adequately protected, where, for example, a group of claimants cannot agree on appropriate stipulations or there is uncertainty concerning the adequacy of the fund or the number of claims, the district court may proceed to adjudicate the merits by deciding the issues of owner’s liability and limitation.
Under the Act, a ship owner cannot limit liability for payment of wages due to employees. The provisions of the Act also apply to pleasure boats.
[i] Lake Tankers Corp. V. Henn, 354 U.S. 147 (U.S. 1957)
[ii] American Car & Foundry Co. v. Brassert, 289 U.S. 261 (U.S. 1933)
[iii] Port Arthur Towing Co. v. John W. Towing, Inc. (In re Port Arthur Towing Co.), 42 F.3d 312 (5th Cir. La. 1995)