Limitation of liability: a warning from Spain
In a recent decision, a Spanish court held that a ship owner was not entitled to limit its liability with respect to damages caused to adjacent yachts due to a fire spreading on board his yacht while berthed.
In 2005, a yacht was berthed at the marina and it caught fire due to an electrical failure. The fire spread to the adjacent yachts and caused the total loss of five neighboring yachts. The hull insurers of the affected yachts sought recovery of the damages against the yacht owner in a total amount of roughly 8 million euros.
One issue for decision was whether the owner was entitled to rely on the limitation regime set out by the Convention on Limitation of Liability for Maritime Claims (LLMC 1976) and its Protocol of 1996 as ratified by Spain, under which the owner of a ship (whether a commercial ship or a yacht) not exceeding 300 GT is not liable in damages beyond 500,000 SDR (roughly 575,000 euros).
The court held that the owner was not entitled to limit his liability under the LLMC regime and ruled that the owner was liable for the total amount claimed.
Under the court´s view, among other reasons, the claim in tort was not a “maritime claim” covered by article 2 LLMC, as the claim was not a “maritime” claim (but rather a civil liability claim) occurring in direct connection with the operation of the ship.
This ruling, which can be subject to cassation before the Spanish Supreme Court, contradicts English case law which allows owners to limit their liability whatever the basis of the liability may be, provided that the damage to property is caused in direct connection with the operation of the ship. The term “operation” of the ship is, under common law, sufficiently broad as to cover the choice of a berth [The Aegean Sea] and English courts have interpreted the phrase "in direct connection with the operation of the ship” as to govern the type of damages and not the type of claim.
Hence, under the common law perspective, the decision of the Spanish court holding that a claim in tort is not a “maritime claim” under the LLMC regime would be somewhat misleading. In fact, a Decree issued by the High Court of the Isle of Man allowed the owner of a yacht to limit its liability in respect of an identical claim for damages to adjacent yachts arising from a fire occurred at a marina in Barcelona [Dominator (Motor Yacht "XTC of London") v Others]. In that particular case, the court allowed a limitation decree which placed a 500,000 SDR cap on the overall amount of the compensation recoverable from the owner.
The consequences of this new ruling, if not reversed by the Spanish Supreme Court, is that ship owners and insurers may find themselves exposed to substantial risks when facing a claim in damages occurring while the ship is berthed, as they might not be able to limit their liability.