Red Flags on High Seas

Siva Kumar Kanagasabai and Trishelea Sandosam highlight specific limitations under Malaysian shipping laws.

Shipping activity is fraught with risks. Whether due to weather perils, navigational error or negligent crewmen, those involved in shipping activities face potentially multi-million dollar risks of loss and damage to property or loss of life in their everyday trade.
Due to these great risks, the laws that govern shipping transactions have sought to impose limitations on the liabilities of shipowners and carriers, and limit the time period within which actions may be brought against them. These limitations are key to facilitating the sustained development of international trade and the shipping industry as a whole; and prevent the costs of freight, insurance and ultimately the price of goods from increasing significantly.  
This article provides an overview of the time and liability limitations applicable in Malaysia. It is crucial that everyone having business dealings with the shipping industry are aware of these limitations to be able to adequately assess their potential risks and costs. The two main pieces of legislation which provide for these limitations are the Carriage of Goods by Sea Act 1950 (“COGSA 1950”) and the Merchant Shipping Ordinance 1952 (“MSO 1952”).
COGSA 1950
COGSA 1950 gives effect to the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, Brussels 1924 ("Hague Rules"), which is set out in the First Schedule of COGSA 1950. The Hague Rules impose a non-excludable minimum standard of duty on carriers and provide for the liabilities of carriers and the limitation thereof.
COGSA 1950 applies to a contract of carriage by sea in ships carrying goods from any port in Malaysia to any other port whether in or outside Malaysia (Section 2, COGSA 1950). The term “contract of carriage” applies to contracts of carriage covered by a bill of lading, or any similar document of title, in so far as such document relates to the carriage of goods by sea.
MSO 1952
MSO 1952 is the main regulatory framework in Malaysia covering, amongst others, ship registration, licensing, safety and security, load line and loading, liability and limitation of liability of shipowners.
The Merchant Shipping (Amendment and Extension) Act 2011 (“MSO Amendment Act 2011”), which came into force on 1 March 2014, has introduced several important amendments to MSO 1952. With regard to limitation of liability, the MSO Amendment Act 2011 has given the Convention on Limitation of Liability for Maritime Claims 1976, as amended by the Protocol of 1996 (“Limitation Convention”), the force of law in Peninsular Malaysia and Labuan, replacing the International Convention relating to the Limitation of the Liability of Owners of Sea-Going Ships 1957 (“1957 Convention”). Sabah and Sarawak continue to apply the 1957 Convention.
Time Limitation
Article III rule 6 of the First Schedule to COGSA 1950, i.e. the Hague Rules, provides that any claims against a carrier must be brought within one year from when the goods were delivered or should have been delivered. “Carriers” are defined to include the owner or the charterer who enters into a contract of carriage with a shipper. This one year limitation is to be contrasted with the Limitation Act 1953 (“LA 1953”) which provides for a limitation period of six years for contractual and tortious claims from the date the cause of action accrues (Section 6(1), LA 1953).
In a carriage of goods by sea transaction to which COGSA 1950 applies, the one year time bar will generally override the general limitation period provided in the LA 1953 (Section 3, LA 1953).
The limitation period under the Hague Rules is unique in that, unlike the time limitation under the LA 1953, it is a substantive time bar that effectively extinguishes the claim and does not merely bar the remedy (Aries Tanker Corporation v Total Transport Limited [1977] 1 All ER 398, “Kusu Island” v The Owners of Cargo Lately Laden on Board the Ship or Vessel “Brani Island” [1989] 3 MLJ 257 and Trengganu Forest Products Sdn Bhd v Cosco Container Lines & Anor [2007] 5 MLJ 486).
In view of the significantly shorter limitation period and the substantive nature of the time bar under the Hague Rules, plaintiffs are advised to obtain legal advice as soon as possible when a dispute arises and file legal action expeditiously to protect their rights.
Limitation of Liability
The Hague Rules provide for a package limitation where carriers may limit their liability to £100 per package or unit unless the nature and value of such goods have been declared by the shipper before shipment and have been inserted in the bill of lading (Article IV rule 5, Hague Rules).
While the Singapore High Court in The "Vishva Pratibha"; Sarathi Co v "Vishva Pratibha" (Owners Of); Port Of Bombay, India [1980] 2 MLJ 265 held that £100 refers to the paper value of 100 pounds sterling, the more judicially accepted view is that the sum of £100 is to be taken as the gold value of the sterling pound, as opposed to its paper value (Article IX, Hague Rules; The Rosa S [1989] 1 QB 419; The Thomaseverett [1992] 2 SLR 1068). To ascertain the limit of liability, the gold value of £100 at the date of the breach is to be calculated by reference to the English Coinage Act 1870.
One problem which arises with the interpretation of Article IV rule 5 is the meaning of the term ‘package’ or ‘unit’ as these terms are not defined in the Hague Rules. It has been decided by the English courts that where goods are loaded into a container and the bill of lading specifies the content of that container as being packed in smaller articles of transport, such as packets or bundles, each article would be treated as one package or unit (The River Gurara [1996] 2 Lloyd’s Rep 53). On the other hand, if no reference is made to the smaller articles, then each container would be considered as one package or unit. Further, the ‘package’ or ‘unit’ limitation is almost impossible to apply in the case of liquids or bulk cargo.
Tonnage Limitation     
The Limitation Convention is set out in the Sixteenth Schedule of MSO 1952. Shipowners, salvors and any person whose act, neglect or default the shipowner or salvor is responsible for, are entitled to limit their liability for losses not resulting from their personal act or omission, committed with the intent to cause such loss or recklessly and with knowledge that such loss would probably result (Article 4, Part 1, Sixteenth Schedule).  A shipowner includes a charterer, manager and operator of a ship (Article 1, Part 1, Sixteenth Schedule).
The claims which are subject to limitation of liability include the following:
  • Claims in respect of loss of life or personal injury or loss or damage to property, occurring on board, or in direct connection with the operation of, a ship;
  • Consequential losses arising from the above; and
  • Claims in respect of loss caused by delay in the carriage of cargo or passengers.
The tonnage limitation limits the liability of shipowners based on the gross tonnage of the ship and the value of Special Drawing Rights (Article 6 and 8, Part 1, Sixteenth Schedule). The Special Drawing Rights value is determined by the International Monetary Fund and the amount will be converted into the national currency of the country in which limitation is sought, according to the value of the currency at the date the limitation fund is constituted, payment is made or security is given for the claim. This works out to be a much higher amount than the limitation amount provided for under the 1957 Convention.
A claimant who seeks to break limitation has the burden of proving that the loss resulted from the personal act or omission of the person seeking to limit liability which was committed with the intent to cause such loss or recklessly and with knowledge that such loss would probably result. This is to be contrasted with the ‘actual fault and privity’ test under the 1957 Convention, where the burden of proof rests with the person seeking to rely on limitation. The effect of this change is that it is now almost impossible for the claimant to break limitation as he needs to prove a ‘personal’ act or omission. The rationale for imposing a higher threshold to break limitation is to balance the interests of the person seeking limitation with the interest of the claimant who now enjoys a higher limit of liability.
Limitation of liability under the Limitation Convention can be invoked even if a limitation fund has not been constituted (Article 10, Part 1, Sixteenth Schedule). If the person seeking to limit his liability chooses not to set up a limitation fund, Article 12 will apply in respect of distribution of the fund to competing claimants, with questions of procedure decided in accordance with the national law of the country in which the action is brought. Should the person seeking to rely on limitation choose to set up a limitation fund, a limitation action is to be commenced. This practice is commonly adopted where there are several claims or potential claims arising from an incident.
The procedure relating to limitation actions is contained in Order 70 rules 35 to 38 of the Rules of Court 2012. If the Court decides that the shipowner is entitled to limit his liability, it will further determine the amount to which the liability is to be limited. A limitation fund will be subsequently constituted in accordance with Article 11, Part 1 of the Sixteenth Schedule, and all claimants will have a share in that fund. If there is only one claimant, limitation proceedings do not need to be commenced and the shipowner should just plead limitation as part of his defence or counterclaim. 
Where a limitation fund is constituted by the person seeking to rely on limitation in accordance with Article 11, a claimant who makes a claim against the fund will be barred from exercising any rights against any assets of the person for whom the limitation fund was constituted (Article 13, Part 1, Sixteenth Schedule).
Further, once the limitation fund is constituted, any property belonging to the person for whom the limitation fund was constituted which has been attached or arrested within the jurisdiction of a state party, may be released by the court of the state. However, the release of property which has been attached or arrested is mandatory in certain situations, such as, where the limitation fund is constituted at the port where the occurrence took place, at the port of discharge in respect of cargo or in the state where the arrest was made (Article 13 paragraph 2, Part 1, Sixteenth Schedule).
The person who applies and obtains an order for the release of the property is deemed to submit to the jurisdiction of that court in relation to the claim for which the property was attached or arrested (Article 7, Part II, Sixteenth Schedule). 
The long awaited amendments to MSO 1952 which have taken more than two years to come into force are much welcomed and make Malaysia one of the first countries in Asia to adopt the Limitation Convention, along with maritime giants such as the United Kingdom. It remains to be seen whether the amendments will make Malaysia a more favourable jurisdiction for claimants in admiralty claims due to the increased limits of liability.