Limitation of liability in inland navigation 20 September 2019
Act CVII of 2017 on the promulgation of the Strasbourg Convention on Limitation of Liability in Inland Navigation ("CLNI" or "Convention") entered into force on 1 of July this year. The purpose of the Convention is to enable inland waterway goods or passenger transport companies with unlimited liability to apply a high but foreseeable liability regime making the risks quantifiable and therefore leading to a reduction in insurance premiums [Explanation of Bill T/17308, General Explanation]. As the cheaper insurance means more insurance, the Convention implicitly increases the chances of injured parties getting their money.
However, so far only Luxembourg, the Netherlands, Serbia and Hungary (individually "State Party" and collectively, "States Parties") have accepted the Convention as binding, making it difficult to achieve the above mentioned objectives.
The scope of the Convention
The Convention provides that, in the event of an incident occurring on a waterway within the territory of a State Party, the shipping company [the owner of a commercial ship (including the charterer and the operator) or rescuer is a qualified person under Article 1 of CLNI] may limit its liability to the claims listed in the Convention unless it has been caused by deliberate action or gross negligence. [CLNI Article 4].
The claim may result from either contractual or non-contractual liability (Article 2 of the CLNI). However, neither claims for contributions in general average nor claims by servants of the vessel owner are covered by the CLNI if the law governing the employment contract does not provide for any limitation of liability (CLNI Article 3).
The Convention limits the total amount payable for all claims arising out of a single incident. The CLNI defines one general and two special liability limits. The latter ones apply to claims for loss of life or personal injury to passengers, and to claims arising from the carriage of dangerous goods. All other claims are subject to the general liability limit regulation.
Methods for limiting liability
Limitation of liability may be invoked by constitution of a limitation fund for the amount of the limits of liability set out in the Convention (CLNI Article 12) or even without the constitution of such a fund (CLNI Article 11). The rules governing the procedure for limitation of liability are laid down in national law. The procedures known are similar to court-ordered liquidation (Cécile Tournaye: Adoption of the CLNI 2012 - what has changed compared with CLNI 1988?, TransportRecht, Vol. 6, 2013, p. 213-220., p. 217.). The common features of the procedures are briefly summarized below.
Common features of national procedures for establishing a fund
The limitation procedure starts with the ship-owner requesting the court to constitute one or more funds. The request shall include a list of potential claimants (injured parties), the legal basis of the claims, the amount of the claims, and the liability limit of the fund(s). The court then orders the opening of proceedings, establishes the plaintiffs and appoints a trustee who is responsible for distributing the amount deposited in the fund among the plaintiffs. The plaintiffs are entitled, after notification, to challenge the limitation of the ship owner’s liability, just as the ship-owner is entitled to challenge his own liability, given the act of initiating a fund shall not constitute an admission of liability (CLNI Article 1 (6)). Ordering the establishment of a fund is therefore a conditional measure. If the court at the end of the proceedings finds that the owner is not liable or that his liability cannot be limited, the fund will be liquidated.
The importance of setting up a fund is not just about limiting liability. The ship-owner may request the constitution of a fund before any action has been taken against him. In this case, the requested court will have exclusive rights over all claims concerned. The CLNI states that, where a fund has been constituted, any person who can make a claim effective against the fund shall be barred from exercising any right in respect of such claim against any other assets of a person by the fund has been constituted. (CLNI Article 14 (1)). In the absence of this provision, injured parties would be able to pursue claims in accordance with the general rules of jurisdiction in a country where such a fund has not been constituted or where such a fund cannot be constituted under national law.
However, the jurisdictional rule of the Convention is binding only on the States Parties. Given the low number of States Parties, the question arises as to how the limitation of liability can be enforced. Below we examine how EU jurisdiction rules contribute to the enforcement of the Convention.
Under EU rules on jurisdiction, where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings [Article 30 (1) of Regulation (EU) No 1215/2012]. Where the action in the court first seised is pending at first instance, any other court may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof. [Article 30 (2) of Regulation (EU) No 1215/2012].
The Court of Justice of the European Union ('CJEU') has already established that proceedings initiated by the undertaking to constitute a fund and proceedings subsequently initiated by the injured party in another Member State to claim payment from the fund are regarded as related proceedings. (C-39/02. sz. ügy, Maersk Olie & Gas A/S kontra Firma M. de Haan en W. de Boer, CJEU 14.10, 2004. 40.). It can therefore be said that, in the case of non-State EU Member States, Union law provides a basis for suspending or, if the conditions are met, terminating an action for damages instituted subsequently.
It should also be noted that once a fund is constituted, any vessel or other property which has been arrested – including the ship - shall be released (CLNI Article 14 (2)).
The Hungarian legislation implementing the Convention
The absence of Hungarian liability limitation rules
The legislator did not regulate a procedure similar to the limitation of liability procedure mentioned above in the course of the implementation of the Convention. This means that the Convention is of limited application in Hungary.
If the damage event occurs on a waterway belonging to the territory of Hungary, the undertaking will be entitled to limit its liability, however it shall not be able to do so by constituting a fund in Hungary.
The CLNI states that ‘Any person alleged to be liable may constitute one or more funds with the competent court or other competent authority in any State Party in which legal proceedings are instituted in respect of a claim subject to limitation, or, if no legal proceedings are instituted, with the competent court or other competent authority in any State Party in which legal proceedings may be instituted for a claim subject to limitation.’ (CLNI Article 12 (1)).
In our view, this means that if proceedings are initiated in Hungary against the undertaking concerned, the undertaking may invoke the limitation of liability contained in the Convention in the proceedings due to the fact that Hungary is a State Party. However, the undertaking shall not be able to request the constitution of a fund in Hungary for the purpose of limiting its liability in advance. In this case, it is necessary to assess whether there is a State with jurisdiction over the claims which has introduced a liability limitation procedure in accordance with the CLNI. If there is no such State, the undertaking will not be able to limit its liability on a preventive basis. If there is such State, it is further to be assessed whether initiating a liability limitation at extra costs is worth it or not. For instance, if the undertaking concerned were a Hungarian shipping company and it was possible to constitute a liability limitation fund in the Netherlands, the costs of litigation in the Netherlands might exceed the financial gain arising from limiting the liability.
Introduction of mandatory liability insurance
The Convention only limits the total amount of compensation. It does not regulate the conditions of establishing liability nor does it prescribe mandatory liability insurance. However, as mentioned in the introduction, regulation implicitly aims to reduce insurance premiums by making risks more predictable and thus resulting in the conclusion of more and more insurance contracts.
Although the Hungarian legislator has not adopted rules for the establishment of a liability limitation fund, thereby making the situation of Hungarian shipping companies and insurers more difficult, it introduces mandatory liability insurance having regard to the Convention, but only for non-contractual damages. [Act XLII of 2000 on Water Transport] (Vkt.) Section 24 (1) ("Amendment")] The Amendment entered into force on July 1, 2019 (Article 4 of the Convention), with the requirement that the liability insurance contracts existing on June 30, 2019 must comply with the Amendment after November 1, 2019. [Decree 16/2019 (VI. 28.) on certain conditions for access to shipping activities].
According to the justification for the Amendment, the details of the ship insurance contracts will be laid down by the Minister of Finance. However, the Amendment provides that "The injured party shall be entitled to assert his claim directly against the insurer under the insurance contract." [Section 25 (4) of Vkt.] So far, Hungarian law has provided the possibility of direct action against the insurer only in case of mandatory liability insurance in respect of the use of motor vehicles.
Article 18 of Regulation (EC) No 864/2007 (Rome II) stipulates that “The person having suffered damage may bring his or her claim directly against the insurer of the person liable to provide compensation if the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides.” According to the CJEU, this provision should be interpreted as allowing the injured party to bring a direct action against the insurer of the person liable for compensation, where such an action is provided by the law applicable to the non-contractual obligation, irrespective of the law chosen by the parties as applicable to the insurance contract (For CJEU practice, see our previous article: https://gmtlegal.hu/hir/a-biztositok-kozvetlen-perlesenek-uj-fejlemenyei-az-eu-birosaganak-a-gyakorlataban.php).
Based on the foregoing, if the non-contractual damage caused by the insured shipping company is governed by Hungarian law, the injured party will be entitled to bring an action directly against the insurer, even if the insurance contract provides otherwise. In this context, it is of particular importance that the legislator does not specifically address the question of whether a provision allowing direct enforcement is applicable to insurance contracts concluded before its entry into force. However, the norm regulating the entering into force of this provision provides in general that “Ship-liability insurance contracts of passenger ships, cargo ships, ferries and other crafts used for economic purposes existing on 30 June 2019 shall comply with the conditions laid down in respect of non-contractual liability insurance after 1 November 2019. It could even be considered therefore that the provision allowing direct action by the injured party will also apply to previously concluded contracts.Back to news
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