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Chan, Hobart Hamada

Section 2B
Comments and recommendation to rationalize
the no vessel no liability rule
in maritime transportation laws in the 21
st
century
The statutory right to limit liability traces its origins back to the 17th century with
the Continental countries leading the way. Provisions can be found in the States of
Hamburg in 1603, the Hanseatic Ordinances of 1614 and 1644 and the Marine
Ordinance of Louis XIV in 1681, which allow shipowners to limit their liability to
claimants by reference to the value of the carrying ship and its freight.
[1]


The doctrine actually originated in Europe during the time when their early
merchants have started to look overseas for the expansion of their trade business and
for the exploration of new sources of raw materials for the supply of European
manufacturing concerns. The prevailing condition of the maritime trade and sea
voyages during the medieval ages was marked by innumerable hazards and perils. The
adhered rule then is that when a merchant or group of merchants venture in a voyage
and thereafter their ship sinks, the unfortunate investors can then be held liable by their
creditors to the extent of all their individual assets. Without the principle of limited
liability, a ship owner and investor in maritime commerce would run the risk of being
ruined by the bad faith or negligence of his captain, and the apprehension of this would
be fatal to the interest of navigation. Thus, the investors can easily go bankrupt and be
buried in debts for even a single unfortunate voyage. This high risk have created a
deterrent effect to the merchants to invest in maritime commerce. This also brought an
adverse effect in shipbuilding.
[2]
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1. Raymond Roque ,The Real and Hypothecary Nature of Maritime Law (http://suite101.com/article/the-real-and-hypothecary-
nature-of-maritime-law-a398963, 2011)
2. Aleka Mandaraka-Sheppard , Modern Maritime Law: And Risk Management
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In order to remedy the situation and hence to encourage investments in maritime
commerce and shipbuilding, the lawmakers of the various nations in Europe have
formulated their respective versions but essentially the same doctrine of limited liability.
It was deemed necessary to confine the liability of the owner or agent arising from the
operation of a ship to the vessel, equipment, and freight, or insurance, if any, so that if
the ship owner or agent abandoned the ship, equipment, and freight, his liability was
extinguished. No ship, no liability. It is designed to encourage and protect trade as well
as encourage ship owners to stay in business. Limitation of liability is not a matter of
right but a matter of justice.
[3]

Shipowner have real and hypothecary liability in maritime law, the term "real"
signifies that the extent of liability of those involved in maritime commerce and also the
claims of their counterparties are both determined by the value of the ship and its load,
the very res or real property involved in the endeavor.on the other hand, the term,
"hypothecary" implies that shipowner can free himself from liability arising from maritime
commerce by hypothecating the ship in favor of the claiming parties. To hypothecate
means to pledge as a security.
[4]

In sum, the real and hypothecary nature of maritime law states that the
shipowners or agents liability is merely coextensive with his interest in the vessel such
that a total loss thereof results in its extinction. The total destruction of the vessel
extinguishes maritime liens because there is no longer any res to which it can attach.
This concept of maritime law is also adopted in the philippines as seen in Article
837 of the Code of Commerce accordingly provides that the civil liability incurred by
shipownersshall be understood as limited to the value of the vessel with all its
appurtenances and freightage earned during the voyage. Likewise, all the shipowner
has to do to escape liability to third persons for the acts of the captain, is to simply
abandon the vessel with all her equipment and the freight it may have earned during
the voyage.
[5]

_________________________________________________________
3. BRAIS & ASSOCIATES, P.A., THE SHIPOWNERS LIMITATION OF LIABILITY ACT: PITFALLS FOR THE UNWARY
4.ibid
5. Article 587 code of commerce
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But, the limited liability of shipowners is not absolute as can be seen in some
supreme court decisions. For example, in Manila Steamship Co. v. Insa Abdulhanan, et
al (G.R. No L-9534, Sept. 29, 1956), the Supreme Court made Lim Hong To, owner of
M/L Consuelo V, pay damages to Adbulhaman who lost all his five children when the
vessel collided with M/L Bowline Knot, owned by the Manila Steamship Co. Even if after
the collision, M/L Consuelo V was considered totally lost, Lim Hong To was held liable
because the master and engineer of the sunken vessel were not duly licensed. Other
cases, where the shipowner himself, was negligent, e.g. allowing the vessel to embark
inadequately equipped with life-saving apparatus, are cited in the Hernandez magnum
opus.
[6]

As can be seen at the above stated case there are exceptions to the limited
liability rule which has been enumerated in the case of Monarch Insurance Company v
Court of Appeals (G.R. No. 92735. June 8, 2000), which states "the limited liability rule
is without exceptions, namely: (1) where the injury or death to a passenger is due either
to the fault of the shipowner, or to the concurring negligence of the shipowner and the
captain; (2) where the vessel is insured; and (3) in workmens compensation claims."
[7]

Another exception to the "no vessel no liability rule" is when oil pollution is
caused as stated in sec 6 of RA 9483 or an act providing for the implementation of the
provisions of the 1992 international convention on civil liability for oil pollution damage
and the 1992 international convention on the establishment of an international fund for
compensation for oil pollution damage " SEC. 6. Liability on Pollution Damage. - The
Owner of the Ship at the time of an Incident, or where the Incident consists of a series
of occurrences, at the time of the first such occurrence, shall be liable for any Pollution
Damage caused by the Ship as a result of the Incident. " under this law the owner may
only escape total liability if he can prove that the incident (a) Resulted from an act of
war, hostilities, civil war, insurrection or a natural phenomenon of an exceptional,
inevitable and irresistible character; (b) Was wholly caused by an act or omission done
________________________________________________________
6. in Manila Steamship Co. v. Insa Abdulhanan, et al (G.R. No L-9534, Sept. 29, 1956)
7. Monarch Insurance Company v Court of Appeals (G.R. No. 92735. June 8, 2000)
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with intent to cause damage by third party; and (c) Was wholly caused by the
negligence or other wrongful act of the government or other enforcement agencies
responsible for the maintenance of lights or other navigational aids in the exercise of
that function. If the Owner proves that the Pollution Damage resulted wholly or partially
either from an act or omission done with intent to cause damage by the person who
suffered the damage or from the negligence of that person, the Owner may be
exonerated wholly or partially from his liability to such person." Also in the law is
provisions that limit liability SEC. 10. Limitation of Liability - The Owner shall be
entitled to limit his liability under this Act with respect to a particular Incident to a total
amount calculated as follows:
(a) Three million (3,000,000) units of account for a Ship not exceeding five thousand
(5,000) units of tonnage;
(b) For a Ship with a tonnage in excess thereof, for each unit of tonnage, four hundred
twenty (420) units of account for each unit in addition to the amount mentioned in
paragraph (a): Provided, however, That this aggregate amount shall not, in any event,
exceeds 59.7 million units of account:
The limited liability rule was made at the age where communication between ship
and shore was difficult, almost impossible in open sea. Where the Captain was the sole
master of the ship. So absolute was the captains command over everyone and every
fortune. Technology and vessel management have evolved tremendously since the
limitation of liability was adopted. Satellite communications, global positioning systems,
reliable power plants, and modern construction have minimized many perils of going to
sea. In addition, strict requirements for inspection, classification, underwriting, and
personnel standing watch have made it less plausible for owners to assert lack of privity
and knowledge of vessel and crew deficiencies. Modern technology and vessel
management protocols have resulted in greater control and less risk to shipowners and
operators. Thus a reform of the law is needed to hold ship owners more accountable to
their vessels.

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