Local contract law as applied to liability limitation, etc – Part 15, USA

Standard Club has noted that its members were regularly exploring new opportunities in diverse territories and thus frequently needed to ask how the law in a particular jurisdiction might impact the enforceability of key contractual provisions.

Standard Club has therefore produced a list of key offshore jurisdictions and how the various relevant laws apply.

The study specifically looks at:

  • the right to limit liability (specifically in respect of wreck removal)
  • the application and geographical reach of the CLC Convention, Wreck Removal Convention, Maritime Labour Convention or any related domestic legislation
  • the enforceability of knock-for-knock provisions in a contract and whether there are any gross negligence or wilful misconduct exceptions to this.

The jurisdictions covered are:

  • Angola
  • Australia
  • Brazil
  • India
  • Indonesia
  • Malaysia
  • Mexico
  • Nigeria
  • Norway
  • Qatar
  • Saudi Arabia
  • Singapore
  • Thailand
  • UK
  • USA

The full guide is available at:

http://www.standard-club.com/media/2767858/a-guide-to-key-offshore-jurisdictions.pdf

This concludes the daily country-by-country summary.

15) USA

Q: Is the US signatory to an international convention relating to limitation of liability for maritime claims? If not, can shipowners limit their liability under local law?

A: The US is not signatory to any international conventions relating to the limitation of liability for maritime claims. However, there is a right to limit under US law, under the Limitation of Liability Act 1851, which allows shipowners to limit their liability based on the value of the vessel (post casualty) plus the outstanding freight, except where the loss occurred with their privity or knowledge.

Owners and bareboat charterers are entitled to rely upon the right to limit under the Limitation Act. Time or voyage charterers are not entitled to do so. Ship managers may be entitled to rely upon the right to limit if they exercise sufficient ‘management and operational control over a vessel’ and ‘act as a manager of the vessel or acquires work for and dispatches the vessel’

(In re Ingram Barge Co., 2007 US Dist. LEXIS 52662, at 14 16, E. D. La. 2007).

Insurers cannot rely upon the right to limit. However, under Louisiana law, a plaintiff can sue an insurer directly and the courts will enforce insurance policy defences, which includes limiting the insurer’s liability to the amount to which the assured is entitled to limit his liability (Crown Zellerbach Corp. v Ingram Industries, Inc., 783 F.2d 1296, 5th Cir. 1986). The Limitation Act applies generally to all types of maritime claims, which includes personal injury/death, collision and cargo damage, with certain exceptions. Historically, the most important exception was the ‘personal contract’ exception, which applies to contracts entered into by the actual shipowner, such as charterparties, contracts for repairs and employment contracts with crew. However, the concept is rather limited as it is difficult to establish that a contract is truly ‘personal’ to the shipowner. It is not possible to rely upon the right to limit under the Limitation Act for pollution damage or clean-up costs.

The Oil Pollution Act 1990 (OPA) establishes a separate liability regime regarding the discharge of oil into the navigable waters of the US or adjoining shorelines or its exclusive economic zone (EEZ). Under OPA, the ‘responsible party’ for a vessel or facility from which oil is discharged is strictly liable for the clean-up costs and damage caused by the pollution. However, the

responsible party’s liability in damages is capped at a certain figure, based on the type of vessel or facility and the amount of oil discharged, unless the spill was caused by their gross negligence, wilful misconduct or violation of federal regulations. The limit of liability for offshore facilities is capped at $133.65m in damages, but liability for pollution clean-up costs is unlimited.

Q: What is the geographical application of the local law under which shipowners can limit their liability?

A: The US Supreme Court has held that a shipowner may seek relief in the US courts under the Limitation Act without regard to where the casualty occurred (The Titanic, 233 US 718, 1914). The maritime claim can arise within the navigable waters of the US or the high seas and navigable waters of other countries. However, this is subject to choice of law considerations and the doctrine of forum non conveniens, i.e. the US courts may apply the foreign limitation law or dismiss the limitation proceeding if the foreign forum is a more convenient forum.

Q: Are there any exclusions or exceptions in respect of offshore vessel types?

A: The right to limit under the Limitation Act extends to the owner of any ‘vessel’, which is defined under US law as ‘every description of watercraft or other artificial contrivance used, or capable of being used, as a means of transportation on water’. Mobile Offshore Drilling Units have consistently been held to be vessels for the purposes of the Limitation Act.

Q: Is it possible to rely upon the right to limit for wreck removal?

A: No. There is no right to limit in respect of wreck removal.

Q: Is the US signatory to the International Convention on Civil Liability for Bunker Oil Pollution Damage (Bunkers Convention)?

A: No. The US is not signatory to the Bunkers Convention.

Q: Is the US signatory to the International Convention on Civil Liability for Oil Pollution Damage (CLC)?

A: No. The US is not signatory to the CLC.

Q: Is the US signatory to the Nairobi International Convention on the Removal of Wrecks (WRC)?

A: No. The US is not signatory to the WRC.

Q:Is the US signatory to the Maritime Labour Convention (MLC)?

A: No. The US is not signatory to the MLC and will therefore not enforce compliance on US vessels or foreign vessels whilst navigating within US waters. However, the US Coast Guard will issue a Statement of Voluntary Compliance Maritime Labour Certificate to vessels demonstrating compliance with the Convention.

Q: Is ‘gross negligence’ or ‘wilful misconduct’ recognized as a legal concept under US law?

A:Yes, gross negligence and wilful misconduct are recognized concepts under US law. The principal consequence of such conduct is the availability of punitive damages for ‘gross negligence’ and ‘wilful, wanton, and reckless indifference for the rights of others’ (Exxon Shipping Co. v Baker, 554 US 471, 493, 2008).

Q: Is the knock for knock liability regime a recognized concept under US law?

A: Yes, knock for knock agreements whereby parties to a contract agree to indemnify each other for injury claims by their respective employees, damage to their respective property, etc, even if the party seeking indemnity is negligent or otherwise at fault, are very common in the US, especially in the offshore energy industry. The enforceability of such agreements, however, is a frequently litigated issue. Such agreements are enforceable under maritime law to require the indemnitor to indemnify the indemnitee for the indemnitee’s own negligence so long as the agreement is clear and unequivocal.

However, many contracts related to offshore energy development are governed by state law, and the laws of some states (egg Louisiana and Texas) prohibit or place restrictions on the enforcement of such agreements if the party who seeks indemnity is found to be or is alleged to be negligent.

Q: If knock for knock is a recognized liability regime under US law, will it be upheld in the event of ‘gross negligence’ or ‘wilful misconduct’?

A: The US courts have indicated that a two-step analysis is required to determine the enforceability of such agreements (re Oil Spill by the Oil Rig Deepwater Horizon, 841 F. Supp. 2d 988, E.D. La. 2012). First, the court must review the indemnity agreement to determine whether the parties intended for the indemnities to extend to gross negligence. Then, the court must determine whether enforcement of the indemnity agreement would violate public policy.

Q: Will industry standard contracts such as BIMCO’s TOWCON, TOWHIRE, SUPPLYTIME, WRECKHIRE, WRECKSTAGE, WRECKFIXED and HEAVYCON be upheld under US law?

A: These contracts would be considered maritime contracts governed by US maritime law and, as noted above, indemnity agreements are generally enforceable according to their terms under maritime law, provided the language of the contract is clear and unequivocal. Applying this standard, the indemnity provisions contained in the BIMCO SUPPLYTIME 2005 form, whereby the parties mutually agree to indemnify each other for certain risks ‘even if such loss, damage, injury or death is caused wholly or partially by the act, neglect, or default’ of the indemnitee, would be enforceable.

However, many of the indemnity provisions in these contracts do not specify that the indemnity will apply even if the party seeking indemnity was negligent or otherwise at fault, e.g. clause 25(a) of BIMCO TOWCON 2008 and clause 23(a) of BIMCO TOWHIRE 2008. These provisions are probably not enforceable under US maritime law.

In addition, US law prohibits enforcement of exculpatory clauses in towing contracts that exculpate the towing vessel for its own negligence (Bisso v Inland Waterways Corp., 349 US 85, 1955). Accordingly, the provisions in clauses 25(b)(ii) of BIMCO TOWCON 2008, clause 23(b)(ii) of BIMCO TOWHIRE 2008 and clause 14(b)(ii) of BIMCO SUPPLYTIME 2005 that purport to exonerate the tug for damage to the tow are probably unenforceable.

For further information, contact:

Ursula O’Donnell

Divisional Claims Director, Offshore

+44 20 3320 8813

ursula.odonnell@ctplc.com

Harold K Watson

Partner, Chaffe McCall LLP

+1 713 343 2952

watson@chaffe.com