The owners of tugs and other workboats are entitled to limit their liability under the Shipowner's Limitation of Liability Act, 46 U.S.C. §30501 et seq. ("Limitation Act"), to the same extent as the owners of ocean-going ships. Thus, if a workboat is involved in a maritime casualty, the workboat's owner or bareboat charterer may be entitled to limit its liability to the value of the workboat after the incident, plus any towing charges, hire, or freight still owed for the job. This limitation right obviously can be a great benefit to a workboat's owner and insurers when the damages from a marine casualty are substantial.
A vessel owner's limitation rights, however, are subject to several important qualifications, three of which have special significance in the unique circumstances of the workboat industry. Each is discussed below.
"Privity or Knowledge"
A vessel owner is only entitled to limit its liability if the fault that caused the casualty is not within the owner's "privity or knowledge." This is a term of art that has been judicially defined over decades of case consideration and does not lend itself to easy definition when a corporate owner is involved. Obviously, if senior management is aware of the fault that caused the casualty, then the fault is deemed to be within the owner's "privity or knowledge." The more difficult questions concern employees further down on the corporate ladder. For example, the knowledge of an operations manager, and even of a fl eet or port captain that reports to the operations manager, likely will be imputed to the owner, but the knowledge of a vessel's master or in house repairman likely would not be.
The above examples illustrate that it is not always easy to predict whether the knowledge of an individual will be imputed to the vessel's corporate owner, and most "privity or knowledge" questions can only be resolved on a case-by-case basis. In the workboat industry, these questions can be even more difficult given the closer involvement by management in the operation and maintenance of a fleet and the sheer proximity of the vessels to management control. But as a very rough guide, casual ties resulting from the operational negligence of the workboat's master or crew generally will not be considered within the owner's "privity or knowledge" and the workboat owner would be entitled to limit. The result, however, may well be different if the owner was notifi ed of the matter as it was happening and became involved in the decision making process leading to the casualty. It is an open question whether the knowledge of a dispatcher would be imputed to the owner; but given the purpose of the Limitation Act, persuasive arguments could be constructed that it should not be.
On the other hand, casualties resulting from a vessel's un-seaworthiness, or from negligent acts by masters or mates found to be incompetent or improperly trained, will likely be found to be within the "privity and knowledge" of the corporate owner. The implementation of proper procedures and appropriate delegation of functions bearing on these issues is the best way to preserve a workboat owner's limitation rights.
The Personal Contract Doctrine
The second qualifi cation on the right to limit—the Personal Contract Doctrine—has great signifi cance in the workboat industry. This judicially crafted exception to the Limitation Act prohibits a vessel owner from limiting its liability for claims brought for breach of personal contractual obligations. The theory is that, as a matter of policy, a vessel's owner (corporate or otherwise) should not be entitled to limit against a liability arising out of its own personal undertakings. Direct claims, even indemnity or contribution claims, can fall within the Personal Contract Doctrine and therefore would not be subject to limitation.
The doctrine can be confusing because not all contractual obligations in the shipping business are considered personal, and what is a personal contract is not always easy to identify. Almost all charters and contracts of affreightment in the workboat context, to the extent they contain warranties of seaworthiness, are personal obligations of the vessel owner, and claims for breach of those obligations are not limitable. Bills of lading, however, are not considered personal contracts. Towage contracts contain many personal obligations, such as the payment obligation, but not all breaches of a towage contract will be a breach of a personal obligation. Damages to the tow resulting from the negligence of a tug master, for example, may not be a breach of any personal obligation of the tug owner.
As the workboat industry is largely contract driven, the Personal Contract Doctrine can operate as a major restriction on the limitation rights of workboat owners. Fortunately, a workboat owner can protect itself from application of the Personal Contract Doctrine by including in its contracts a clause stipulating that nothing in the contract is a personal obligation and that the contracting parties agree that both are entitled to all the benefi ts of the Limitation Act. An experienced maritime lawyer can draft the appropriate wording if a workboat owner's form contracts do not contain such a provision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.