HHQ’s Sea You in Court Series
This is Part 2 of HHQ’s 3-part series on maritime pollution liability and enforcement in Malaysia, which is broken down as follows:-
Part 1 – The legal framework governing maritime pollution liability in Malaysia.
Part 2 – The civil/criminal liabilities and penalties imposed on parties in breach.
Part 3 – The defences/limitations of liability available to parties.
In case you missed the earlier instalments: – Part 1 | Part 2
Defences and Limitations of Liability in Malaysia’s Maritime Pollution Regime
Parts 1 and 2 of this series mapped out Malaysia’s maritime pollution framework and the civil and criminal liabilities that flow from a breach of statutory duties. Those liabilities include strict (and frequently joint and several) civil liability, substantial fines, imprisonment, ship detention and even forfeiture. However, liability under this regime is not absolute. The very statutes that impose these consequences also recognise a defined set of defences, exclusions and limitations, designed to balance environmental protection against the commercial realities of modern shipping. This concluding article summarises the principal defences and, in particular, the limitation of liability available to shipowners, charterers, operators, insurers and other parties.
Broadly, the protections available fall into three categories: –
a) Defences (or exceptions) which, if established, exonerate a party from liability altogether;
b) Channelling provisions which direct liability to the registered shipowner and shield other parties from suit; and
c) Limitation of liability, which caps a party’s financial exposure to a defined monetary amount even where liability is established.
1. A CONVENTION-BASED REGIME, BACKSTOPPED BY DOMESTIC LAW
Malaysia’s civil-liability framework is, in large measure, the domestic expression of international convention. The MSOPA 1994 gives domestic effect to the CLC and the Bunker Oil Convention 2001, while the LLMC 1976 (as amended by the 1996 Protocol) has the force of law through the MSO 1952. Where Malaysia has ratified and domesticated a convention, the defences and limits discussed below are largely those negotiated internationally.
Those conventions are, however, deliberately confined in scope. The CLC reaches only persistent oil carried as cargo by a tanker; the Bunker Oil Convention 2001 creates no compensation fund and no bespoke limit of its own, borrowing the LLMC ceilings instead; and neither extends to other hazardous or noxious substances (the HNS Convention not yet being in force). Where the convention-based regimes do not reach a particular pollutant or incident – or where their caps would leave clean-up and remediation costs unmet – the EQA 1974 and, within the exclusive economic zone, the EEZ Act 1984 step in to fill the gap, and they impose no ceiling on civil liability.
The practical result is a layered regime. A party that escapes or caps its exposure under the convention-derived statutes may nonetheless face uncapped liability for the same incident under domestic environmental law.
2. DEFENCES AND EXCEPTIONS: A SUMMARY
The protections that exonerate or restrict liability are spread across four statutes and operate in different ways. The table below summarises the principal defences, exceptions and immunities. The channelling of liability to the registered owner – and the narrow conditions on which that shield is lost – is dealt with within the MSOPA 1994 entry.
|
Statute |
Principal defences, exceptions and immunities |
|
MSOPA 1994 |
• Strict liability, but the owner escapes liability if it proves the discharge or escape of oil / bunker oil[1]: – (a) resulted from war or an exceptional natural phenomenon; (b) was wholly caused by a third party’s intentional act; or (c) was wholly caused by a navigational-aid authority’s fault.
• A claimant’s own fault reduces or defeats recovery[2].
• Liability is channelled to the registered owner whilst a broad class of parties connected with the ship may not face claims – unless the said parties acted intentionally or recklessly to cause such pollution damage[3]. For bunker pollution, a bareboat charterer is itself an “owner” and remains directly liable.
• Corporate officers have a due-diligence defence[4].
• Claims are time-barred unless it is commenced within 3 years from the date the pollution damage occurred, or no later than 6 years from the date of the incident (or the first occurrence in a series)[5].
• The IOPC Fund has its own war, State owned or operated non-commercial ship[6] and “no identified ship” defences[7]. The IOPC Fund may also be exonerated wholly / partly to the extent of a claimant’s own fault[8].
• On a direct action, the owner’s insurer may raise the owner’s own defences (other than the owner’s bankruptcy or winding up) plus a defence of the owner’s wilful misconduct[9]. |
|
EQA 1974 |
• Holding a valid licence and operating within its conditions is a defence[10].
• For oil discharge only, statutory “special defences” apply – i.e. discharge for the safety of the vessel or saving life, and discharge was caused by vessel damage, non-negligent leakage, or refinery effluent – each requiring all reasonable steps to have been taken to prevent, stop or reduce the discharge[11]. No such special defences exist for environmentally hazardous substances, pollutants or scheduled wastes.
• Directors and principals have a due-diligence defence[12]. |
|
EEZ Act 1984 |
• It is a defence if it is proven that the discharge or escape of oil, mixture containing oil or pollutants was to secure the safety of the vessel, installation, device, aircraft or place, or to save life – but only where the court is satisfied it was necessary and a reasonable step in the circumstances[13].
• Dumping carried out under a valid licence and within its conditions is also a defence[14]. |
|
MSO 1952 |
• It is a defence if it is proven that the discharge of oil or harmful substances:- (a) was necessary to secure the ship’s safety or to save life; or (b) resulted from damage to a vessel or its equipment where all reasonable precautions were taken after the damage occurred and the owner or master acted neither intentionally nor recklessly[15].
• To the separate charge of sending an unseaworthy ship to sea, it is a defence for the accused to prove that he used all reasonable means to ensure the ship’s seaworthiness, or that sending the ship to sea in an unseaworthy state was, in the circumstances, reasonable and justifiable[16]. |
3. LIMITATION OF LIABILITY
Of the three categories, limitation of liability is in practice the most consequential. Even an owner who cannot make out a defence will usually be entitled to cap its exposure to a fixed sum calculated by reference to the ship’s tonnage and, as explained below, that cap is hard to break. The applicable regime differs depending on the pollutant and the type of claim.
- i) Oil Pollution v Bunker Oil Pollution
For oil pollution, the shipowner may limit its liability for any 1 pollution incident to tonnage-based amounts (expressed in Special Drawing Rights (“SDR”)), as follows[17]: –
|
Ship’s tonnage (gross tonnage (“GT”)) |
Maximum limit of liability |
|
Not exceeding 5,000 GT |
4,510,000 SDR |
|
Exceeding 5,000 GT |
4,510,000 SDR + 631 SDR for each additional unit of tonnage [with the overall maximum being 89,770,000 SDR] |
For bunker oil pollution, the MSOPA 1994 prescribes no ceiling of its own: Section 6A of the MSOPA 1994 instead invokes the general limitation regime – the LLMC 1976 (as amended by the 1996 Protocol) – set out in the Sixteenth Schedule to the MSO 1952. That same regime, given the force of law by Section 360 of the MSO 1952, governs limitation for the wider run of maritime claims a pollution incident may generate. Those entitled to limit include not only the owner but charterers, managers, operators and salvors (and those for whose acts they are responsible), together with their liability insurers. Liability is capped at tonnage-based amounts in SDR, with separate limits for loss of life or personal injury and for property claims, and a passenger-claims limit of 175,000 SDR multiplied by the number of passengers the ship is authorised to carry. The limits for property claims (which include bunker pollution damage) under the LLMC 1976 (as amended by the 1996 Protocol) regime are[18]: –
|
Ship’s tonnage (gross tonnage (“GT”)) |
Maximum limit of liability |
|
Not exceeding 2,000 GT |
1,000,000 SDR |
|
2,001 to 30,000 GT |
1,000,000 SDR + 400 SDR for each additional ton |
|
30,001 to 70,000 GT |
Above amount + 300 SDR for each additional ton |
|
Exceeding 70,000 GT |
Above amount + 200 SDR for each additional ton |
Two practical points are worth noting: –
First, Malaysia is not a single limitation jurisdiction: Peninsular Malaysia and Labuan apply the LLMC 1976 (as amended by the 1996 Protocol), while Sabah and Sarawak continue to apply the older Limitation of the Liability of Owners of Sea-Going Ships Convention 1957 through their State Merchant Shipping Ordinance 1960, so both the limits and the meaning of “ship” may differ with the place of the incident.
Second, although the IMO has since adopted higher LLMC limits, Malaysia has not enacted them, so the 1996 Protocol figures in the Sixteenth Schedule to the MSO 1952 remain the operative ceilings.
- ii) The IOPC Fund
As explained in Part 1, the IOPC Fund provides a second tier of compensation and similar to a shipowner, it too, is entitled to limit its liability for pollution damage[19]. Unlike the shipowner’s tonnage-based limit, the IOPC Fund’s liability is subject to a global cap – standardly set at 203,000,000 SDR – which encompasses the combined compensation paid by both the shipowner and the IOPC Fund for any single incident. This ceiling remains applicable even in cases of exceptional and inevitable natural phenomena where the shipowner may be exonerated from liability, though it can escalate to an enhanced limit of 300,740,000 SDR triggered when global oil trade volumes reach a specific threshold – specifically, when at least three Fund Convention countries collectively receive over 600 million tons of contributing oil in the year prior to the pollution incident[20].
Claimants therefore cannot assume that the second-tier compensation mechanism guarantees unlimited recovery.
- iii) The insurer’s right to limit
On a direct action, the insurer is entitled to limit its liability in the same manner as the owner – and may do so even where the owner has lost the right to limit through its own intentional or reckless conduct[21].
- iv) Breaking Limitation
Critically, the right to limit, though valuable, is not guaranteed – yet it is difficult to defeat. Across both the MSOPA 1994 and the LLMC regime, the owner forfeits the limit only where the loss resulted from its own personal act or omission committed with intent to cause such loss, or recklessly and with knowledge that such loss would probably result[22]. Mere negligence – even gross negligence – does not break the limit; the claimant must establish the owner’s personal intent or conscious recklessness.
- v) Procedure: constituting a limitation fund
To invoke limitation, a shipowner applies to the High Court, which determines the limit and directs payment (or the deposit of a bank guarantee or security) into court[23]. Once a limitation fund is established, the court will order the release of any arrested ship or security, and no judgment in respect of the relevant claims may be enforced against the shipowner beyond the fund, provided the fund is genuinely available to claimants[24]. The fund is then distributed among claimants in proportion to their established claims.
If a shipowner, an insurer, or anyone else has already compensated a victim before the fund is shared out, that party can recover the equivalent amount from the fund in the victim’s place[25]. As some parties may only be called upon to pay long after the money has been distributed, the court can hold back a portion of the fund so that a later, but well-founded claim is not left with nothing to draw on[26].
A shipowner is also allowed to recover the reasonable cost of any steps it voluntarily took to prevent or reduce the pollution, ranking equally with the claimants themselves – an arrangement that rewards prompt clean-up rather than discouraging it[27].
4. CONCLUSION
Limitation, in short, has its own limits. The EQA 1974 and the EEZ Act 1984 impose no statutory ceiling, and statutory clean-up debts may fall outside the categories of “maritime claim” capable of being limited under the LLMC. A party that successfully caps its convention-based exposure may therefore remain fully exposed to domestic clean-up, mitigation and compensation costs – the gap-filling role of the domestic environmental statutes noted at the outset.
[1] Section 4(1) of the MSOPA 1994
[2] Section 4(2) of the MSOPA 1994
[3] Sections 5 & 5A of the MSOPA 1994
[4] Section 28 of the MSOPA 1994
[5] Section 10 of the MSOPA 1994
[6] Section 19(4)(a) of the MSOPA 1994
[7] Section 19(4)(b) of the MSOPA 1994
[8] Section 19(5) of the MSOPA 1994
[9] Section 13(2) of the MSOPA 1994
[10] Sections 27(1) & 29(1) of the EQA 1974
[11] Section 28 of the EQA 1974
[12] Sections 43(1) & 43(2) of the EQA 1974
[13] Section 11 of the EEZ Act 1984
[14] Section 10(4) of the EEZ Act 1984
[15] Section 306CA of the MSO 1952
[16] Section 300 (1) & (2) of the MSO 1952
[17] Part I of the First Schedule to the MSOPA 1994
[18] Article 6 of the Sixteenth Schedule to the MSO 1952
[19] Section 19(6) of the MSOPA 1994
[20] Part II of the First Schedule to the MSOPA 1994
[21] Section 13(3) of the MSOPA 1994
[22] Sections 6(3) & 6A(3) of the MSOPA 1994 and Article 4 of the Sixteenth Schedule to the MSO 1952
[23] Section 7(2) of the MSOPA 1994 and Article 11 of the Sixteenth Schedule to the MSO 1952
[24] Section 8 of the MSOPA 1994 and Article 13 of the Sixteenth Schedule to the MSO 1952
[25] Section 7(4) of the MSOPA 1994 and Article 12 of the Sixteenth Schedule to the MSO 1952
[26] Section 7(6) of the MSOPA 1994 and Article 12 of the Sixteenth Schedule to the MSO 1952
[27] Section 7(5) of the MSOPA 1994
About the authors
Siva Kumar Kanagasabai
Senior Partner
Head of Dispute Resolution Practice Group
Halim Hong & Quek
kumar@hhq.com.my
○
Pavidren Sivananda Ratnam
Associate
Dispute Resolution
Halim Hong & Quek
pavidren@hhq.com.my
