This Article is written by Bhavana Ashok, a Third-year law student of The National University of Advanced Legal Studies, Kochi

Abstract

This article aims to evaluate the compliance of India’s Marine Insurance Act with the standards of the Convention on Limitation of Liability for Maritime Claims (LLMC).

Introduction

The maritime industry plays a crucial role in global trade and commerce, with ships carrying over 80% of world trade by volume. Given the inherent risks associated with sea voyages, marine insurance and liability limitation are essential aspects of maritime law. India, with its vast coastline and strategic location in the Indian Ocean, has been a significant player in maritime trade for centuries. The country’s marine insurance laws, primarily governed by the Marine Insurance Act of 1963, has evolved over time to address the complex needs of the shipping industry. However, as global maritime standards continue to develop, it is crucial to assess how well India’s legislation aligns with international norms, particularly those established under the LLMC. This analysis will explore the key provisions of India’s Marine Insurance Act, Merchant Shipping Act and the LLMC, examining areas of convergence and divergence, considering the implications of any discrepancies, and discussing potential reforms that could enhance India’s compliance with international standards. The concept of limited liability, in the context of marine insurance, refers to the ability of a ship’s owner or representative to limit their liability in the event of an accident that causes injury or damage to people or property. The Limitation of Liability Act of 1851 and the Convention on Limitation of Liability for Maritime Claims are some of the laws that govern this area. This is an integral concept as Maritime Claims at the very least amount to millions. This may pose significant challenges to the stakeholders of the claim. Limitation of Liability is more of a political concept than one intended for justice as it has grown to cover issues such as environmental disasters, competition regulation and economic dependence[1]. This creates more burden on states to adopt the universal standard with adequate modifications to fit their unique circumstances.

Overview of India’s Laws

India is a signatory of the LLMC and the 1996 Protocol and according to Article 51 of the Constitution of India, India is bound to change its municipal law to be in line with the international norms. Hence, the Marine Insurance Act and the Merchant Shipping Act were overhauled but amendments in 2015 and 2002, respectively. This allowed for the essence of the provisions in the conventions to be inculcated into the law in India to create a sense of uniformity on maritime law across the globe. There was an attempt by the Government to address this issue with Part X A in the Merchant Shipping Act inserted by an amendment in 1970. It provides for provisions of limiting the liability of owners in case of damages as clarified under Section 352A of the Act. Sections 352, 352A, 352B and 352C of the Merchant Shipping Act allows shipowners to limit their liability for certain types of claims, sets out the limits of liability based on the tonnage of the ship and constitutes a limitation fund and its distribution. While the Merchant Insurance Act does not directly limit shipowner liability but deals with how these liabilities can be insured. The Marine Insurance Act of 1963 was enacted to consolidate and amend the law relating to marine insurance in India, replacing the earlier Indian Marine Insurance Act of 1906, which was largely based on the United Kingdom’s Marine Insurance Act of 1906. This Act applies to marine insurance transactions throughout India, covering various aspects of marine adventure and maritime perils. It deems that every person has an insurable interest who is interested in a marine adventure. Therefore, this includes shipowners, cargo owners, and other parties with a financial stake in the maritime venture. This statute also requires those with insurable interest to act with utmost good faith, requiring full disclosure of material facts by both the insured and the insurer. It covers various types of policies and warranties and provides detailed guidelines for determining the measure of indemnity in different scenarios, such as total loss, partial loss, and general average. As clear from the above observation, the Marine Insurance Act primarily focuses on insurance aspects, it does not directly address the limitation of liability for maritime claims. This is a significant point of divergence from the LLMC which has significant implications on the marine law environment in India.

A Critical Look at the International Law

The maritime industry relies on several international conventions to limit shipowners’ liability, including the Convention on Limitation of Liability for Maritime Claims (LLMC) and the Civil Liability Convention (CLC). These conventions aim to encourage commercial maritime activities while managing risks. The LLMC was adopted by the International Maritime Organization (IMO) in 1976 and came into force in 1986. The primary objective of the LLMC is to establish uniform rules relating to the limitation of liability for maritime claims. It was later amended by the 1996 Protocol, which significantly increased the limits of liability. This Convention allows shipowners, salvors, and their insurers to limit their liability for certain maritime claims by listing the types of claims subject to limitation and those which are excluded. The LLMC classifies such limits into two. The shipowner may limit their claims for loss of life or personal injury, and for property claims including but not limited to damage to other ships, property or harbour works. This is calculated based on the method clarified under the 1996 Protocol which imposes a cap based on the tonnage of the ship which is in line with the development of limitation law by the common law countries. Furthermore, it provides for the constitution of a limitation fund, which can be set up by any person alleged to be liable and the governing law applicable to be the law of the State Party where the fund is constituted.

The 1992 Civil Liability Convention (CLC) significantly influences international maritime claims related to oil pollution damage. It imposes a strict Liability: Shipowners are liable for oil pollution damage regardless of fault, with limited exceptions such as acts of war, third-party intent. This convention also allows for capping claims based on ship size, which aims to balance compensation with shipowner protection. It also calls for compulsory insurance and allows the claimants to pursue insurers directly, enhancing claim recovery chances against registered shipowners and not crew, pilots, charterers, or salvors, except in cases of intentional or reckless misconduct, thereby simplifying the claim process but limiting options for claimants. These provisions streamline the claims process for oil pollution damage internationally, providing a clear framework for liability and compensation.

However, these conventions include an exception to liability limitation if the loss results from the shipowner’s personal act or omission, either intentional or reckless, with knowledge of probable damage. This exception was initially intended to be “virtually unbreakable.” However, recent court decisions, such as the 2016 Spanish Supreme Court ruling on the Prestige oil spill, have raised concerns about an increasing tendency to “break” the shipowner’s limitation of liability[2]. This trend has worried shipowners and insurers. As a response, the IMO General Assembly adopted “unified interpretations” in December 2021, clarifying that the exception should be “virtually unbreakable,” and applicable only in very limited circumstances. In a given factual situation, “Recklessly” and “Knowledge” should be considered together and not in isolation. Therefore, the shipowner’s conduct must be considered before that of the crew or servants. Ultimately, the level of culpability should be analogous to wilful misconduct and higher than gross negligence. As these interpretations are binding under the Vienna Convention on the Law of Treaties, they ought to reduce the risk of decisions like the Prestige case and discourage attempts to break liability limits, as such attempts would likely affect the shipowner’s insurance coverage. This clarification reinforces the balance between encouraging maritime commerce and ensuring appropriate accountability for shipowners. Another criticism often raised against the conventions are that it limits the claimants’ ability to seek compensation from parties other than the shipowner, potentially affecting the scope and success of international maritime claims. This proves to show that even the international law and standards are not capable of handling the questions of law that crop up abruptly.

Areas of Convergence and Divergence

In line with the LLMC, the Marine Insurance Act acknowledges the unique risks associated with maritime ventures and provides a comprehensive coverage of marine perils aligns with the LLMC’s focus on maritime claims. The Indian law also emphasises on utmost good faith and full disclosure which is in line with the underlying principles of fair dealing under the LLMC, thereby protecting various maritime stakeholders. However, one of the key areas where the Indian law diverges from the international norm is the lack of specific provisions for limiting liability in maritime claims, which is evidently the core focus of the LLMC. This is further observed where LLMC clearly defines the persons entitled to and barred from limiting their liability but there is a dearth of the same in the Indian law. The calculation method and the limitation fund are also not covered in the Marine Insurance Act of 1963. The evaluation of India’s Marine Insurance Act against the standards set by the Convention on Limitation of Liability for Maritime Claims reveals significant areas of divergence, particularly in the specific provisions for limiting liability in maritime claims. While the Indian law, as a whole, provides a comprehensive framework for marine insurance, it lacks the detailed liability limitation mechanisms outlined in the LLMC. This gap in Indian maritime law has several implications, including legal uncertainty, potential challenges in insurance pricing, and possible impacts on India’s competitiveness in the global maritime sector. To enhance compliance with international standards and provide greater certainty to maritime stakeholders, India should consider implementing reforms. However, any reforms must be carefully balanced against national interests and the unique characteristics of India’s maritime industry. A consultative approach, involving all relevant stakeholders, would be crucial in developing effective and widely accepted changes.

Curing the Lacunae

Discrepancies between the international and municipal law have far reaching consequences that threatens the economic string of the country as almost 95% of India’s trade happens through sea. While the convergence establishes a sense of stability and certainty in maritime law, the dearth of covering integral aspects has serious implications. Legal uncertainty is a primary problem that crops up due to the absence of specific liability limitation provisions. This will pose an increase in liabilities for parties operating in Indian waters or under Indian jurisdiction as compared to jurisdictions that have adopted the LLMC standards. The divergence may also complicate the process of obtaining and pricing marine insurance for vessels operating in Indian waters thereby potentially affecting India’s competitiveness in the global maritime industry. Ultimately, a lack in clear statutory provisions in line with the global standards create an additional burden on the judiciary in interpreting and applying international norms in maritime cases. Despite the amendments to the Merchant Shipping Act, it fails to address concerns cropping up.

Despite being a signatory to the LLMC Convention and the Protocol of 1996 to amend the 1976 Convention, Indian laws on limiting liability found in the Merchant Shipping Act, 1958 is not aligned with the international law. Due to the lacunae, the courts have stepped in to clarify the Indian position on the rights of ship owners to limit liability in respect of maritime claims. The court in Jolly George Varghese and Anr v. The Bank of Cochin decided that if India is a signatory to a convention, Article 51(c) of the Constitution obligates the state to foster respect for International Law and treaty obligations in the dealings of organised peoples with one another[3]. A H Robertson in Human Rights in National and International Law rightly points out that International Conventional Law must go through the process of transformation into the Municipal Law before the international treaty can become an internal Law. In line with this thought, one such precedent is the case of Murmansk Shipping Company v Adani Power Rajasthan Ltd.& Ors.[4] In this case, the Bombay High Court decreed the limitation action and permitted the owner to set up a limitation fund after observing that there is no statutory provision dealing with Article 4 of the Convention, which deals with conduct barring limitation. This is a landmark judgement as it endorsed the rights of a shipowner to limit liability by constituting a limitation fund by filling the gaps in Indian law by learning and adapting the law to the international standards. Furthermore, the case of Ms Nordlake Gmbh vs Union Of India And Anr makes a reference to the failure of incorporating Article 4 of the LLMC into the laws in India. This has been proven to be detrimental to the uniform application of the international standards that further causes more complications with regard to who and what would constitute an action that would not bar limitation of liability. This issue has been recognised and reiterated by the courts multiple times and it is high time that we ought to listen to them.

Ultimately, India’s effort to align its marine insurance laws with the Convention on Limitation of Liability for Maritime Claims (LLMC) standards faces several significant challenges. While necessary for global competitiveness, this alignment process is complex and multifaceted. Due to the legislative process in India’s parliamentary system, reforming the law can be time-consuming. Therefore, the policymakers must strike a delicate balance between national interests and international compliance by considering the diverse needs of both large international operators and smaller domestic players. Dealing with the resistance from stakeholders, particularly those fearing increased liabilities or disruption of established practices, poses another hurdle. Overcoming this requires comprehensive engagement and education about long-term benefits. In addition to that, India’s federal structure complicates uniform enforcement across different coastal states, as states are given a degree of freedom over implementation of a central law under the Concurrent list in the Constitution. This necessitates enhanced inter-state cooperation and potentially new administrative frameworks. Furthermore, the retroactive application of new standards to existing contracts and ongoing disputes presents legal complexities that could lead to a period of uncertainty in the maritime sector. Finally, the economic impact on operators, must be carefully managed. Increased insurance premiums or operational costs could potentially squeeze out smaller players, requiring consideration of phased implementation or support mechanisms.

Successfully navigating these challenges requires a well-planned, inclusive approach. While complex, this alignment offers India the opportunity to modernize its maritime legal framework and strengthen its position in the global maritime industry.

As global maritime trade continues to evolve, aligning India’s marine insurance and liability limitation laws with international standards becomes increasingly important. Such alignment would not only enhance legal certainty but also strengthen India’s position as a key player in the global maritime industry. The path to reform may be challenging, but it presents an opportunity for India to modernize its maritime legal framework, ensuring it remains relevant and effective in the 21st century. By addressing the current discrepancies between its national laws and international conventions like the LLMC, India can create a more robust, predictable, and internationally competitive maritime legal environment.

REFERENCES

[1] The Bramley Moore, (1963) 2 Lloyd’s Rep. 429; The Amalia (1863) Br. & L. 151.

[2] Spain v. Apostolos Mangouras & Others (“Prestige” case) 2002 CGPJ

[3] Jolly George Varghese and another v. The Bank of Cochin AIR 1980 SC 470

[4] Murmansk Shipping Co v Adani Power Rajasthan Ltd and Others