Cargo owners and insurers that suffered losses in the wreck of the container ship Rena on a reef off New Zealand this month will have to navigate a maze of judicial jurisdictions and conflicting legal systems to get their claims settled.
Their inevitable legal battle with the Swedish P&I Club, which covered the Rena’s cargo and possibly its hull risk, could play out in a court in New Zealand, Greece — or somewhere else.
“It gets very complex,” said Chester D. Hooper, a Boston-based attorney with maritime law firm Holland & Knight, who has worked on trying to streamline international claims under the United Nation’s Rotterdam Rules on ocean transportation.
Shippers could face liability limits that vary by country or that are covered under international treaties. The legal barriers include:
-- An international convention that would base liability on the Rena’s tonnage, reducing total payments to cargo interest.
-- The so-called error in navigation defense, which could spare the owner and charterer responsibility for cargo losses if the vessel was found to be seaworthy and the grounding was caused solely by an error in navigation.
-- The centuries-old principle known as general average that requires interests saved by a sacrifice to contribute toward that sacrifice, which in this case is probably the cost of salvage of the cargo.
The Liberian-flag Rena, which has a capacity of 3,361 20-foot equivalent container units, is owned by Costamare Shipping and chartered by Mediterranean Shipping. It was operating as part of MSC’s Capricorn service, a string of ships shuttling between ports in Australia and New Zealand and Jakarta, Indonesia, and Singapore. The owners of the cargo aboard the Rena could be based anywhere but are likely to be in New Zealand. The ship was heading for that country’s Port of Tauranga when it grounded on a reef on Oct. 5, triggering what’s been called New Zealand’s worst-ever environmental disaster and setting off a race to unload the ship’s fuel oil and, secondarily, to get boxes teetering on the listing ship offloaded even as some tumbled into the sea.
Costamare could file an action for limitation of liability in New Zealand, where the cargo was lost, or Greece, where Costamare is based, or even in the United States. It will likely file, however, in New Zealand, a signatory to the International Maritime Organization’s Convention on Limitation of Liability for Maritime Claims of 1976 and its protocol of 1996 that raised the limitation amount.
The United States hasn’t signed the IMO convention, and liability limitation is covered under the 1851 Limitation of Liability Act. Costamare would have six months from the date it receives the first claim if it were to file a petition of liability limitation in the United States. “In the United States, Costamare would bear the burden to prove that whatever caused the loss was without the knowledge of someone high enough up in the corporation to be considered the owner,” Hooper said.
Once Costamare files for limitation of liability, a court would issue an injunction prohibiting anyone from filing a claim for Rena losses anywhere other than in the U.S. limitation court. The U.S. limitation, however, has no effect outside the United States, so cargo interests not subject to the jurisdiction of the U.S. court could sue in other nations.
Although the U.S. limitation amount would be small, U.S. limitation is often broken and applies only to the owner or bareboat charterer. The IMO convention, by contrast, is higher but applies both to owners and charterers and is almost unbreakable
The U.S. limitation, if successful, would limit Costamare’s liability to the value of the ship and to the money it earned from carrying freight on the voyage — US$16,580 a day in charter fees MSC pays for the Rena.
If the Rena ran aground because of a navigation error, Costamare could have another defense against cargo loss claims under international law called the Hague, or Hague-Visby, Rules. Theoretically, if the shipowner has exercised due diligence to make the ship seaworthy, the owner has no control over the ship once it sails and should not be liable for any navigation error.
“It’s fun to explain this defense to a new judge because you get amazing expressions,” Hooper said. The Rotterdam Rules, which the U.S. has not yet ratified, would do away with this defense, he said.
“General average,” which comes into play when some cargo must be sacrificed to save other cargo — and calls on those beneficiaries to share the burden of the cargo lost — probably would not include the money paid to clean up the spilled bunker fuel.
After grounding on the reef off Tauranga, the Rena listed sharply to starboard, spilled some 88 containers overboard and leaked tons of oil into the water and onto the pristine beaches of the Bay of Plenty. Other containers were damaged.
Swedish Club Managing Director Lars Rhodin said the club’s coverage for the pollution in New Zealand would be capped at US$1.4 billion. Any estimate on the value of the lost cargo or the damage to the ship awaits completion of the salvage work.
Costamare is a member of the Swedish Club, a mutual insurance company that is one of 13 members of the International Group of Protection and Indemnity Clubs, responsible for shipowners’ third-party liability risks worldwide. The Swedish Club issued a statement saying it would cover all of its obligations in the Rena accident.