TRANSACTIONAL: Transactions: Amendments to 1976 LLMC Convention Increase Maritime Accident Exposure for LNG Vessel Owners – Considerations for Port Liability Agreements

by King & Spalding
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The Convention of Liability for Maritime Claims 19 November 1976 ("1976 LLMC" or the "Convention"), as amended by the Protocol of 1996, is a convention designed primarily to limit liability for shipowners for maritime accidents involving (i) personal injury and loss of life claims and (ii) property damage claims. Recent amendments to the 1976 LLMC increase the liability that a shipowner must pay out in the event of an accident. This article serves as a practitioner's note that such amendments will take effect on June 8, 2015 in nations that have previously adopted the 1976 LLMC, and contains a few examples of the increasing liability limits to show the practical effect of the amendments. This article also includes some drafting considerations, in light of such amendments, for clauses in a port liability agreement that limit the liability of shipowners.

Background

The Convention's limits on liability are specified for two classes of maritime claims - claims for loss of life or personal injury, and property claims (such as damage to other ships, property or harbour works).

According to the International Maritime Organization (IMO): "the Convention provides for a virtually unbreakable system of limiting liability. Shipowners and salvors may limit their liability, except if 'it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such a loss, or recklessly and with knowledge that such loss would probably result'."[1]

The 1976 LLMC was amended in 1996 and again in 2012 to (among other things) increase the amount of compensation payable in the event of an incident. The 2012 amendments will automatically enter into force on June 8, 2015 in jurisdictions having already adopted the 1976 LLMC (unless a country expressly opts out of such amendments, which is unlikely).

Formula and Examples

The formula for calculating a vessel's limitation on liability under the 1976 LLMC is based on the gross tonnage of the vessel. Also, the formula uses a unit of measurement for monetary liability called a "special drawing right", which must be converted into US dollars based on an exchange rate published by the IMF. In Annex I, we provide two hypothetical examples: one using a Maersk LNG vessel having an "average" size of 104,169 gross tons and a second example using a QMAX vessel having a "large size" of 163,922 gross tons.

Impact

The 2012 Amendment to the 1996 Protocol increases liability limitations for personal injury and property claims by approximately 51 percent. For an average-sized LNG vessel, the amount of compensation available for payout would be, under the 2012 Amendment, approximately $212,000,000. This is an increase from a limit of approximately $140,000,000 under the 1996 Protocol.

Considerations for Port Liability Agreements

Many LNG shipowners have entered into port liability agreements with owners or operators of LNG import or export terminals. In such agreements, the shipowner's liability for a maritime accident near the terminal is often limited to the greater of U.S.$150,000,000 or the maximum possible coverage available from a recognised P&I Association under then current protection and indemnity association rules. The figure of U.S.$150,000,000 has been an industry standard number used for several decades based on the liability limits under the original 1976 LLMC and the 1996 Protocol.

In light of the 2012 Amendment, terminal owners or operators seeking to negotiate liability limits with an LNG shipowner should consider whether the shipowner's liability should be limited to the greater of (i) U.S.$150,000,000, (ii) the maximum possible coverage available from a recognised P&I Association under then current protection and indemnity association rules or (iii) the total limitation of liability amount (in US$) that an LNG vessel would have for property and personal injury under the 1976 LLMC (as modified by the 1996 Protocol thereto, the 2012 Amendments enacted thereunder, and any subsequent liability increases under such amendments to the convention enacted hereafter), regardless of whether the Convention or amendments are in effect in a jurisdiction.
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[1] www.imo.org/About/Conventions/ListOfConventions/Pages/Convention-on-Limitation-of-Liability-for-Maritime-Claims-(LLMC).aspx.

 Philip Weems
 Houston
 +1 713 276 7373
 pweems@kslaw.com

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 Denis A. Fallon (Archie)
 Houston
 +1 713 276 7301
 afallon@kslaw.com

 View Profile »

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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