Shipowner’s Limitation of Liability in
Canada and the United States:
Problematic Aspects Under Private International Law
Paul F. Famula*
Since the signing of the Limitation of Liability Convention in 1924 and
the more recent similar Convention adopted in Brussels in 1957,’ most ship-
owning nations have, in one form or another, enacted legislation which
enables a shipowner whose vessel is involved in a collision to limit his liability
immediately after the accident occurs. Although Canada has neither ratified
nor acceded to the Conventions, it has adopted its principles and has given
them the force of law in the Canada Shipping Act.2 The United States,
which is not a party to the Conventions either, has permitted the limitation of
liability to shipowners since 1851 through its Limitation of Shipowners’
Liability Act. 3
Where no problems of forum non conveniens arise, a Canadian or
American claimant may attempt to have his action tried in the court where
he can expect to receive the most favourable verdict, i.e., engage in “forum
shopping”. When the suit is brought outside the country in which the tort
occurred or when the collision occurred on the high seas, 4 there is a problem
in determining which limitation rules govern: those of the lexfori, those of
the lex loci delicti commissi or those of the ship’s flag?
* LL.B. III, McGill University. The author would like to thank Prof. W. Tetley, Q.C. for
his comments on an earlier version of this comment; however, the author must accept full
responsibility for the views expressed.
I International Convention for the Unification of Certain Rules Relating to the Limitation
of the Liability of Owners of Sea-Going Vessels, 25 August 1924, and International
Convention Relating to the Limitation of the Liability of Owners of Sea-Going Vessels, 10
October 1957, in Comit6 Maritime International, Admiralty Conventions on Maritime
Law, 19 and 67.
2 R.S.C. 1970, c. S-9, ss. 647-53.
3 Limitation of Shipowners’ Liability Act of3 Mar. 1851, ch. 43, 3,9 Stat. 635,46 U.S.C.
4 See, e.g., Canada Shipping Act, R.S.C. 1970, c. S-9, s. 3(1) (a).
183 et seq. (1976).
1982]
COMMENTAIRES
Canadian 5 and American 6 courts have had to deal with precisely this
problem in recent cases which arose from the same set of facts. The Steelton,
a Great Lakes steamship owned by the plaintiff, the Bethlehem Steel
Corporation, collided with a bridge spanning the Welland Canal, which lies
wholly within the territorial boundaries of Canada. The bridge, owned by
the St Lawrence Seaway Authority, was extensively damaged and the canal
was rendered completely impassable to marine traffic for two weeks.
Bethlehem Steel filed an action in the Federal Court of Canada, Trial
Division, for limitation of liability under the Canada Shipping Act, naming
as defendants the Seaway Authority “and all other persons having claims
against the plaintiff, its ship Steelton or the fund hereby to be created”. 7 The
Federal Court entered an order limiting liability.
At the same time a number of actions asserting claims arising out of the
Steelton incident were brought against Bethlehem Steel in the United States
District Court. Bethlehem Steel then filed a petition in that court for
limitation of liability under the American Limitation Act while claiming the
benefit of the smaller limitation fund provided by the Canada Shipping Act.
The District Court ordered limitation but only on the basis of the American
law.
In this comment, the two Steelton judgments will be compared and their
consistency with previously enunciated law will be examined. Possibilities
for reform in the area of limitation of shipowner’s liability will also be
suggested.
I. The basic of the dilemma –
the different limits to liability imposed
by Canadian and American statutes
Under s. 647(2) of the Canada Shipping Act a vessel owner may limit his
liability according to the size of his ship. If an owner can discharge the onus
that he was neither at fault nor in privity with the operator’s negligence, he
will be entitled to the benefit of the limitation.
The section sets up two limitation sums.8 The first involves loss of life,
either alone or together with property damage, and the limitation is set at
3,100 gold francs per ton. The second, which is the one relevant to the
present discussion, involves cases of loss or damage to property alone and
the limitation is set at 1,000 gold francs per ton.sa The Canadian dollar value
5 Bethlehem Steel Corp. v. St Lawrence Seaway Authority [1978] 1 F.C. 464, [1977] 2
A.M.C. 2240 (T.D.) per Addy J. [hereinafter Steelton (No. 1), cited to F.C.].
6 In the Matter of the Complaint of the Bethlehem Steel Corp. 435 F. Supp. 944, [1977] 2
A.M.C. 2203 (N.D. Ohio 1976); affd 631 F. 2d 441, [1980] 2 A.M.C. 2122 (6th Cir. 1980);
cert. denied 101 S. Ct 1370 (1980) [hereinafter Steelton (No. 2)].
7 Steelton (No. 1), supra, note 5, 464.
8 For an excellent discussion of s. 647(2), see E. Gold, Canadian Admiralty Law (1980),
chap. IX, 4-7.
SaR.S.C 1970, c. S-9, s. 647(2) (f).
McGILL LA W JOURNAL
[Vol. 27
is obtained by a conversion formula established by regulation under the
Canada Shipping Act. 9 Professor E. Gold 0 estimates that at 1980 rates, the
limitation of liability for loss or damage to property alone amounts to
approximately $100 per ton. Thus, the size of the vessel is an important
factor.
The American law under the Limitation Act is relatively simple. The
property damage claimants are still tied to the ancient formula of limiting
recovery to the value of the vessel and the pending freight. I Gilmore and
Black succinctly describe the dilemma:
[U]nder varying circumstances, American law or foreign law might turn out to be more
favorable to one party or the other…. Frequently therefore in limitation proceedings in
American courts between foreign litigants or arising out of a tort committed within the
territorial waters of another sovereign, either the claimants or the petitioning shipowner
would find it advantageous to argue for the application of foreign rather than American
limitation law.’ 2
A simple illustration may make the point more clearly. A two thousand ton
American-owned vessel is involved in a collision in Canadian waters or on
the high seas and Canada is the ship’s flag. 3 The claimant brings suit in an
American court. Under the Canada Shipping Act, the limitation fund will be
roughly $200,000. Depending upon the value of the vessel after the collision,
the American fund may be less than or greater than the fund under the
Canadian rules. If the value of the vessel is less than $200,000, the owner will
argue that the American rules apply; if the vessel is worth more than
$200,000, he will seek to have the Canadian limitation rules applied. Hence,
the variance between limitations funds in Canada and the United States
leads to “forum shopping” by claimants of shipowners.
II. How Canadian and American courts have categorized limitation
of liability rules
Once the forum has been selected on the basis of its potential advantage
with respect to the facts, it is nonetheless possible that the substantive law of
that forum might not be held
the
procedural] substantive dilemma in the categorization of limitation of
liability rules.
the case. This
to govern
is
One of the eternal verities of every system of private international law is that a
distinction must be made between substance and procedure, between right and remedy.
9 C.R.C. 1978, c. 1426.
10 Gold, supra, note 8, chap. IX, 8.
i1 Volk & Cobbs, Limitation of Liability (1977) 51 Tul. L. Rev. 953, 984.
12 G. Gilmore & C. Black, The Law of Admiralty, 2d ed. (1975), 940.
13 Oceanic Steam Navigation Co. v. Mellor (The Titanic) 233 U.S. 718, 731-4 (1914) per
Holmes J. holding that where collisions occur on the high seas the substantive law of the
ship’s flag nation applies.
1982]
COMMENTS
The substantive rights of the parties to an action may be governed by a foreign law, but
all matters appertaining to procedure are governed exclusively by the lexfori.14
There appears to be little doubt that this is also the rule in the civil law of
Quebec.
I1 existe un tr~s large accord tant dans le syst~me de common law que dans le droit civil
pour soumettre la procedure A la loi du tribunal saisi du litige. Et c’est 1A une r~gle bien
comprehensible et tout A fait justifiable puisqu’elle met en cause rorganisation d’un
service public, ‘administration de la justice.”
Thus, whether such a problem arises in Qu6bec or in any of the common law
jurisdictions of Canada,15a the solution to this aspect of the problem should
be the same.
This problem was dealt with by both the Canadian and American courts
in the Steelton cases. 16 Bethlehem Steel, as owner of the vessel, sought to
limit its liability under the Canada Shipping Act in both the Federal Court of
Canada and the United States District Court. In the latter case the plaintiff
argued that because s. 647(2) of the Canada Shipping Act is substantive
law, it should also apply in determining the limitation fund for the claims
against Bethlehem Steel in the American court. The obvious purpose of this
argument was to obtain the benefit of the smaller limitation fund provided
by the Canada Shipping Act. 17
Addy J. of the Federal Court of Canada did not have to deal with this
issue directly because Canada was both the lex loci delicti commissi and the
lex fori for the action before him. Thus, the limitation of liability was
properly determined by the Canada Shipping Act. However, Addy J. did
make certain interesting statements in relation to a shipowner’s right to claim
against his own limitation fund amounts of damages which he may have
been called upon to pay in another jurisdiction. He stated that s. 648(4) of
the Canada Shipping Act recognized this principle, but added:
14 G. Cheshire, Private International Law, 10th ed. (1979), 691.
15 E. Groffier, Prdcis de droit international privd qudbdcois (1980), 101.
i5a Generally, admiralty matters fall within the jurisdiction of the Federal Court: Federal
Court Act, R.S.C. 1970 (Supp. II), c. 10, ss. 2, 3, 22, 42, 43. However, some doubt arises as to
whether provincial (incorporated by reference) or some specie of federal conflict rules should
be applied by this forum: see Tropwood A. G. v. Sivaco Wire and Nail Co. [1979] 2 S.C.R.
157, 166 per Laskin C.J.C., Evans, Federal Jurisdiction-A Lamentable Situation (1981)
59 Can. Bar Rev. 124, 137 and Laskin & Sharpe, Constricting Federal Court Jurisdiction: A
Comment on Fuller Construction (1980) 30 U.T.L.J. 283, 300. Nevertheless, it would
appear that the procedural/substantive dilemma remains unresolved whichever rules are
applied.
16 Steelton (No. 1), supra, note 5, and Steelton (No. 2), supra, note 6.
17 Under the Canada Shipping Act, R.S.C. 1970, c. S-9, s. 647(2) the liability of Bethlehem
Steel would have been limited to U.S. $691,000 rather than U.S. $850,000. See Steelton (No.
2), supra, note 6, 631 F. 2d 441, 443.
REVUE DE DROIT DE McGILL
[Vol. 27
It is nevertheless of prime importance to bear in mind that where the tort on which the
claims are founded has been committed in Canada, this Court must not allow any credit
against the limitation fund here for a claim declared valid by a foreign court unless that
claim would have been recognized as valid at law in Canada; it would be nothing short
of ludicrous to hold otherwise, for Canadian claimants would then be obliged to suffer a
reduction in the amount to which they would otherwise have been entitled to receive
from the fund merely because a claimant has chosen to appeal to a foreign jurisdiction
rather than to a Canadian court where his claim would have failed.18
It is implicit in this passage that Addy J. found the lex loci delicti commissi
principle to be applicable.
Krupansky J. concluded that ss. 647(2)(e) and (f) of the Canada
issue of categorizing the limitation of liability sections of the Canada
Shipping Act and the Limitation Act as procedural or substantive law in
Steelton (No. 2)19 in order to determine the quantum of the limitation fund:
would it be the larger fund under the American law or the smaller fund under
Canadian law?
Krupansky J. agreed with Addy J. that:
[1]t is a well-settled principle that “in the absence of some overriding domestic policy
translated into law, the right to recover for a tort depends upon and is measured by the
law of the place where the tort occurred”, the lex loci delicti commissi. 20
The right to a remedy in tort is clearly governed by the substantive law of the
place where the tort occurred. 2′ But at the same time there is a generally
recognized conflict of laws principle that the lex fori will apply its own
procedural laws in all cases:
It is equally well-established that even “where the rights of the parties are grounded
upon the law of jurisdictions other than the forum.., the forum will apply the foreign
substantive law, but will follow its own rules of procedure”.22
In considering whether or not the limitation statutes in question were
either substantive or procedural in order to determine the applicable law,
Krupansky J. undertook a careful analysis of the United States Supreme
Court decision in Black Diamond S.C. Corp. v. Robert Stewart & Sons
(Norwalk Victory) 23
Prior to the decision of the Supreme Court of the United States in Black Diamond… it
appeared to be settled that statutes limiting the liability of vessel owners in maritime
collision actions were procedural and the law of the forum controlled. Thereafter, the
Supreme Court, in Black Diamond, modified its former pronouncements, announcing
18 Steelton (No. 1), supra, note 5, 476.
19 Supra, note 6.
20 Ibid., 435 F. Supp. 944, 946.
21 Biezup & Abeel, The Limitation Fund and its Distribution (1979)53 Tul. L. Rev. 1185,
1195.
22 Supra, note 20.
23336 U.S. 386 (1949).
1982]
COMMENTAIRES
therein, that if the foreign limitation “attaches” to the right created under the foreign
law, then the foreign limitation governs, notwithstanding the existing remedies of the
forum.24
Krupansky J. thus interpreted the Supreme Court’s decision as one directing
the courts to make a preliminary inquiry into the substantive or procedural
nature of the foreign limitation of liability rule.
Krupansky J. concluded that ss. 647(2)(e) and (f) of the Canada
Shipping Act merely quantify the limit of the fund.
Applying, by analogy, the language of the Supreme Court in Black Diamond to the
Canadian Shipping Act, the Act “merely provides procedural machinery by which
claims otherwise created are brought into concourse and scaled down to their
proportionate share of a limited fund”.25
In this case, the law of the forum –
applied.
the American Limitation Act – was
the choice-of-law
The Black Diamond decision, in which Frankfurter J. delivered the
judgment for a bare majority of the Court, has been severely criticised as
“baffling”. 26 Commentators have stated that the decision “hopelessly
confused
in Limitation Act
proceedings”. 27 The case has therefore cast some doubt on the continuing
validity of The Titani 28 which until 1949 had been accepted as stating the
law for nearly forty years. The result of The Titanic was that litigants who
chose to sue the owners of a vessel in the United States were limited in their
recovery by the American law of limitation.
rules to be applied
The suggestion has been made that the Black Diamond decision, “[i]n
requiring courts to determine whether a foreign limitation statute is
substantive or procedural… opened the door to illogical and inconsistent
decisions”. 29 Three cases illustrate the confusion which arose from various
applications of Black Diamond. In Petition of Chadade Steamship Co.
(Yarmouth Castle),30 the Court found that the amount of the limitation fund
was a substantive matter governed by the laws of Panama, the ship’s flag.
The larger fund was created by interpreting the relevant sections of the
Panamanian Commercial Code as substantive law.
In Ta Chi Navigation (Panama) Corp. v. M. V. Eurypylus,31 the Court
24 Supra, note 20, 946-7.
25 Ibid., 948-9.
26 Gilmore & Black, supra, note 12, 942.
27 Volk & Cobbs, supra, note 11,981-2.
2
8Supra, note 13.
29 Volk & Cobbs, supra, note 11, 982.
30 Petition of Chadale Steamship Co. (Yarmouth Castle) 266 F. Supp. 517, [1967] 2
A.M.C. 1843 (S.D. Fla. 1967).
[1976] 2 A.M.C. 1895 (S.D.N.Y. 1976).
31 Complaint of Ta Chi Navigation (Panama) Corp. (The Eurypylus) 416 F. Supp. 371,
McGILL LAW JOURNAL
[Vol. 27
rejected the above position, and the limitation statute was categorized as
procedural. The conclusion that can be drawn from these two cases is that a
court, citing Black Diamond, may justify a determination of a limitation
statute as either substantive or proceduraP3 on the basis of equity.34
An even more surprising result was reached in a decision of the Second
Circuit in 1954 in The Western Farmer.35 Learned Hand J. held that:
[i]t is necessary to say no more than that The Titanic finally settled it for us that such
statutes are part of the remedy, and that the law of the forum applied. What the
respondent finds in Black Diamond… that qualifies this, we have been unable to
discover.36
Learned Hand J. in effect overruled the precedent established by the
Supreme Court in Black Diamond; at the very least, Learned Hand J.’s
reasoning is illustrative of a very liberal attitude towards stare decisis.
It should be noted that in affirming Krupansky J.’s decision in Steelton
(No. 2) Pierce Lively J. also attempted to make sense of the conflicting cases:
It is not surprising that the cases have produced different results. The Titanic concerned
a disaster on the high seas. [Black Diamond], on the other hand, dealt with a collision in
Belgian territorial waters. One case involved great loss of life, the other only property
damage. In some cases the parties seeking to limit their liability have been insurers
rather than shipowners. See [The Eurypylus]…. In a field as complex as maritime tort
law the choice-of-law problems are difficult, and the circumstances of each case
determine the ultimate choices which the courts make.37
It is submitted that Pierce Lively J.’s explanation is an accurate
statement of the law. It should be added that the present position fosters
uncertainty. The issue of “forum shopping” remains unresolved.
III. The solution to the substantive/procedural dilemma
The law in this area is clearly unsettled. The law in Qu6bec also appears
to be in an uncertain state.
Bien que l’on admette que la qualification de ]a procedure appartienne A la loi
qu6b~coise… on ne s’entend pas toujours pour d~finirce qui relive du fond du litige, par
exemple, le droit d’action, la prescription d’une action, les modes de preuve d’un acte
juridique ou la validit6 de la clause compromissoire 38
32 Volk & Cobbs, supra, note 11,983. “After a careful examination of The Titanic, Black
Diamond and Chadade, the court refused to abandon the rule of The Titanic, holding
reexamination of that case to be a legislative rather than a judicial prerogative”.
33 Gilmore & Black, supra, note 12, 943-4, suggest that Mr Justice Mehrtens used the
substantive/ procedural distinction to do justice in the Yarmouth Castle case.
34 Volk & Cobbs, supra, note 11, 982.
35 Kloeckner Reederei und Kohlenhandel, G.M.B.H. v. A/S Hakedal (The Western
Farmer) 210 F. 2d 754, [1954] 1 A.M.C. 643 (2d Cir. 1954); leave to appeal refused 348 U.S.
801 (1954).
36 Ibid., 757.
37Steelton (No. 2), supra, note 6, 631 F. 2d 441, 445.
38 Groffier, supra, note 15, 101.
19821
COMMENTS
However, there are several options available to resolve the outstanding
issues. First, the basic rule of private international law could be emphasized:
procedure is governed by the lexfori and limitation statutes are procedural.
Cheshire writes:
A rule as to the measure of damages in the narrow sense is a mere rule of calculation that
operates only after the injury or loss in question has been found to be free from vice or
remoteness. Its function is to quantify in terms of money the sum payable by the
defendant in respect of the injury, whether it be tort or breach of contract, for which his
liability has already been determined by the proper law. A plaintiff who seeks to
recover compensation in England in respect of an obligation that is governed as to
substance by a foreign law has already acquired a right the nature and extent of which
have been finally determined. 39
It is submitted that the United States Supreme Court in Black Diamond
erred by focusing almost exclusively on the shipowner’s right to limit his
liability. Perhaps the result might have been determined more precisely had
the Court also emphasized that limitation statutes restrict the quantum of
damages to be received by claimants and hence affect their remedy for
breaches of pre-existing rights. Remedies are generally considered to form
part of the procedural law.40 Admittedly, this solution does not alleviate the
“forum shopping” problem.
Secondly, the argument that limitation rules are substantive has some
validity. If one characterizes theses rules as creating a right in the shipowner
to limit his liability as the Court did in Black Diamond, it maybe argued that
such limitation rules are, to a certain degree, aimed at protecting shipowners.
The latter solution implies that the limitation statute of the ship’s flag
ought to govern. Such a result has been suggested in Yarmouth Castle.41 The
lex loci delicti commissi would govern the parties’ rights, the lexfori would
govern basic procedural matters, and the ship’s flag’s rules of limitation
would govern the extent of the shipowner’s liability. This suggests that the
limitation rights attach to the personam of the ship. This option would
eliminate the procedural/ substantive dillemma and the issue of “forum
shopping”. However, it would not appear to eliminate the isolated American
adherence to “the ancient formula of limiting recovery to the value of the
vessel and the pending freight”.42 Both claimants and shipowners are
disadvantaged by the lack of uniformity between the United States and most
other maritime nations.
When the vessel has been lost, American law is most favourable to the
shipowner concerned to protect himself against property claims. When the
vessel survives and is worth more than the limitation ceiling set by the
39 Cheshire, supra, note 14, 711.
4O Ibid., 691.
41 Yarmouth Castle, supra, note 30.
42 Volk & Cobbs, supra, note II, 984.
REVUE DE DROIT DE McGILL
[Vol. 27
Brussels Convention or the foreign law, American law is also to the
advantage of the shipowner.43
The third option in resolving the problem is simply that the United States
could accede to the Convention on Limitation of Liability recently adopted
by the Intergovernmental Maritime Consultative Organization (IMCO).44
By this approach “the United States could align itself with other maritime
nations by subscribing to a uniform limitation law”. 45 The attendant
consequences would be to provide an equitable fund for claimants,
elimination of the Black Diamond problem of determining the substantive
or procedural character of limitation statutes and eliminate the issue of
“forum shopping”. The embodiment of IMCO’s principles (the Canadian
approach) into the American Limitation Act would serve equally as well.
43 Gilmore & Black, supra, note 12, 940, cite as a dramatic example MIS Bremen and
Unterweiser Reederei, G.M.B.H. v. Zapata Off-Shore Co. 407 U.S. 1 (1972), [1972] 2
A.M.C. 1407, in which the limitation fund under American law was $1,390,000 while the
English limitation fund would have been $80,000.
44 Intergovernmental Maritime Consultative Organization, Convention on Limitation of
Liability for Maritime Claims (1976). This convention represents the most recent attempt,
by the United Nations, to achieve consensus with respect to the limitation of liability in
maritime law.
45 Volk & Cobbs, supra, note 11, 985.
