Limitation of liability for shipowners in Brazil

Olympio Carvalho

Castro Barros Advogados, Rio de Janeiro

olympio.carvalho@castrobarros.com.br

Lucas Monteiro de Carvalho

Castro Barros Advogados, Rio de Janeiro

lucas.carvalho@castrobarros.com.br

Introduction

Brazil is not a party to the key international convention on limitation of liability for shipowners, the Convention on Limitation of Liability for Maritime Claims 1976 (the 'LLMC'), as amended by the 1996 Protocol. It is also not a party to the 1996 International Convention on Civil Liability for Oil Pollution Damage (the 'CLC').

In summary, the liability limitation regime in Brazil is outdated, with a framework based on the old 1850 Commercial Code, the equally old 1924 Brussels Convention on Limitation of Liability and the 1969 International Convention on Civil Liability for Oil Pollution Damage (CLC 1969). Despite its age, this framework is still basically untested, and so its application is unclear, as shown below.

Global limitation of liability for shipowners in Brazil

The 1850 Commercial Code allows shipowners to abandon the vessel as a mechanism to limit their liability, which is thus limited to the value of the ship and its earnings.[1]

Later, Brazil ratified the 1924 Brussels Convention on Limitation of Liability, which was enacted in the country by Decree No 350/1935. The Convention allows shipowners to limit liability, either by abandoning the vessel and freight or by paying a capped amount calculated on the basis of the ship's tonnage (8 pounds sterling per tonne).

The limit of 8 pounds sterling per tonne applies to items 1, 2 3, 4 and 5 of Article 1 of the Convention:

1. compensation due to third parties by reason of damage caused, whether on land or on water, by the acts or faults of the master, crew, pilot or any other person in the service of the vessel;
2. compensation due by reason of damage caused either to cargo delivered to the master to be transported or to any goods and property on board;
3. obligations arising out of bills of lading;
4. compensation due by reason of a fault of navigation committed in the execution of a contract; and
5. any obligation to remove the wreck of a sunken vessel, and any obligations connected therewith.

Abandonment applies to claims referred to in items 6, 7 and 8 of Article 1 of the Convention:

6. Any remuneration for assistance and salvage;
7. Any contribution of the shipowner in general average;
8. Obligations arising out of contracts entered into or transactions carried out by the master, acting within the scope of his authority, away from the vessel's home port, where such contracts or transactions are necessary for the preservation of the vessel or the continuation of the voyage, provided that the necessity is not caused by any insufficiency or deficiency of equipment or stores at the beginning of the voyage.

Article 12 of the Convention provides that it should apply to vessels bearing the flag of one of the contracting states[2] 'as well as in other cases foreseen by the national laws'.

There are those, however, that advocate that it applies to any vessels (which means that the older system from the 1850 Commercial Code was tacitly revoked), such as Professor Jacob Dolinger,[3] who may have been the most respected legal scholar on private international law in Brazil.

There are apparently no precedents on the matter, but the Superior Court of Justice has applied the rules on the recognition of a ship mortgage under two international conventions (the Bustamante Code and the 1926 Brussels Convention[4]) in one case relating to a Liberian-flagged vessel, despite Liberia not being a signatory to any of these conventions.[5]

Further, it is also unclear whether the 8 pounds sterling per tonne, established more than a century ago, is to be updated, or how.

Limitation for damage caused by oil carried in bulk

Brazil is also a party to CLC 1969, which applies to vessels carrying oil in bulk as cargo. It came into force with the enactment of Decree 79,437/1977.

CLC 1969 provides that the owner of a ship shall be liable for any pollution damage caused by oil that has escaped in an incident or been discharged from the ship as a result of an incident, but it is entitled to limit such liability in respect of any one incident to an aggregate amount of 2,000 francs for each ton of the ship's tonnage. Further, this aggregate amount shall not, in any event, exceed 210m francs.

Finally, it provides that a franc shall be a unit consisting of 65.5 milligrams of gold of millesimal fineness 900.

Brazil is not a party to the 1971 Fund Convention, nor CLC 1992, as mentioned.

Application of the limitations by the courts

Despite these being old rules, there is a very limited number of precedents (none from the superior courts[6]) dealing with them, maybe because Brazil has not faced many large ship casualties.

The incidents with the vessels Vicuña and Yusho Regulus led owners to apply for limitation based on the 1924 Brussels Convention or, as an alternative, the 1850 Commercial Code. There is no decision on the first incident yet. As to the second one, it seems that all litigation has ended with settlements with claimants after two judgments by the Third Panel on Private Law of the Court of Appeal of São Paulo that did not apply the limitation on the grounds of its incompatibility with the Federal Constitution.[7]

We understand that these judgments, which are essentially identical (issued during the same trial session of 6 June 2017 by the same panel of judges), are wrong. They mention a purported legal principle of full compensation that would imbue the Federal Constitution, which we cannot read in its text. Most legal scholars side with us on the validity and applicability of the limits of liability mentioned above,[8] and, in any case, the opinion of the judges of one of the 38 panels of one of the 27 State Courts of Appeal of the country does not have much weight.

More importantly, the Supreme Court has held that limits of liability provided in the Warsaw–Montreal Convention for air travel are compatible with the Federal Constitution, and that they prevail in relation to the Consumer Protection Code (and other pieces of Brazilian legislation for that matter). It did so by interpreting Article 178 of the Federal Constitution, which provides that, in relation to international transportation, 'Brazil shall observe the international conventions executed by the Union'. There were a number of precedents that held the same position before,[9] and so, this year, the Supreme Court settled the law in a special precedent that has to be followed by lower courts (Tema 1366).

We see no reason why the Supreme Court would not reach the same conclusion in a case involving the Brussels Convention.

All of this shows how unsettled is the law in this field.

Another area of doubt is compensation for environmental damage. The Federal Constitution (and Brazilian law in general) is highly protective of the environment, and the courts have long been very strict against polluters. Due to that, many understand that the rules on limitation of liability may not apply in such cases, or at least for cleaning up the environment from pollution caused by an incident with a vessel.

Conclusion

As shown, the rules on limitation of liability in Brazil are outdated and the law remains unsettled.

The reform of legislation would be very welcome. There are bills in Congress to modernise shipping legislation, which would establish a clear and comprehensive liability limitation regime, adopting limitation values aligned with the updated LLMC standards. However, it is not clear whether any of them will be approved or when, and we see no real movement towards the adoption of the LLMC or CLC 1992 at the moment.

Notes