Once an incident has been dealt with by the master and crew of a yacht, matters immediately turn to the recovery of any losses. When dealing with such losses it has long been a unique feature of shipping law that shipowners (and also charterers, managers and operators of a sea-going ship) are entitled, subject to certain conditions, to limit the extent of their liability in the event of a claim being made against them.

The limit of their liability is based on the tonnage (size) of the ship involved in the incident giving rise to the claim and the type of claim being made. The limit is much higher for personal injury or loss of life.

Examples of limiting liability can be found in many charter agreements. However, where third parties are affected such as in collisions, fires etc the owner will rely on the 1976 Convention on Limitation of Liability for Maritime Claims and the 1996 Protocol to the 1976 Convention (the LLMC) to limit their liability.

The LLMC is a strict regime which provides for a virtually unbreakable system of limiting liability. The only situation where a shipowner will not be able to limit their liability is when:

"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." (Article 4 of the LLMC).

Although such limitation appears quite harsh the rationale behind the concept is that most ships and yachts are (usually) insured against losses and so insurers are able to cap the provisions they have to make in the event of an accident.

An example of how the LLMC works in practice can be seen in case that went before the High Court of the Isle of Man Dominator (Yacht XTC of London) v Others CLA 2008/12 (available at www.judgments.im).

The Yacht XTC of London caught fire in the Marina Port Vell, Barcelona, Spain in February 2008. The fire destroyed the XTC, three other vessels were damaged and sank and at least five other yachts were badly damaged in the incident. The value of the losses amounted to more than €6 million and wreck recovery costs were estimated at approx €500,000.

The owner of the XTC, a company with registered offices in the Isle of Man, was able to limit its liability to a sum in the region of £500,000 (around €564,000) for the whole incident by bringing a pre-emptive limitation action under Article 10 of the LLMC, before the High Court in the Isle Man.

This figure is lower than one, which might have been decided upon by the Courts in England or Spain because of how the Isle of Man has enacted the LLMC into the national law. Whilst the Isle of Man is not a signatory to the convention, the UK is and the Isle of Man has enacted the relevant UK law giving effect to the LLMC into Manx Law by virtue of the Merchant Shipping Act 1995 application order and the Merchant Shipping (Convention on the Limitation of Liability for Maritime Claims) (Application) Order 2000.

The unique advantage the Isle of Man offered in respect of the XTC claim was:

  • Firstly, that whilst other countries have reserved the right to exclude wreck from the limitation of liability the Isle of Man has not
  • Secondly the Isle of Man has taken advantage of the measures allowed under the LLMC and made its own provisions for less than 300 tons. This has set a limited of 500,000SDR1 in respect of a claim not involving personal injury or loss of life; considerable less than the LLMC standard limit of 2,000,000SDR.

Although actions under the LLMC are commonplace in other larger jurisdictions the XTC case is the first such reported action in the Isle of Man. The judgment clearly shows that the Isle of Man is a suitable jurisdiction to bring such claims and adds to the Isle of Man's growing reputation as a "Shipping Centre of Excellence" being home to international companies offering specialist maritime services in both ship and yacht management, finance, maritime insurance, maritime law and company formation.


1. Special Drawing Rights – A figure produced by the International Monetary Fund which converts the SDR to the currency of the Court or Country where the limitation is established that is 1SDR = $US1.5.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.