Abstract: The limitation of liability for maritime claims (LLMC) system is a fundamental component of the Maritime Code, developed alongside the expansion of the maritime industry to safeguard the legitimate rights and interests of shipowners and other maritime stakeholders. As economic and societal conditions continue to evolve, emerging maritime actors, including voyage charterers, ship managers, non-vessel-operating common carriers (NVOCCs), port operators, and pilots' associations, have been involved in maritime-related operations. The question of whether these emerging entities qualify as LLMC subjects has sparked extensive academic discussion. While some entities have gradually gained recognition under international conventions, others remain in a state of ambiguity. Clarifying whether these entities fall within the scope of LLMC subjects is of critical significance for guiding practical applications. This article attempts to address two key issues: first, whether there is a theoretical foundation for the expansion of the scope of LLMC subjects; second, how legislation should define the applicable range of LLMC subjects.

Keywords: Subjects of the Limitation of Liability for Maritime Claims, Ship Managers, Ship Operators

I. Concept and Value

(i) The Unique Characteristics of LLMC

The emergence of the limitation of liability for maritime claims (LLMC) system is an inevitable outcome. Navigation is inherently a hazardous activity due to the unpredictable nature of maritime weather conditions. This risk was further exacerbated in earlier times by the relatively primitive shipbuilding techniques and communication methods available. As a result, the risks associated with carriage by sea have historically been far greater than those encountered in land transport. Additionally, maritime accidents often lead to significant losses. Under such perilous conditions, if the general principles of civil law were applied to require captains, crew members, and other liable parties to bear full liability for damages, it would undoubtedly hinder the development of the shipping industry. In this context, the necessity of limiting the liability for maritime claims becomes evident.

LLMC represents a significant departure from the traditional tort law, in terms of both the limits on compensation amounts and the scope of the principle of full and complete indemnity, so that the liable parties are not forced into financial ruin due to excessive liability claims. Over the years, however, the LLMC system has continued to evolve. Its scope of application has expanded from the initial purpose of protecting the shipping industry to, as specified under Article 207 of the Maritime Code of the People's Republic of China (the "Maritime Code"), encompassing subjects of tort liability. Consequently, the scope of LLMC subjects must also evolve continuously to optimize the system's configuration and enable it to achieve its maximum effectiveness.

(ii) The Development of LLMC Subjects

LLMC subjects refer to individuals or entities that bear liability for maritime claims and are legally entitled to limit liability. Initially, the LLMC system applied only to shipowners. However, with the growth of the shipping industry and the ongoing evolution and refinement of the system, its scope of application has steadily expanded. The 1924 International Convention for the Unification of Certain Rules Relating to the Limitation of the Liability of Owners of Seagoing Vessels (the "1924 Convention") first extended the right to limit liability to "person who operates the vessel without owning it" or "the principal charterer". However, the 1924 Convention did not include employees of shipowners as subjects entitled to limit liability, which led to situations where certain creditors pursued claims against these employees. Consequently, such individuals were excluded from entitlement to limit liability. 

To address this deficiency, the 1957 International Convention Relating to the Limitation of Liability of Owners of Sea-Going Ships (the "1957 Convention"), building on the 1924 Convention, broadened the scope of subjects entitled to limit liability to include "charterer, manager and operator of the ship, and to the master, members of the crew and other servants of the owner, charterer, manager or operator acting in the course of their employment". Later, the 1976 Convention on Limitation of Liability for Maritime Claims (the "1976 Convention") further expanded this scope by adding "salvors" and "insurer of liability for claims subject to limitation" as subjects entitled to limit liability. China's Maritime Code closely aligns with the 1976 Convention in its provisions concerning LLMC subjects.

II. Foundation and Practice

(i) Case Analysis of LLMC Subjects

Currently, courts determine whether a liable party is entitled to LLMC based on Articles 204 to 206 of the Maritime Code. However, in practice, issues frequently arise during judicial proceedings due to the restrictive definition of LLMC subjects. The following analysis demonstrates the necessity of expanding the scope of LLMC subjects by presenting cases involving contentious entities.

1. Maintenance Entities

The maintenance and repair of ships are essential to the sustainable development of the shipping industry. In this regard, repair yards play a pivotal role in ensuring the operational readiness of vessels. However, repair yards are not currently included as subjects entitled to LLMC, posing challenges in judicial practice.

Case: A vessel operated by the Nansha Navigation Channel Center underwent repairs at a repair yard in Zhongshan. During the repairs, the vessel's engine had been removed, rendering it a non-propelled ship. Prior to the arrival of a typhoon, the repair yard notified the operator to implement typhoon-prevention measures. However, the operator's failure to take appropriate measures resulted in the breaking of the ship's mooring ropes, causing the vessel to drift and collide with a wharf, thereby incurring damages exceeding RMB 8 million. The wharf operator filed a lawsuit. The court judgment determined that both the Nansha Navigation Channel Center and the repair yard shall bear liability. Since the vessel was non-propelled and under the control of the repair yard, the latter was deemed as the principal liable party. However, under Articles 204 and 205 of the Maritime Code, repair yards do not qualify as LLMC subjects. Imposing principal liability on the repair yard would result in a significant imbalance of interests. For this reason, the final judgment limited the repair yard's liability to 10%. This resolution, however, conflicts with the provisions of the Tort Liability Law of the People's Republic of China, highlighting a significant gap in the current legal framework. ( (2018) Yue 72 Min Chu No. 853; (2019) Yue Min Zhong No. 3208.)

2. Voyage Charterers

Regarding whether "charterer of a ship", as stipulated in Paragraph 2, Article 204 of the Maritime Code, includes voyage charterer, the relevant laws provide no explicit clarification, leading to differing interpretations among courts and scholars.

Case: A Tangshan-based company acted as the voyage charterer under a charter party for the vessel JIN HANG 18 and arranged for the carriage of a full shipment of goods from Caofeidian Port to Guangzhou Minmetals Wharf. During the voyage, the vessel was involved in a collision, resulting in cargo damage. When the insurer filed a subrogation claim, the Tangshan company asserted its entitlement to limit liability for maritime claims. The court ruled that the "charter party" referred to in Chapter VI of the Maritime Code does not encompass voyage charter party. Instead, a voyage charter party falls within the scope of transportation contract, and thus voyage charterer is not entitled to limit liability for maritime claims. ((2014) Guang Hai Fa Chu Zi No. 118.)

Nevertheless, Professor Si Yuzhuo, a maritime law scholar, holds a different view, arguing that the court's interpretation lacks a solid legal foundation. He contends that distinguishing between charterers "engaged in the operation of transport" and those "engaged in the operation of ship" is conceptually vague and lacks scientific rigor. While voyage charterers differ from time charterers and bareboat charterers in terms of the degree of control over the vessel, they share the essential characteristics of using the vessel, benefiting from it, and assuming corresponding risks and liabilities. As such, international conventions and the Maritime Code do not draw distinctions between voyage charterers and other charterers. Whether a charterer is engaged in "the operation of ship" or "the operation of transport" is inherently difficult to define, as the two concepts substantially overlap. Drawing a rigid distinction between them could result in shipowners or charterers being denied LLMC protection, thereby undermining the LLMC system's intended purpose.

3. Non-Vessel-Operating Common Carriers (NVOCCs)

Under the current legal framework, NVOCCs are not recognized as LLMC subjects. The Fourth Civil Division of the Supreme People's Court has clarified that NVOCCs are characterized by their lack of ownership of vessels and their primary engagement in the operation of transport, rather than the operation of ship. As a result, they have no direct interest in the vessel itself. Thus, NVOCC operators are not classified as ship operators and cannot qualify as LLMC subjects.

Case: Shanghai Trading Company entered into a sales contract with a third party for hot-rolled products and subsequently engaged Benxi Company to carry the goods from Dalian to Shanghai. After accepting this engagement, Benxi Company further engaged Dalian Shipping Agency for the transportation. Dalian Shipping Agency, in turn, engaged Jiangsu Company to carry out the transport using its own vessel. Jiangsu Company issued a domestic waterway cargo bill of lading, which set out Benxi Company as the shipper. During the voyage, the vessel sank, resulting in a total loss of the cargo. Jiangsu Company then applied to establish a fund for LLMC. Based on the current legal provisions and the aforementioned interpretation, Benxi Company was classified as an NVOCC. Accordingly, it is not entitled to LLMC. Upon receiving notice from the court, Benxi Company is obligated to either register the claims of the cargo owners on their behalf or notify the cargo owners to register their claims with the court to seek compensation.

4. Port Operators

The Guangzhou Maritime Court (GZMC) has determined that port operators are not among LLMC subjects as defined under Article 204 of the Maritime Code. Therefore, claims by port operators seeking limit liability are not supported by the court. ((2017) Yue 72 Min Chu No. 425.)

Case: Huizhou Company purchased a batch of goods from an American company under FOB terms. The goods were transported from the United States to Yantian Port, Shenzhen and showed no visible issues upon arrival. Yet container damage was subsequently discovered at the port. The insurer for Huizhou Company, Mitsui Sumitomo Guangzhou Branch, compensated the insured party and obtained subrogation rights. The insurer then initiated legal proceedings against both the carrier and the port operator, claiming compensation for the cargo damage. In defense, the port operator argued that it had accepted the containers as entrusted by the carrier and that if compensation was required, it should be entitled to LLMC. Nevertheless, GZMC strictly adhered to the provisions of the Maritime Code regarding eligible LLMC subjects and ruled that port operators do not qualify for such protection.

(ii) Conservatism in Expanding the Scope of LLMC Subjects during the Amendment of the Maritime Code

As illustrated in the aforementioned cases, GZMC strictly relies on Articles 204 to 206 of the Maritime Code to determine whether a party qualifies as a LLMC subject. Historically, the LLMC system applied only to shipowners. However, with the growth of the shipping industry and the ongoing evolution and refinement of the system, its scope of application has steadily expanded. China's Maritime Code closely aligns with the 1976 Convention in its provisions concerning LLMC subjects.

The ongoing amendment of the Maritime Code has triggered robust scholarly debate. Some scholars propose expanding the scope of LLMC subjects under Article 204 to include "ship managers". This suggestion is grounded in an expansive interpretation of "shipowners". At the inception of the system, the right to limit liability was confined to shipowners. However, with the diversification of ship operations, parties such as charterers, operators, and managers have assumed roles in ship operations, often inheriting or substituting the responsibilities of shipowners. Accordingly, these parties should be granted the right to limit liability.

The draft amendment to the Maritime Code does not propose changes to Articles 205 and 206, as these provisions are deemed sufficiently clear and rarely contested in practice. It is therefore recommended that they be retained. Beyond this, the draft does not include additional subjects, reflecting a conservative approach among Chinese maritime law scholars regarding the expansion of LLMC subjects.

Nevertheless, this conservatism raises a crucial question: In cases where multiple parties are simultaneously entitled to limit liability, should the base for determining the limit be reduced accordingly? For example, in the cases cited earlier—(2018) Yue 72 Min Chu No. 853 and (2019) Yue Min Zhong No. 3208—the second-instance court identified both the ship operator and the maintenance entity as liable parties. If the maintenance entity were also eligible to limit liability, how should compensation be determined? Specifically, should the base of liability of one party be reduced if the other party has already compensated the claimant? The second-instance court concluded that no such reduction should be made. Since both parties had already benefited from the limitation, further reduction would disproportionately harm the claimant and disrupt the balance of interests.

III. Construction and Reference

(i) Balancing Interests Among Subjects

As discussed earlier, LLMC represents a significant departure from the principle of full and complete indemnity under tort law, in terms of both the limits on compensation amounts and the scope of the principle of full and complete indemnity, that is, allowing liable parties to limit their liability. While this limitation provides financial protection for liable parties, it has sparked controversy. With rapid technological advancement, ships now possess significantly enhanced capabilities to withstand maritime risks. Therefore, LLMC is often criticized for disproportionately favoring shipowners, thereby creating inequities for injured parties. Shipowner, leveraging modern communication technologies, can now effectively monitor and control vessels during navigation. Under such circumstances, continuing to justify the limitation of liability based on the argument that shipowners cannot effectively oversee their vessels no longer aligns with contemporary shipping realities. Furthermore, the robust insurance industry has significantly mitigated the risks borne by LLMC subjects. These factors contribute to an imbalance of interests within the current system. To improve the LLMC system, it is essential to consider the interests of all stakeholders. Achieving a balance among these interests forms a necessary foundation for further legislative efforts to expand the scope of LLMC subjects.

(ii) Expanding to Include Ship Managers

The proposal to include ship managers, particularly extending eligibility to maintenance entities, has sparked extensive debate within the maritime community. Certain judges argue that, given the distinct nature of the Maritime Code, adjudication in this area should not be approached through traditional civil and commercial frameworks. In the draft amendment to the Maritime Code, ship managers are defined as individuals or entities engaged by shipowners or bareboat charterers to provide crew, ensure the safety of the vessel, and manage its equipment, maintenance, inspections, and other technical support. Ship management is defined as a technical activity integral to the operation of ships. Like ship operators, ship managers may also bear liability for maritime claims, thereby potentially qualifying as LLMC subjects. Granting ship managers the right to LLMC is both a practical necessity and an effort to align domestic legislation with international conventions.

(iii) Broadening the Definition of Ship Operator

Professor Si Yuzhuo has argued that distinctions between ship operators, ship managers, and bareboat charterers should not be overly emphasized. Essentially, their operational activities revolve around the control, utilization, and profitability of ships. Paragraph 4, Article 2 of the 1986 United Nations Convention on Conditions for Registration of Ships defines a ship operator as a person "to whom the responsibilities of the owner or bareboat charterer has been formally assigned". This definition demonstrates that there are no clear or rigid boundaries among these three roles. Overemphasizing such distinctions risks creating inconsistent treatment of different parties, potentially hindering the development of the maritime industry.

(iv) Including Pilots' Associations

National laws globally establish clear provisions regarding compulsory pilotage zones and mandatory pilotage for foreign vessels entering domestic ports. In situations where a pilot causes damage to a vessel during the pilotage process, the question arises as to whether the pilot or their associated pilots' association should bear the corresponding liability or be entitled to limit liability. However, China's maritime laws lack explicit provisions regarding the legal status of pilots, and international conventions similarly do not address whether pilots are entitled to limit liability. Provisions concerning the limitation of liability for pilots can only be found in some national laws. For example, the Regulations on Pilotage in Sea Ports of the Ministry of Transport of the People's Republic of China stipulate that a pilot may be entitled to limit liability only if the occurrence of a marine accident is attributable to pilot negligence. Given that pilots or their associated pilots' associations may be entitled to limit liability, it is necessary to explicitly incorporate such provisions into relevant maritime laws. Doing so would standardize judicial decisions and ensure consistency in court rulings.

Author: Quan Xiao, Guangzhou Maritime Court