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12 December 2018
In Bisso v Inland Waterways Corp,(1) the Supreme Court held that clauses in towage contracts that release the tug owner from all liability from its own negligence are invalid as against public policy. Since then, the courts have struggled with the extent to which Bisso precludes exculpatory clauses in towage contracts. Bisso has been widely criticised,(2) and the courts have circumvented it by creating various exceptions.
In general, in non-towage situations, a party to a maritime contract can contract out of liability for negligence, although there is a circuit split on the issue.(3) Since Bisso, towage has been a judge-made exception to this general rule. Bisso was decided on public policy grounds in order to deter negligence and to prevent abuse by those tug owners with a monopoly or otherwise unequal bargaining position. Rather than categorically invalidating exculpatory clauses in towage contracts, the courts tend to look at the underlying public policy reasoning of Bisso when determining whether exculpatory clauses in towage contracts are enforceable.
Tug owners can limit their exposure, while still avoiding running afoul of Bisso, by utilising contractual provisions that the courts have found valid. These options include mutual indemnification clauses, clauses disclaiming liability for certain types of damages and clauses limiting liability to a set amount. The courts would likely find other types of limitation clauses valid, considering that several courts have stated that Bisso applies only when a provision purports to completely exculpate a tug owner from liability for negligence, rather than simply limiting liability.
A few cases are illustrative of ways in which a tug owner can limit its exposure to liability for negligence. In Gaida Shipping Corp v Tug S/R Mare Island,(4) the court upheld a limitation of liability clause in a towage contract, which limited the tug owner's liability for its own negligence to $250,000. The court found that Bisso was not implicated because "Bisso does not address clauses which seek to limit, rather than completely exculpate, a party's liability for its own negligence".(5) The court distinguished American Steamship Co v Great Lakes Towing Co,(6) which held invalid a provision limiting a tug owner's liability to $1,837.50. In American Steamship, the tug owner had a monopoly and used it to its advantage when contracting to provide services. Such was not the case in Gaida Shipping. In addition, the tug owner in Gaida did not attempt to limit its liability to a de minimis amount, unlike the tug owner in American Steamship.
In at least one instance, a court has found Bisso not to apply on the grounds that there was no overreaching by the tug owner. In In re Gulf & Midlands Barge Line, Inc,(7) a small towage company contracted with the government. The court found that the tug owner was not liable for damages from a collision, based on an exculpatory clause insulating the tug owner from liability for damages, even though the tug was at fault for a collision. The court reasoned that "[a] small, owner-operated company... could hardly overreach the United States government, and it is clear no overreaching occurred".(8)
A tug owner can also limit its exposure by excluding certain types of damages from its potential liability. In Foss Maritime v Cashman Equipment Corp,(9) the court found that a limitation provision in a towage contract did not violate Bisso by disclaiming liability for damages for lost revenue, profits or loss of use of the barges, regardless of negligence.(10)
Another example of limiting liability for certain types of damages is Canarctic Shipping Co v Great Lakes Towing Co,(11) where the court upheld a provision in a towing contract that limited liability for demurrage to a set daily amount of $1,000 per day, finding that Bisso does not extend to all contractual limits of liability. The limitation clause did not purport to exculpate the tug owner from all liability for its own negligence. The court stated:
[A] limitation on damages, unlike an exemption, does not induce or encourage negligence. A contractual ceiling on demurrage recovery is more akin to liquidated damages than to total exculpation from negligence.(12)
Mutual indemnity provisions are also a viable option for limiting exposure. In In re Boskalis Westminster Int'l BV,(13) the court found that mutual indemnity provisions were enforceable and did not violate Bisso. The tow agreed to indemnify the tug for all liabilities arising with regard to the master and crew of the tow. In addition, the tow owner was responsible for all loss or damage, regardless of negligence, sustained by the tow, and all losses to third parties caused by contact with the tow. The clause further provided that the tow would not be liable for any loss or damage to the tug. There was an identical indemnification clause in which the tug agreed to indemnify the tow for the reciprocal liabilities.(14) The court found that the concerns of Bisso were not applicable, primarily because the provision did not immunise either party from all liability. In addition, there was no fear of a monopoly because both parties were commercial entities that retained some risk.(15)
While the Bisso doctrine does not allow a tug owner to contractually exculpate itself from all liability for negligence, there are several ways that a tug owner can contractually limit its exposure without violating the dictates of Bisso. The courts will generally uphold limitation provisions in towage contracts if:
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(3) See Dominici v Between the Bridges Marina, 375 F Supp 2d 62, 66 (D Conn 2005) (noting the split among the circuits and that the First and Eleventh Circuits would invalidate such clauses); Sander v Alexander Richardson Invs, 334 F3d 712, 719 (8th Cir 2003) (discussing the situations, such as towage, where a party cannot completely exculpate itself from liability and noting that, in other types of situations, "the strong public policies of recognizing parties' liberty to contract and enforcing contracts as written"); Broadley v Mashpee Neck Marina, Inc, 471 F3d 272, 274 (1st Cir 2006) (noting that "the better rule is that an exculpatory clause limited to barring liability for ordinary negligence would be valid, assuming it were not inflicted by a monopolist or one with greatly superior bargaining power"). The Fifth Circuit has held that clauses exempting parties from liability for negligence are enforceable in mutual indemnity situations. See Theriot v Bay Drilling Corp, 783 F2d 527 (5th Cir 1986); see also Ortiz v ETPM-USA, Inc, 553 F Supp 549 (SD Tex 1982) ("It is clear from th[e] language [in Bisso] that the Supreme Court did not purport to make a ruling that release of liability clauses were invalid in all admiralty related contracts. Indemnity provisions in admiralty cases... have been upheld in this circuit").
(10) See also Black Stallion Enterprises v Bay & Ocean Marine, LLC, 862 F Supp 2d 534 (ED La 2012) (finding that Bisso did not invalidate a clause in a towage contract disclaiming liability for consequential damages and stating that "[t]he clause limits only the categories of damages to which the plaintiff is entitled in the event of damage caused by the negligence of the tower [and t]he Court agrees with the many maritime cases that search for clauses providing 'absolute exculpation' before deeming them invalid as adhesion clauses").
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