ELENI MARITIME LTD v. HEUNG-A SHIPPING CO LTD AND OTHERS

HCAJ 189/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 189 OF 2013

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D E C I S I O N

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The background

1.  On 7 November 2013, a collision at sea occurred between two vessels, TheEleni owned by Eleni Maritime Limited (“Eleni Maritime”) and TheHeung-A Dragon owned by Heung-A Shipping Co Ltd (“Heung-A Shipping”) off Phu My in Vietnam.  As a result, TheHeung-A Dragon with all its cargo on board sank.

2.  Alleging that the collision was caused by a sister ship of The Heung-A Dragon, Eleni Maritime commenced action against Heung-A Shipping under HCAJ 188/2013 claiming damages.  In respect of the sinking of TheHeung-A Dragon, Eleni Maritime admitted liability.  Attribution of blame for the collision was agreed at 70:30.  Then, Eleni Maritime initiated limitation action in this action against Heung-A Shipping and three other potential claimants (ie the 1^st to 4^th Defendants) under Order 75 of the Rules of the High Court, seeking to limit its liability in the collision.  On 14 May 2014, Ng J granted a limitation decree (the “Decree”) including, inter alia, the following terms:  

(1) that the Convention on Limitation of Liability for Maritime Claims 1976 (the “Limitation Convention”) has the force of law in Hong Kong;

(2) that the tonnage of TheEleni for the purpose of this action is 23,494 tons;

(3) that the liability of Eleni Maritime is limited to 4,006,998 Special Drawing Rights;

(4) that claims against Eleni Maritime in respect of the collision shall be filed within a period of 6 months and 14 days from the date of the Decree; and

(5) that Eleni Maritime to advertise a notice specifying the particulars of the Decree once in each of Lloyd’s List, South China Morning Post and the Hong Kong Standard.

On 21 May 2014, Eleni Maritime constituted the limitation fund (the “Fund”) by making payment into court. 

3.  The date for filing of claims under the Decree was initially 28 November 2014, which was about one year after the collision, but has been extended on two occasions to 28 January 2015.  This final deadline was less than 15 months after the collision but nearly a year before the expiry of the two-year limitation period under section 7(1) of Merchant Shipping (Collision Damage Liability and Salvage) Ordinance, Cap 508 (“the Ordinance”) for claiming damages arising out of collision at sea.

4.  In mid 2015, well after the expiry of the final deadline but about six months before the expiry of the two-year limitation period, solicitors for the 2^nd to 4^th Defendants, Smyth & Co (now known as “Reynolds Porter Chamberlain”), received initial instructions from some 22 additional claimants in respect of a further round of claims against Eleni Maritime.  These additional claimants and their insurers are based outside Hong Kong.  One insurer is in the People’s Republic of China (the “PRC”) and two others are in Vietnam. 

5.  Since July 2015, Smyth & Co has been communicating with solicitors for Eleni Maritime and Heung-A Shipping about late filing of claims by the additional claimants against the Fund.  Eleni Maritime maintained a neutral stance, but Heung-A Shipping objected.  Instead of seeking an extension of time for filing of claims under the Decree or to have the Decree set aside, Smyth & Co filed a writ of action in HCA 135/2015 on 6 November 2015, against Eleni Shipping on behalf of the 2^nd to 4^th Defendants and the additional claimants just before the expiry of the limitation period. Eleni Shipping acknowledged service of the writ and submitted to jurisdiction.

6.  The progress in respect of claims under the Fund has been slow due to various complications, including the fact that there remains an issue to be resolved as to wreck removal and that other actions have been commenced against The Eleni by other claimants in India and the Marshall Islands.  No distribution from the Fund has been made and there is no immediate prospect of distribution.

The application

7.  On 14 October 2016, Smyth & Co issued the present summons seeking an extension of the deadline under the Decree for the 2^nd to 4^th Defendants and the additional claimants to file claims against the Fund.  Eleni Maritime took a neutral stance but Heung-A Shipping objected. 

8.  The basis of the additional claimants’ application as advanced by Mr Alder, counsel for the 2^nd to 4^th Defendants and the additional claimants, is that they have commenced writ actions within the limitation period which are perfectly valid and may be pursued against Eleni Maritime who has submitted to jurisdiction.  There is no provision in the Decree prohibiting or staying other actions against Eleni Maritime.  The additional claimants and their insurers had no knowledge of the Decree and constitution of the Fund until long after the deadline fixed under the Decree had expired.  They had already issued a protective writ within the limitation period.  In any event, the deadline fixed by court was an administrative deadline, which the court has discretion to extend.  The court had no power to reduce the two-year statutory limitation period.  The Fund is still in its early stages of administration and no distribution has been made.  Granting the extension would not create any prejudice to anybody.  Hence, in all circumstances the extension ought to be granted.

9.  The thrust of the argument of Mr Sussex, Senior Counsel for Heung-A Shipping, in opposition to the application is that regardless of the filing of the writs, the additional claimants’ claim against the Fund is statute-barred as they have not filed their claims against the Fund in the limitation action within the time limit under section 7(1) ofthe Ordinance.  Filing of a writ is not sufficient to have preserved time for the purposes of claims against the Fund.  As a competing claimant against the Fund, Heung-A Shipping is entitled to rely on this time-bar defence available to Eleni Maritime to defeat the claims of the additional claimants against the Fund.  Simply put, Mr Sussex’s proposition is that the statutory time-bar applies to each and every action taken to enforce the same claim or cause of action.  His subsidiary arguments are that the writ actions commenced by the additional claimants constitute an abuse of process and cannot be relied on by them for protecting time; and that no good reason has been advanced in support of an application for extension of time.

The statutory claim regime in Hong Kong

10.  The issues raised in this application are the true construction of section 7 of the Ordinance and the inter-relationship between that statutory time limit and the time limit fixed by the court in the limitation decree.  These issues could only be resolved against the backdrop of the statutory claim regime under Hong Kong law.

11.  The Limitation Convention, which was given the force of law in Hong Kong by the Merchant Shipping (Limitation of Shipowners Liability) Ordinance, Cap 434, provides for a simple and practical regime for disposing of claims arising from collision at sea, which is acceptable to the shipping industry and beneficial to the parties in a collision.  Litigations arising from collision at sea take a long time to resolve.  Under the regime, shipowners get the benefit of limitation of their liability and have their vessels released on payment of a security calculated according to their tonnage so that the vessels may be sailed out of port to continue with their ordinary commercial activities.  On the other hand, claimants get the benefit of a security in court.  Section 7 of the Ordinance provides for a limitation period of two years for making claims arising out of collision at sea.  Order 75 provides the relevant procedures.

12.  The regime is available to the shipowner who does not dispute liability but wishes to take advantage of the limitation of liability under the regime.  The regime consists of a two stage process: first, the limitation action in which the shipowner seeks to limit his liability; and second, the reference action in which claims against that shipowner are processed upon the approval of his limitation application and constitution of the limitation fund.  Once the fund is constituted, the shipowner ceases to have any interest in disputing anybody’s claim because he is liable only for the amount he has paid in, and that being so all competing claimants to the fund are entitled to dispute one another’s claims against the fund.  It is similar to the interpleader proceeding in which the interpleader brings the claimants to court and leaves it to them to resolve their rights over the subject matter of the interpleader.  It is for the shipowner to commence the limitation action so that he may limit his liability and have his vessel released upon constituting the fund.  If he does not invoke the regime, the claimants would have to proceed by way of the usual writ action.

13.  Rules 37 to 40 are described in their headings as “limitation action”.  They provide for the making of a decree limiting the shipowner’s liability or the refusal to make a decree.  Rule 37 identifies the parties.  Of interest, it is to note that the shipowner who is the person liable to claims for damages is identified as “the plaintiff” and claimants or potential claimants with claims against the shipowner are identified as “the defendants”.  Under this rule, the plaintiff shipowner issues a writ to the defendants to seek the relief of limiting his liability.

14.  Rule 38 sets out the procedure to be followed after issue and service of the writ.  It requires the shipowner to take out a summons supported by affidavit proving his case and stating the names of all the persons who to his knowledge have claims against him arising out of the collision.  It provides for the hearing before the registrar. If the defendants dispute the shipowner’s right to limit his liability, the registrar will give further directions for the conduct of the hearing of the summons.  If the right to limitation of liability is not disputed, the registrar will issue a decree limiting the shipowner’s liability and fix the amount to which that liability is to be limited.

15.  Rule 39 provides for the fixing of a time within which claimants may file their claims and for advertisement of the decree if so ordered.  This step concludes the limitation action, if no action is taken to have the decree set aside pursuant to rule 40.

16.  Rule 40 provides for setting aside of the decree by any person who has a claim against the shipowner but was not named by his name in the writ as a defendant or who was named but was not served with the writ or has not acknowledged the issue thereof.

17.  Thus a limitation action is an application by the shipowner to limit his liability in an action or actions arising out of collision at sea.  The only issue before the registrar in a limitation action is whether the shipowner has the right to limit his liability.  It should be noted from article 4 of the Limitation Convention that that issue, if disputed, is whether it is proved that the loss resulted from the shipowner’s personal act or omission, committed with the intent to cause loss, or recklessly and with knowledge that such loss would probably result.  The claimants’ entitlement to claim is not an issue.  The limitation action may be commenced by the shipowner at any time, even after expiry of the limitation period under the Ordinance for commencing actions by claimants.  It is not an action in which the claimants sue the shipowner for damages caused by the collision.  There is no issue about time bar, let alone one applicable to the claimants.  The limitation action begins with issue of a writ by the shipowner and concludes with the granting of or refusal to grant a limitation decree.

18.  Rules 41 to 46 set out the procedures for dealing with claims filed pursuant to the decree.  This part of the proceeding is described in the rules as “references to the registrar”.  It is akin to a writ action.  The rules provide for filing of claims and defence, hearing before a judge, drawing up and entry of judgment and orders and inspection of documents filed in the registry.  In some authorities, this part of the proceeding is referred to as “limitation reference” or “reference”.  Mr Sussex made no distinction between the limitation action and the reference and treats both proceedings as part of the limitation action.  I prefer to refer to the proceeding under rules 37 to 40 as the limitation action and that under rules 41 to 46 as the reference or reference to the registrar or reference action.  The former commences with the issue of the writ and concludes with the making or refusal to make a decree.  The latter commences with the making of reference to the registrar and concludes with adjudication.

The true construction of section 7(1) of the Ordinance

19.  The core issue raised by this application is the true and proper construction of section 7(1) of the Ordinance.  This sub-section requires that an action to enforce a claim or lien must be commenced within two years.  Mr Sussex submits that the word “action” does not necessarily mean that a claimant must issue a writ.  Relying on The “Kafur Mamedov”[1] in which a similar provision under the Maritime Conventions Act 1911 applicable to Hong Kong before 1997 was construed, he argues that the word is equally competent to include the filing of a claim in a limitation reference as contemplated by Order 75 rule 41.

20.  With respect, I do not think The Kafur Mamedov supports the contention advanced by Mr Sussex.  In that case, the Court of Appeal gave the word “action” a wide meaning as to cover a counterclaim so that a counterclaim had also to be filed within the two-year limitation period.  Godfrey JA followed a line of English authorities, particularly TheGniezno[2], in which Brandon J contrasted the Maritime Conventions Act 1911 withthe Limitation Act 1939 and noted that a significant provision under the Limitation Act 1939 whereby for limitation purposes the date of a counterclaim is taken as the date of the writ, was not matched by any comparable provision in the Maritime Conventions Act 1911.  It was for that reason that the majority of the Court of Appeal held that the word “action” was wide enough to cover a counterclaim.  I am unable to see how that rationale could be applicable to the construction, which Mr Sussex contends. 

21.  Sub-section 7(1) provides as follows:

“ Subject to subsection (3), no action shall be maintainable to enforce any claim or lien against a vessel or its owners in respect of any damage or loss to another vessel, its cargo or freight, or any property on board the vessel, or damages for loss of life or personal injuries suffered by any person on board the vessel, caused by the fault of the former vessel, whether such vessel is wholly or partly in fault, unless proceedings in the action are commenced within 2 years from the date when the damage, loss or injury was caused.”

(My emphasis added)

It is Mr Sussex’s argument that the word “action” is equally competent to include the filing of a claim in a limitation reference as contemplated by Order 75, rule 41, which is the proceeding in which the claim arising from collision damage is to be enforced.  However, the word “action” must be read subject to the qualification which followed.  It must therefore be an action to enforce any claim or lien against a vessel or its owners.  But, as Mr Sussex himself admits, upon constitution of the limitation fund, the maritime lien for collision damage ceases to run with the ship.  I agree with that proposition which, I think, is based on article 13(1) of the Limitation Convention.  That is how the regime, as I outlined it, operates.  With constitution of the fund, the vessel arrested is released.  The lien ceases to exist.  The limitation reference, which the additional claimants seek to participate, is therefore not an action to enforce any claim or lien against a vessel or its owners.  It is an action against the Fund, although that action arose out of the wrongful act of the vessel or its owners.  In my view, a fair reading of section 7(1) does not support Mr Sussex’s construction.

22.  Though I have not been referred by counsel to any authorities on the construction of section 7(1) of the Ordinance, the above construction is consistent with the approach of the courts in limitation cases, see for example, The Disperser[3].  In that case, a collision took place on 31 October 1916 between the steamship Caledonia and the lighter TheMarshalls in the tow of the steamship Disperser.  The owners of Caledonia sued the owner of Disperser.  On 27 March 1918, Disperser was found solely to blame.  On 6 May 1919, some six months after the limitation period stipulated under the equivalent of our section 7(1) of the Ordinance, the owner of Disperser issued a writ in a limitation action.  A decree was made on 14 July 1919.  Then, the owners of The Marshalls filed a claim in the reference to the registrar within the deadline stated in the decree, but outside the limitation period.  The owners of Caledonia objected on the ground of limitation.  No point was taken that the claim was statute-barred as having been filed two years after the collision.  The construction of the equivalent of our section 7(1) of the Ordinance as advanced by Mr Sussex had not been run.  It must have been accepted that the limitation period did not apply to an action commenced against the limitation fund.  Instead, the statute-bar argument was advanced on the basis that it was a defence available to the shipowner against a particular claimant, which the other claimants might rely on to defeat the claim of that particular claimant so as to increase their share in the fund.  That was precisely how the equivalent of our section 7(1) was applied.  The time-bar applied to an action to enforce a claim or lien against a vessel or its owners.  It did not apply to an action against the fund.  The rationale of this approach was explained by Hill J as follows:

“ … In the first place, it seems to me quite clear that in the reference which follows a limitation decree it is open to any claimant to dispute the right of any other claimant against the fund. … It is further clear that a claimant cannot establish any right against the fund unless he can establish a good cause of action against the limited owner: ….

If each claimant against the fund must establish a legal right against the limiting owner, and if each claimant may raise against the other any defence which the limiting owner could raise, I find it impossible to distinguish a defence given by s. 8 of the Maritime Conventions Act from other defences, and it seems to me that it must be open to a rival claimant to contend that another claimant’s actin is barred by the effect of s. 8. Possibly difficulties may arise where the limitation decree is made before the expiration of the two years. …” [4]

This court is now faced with the difficulties foresaw by Hill J.

23.  In approaching this issue, I bear in mind that the limitation period fixed by section 7(1) is statutory and section 7(3) gives the court discretion to extend that period to such extent and on such conditions as it thinks fit.  With these in mind, I would approach the issue as follows.  The deadline fixed in the decree for filing of claim is one fixed by the court in the exercise of its case management powers for the better and proper conduct of the claims and administration of the fund.  It is a procedural time limit or “administrative deadline” as Mr Alder calls it.  No court would, when imposing such an administrative deadline, contemplate that it should have the effect of overriding the limitation period fixed by law, thereby rendering the defence of time-bar unavailable to a defendant.  It must necessarily follow from the above that the very fact that the administrative deadline expired before expiry of the statutory limitation period alone is a good reason for granting extension of time under the decree.

24.  If a claimant has commenced action against the shipowner within the statutory time limit and filed his claim in the reference within the administrative deadline, there is no defence of limitation available to the shipowner which the other claimants can rely on.  The claimant is entitled to have his claim processed as of right. 

25.  If a claimant had commenced action against the shipowner within time but filed his claim in the reference after the expiry of the administrative deadline, leave to extend the administrative deadline under the decree is required.  As the other claimants cannot avail themselves of the shipowner’s defence of limitation and as the administrative deadline is procedural, subject to showing good reasons for the delay and lack of prejudice to other claimants, leave to extend the administrative deadline would invariably be granted.

26.  If a claimant has not commenced action against the shipowner within the statutory limitation period or at all, but his claim in the reference has been filed within the administrative deadline, the other claimants can rely on the defence of limitation available to the shipowner to defeat that claimant’s claim.  That claimant’s claim in the reference would be shut out by the registrar.  He has to invoke the court’s discretion under section 7(3) of the Ordinance to extend the time limit for commencing action against the shipowner on proof of good reason for his inaction and absence of prejudice to the other claimants.  The threshold is higher than that facing the claimant in the scenario described in the preceding paragraph.  This was what happened in The Disperser. 

27.  If a claimant has not commenced action against the shipowner within time or at all and his claim in the reference has been filed after expiry of the administrative deadline, the defence of limitation would be available to the other claimants.  His position would be the similar to that of the claimant in the preceding paragraph, except that he has to obtain court’s leave to, first, extend the time for filing claim under the administrative deadline and, second, to extend the time limit under section 7(3) of the Ordinance.  The threshold is much higher than that facing the claimant in the preceding paragraph.

Abuse of process in filing the writs

28.  Relying on article 13 of the Limitation Convention, Mr Sussex argues that if the additional claimants were granted extension of time to claim against the Fund, they would be barred from claiming against any other property of Eleni Maritime under the writ action already filed.  He emphasises the fact that these additional claimants have not arrested any property of Eleni Maritime and argues that if they sought to arrest The Eleni within the jurisdiction of Hong Kong Court, the Hong Kong Court would be obliged to release the vessel pursuant to article 13(2) of the Limitation Convention.  He therefore submits that these considerations highlight the fact that the in rem proceedings issued by the additional claimants one day before the statutory limitation period expired were not intended to be used for the purpose of enforcing their claims.  The proceedings therefore constitute an abuse of process and cannot be relied upon as protecting time.

29.  However, as submitted by Mr Alder, this article does not protect The Eleni from arrest if judgment has been obtained and a warrant of arrest executed on her when she happened to be at a port of a contracting state to the Limitation Convention other than Hong Kong or any of the other three locations set out in article 13(2).  The additional claimants have made it abundantly clear that their intention is to forgo their remedy in rem by commencing the reference and to allow themselves to be caught by article 13(1), so that they may participate in the Fund.  There are obvious benefits for them to opt to pursue against the Fund, such as time, costs and security.  Though the likelihood of their obtaining the remedy in rem by the writ actionsappears remote, the inference that these additional claimants have no intention to pursue the remedy in rem if it becomes not open to them to pursue against the Fund is not a reasonable inference that could be drawn.  I am not satisfied that the writ actions commenced by the additional claimants constituted abuse of process of the court.

Good reasons for allowing extension of time

30.  The additional claimants are cargo owners or subrogated insurers entitled to sue in respect of the cargos on board The Heung-A Dragon, which was sunk as a result of the collision.  They only came to know about the Fund long after the administrative deadline had expired.  While Mr Sussex forcefully argues that as participants in the shipping industry, these subrogated insurers should have read the Lloyd’s List and become aware of the Fund, in my view, Heung‑A Shipping and Eleni Maritime are more to blame for not doing what was reasonably expected of them.

31.  Despite Heung-A Shipping as cargo carrier carrying the additional claimants’ cargo which it had failed to deliver, it took no steps to inform the additional claimants identified on their bills of lading and cargo manifest about the constitution of the Fund.  Eleni Maritime as the plaintiff in a limitation action is duty-bound under Order 38 to bring the limitation action to the notice of the consignees of goods on board The Heung-A Dragon and therefore these additional claimants.

32.  It must also be obvious to both Heung‑A Shipping and Eleni Maritime that many of the consignees of and persons interested in the cargo on board The Heung-A Dragon are located in the PRC and Vietnam.  Yet, for reasons unknown, when seeking the Decree, no direction was sought to advertise the Decree in the PRC or Vietnam.  The Decree was only advertised in two newspapers in Hong Kong and in the Lloyd’s List. 

33.  While much has been said by Mr Sussex against the additional claimants for not making this application earlier, having regard to all the circumstances, it makes no difference to Eleni Maritime, Heung-A Shipping or indeed anyone that the application is only made at this stage as the lateness does not even start to affect the administration of the Fund.  

34.  Though the additional claimants were late in filing their claims pursuant to the administrative deadline, the collision and their claims are not unknown to Heung‑A Shipping and Eleni Maritime.  In fact, Smyth & Co had informed them of the additional claimants’ claims since July 2015.  The parties had been communicating on this subject since.  There could be no prejudice to Eleni Maritime as its liability has been capped.  No distribution has been made by the Fund.  Other than a possibility of dilution of the distribution from the Fund, Heung-A Shipping would suffer no loss as a result of the late filing of these additional claims.  Such dilution cannot in law amount to prejudice.  Eleni Maritime and Heung‑A Shipping, in particular, should not be allowed to benefit from their omission, at the expense of the innocent additional claimants.

35.  All these circumstances constitute good and sufficient reason for this court to exercise its discretion under Order 3 and its inherent jurisdiction to extend the administrative deadline in the Decree. 

Conclusion

36.  Accordingly, I give the Defendants leave to file their claims in the reference to the registrar out of time and order that they shall file and serve further particulars of their claims on the Plaintiff and every other Defendants within 14 days of the date of this decision.  The costs of this application be to the Defendants other than the 1^st defendant.

HCAJ 189/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 189 OF 2013

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JUDGMENT
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1. The application before this court raises two points of case management.

2. By summons dated 18 May 2015 (“Summons”), the 1^st Defendant (“Heung-A Shipping”) seeks the following orders from this court under RHC O 33 r 3:

“(1) That there be a trial of the issue of whether the Claims identified as C, D, E, F, G, K, L and R in the Schedule to the 1^st Defendant’s Claim in this Limitation Action, or any of such Claims, are claims in respect of the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship, within the meaning of Article 2 paragraph 1(d) of the Convention on Limitation of Liability for Maritime Claims 1976 as set out in Schedule 2 of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance, Cap.432, and are therefore not such claims as may be raised against the limitation fund which has been constituted pursuant to the Order of this Court dated 14^th May 2014.

(2) That the trial of the issue identified in Paragraph 1 above should occur in this Limitation Action, so that the declaration of this Court consequent upon such trial shall be binding on all parties having a claim against the limitation fund.

(3) That directions be given for the trial of the aforesaid issue.”

3. On 7 November 2013, the “ELENI” had a collision with the “HEUNG‑A DRAGON” in the buoyed channel off Vung Tao, Vietnam. As a result of the collision, the “HEUNG-A DRAGON” with all its cargo on board sank. 

4. In HCAJ 188 of 2013, commenced by writ of summons in rem against a sister ship of the “HEUNG-A DRAGON” on 13 November 2013, the owners of the “ELENI” (“Eleni Maritime”) claim against the owners of the “HEUNG-A DRAGON” ie Heung-A Shipping in respect of their losses arising from the collision. Heung-A Shipping in turn counterclaims against Eleni Maritime for their losses arising from the collision including inter alia costs incurred in connection with the raising and removal of the sunken wreck, the cargo, containers, fuel oil and marine diesel on board, as well as container and cargo recovery and disposal expenses (collectively “Wreck Removal Costs”). In conformity with the norm in collision actions which is for liability to be tried first, leaving assessment of damages to the Registrar at a later stage: Calandra Shipping Co Ltd v Noor Maritime Ltd [2014] 2 HKLRD 242, the trial of liability is scheduled to commence before this court on 9 March 2016, with seven days reserved.

5. In the present action, commenced by writ of summons also on 13 November 2013, Eleni Maritime seeks a declaration that its liability in respect losses resulting from the collision be limited in accordance with the Merchant Shipping (Limitation of Shipowners Liability) Ordinance Cap. 434 (“Ordinance”) or, strictly speaking, in accordance with the Convention on Limitation of Liability for Maritime Claims, 1976 (“Convention”) as set out in Schedule 2 of the Ordinance.

6. Article 2 of the Convention provides that:

“1. Subject to Articles 3 and 4 the following claims, whatever the basis of liability may be, shall be subject to limitation of liability–

(a) claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connection with the operation of the ship or with salvage operations, and consequential loss resulting therefrom;

(b) claims in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;

(c) claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connection with the operation of the ship or salvage operations;

(d) claims in respect of the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship;

(e) claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship;

(f) claims of a person other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with this Convention, and further loss caused by such measures.

2.  Claims set out in paragraph 1 shall be subject to limitation of liability even if brought by way of recourse or for indemnity under a contract or otherwise.  However, claims set out under paragraph 1(d), (e) and (f) shall not be subject to limitation of liability to the extent that they relate to remuneration under a contract with the person liable.”

7. On 14 May 2014, this court granted a limitation decree (“Decree”) declaring, at paragraph 1 thereof, that Eleni Maritime is entitled to limit its liability in accordance with the Convention. 

8. Paragraphs 2 and 3 of the Decree are in these terms:

“2. There be a Declaration that the Convention…has the force of law in Hong Kong, save that paragraph 1(d) of Article 2 of the [Convention] does not apply in Hong Kong.

3. The Declarations made in paragraphs 1 and 2 hereof are without prejudice to:-

(a) any application which the Plaintiff may make, whether in HCAJ 188 of 2013 or otherwise, for the determination of the question whether any claim falling within the wording of paragraph 1(d) of Article 2 of the [Convention] is subject to limitation by reason of its falling within the wording of any of sub-paragraphs (a), (b), (c), (e) or (f) thereof; and

(b) any application which the 1st Defendant or any other claimant may make, whether in HCAJ 188 of 2013, or otherwise, for the determination of the question whether any claim falling within the wording of paragraph 1(d) of Article 2 of the [Convention] is not subject to limitation even if such claim falls within the wording of any of sub‑paragraphs (a), (b), (c), (e) or (f) thereof.” (emphasis added)

9. Eleni Maritime subsequently constituted the limitation fund in accordance with the Decree in the sum of approximately US$6.3 million (“Fund”).

10. Since then, various claimants have filed claims and/or affidavit evidence in support of their claims in this action against the Fund. The totality of the claims put forward by Heung-A Shipping, including the pleaded claims of Wreck Removal Costs of approximately US$11 million (“Wreck Removal Claims”) which are the subject of the Summons, is in the region of US$17 million. The claims put forward by the 2^nd to 4^th Defendants and other claimants representing cargo interests exceed US$16 million. The claim of Hanjin Shipping, a slot charterer of “HEUNG-A DRAGON”, is in excess of US$400,000.

11. As stated in Heung-A Shipping’s skeleton argument, the purpose of the Summons is to determine (i) in which action, ie HCAJ 188 or this action, the substantive issue of limitation which divides Eleni Maritime and Heung-A Shipping, should be raised, and (ii) when.

12. The substantive issue is succinctly summarized in paragraph 3 of the Decree quoted above. Heung-A Shipping will seek to argue that the Wreck Removal Claims which fall within paragraph 1(d) of Article 2 of the Convention is not subject to limitation (since paragraph 1(d) of Article 2 does not apply in Hong Kong) even if they may fit into one or more of the sub-paragraphs (a), (b), (c), (e) or (f). The Plaintiff will seek to argue the opposite is the correct legal position (“Limitation Issue”).

13. In relation to the Summons itself, Heung-A Shipping’s position is that the Limitation Issue should be tried in this action as a preliminary issue. The Order which it invites the court to make as per the draft submitted is this:

“1. That there be a trial of the issue of whether claims in respect of the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship, within the meaning of Article 2 paragraph 1(d) of the Convention on Limitation of Liability for Maritime Claims 1976 as set out in Schedule 2 of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance, Cap.432, are not subject to limitation of liability and are therefore not such claims as may be raised against the limitation fund which has been constituted pursuant to the Order of this Honourable Court dated 14 May 2014 even if such claims are brought by way of recourse or for indemnity under a contract or otherwise.

2. That within 14 days the parties shall prepare a brief summary of facts indicating those facts which are agreed and those which are to be assumed.

3. This matter be set down for hearing with 2 days reserved.”

14. The 2^nd to 4^th Defendants and other cargo claimants as well as Hanjin Shipping support Heung-A Shipping and agree with the wording of its draft Order.

15. Eleni Maritime’s position is that (i) Heung-A Shipping has failed to demonstrate it would be just and convenient for there to be a separate trial of the Limitation Issue as a preliminary issue and (ii) in any event, the issue should be dealt with in HCAJ 188, when the court is assessing the quantum of its claims, and not in this action.

16. This court shall deal with the two points in reverse order.

17. Mr Wright, for Eleni Maritime, argues that it is illogical for the Limitation Issue to be dealt with in this action since Heung-A Shipping is obviously not seeking to pursue the Wreck Removal Claims against the Fund – rather, its primary position is that those claims are not subject to limitation and therefore can and should be pursued separately against Eleni Maritime which it has done so in HCAJ 188 by way of counterclaim.

18. This court does not agree. This court is of the view that it is entirely logical for the Limitation Issue to be dealt with in this action which is, after all, a limitation action.

19. Further, this court is of the view that it is entirely sensible for the Limitation Issue to be dealt with in this action since the issue is a matter which affects not just Eleni Maritime and Heung‑A Shipping, but also all other claimants against the Fund who are not parties to HCAJ 188 and have no wish to get involved in it.

20. Article 11(1) of the Convention provides that a limitation fund constituted with the court “shall be available only for the payment of claims in respect of which limitation of liability can be invoked”.

21. If Heung-A Shipping is right so that the Wreck Removal Claims are not subject to limitation, then they will have to be pursued separately against Eleni Maritime since ex hypothesis the Fund will not be available to pay such claims. The amount of those claims is in excess of US$11 million which is not an insubstantial sum by any measure. In that scenario, its claims against the Fund will be significantly reduced and consequently, the pro rata share of all other claimants against the Fund will be significantly increased. The reverse is also true. It is therefore sensible that the Limitation Issue be decided in this action so that not only Eleni Maritime and Heung-A Shipping, but all other claimants are bound by the court’s ruling. This is so irrespective of whether these claimants wish to make representations to the court on the issue. If they do, presumably in support of Heung-A Shipping’s contention, then they should be allowed to since they do have an interest in maximizing their pro rata  share of the Fund.

22. In passing, as pointed out in Mr Sussex’s skeleton argument, prior to the enactment of the Convention as law, issues of this nature have traditionally been decided in limitation actions: The “Arabert No.2” [1961] 1 Lloyd’s Rep. 363.

23. For these reasons, this court agrees with Mr Sussex and rules that, as a matter of case management, the Limitation Issue shall be determined in the present action.

24. The next question is whether the Limitation Issue should be tried as a preliminary issue.

25. At this juncture, it is important to bear in mind that although various claimants, including Heung-A Shipping, have filed their claims and/or affidavit evidence in support of their claims in this action against the Fund, none of the claims have been established or, as far as this court is aware, admitted by Eleni Maritime. Regarding the Wreck Removal Claims, the factual circumstances under which the several categories of Wreck Removal Costs, identified as C, D, E, F, G, K, L and R in the Schedule to Heung‑A Shipping’s Claim, were incurred have not been established or admitted by Eleni Maritime either. Accordingly, as per paragraph 2 of Heung‑A Shipping’s draft Order, what the court is invited to do is to determine the Limitation Issue on agreed or assumed facts.

26. Mr Sussex submits that the Limitation Issue raises essentially a distinct point of law ie the proper construction of the Ordinance and the Convention and is eminently suitable for determination as a preliminary issue. In his skeleton submissions, he describes the issue as one “of great general or public importance” which has not been decided elsewhere, except in an earlier context in Australia: O’Connor v. Barameda (1987) 74 ALR 569, and that the issue may go to the Court of Final Appeal for final determination.

27. Mr Sussex further submits that the issue should be adjudicated upon sooner rather later since (i) there can be no determination of the pro rata share each claimant can get out of the Fund until this issue is resolved, and (ii) resolution of the issue in one way or another will determine how much resources the parties will deploy in arguing, for instance, the apportionment of blame for the collision. The suggestion seems to be that if the Limitation Issue is decided against Heung‑A Shipping so that what it gets, even if all its claims are established, is a pro rata share of the Fund along with everyone else, there may be no point in proceeding to trial of liability in HCAJ 188. 

28. In support of his submissions, Mr Sussex prays in aid RHC O 1A and O 1B and the following passage in the judgment of Colman J in Navigas v. Enron [1997] 2 Lloyd’s Rep. 759, 761:

“The purpose of the order [for trial of three preliminary issues] was to identify certain core issues between the parties in the hope that, if those issues were resolved, no further hearing would be necessary. This order reflects the practice of the Commercial Court which has always been directed to the avoidance of expensive trials by the resolution of key issues of law or construction at an early stage”.

29. Mr Wright, on the other hand, submits that the appropriate time for the court to determine whether some or all of the Wreck Removal Claims are or are not subject to limitation is after the court has determined liability for the collision in HCAJ 188 and when it is assessing the quantum of damages. At that time, the court will have before it all of the evidence relevant to Heung‑A Shipping’s claims. He also submits that it is highly undesirable for the court to determine a difficult point of law on assumed facts – the whole exercise might be futile if it turns out that Heung‑A Shipping cannot make good its Wreck Removal Claims.

30. This court agrees it is highly undesirable to determine a difficult point of law on assumed facts. This court however does not agree that the determination of the Limitation Issue should await the determination of liability for the collision in HCAJ 188.

31. It is axiomatic that the court must endeavour to give effect to the underlying objectives of the Rules of the High Court when it exercises any of its powers and that it should adopt active case management in identifying the issues at an early stage and deciding the order in which the issues are to be resolved. However, this court is not satisfied that in exercising its active case management powers in the present case, it should order the Limitation Issue to be tried as a preliminary issue based on assumed facts.

32. Concerning the potential savings of costs and time, Mr Sussex may or may not be right in hoping that the trial of liability as between Eleni Maritime and his client in HCAJ 188 can be avoided in the event the court rules against him on the Limitation Issue so that all his client can get is a pro rata share of the Fund. But what if the court rules in his favor so that the Wreck Removal Claims are not subject to limitation and can be pursued separately by way of counterclaim in HCAJ 188? In that event, the apportionment of blame between the two ships becomes more significant and there is no suggestion that his client, let alone Eleni Maritime, will have the same incentive to avoid the trial of liability or the assessment of damages in HCAJ 188.

33. Further, given that the trial of liability is scheduled to take place in March next year, it is most unlikely that the Limitation Issue can reach the Court of Final Appeal, or even the Court of Appeal, before then. Given the novelty of the point and the amount at stake, the issue is prima facie fit for determination by the highest court of this jurisdiction and that the losing party, whether Eleni Maritime or Heung‑A Shipping, will likely take the matter further after the determination of the point at first Instance. If so, the determination of the Limitation Issue as a preliminary issue at first Instance will have little bearing on whether the parties will proceed with the trial of liability in HCAJ 188 in March 2016.

34. In Tilling v. Whiteman [1980] AC 1 at 17H-18A, Lord Wilberforce said this:

“So the case has reached this House on hypothetical facts, the correctness of which remained to be tried. I, with others of your Lordships, have often protested against the practice of allowing preliminary points to be taken, since this course frequently adds to the difficulties of courts of appeal and tends to increase the cost and time of legal proceedings. If this practice cannot be confined to cases where the facts are complicated and the legal issue short and easily decided, cases outside this guiding principle should at least be exceptional.”

35. At 25B-C, Lord Scarman, after expressing his agreement with the speech of Lord Wilberforce, commented on the taking of preliminary points of law in the following words:

“Preliminary points of law are too often treacherous short cuts. Their price can be, as here, delay, anxiety, and expense.”

36. A similar sentiment was expressed by Lord Roskill in Allen v. Gulf Oil Refining Ltd [1981] AC 1001 at 1022A:

“The preliminary point procedure can in certain classes of case be invoked to achieve the desirable aim both of economy and simplicity. But cases in which such invocation is desirable are few. Sometimes a single issue of law can be isolated from the other issues in a particular case whether of fact or of law, and its decision may be finally determinative of the case as a whole. Sometimes facts can be agreed and the sole issue is one of law.”

37. Lord Roskill went on to urge those whose task it is to decide whether or not the trial of preliminary points should be ordered to be “extremely cautious” before acceding to pleas for the making of such orders as a result of “attractively advanced submissions founded upon pleas of supposed economy”.

38. In the view of this court, the plea of supposed economy relied upon by Mr Sussex may eventually lead to increased costs and time for the parties and increased strain on the court’s time and resources.

39. First, for reasons already stated, whether or not the Limitation Issue is decided at first Instance in favour of Heung-A Shipping is unlikely to affect the parties’ decision whether to agree on the apportionment of blame for the collision and dispense with the trial in HCAJ 188. The issue will only be definitively adjudicated upon by the Court of Final Appeal which will not happen before March next year. Second, in the event the issue is decided in favour of Heung-A Shipping, Eleni Maritime will have every incentive to shift the blame for the collision on it and cut down the quantum of its Wreck Removal Claims as much as possible during assessment of damages. Third, in the event the issue is decided against Heung‑A Shipping so that it can only pursue its Wreck Removal Claims against a pro rata share of the Fund, it is not inconceivable that other claimants may wish to challenge the quantum of its claims, whether for wreck removal or otherwise, so as to increase their pro rata share of the Fund.

40. In Mai Gou v Mak Chik Lun [2001] 3 HKLRD 248, the Court of Appeal reaffirmed the general rule that all issues arising in an action should be tried together and an order for the separate trial of separate issues should only be made in exceptional circumstances or on special grounds. This court does not find sufficiently exceptional circumstances or special grounds to depart from the general rule in the present case.

41. What this court considers should be the way forward is for the present action to take its natural course.

42. If Heung-A Shipping wishes to engage Eleni Maritime, it should set the case down for trial of the Limitation Issue, not as a preliminary issue, but together with all other issues, if any, of the entire action. Now that the Fund has been constituted and the various claimants, including Heung-A Shipping, have filed their claims and/or affidavit evidence in support of their claims against the Fund, it is for the claimants themselves, and perhaps Eleni Maritime if it sees fit, to examine those claims and the evidence in support and make up their minds whether to (i) agree on the amount of distribution to each claimant and seek an order for payment out (which almost invariably happens in practice in Hong Kong in an ordinary limitation action) or (ii) challenge all or some of those claims and set the case down for trial of such claims which they challenge, alongside the Limitation Issue.

43. For the reasons set out above, this court hereby orders the Limitation Issue to be tried in the present action. Save as aforesaid, the Summons is dismissed.

44. In the absence of agreement on costs within 14 days from today, the parties are at liberty to set the case down before this court for oral submissions on costs.

HCAJ 189/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 189 OF 2013

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D E C I S I O N

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1. This is the plaintiff’s application under Order 75 for a decree of limitation of liabilities.

2. Mr Sussex SC acts for the 1^st defendant, who has not served its acknowledgement of service of the writ or the acknowledgement of issue under Order 75 rule 3(6) RHC.  On this basis, Mr Wright, counsel for the plaintiff submits that 1st defendant has not the right to be heard.

3. Mr Sussex SC advises me today that the reason for the non- service of the acknowledgement of issue is late notice to the 1^st defendant, which was served yesterday when he was in court.  However, he submits that the 1st defendant wishes to reserve its rights for discovery of information to find out the cause of the accident in order to determine whether the 1^st defendant should oppose the application, this being the right under Order 75 rule 38(6) RHC.  If the Court were to grant time to the 1^st defendant for this purpose, the matter should be adjourned to the Admiralty Judge.

4. Mr Wright argues that the Court should grant the decree now because the 1^st defendant has the opportunity of making application to set aside the order made under rule 40.  Against this proposal, Mr Sussex SC submits that it will affect the 1^st defendant’s right of discovery.

5. Mr Sussex SC also submits that paragraph 4 of the summons asks this Court to grant an injunction against the defendants, which this Court has no jurisdiction under Order 32 rule 11 RHC.  Mr Wright concedes that the plaintiff will not ask the Court to make an order in terms of paragraph 4.  But the Court should, nevertheless, make an order granting the decree of limitation of liability.

6. Miss Tang, solicitor acting for the 2^nd defendant and 3^rd defendant submits that there is still time for applications to be made.  She has no strong view one way or another.

7. Mr Lau is an employee of the 4^th defendant.  He does not have leave from court to represent the 4^th defendant.

8. It seems apparent that 1st defendant is going to dispute this application.  It will reserve its right to make discovery under this action. If the Court makes the order, its right may be affected. It also argues that there has been procedural unfairness because the plaintiff has failed to serve the writ on the 1^st defendant long after the issuance of the writ.

9. According to the case referred to me by Mr Wright, viz. The Equator Crystal [1998] 4 HKC 568, Mr Justice Waung held that if the application is contested, the matter should be referred to the Admiralty Judge for determination.

10. I have specifically asked Mr Wright if the matter is adjourned today, what prejudice will it cause to the plaintiff?  Mr Wright is unable to give me any real prejudice other than that it will incur more costs.

11. Balancing the plaintiff’s prejudice with the submissions of the 1^st defendant’s, I consider that it will be just for the matter to be adjourned to the Admiralty Judge for determination.  The 1^st defendant should be given 7 days to file and serve the acknowledgement of issue.

12. The costs of today will be reserved for the determination of the Admiralty Judge.