CACV 102/2019
[2019] HKCA 1062
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 102 OF 2019
(ON APPEAL FROM HCAJ NO 3 OF 2018)
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BETWEEN
| | BRIGHT SHIPPING LIMITED | Plaintiff |
| | and | |
| | CHANGHONG GROUP (HK) LIMITED | Defendant |
________________________
| Before: | Hon Kwan VP and Barma JA in Court |
| Date of Hearing: | 4 September 2019 |
| Date of Judgment: | 20 September 2019 |
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J U D G M E N T
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Hon Kwan VP (giving the Judgment of the Court):
1. This appeal is brought by the defendant, Changhong Group (HK) Limited (“Changhong”), against the decision of Anthony Chan J on 15 November 2018 dismissing its application for stay of an action brought by the plaintiff, Bright Shipping Limited (“Bright Shipping”), on the ground of forum non conveniens. The judge granted leave to appeal because he was persuaded that the correct approach in the application of the principles where there are parallel proceedings in different jurisdictions deserves another visit by the Court of Appeal[1].
Background
2. The relevant background matters may be taken from the decision at §§2 to 14, and 20 to 22. We adopt the same expressions and abbreviations as in the decision and they are printed in bold for ease of reference:
“2. This action concerns a collision at sea between Changhong’s cargo vessel, CF CRYSTAL (Crystal), and a tanker owned by the Plaintiff (Bright Shipping), SANCHI (Sanchi). The collision took place at around 19:50 hours on 6 January 2018 (Beijing time) at a location about 125 nautical miles from Changjiang Kou Light Ship in the East China Sea.
3. Crystal flied the Hong Kong flag and her port of registry was Hong Kong. She was laden with nearly 64 m.t. of sorghum cargo and was on a voyage from Port Kalama in the USA to Port Machong, Guangdong, PRC. Her crew were all Chinese nationals. She was managed by Changfeng Shipping Holding Ltd (Changfeng), a company incorporated in Hong Kong.
4. Sanchi flied the Panamanian flag. Her crew were Iranian and Bangladeshi. At the time of the collision, she was loaded with 115,000 tonnes of natural gas condensate and was on her way from Iran to South Korea. She was managed by an Iranian company, National Iranian Tanker Co (NITC), which has a representative office in Shanghai.
5. Changhong is a Hong Kong incorporated company with a registered office in Hong Kong. Bright Shipping was incorporated in Belize. The evidence before the court does not show that Bright Shipping had any business operation other than owning Sanchi.
6. Sanchi exploded immediately upon collision and both vessels caught fire. Crystal managed to reverse her engine and escape the fire. Her crew abandoned the vessel but returned to successfully extinguish the fire on board. Afterwards, she safely proceeded to and berthed at Zhousan, Zhejiang, PRC.
7. Sanchi kept burning and drifting after the collision. Eventually, she sunk at a location around 151 nautical miles southeast of the point of collision on 14 January 2018. Tragically, none of her officers or crew survived the accident.
8. Pollution resulted from the collision in the form of spilt bunkers and natural gas condensate. Some of the pollutant made landfall in the PRC as well as Japan.
9. The Mainland authorities had been heavily involved in all aspects of the aftermath of the collision, including investigation and pollution issues. Following the collision, a multi-national task force, led by the Shanghai Maritime Safety Administration (MSA) (with participants from Hong Kong, Islamic State of Iran and Panama), carried out an investigation. On 11 May 2018, a 191 page report of the joint investigation dated 10 May 2018 (Report) was submitted to the International Maritime Organisation. The Report is publicly available via the website of the Organisation.
10. The collision was followed by a number of legal actions, including Changhong’s proceedings against Bright Shipping and NITC in the Shanghai Maritime Court (SMC) and this action. These inter-ship actions were commenced simultaneously on 9 January 2018.
11. On 9 January 2018, Changhong also applied to establish in the SMC two limitation funds, one for personal injury and one for property. On 30 January 2018, Changhong brought an action in the SMC against NITC as cargo shipper and a Korean entity as cargo consignee in respect of the collision.
12. In addition, the insurers of Crystal’s cargo brought an action in the SMC against, Changhong, Bright Shipping and NITC in respect of the loss of cargo on Crystal. There are also cargo claims against Changhong. Further, there are emergency response and pollution related claims, two of such actions involve Bright Shipping.
13. So far, Bright Shipping has not submitted to the jurisdiction of the Mainland court in any of these proceedings.
14. This is an in personam collision action brought against Changhong. There is no dispute that the jurisdiction of this court was invoked by the Bright Shipping as of right, having served these proceedings on Changhong at its registered address in Hong Kong.”
“20. It is common ground that the collision took placed outside PRC’s territorial waters. Although the location lied within international waters, there is no dispute that it was within PRC’s exclusive economic zone (EEZ) pursuant to the United Nation Convention on the Law of the Sea (UNCLOS) to which the PRC acceded in 1997.
21. Article 3 of UNCLOS provides that the breadth of the territorial sea does not exceed 12 nautical miles. The collision position was thus far beyond the territorial seas of the PRC. Article 55 of UNCLOS defines the EEZ as an area beyond and adjacent to the territorial sea. Article 57 provides that the breadth of the EEZ shall not extend beyond 200 nautical miles.
22. It appears that the point of collision also lied within the EEZ of Korea and Japan. It was within 155 miles of Jeju, South Korea and 190 miles of Me Shima, Japan.”
The legal principles
3. A summary of the principles in Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460 at 477E to 478E regarding the stay of proceedings for forum non conveniens has been given by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364 at §51 and is as follows:
“1. The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?
2. In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.
3. If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.
4. If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum.”
4. Also as stated by the Court of Final Appeal in SPH v SA at §65, the application for a stay for forum non conveniens involves the exercise of a discretion and the Court of Appeal may only interfere with the exercise of the judge’s discretion in accordance with the well‑established principles in Hadmor Productions Ltd v Hamilton [1983] 1 AC 191.
5. Hence, the grounds on which an appellate court is entitled to interfere with this exercise of discretion are limited and it cannot interfere merely because it would have reached a different conclusion had it been hearing the application at first instance. It can only interfere in three cases: (1) where the judge has misdirected himself with regard to the principles in accordance with which his discretion had to be exercised; (2) where the judge, in exercising his discretion, has taken into account matters which he ought not to have done or failed to take into account matters which he ought to have done; or (3) where his decision is plainly wrong. See The Abidin Daver [1984] AC 398 at 420B to C, per Lord Brandon of Oakbrook, which has been followed in a number of cases in Hong Kong, such as China Construction Bank (Asia) Corp Ltd v Shanghai Pudong Development Bank Co Ltd, CACV 14/2016, 3 February 2017, at §7.13.
6. An appellate court should adopt a cautious approach regarding the weight given by the judge to facts taken into account when exercising the discretion. The fact that the appellate court would have given more weight than the judge to one of the many factors to be taken into account in exercising the discretion is not a ground for interfering with the exercise of his discretion, for as stated by Lord Templeman in The Spiliada at 465C, “the factors which the court is entitled is entitled to take into account in considering whether one forum is more appropriate are legion” (Berezovsky v Michaels [2000] 1 WLR 1004 at 1021E to F, per Lord Hoffmann).
7. Further, as noted in two decisions of the Court of Appeal (China Construction Bank (Asia) Corp Ltd v Shanghai Pudong Development Bank Co Ltd at §7.15, per Cheung JA; and Melvin Waxman & Anr v Li Fei Yu & Anr, CACV 157/2014, 20 April 2016, at §17.2, per Yuen JA), it is appropriate to bear in mind these words of caution of Lord Bingham of Cornhill in Lubbe & Ors v Cape Plc [2000] 1 WLR 1545 at 1556E to F:
“This is a field in which different conclusions can be reached by different tribunals without either being susceptible to legal challenge. The jurisdiction to stay is liable to be perverted if parties litigate the issue at different levels of the judicial hierarchy in the hope of persuading a higher court to strike a different balance in the factors pointing for and against a foreign forum.”
8. In the submissions of Mr Edward Alder for Changhong in the leave application in CAMP 197/2019, he contended that the modern case law suggests that appeals of this nature “are not treated with exactly the same rigour as e.g. appeals against refusals of injunctions and that, in practice, a somewhat tempered approach is adopted given the very different nature of the evaluative FNC process”. In support of this, he cited Hong Kong Civil Procedure 2019, vol 1, §11/1/13N.
9. It is correct that in more recent English authorities, the exercise carried out by a judge in an application to stay or set aside proceedings on the ground of forum non conveniens has been described as not in the nature of a discretion but an “evaluative, or a balancing, exercise”, see Faraday Reinsurance Co Ltd v Howden North America Inc & Anr [2012] 2 CLC 956 at §§38 to 42; VTB Capital Plc v Nutritek International Corporation [2013] 2 AC 337 at §§97 and 156; and Abela v Baadarani [2013] 1 WLR 2043 at §23. But notwithstanding this change in the characterisation of the exercise of the judge’s power, it does not appear there is material difference as to the approach of the appellate court. In the two decisions of the Supreme Court mentioned above, there is no discernible support for the “somewhat tempered approach” as suggested by Mr Alder.
10. In VTB Capital Plc v Nutritek International Corporation, Lord Neuberger of Abbotsbury PSC at §97 and Lord Wilson JSC at §156 emphasised the statement in The Spiliada at 465G that an “appellate court should be slow to interfere” and the observations of Lord Bingham in Lubbe & Ors v Cape Plc quoted above. In Abela v Baadarani at §23, Lord Clarke of Stone-cum-Ebony JSC said that the readiness of an appellate court to interfere with the evaluation of the judge will depend on all the circumstances of the case and the greater the number of factors to be taken into account, the more reluctant an appellate court should be to interfere (thus echoing Lord Hoffmann in Berezovsky v Michaels as mentioned earlier), and, in such circumstances, an appellate court should only interfere “if satisfied that the judge erred in principle or was wrong in reaching the conclusion which he did”.
11. It seems to us that the evaluative exercise is closely analogous to the exercise of a discretion. For the approach of the appellate court in this kind of appeal, we will take as the guiding principle the law as stated in SPH v SA at §65.
This appeal
12. Applying the Spiliada principles, it is accepted that the first question for the stage 1 analysis (the appropriate forum for the trial of this action) is to be answered in favour of Changhong in that Hong Kong is not the natural forum for the inter-ship litigation[2], even though Bright Shipping is entitled to bring this action as of right, given that Changhong is a Hong Kong company. The dispute concerns the second question: whether Changhong has established that the SMC is clearly and distinctly more appropriate than Hong Kong as the forum for the trial of the inter‑ship action.
13. Mr Rimsky Yuen, SC, who appeared for Changhong in this appeal[3], contended that in answering this question against Changhong in the negative, the judge has fallen into these five fundamental errors:
(1) The judge’s use of the term “international waters” as the location of the collision[4] is “inapt” and “legally outdated” in the context of an EEZ. He made no reference to the national laws relating to the exercise of the sovereignty of the PRC over the EEZ, which apply in Hong Kong[5]. He has failed to appreciate the significance of the EEZ regime to the PRC authorities, that the overwhelming “centre of gravity” of this case is in Shanghai, and that the SMC is dealing with pollution and civil claims arising from the collision and will apply relevant PRC legislation based on the international conventions.
(2) The judge simply applied the observations in The Peng Yan [2008] 5 HKLRD 418 at §§25 to 27 (Reyes J) and [2009] 1 HKLRD 144 at §§18(5) and 34 (Court of Appeal) without a proper assessment of the relevant evidence in the present situation[6].
(3) The judge’s analysis in respect of lis alibi pendens is wrong in law in that he applied the test that proceedings abroad involving the same issue are “not of itself a material factor” for the consideration of forum non conveniens and where there are such proceedings the defendant must show “unusual hardship” to achieve a stay of proceedings[7]. This is contrary to The Abidin Daver at 411E to G and China Construction Bank (Asia) Corp Ltd v Shanghai Pudong Development Bank Co Ltd at §5.2. Further, the principles of lis alibi pendens should not be applied with any less rigour in limitation actions.
(4) Although the judge did consider other factors such as the place of operation, the location of witnesses, etc, he did not give proper weight to them in holding that they did not assist the case of Changhong[8].
(5) The judge failed to appreciate the “as of right” factor (that the jurisdiction of this court was invoked by Bright Shipping as of right as Changhong is a Hong Kong company) is built into the forum non conveniens test by allocating the burden on the defendant to show that there is an alternative forum clearly or distinctly more appropriate than Hong Kong and has given excessive weight to this factor[9].
14. The focus of Mr Yuen’s arguments is on the first and third errors. He argued that in view of the above errors, we should intervene and reverse the judge’s holding that Changhong has failed to discharge its burden for the stage 1 analysis and its application must fail for this reason.
15. The judge dealt with the stage 2 analysis very briefly in view of his conclusion on stage 1. He was inclined to think that Bright Shipping will be deprived of legitimate juridical advantage in two respects if this action is to be tried in the SMC rather than Hong Kong: (1) the significant disparity in tonnage limitation that apply in Hong Kong and the SMC; and (2) the expiry of the time limit for Bright Shipping to bring claims in the SMC against the limitation funds set up there[10].
16. Mr Yuen contended that in respect of the significant disparity in tonnage limitation, the judge is wrong to consider himself bound by the two Court of Appeal authorities being The Adhiguna Meranti [1987] HKLR 904 at 922B to F and The Kapitan Shvetsov [1997] HKLRD 374 at 380J, 381D to F and 382A and G. He submitted that the approach of the English Court of Appeal in The Herceg Novi v Ming Galaxy [1998] 4 All ER 238 should be preferred and the correct question is whether “substantial justice” to all parties concerned would be done. As for the time limitation, he contended that this is not a relevant consideration as Bright Shipping only has itself to blame for not bringing proceedings in the SMC in a timely fashion.
17. We will first discuss the two errors complained of that are the focus of Mr Yuen’s submissions, followed by the other main points raised in this appeal as outlined above.
The EEZ and its significance
18. Under Article 56.1 of UNCLOS, the coastal state in the EEZ has: (1) sovereign rights for the purpose of exploring and exploiting, conserving and managing natural resources, and with regard to other activities for the economic exploitation and exploration of the EEZ; (2) jurisdiction with regard to certain matters including, inter alia, the protection and preservation of the marine environment; and (3) other rights and duties provided for in UNCLOS. The PRC has enacted legislation to give domestic effect in the EEZ to relevant international conventions for the protection of the environment and for compensation for pollution, the costs of preventive measures and wreck removal expenses.
19. The complaint is that the judge has failed to appreciate the link between the collision and the claims for incident response costs and environmental damage (for greater amounts than the inter-ship losses as claimed) brought in the SMC, which has exclusive jurisdiction over those claims and in which Changhong has established two limitation funds to avail itself of its rights of limitation, hence making the SMC clearly and distinctly more appropriate than Hong Kong as the forum for the inter-ship action. Mr Yuen submitted that in the interests of uniformity and judicial comity, once a limitation fund is established in the jurisdiction chosen by a shipowner, all claimants are expected to enforce claims against the fund and not in another jurisdiction.
20. The question here is whether the judge misdirected himself with regard to the applicable principles or has in other ways fallen into error in his evaluation of the factor that the collision was in the EEZ of the PRC. This is what he said at §27:
“I do not take the view that the occurrence of the collision in international waters necessarily precludes the court from concluding that Shanghai is clearly and distinctly more appropriate than Hong Kong as the forum for the inter-ship action. On the other hand, it is clearly an important factor in the present exercise to evaluate whether Shanghai has the most real and substantial connection with the inter-ship action.”
21. The judge clearly regarded the place where the collision occurred as an important factor in the evaluation exercise, which he then carried out in §§28 to 38, albeit that he did not place as much weight as Changhong would have liked on the fact that the location of collision was within the EEZ of the PRC.
22. We are inclined to agree with Mr Sussex, SC for Bright Shipping[11] that it is pointless to debate whether it was correct for the judge to say that the collision took place in “international waters”. As the judge had noted earlier, the location of collision lied within the EEZ of three nations – PRC, Korea and Japan, and some of the pollutant made landfall in Japan. There is evidence of the scale of oil clean-up operations by the Japanese Coast Guard and the municipalities of the islands affected, and the claims for compensation received by Bright Shipping from parties in Japan up to October 2018, even though court proceedings have not yet been brought by the parties in Japan[12].
23. The judge has also said this in §41 regarding the collision having taken place within the EEZ of the PRC:
“In The “Chou Shan” [2014] FCAFC 90, §102, the Full Court of the Federal Court of Australia held in respect of a collision that took place in the EEZ of the PRC that the lex causae was not PRC law. Whilst noting that the law of the coastal state applied if the activity giving rise to damage was “closely connected with the exercise [of a state’s rights over the EEZ under UNCLOS]” (§90), the Court held that the activity concerned was the “freedom of both parties to navigate under Arts 58 and 90” and it was not relevant that pollution was caused by the collision. It was held that the “closest and most direct analogue” to a collision in the EEZ was a collision “on the high seas”, in respect of which the general maritime law as administered in the forum applies (§92).”
24. It is therefore immaterial that the judge made no reference to the legislation of the PRC giving domestic effect to international conventions connected with the exercise of its rights in the EEZ, as the sovereignty rights under Article 56.1 of UNCLOS do not apply to navigation activity.
25. As for the constitution of limitation funds in the SMC, it should be noted that this is not a legal bar to bringing proceedings in Hong Kong. Hong Kong applies the Convention on Limitation of Liability for Maritime Claims, 1976 (as amended by the protocol to that convention in 1996 and the amendment thereto) (“LLMC”) as a state party and the LLMC has the force of law in Hong Kong as provided in section 12 of the Merchant Shipping (Limitation of Shipowner’s Liability) Ordinance, Cap 434. The PRC is not a state party to the LLMC but has enacted domestic laws being Chapter 11 of the Maritime Code on the rights and conditions of the limitation of liability for maritime claims which was drafted by reference to the LLMC and applies the same limitation of liability calculation as in the LLMC.
26. As explained by the Full Court of the Federal Court of Australia in The Chou Shan at §70, although Article 13 of the LLMC provides for the barring of other actions, this is expressly predicated on there being a fund constituted in accordance with Article 11 in any state party in which legal proceedings are instituted. As the PRC is not a state party to the LLMC, there is no statutory bar on Bright Shipping bringing this action against Changhong in Hong Kong, notwithstanding the constitution of the limitation funds by Changhong in the SMC.
27. We consider Mr Yuen’s submission that once a shipowner has constituted a limitation fund in a chosen jurisdiction, all claimants are expected to enforce their claims against the fund and not elsewhere to be much too broad. What weight is to be given to the setting up of a limitation fund in another jurisdiction and how this should be weighed against other factors in the case would depend on the particular circumstances.
28. Similar arguments were raised in ThePeng Yan. Factors such as the collision having taken place in PRC waters, the commencement of proceedings by various claimants against the owners of The Peng Yan in the Ningbo Maritime Court in respect of losses from the collision, the commencement of a limitation action by the owners of The Peng Yan in the Ningbo court which would make it more convenient for all claims to be adjudicated in the same jurisdiction, were put forward as pointing to the Ningbo court as the more appropriate forum (§10 of the decision at first instance). Reyes J evaluated each of the key factors advanced and held that the commencement of a limitation action in the Ningbo court the same day the writs in rem in the Hong Kong proceedings were served was not a strong factor militating for the stay of the Hong Kong proceedings to Ningbo. He noted at §§33 and 38 there was “nothing unusual about limitation and liability actions taking place in different jurisdictions”, and, in affirming his decision, the Court of Appeal said at §42 that “while it is to be acknowledged that the owners of The Peng Yan were free to commence a limitation action wherever they chose (see Saipem SpA v Dredging VO2 BV [1988] 2 Lloyd’s Rep 361), this cannot be given undue weight by itself”.
29. The judge here has approached the stage 1 analysis in a similar way. He did not place undue emphasis on the place of the collision as within the EEZ of the PRC and went on to consider other factors if Shanghai has the most real and substantial connection with the inter-ship action. He correctly reminded himself at §28 that the focus is on the appropriateness of the forum “from the point of view of the trial of the action” and on that basis considered the primary issues for trial, namely, the inter-ship apportionment of liability and the assessment of the respective quantum of loss, from the angle of the evidence likely to be adduced for those issues. The claims for incident response costs and environmental damage brought in the SMC do not make the SMC more appropriate for the trial of the inter-ship claim in the present action.
30. We do not think the judge’s approach can be faulted. He has not misdirected himself on the applicable principles or fallen into error in his evaluation of the factor that the collision was within the EEZ of the PRC.
Lis alibi pendens and other related proceedings
31. It is appropriate to give an overview of the various proceedings brought in Hong Kong and the SMC arising out of the collision before we consider the arguments.
32. On the same date Bright Shipping issued the writ in this action against Changhong, Changhong brought proceedings against Bright Shipping in the SMC about the same matter[13]. This is a true lis alibi pendens. But as Bright Shipping has not accepted service of Changhong’s proceedings, those proceedings have not moved beyond the stage of the initiating process. And as Bright Shipping has not submitted and does not intend to submit to the jurisdiction of the SMC, the possibility of conflicting decisions and the problem relating to estoppel per rem judicatam and issue estoppel will not arise.
33. In contrast with the lack of progress of Changhong’s suit against Bright Shipping in the SMC, this action has made further progress since the judge’s refusal to grant a stay. In December 2018, Changhong filed its preliminary act pursuant to an unless order (Bright Shipping had filed its preliminary act in April 2018). In February 2019, Changhong consented to file and serve its list of documents. The first case management conference was held on 8 May 2019. Changhong exchanged lists of documents (again pursuant to an unless order) on 22 May 2019 and served witness statements on 24 June 2019.
34. The judge regarded the inter-ship proceedings before the SMC to be of little relevance, as these proceedings are still at the initiating stage[14]. He cited LN v SCCM, CACV 62/2013, 4 June 2013 at §20, which in turn quoted Lord Goff of Chieveley in de Dampierre v de Dampierre [1988] 1 AC 92 at 108B to D:
“The same principle is applicable whether or not there are other proceedings already pending in the alternative forum: see The Abidin Daver [1984] AC 398, 411, per Lord Diplock. However, the existence of such proceedings may, depending on the circumstances, be relevant to the inquiry. Sometimes they may be of no relevance at all, for example, if one party has commenced the proceedings for the purpose of demonstrating the existence of a competing jurisdiction, or the proceedings have not passed beyond the stage of the initiating process. But if, for example, genuine proceedings have been started and have not merely been started but have developed to the stage where they have had some impact upon the dispute between the parties, especially if such impact is likely to have a continuing effect, then this may be a relevant factor to be taken into account when considering whether the foreign jurisdiction provides the appropriate forum for the resolution of the dispute between the parties.”
35. There is one other action in Hong Kong. This was brought by the consignee of the cargo on board Sanchi and the insurer against Changhong on 19 January 2018. The judge refused Changhong’s application to stay for forum non conveniens and did not give leave to appeal. As we are also dealing with the renewed leave application of Changhong, we do not propose to take this other action into consideration.
36. Heavy reliance was placed by Mr Yuen on other related proceedings in the SMC arising out of the collision. Changhong had applied to set up two limitation funds in the SMC on the same date it brought proceedings against Bright Shipping in the SMC. The objections raised by various parties (including NITC, the management company of Sanchi) against the establishment of the limitation funds were rejected by the SMC in May 2018 and the appeal was dismissed by the Shanghai Higher People’s Court in July 2018. Following that, Changhong has put up the requisite security in the amount of RMB 62 million odd by way of a letter of undertaking of an acceptable institute and the limitation fund for loss or damage to property claims was established in July 2018.
37. There are two separate proceedings for each claim against the limitation fund established by Changhong. The first is the registration against the limitation fund. The second is the proceeding to determine liability. 9 June 2018 was the final day for any claimant to apply to the SMC for registration of claims against the limitation fund. Bright Shipping has not registered its claim against the fund. On 6 August 2018, the SMC approved the registration of claims of ten claimants, for incident response costs, costs of pollution prevention and clean up, damage to environment, loss of cargo on board Sanchi, loss of and damage to cargo on board Crystal.
38. As noted by Kerr LJ in The Volvox Hollandia [1988] 2 Lloyd’s Rep 361 at 363 col 2, it is common place for limitation proceedings and liability proceedings to take place separately, and the issues are often very different. The issue in the limitation proceedings is whether Changhong is entitled to limit its liability under the PRC Maritime Code. Limitation of the liability of Changhong, whether under the PRC Maritime Code or the LLMC, is not the subject of the inter-ship action in Hong Kong, see the discussion in Baltic Highways Ltd v Przemyslaw, High Court of the Isle of Man, ORD 2012/78, 7 January 2014, at §44. The judge apparently considered the limitation proceedings of little relevance for present purpose[15]. We will come back to Mr Yuen’s submission on the significance of the limitation proceedings.
39. Turning to the liability proceedings in the SMC, so far only three suits have been brought by three of the claimants who have registered against the limitation fund. They are AIG, Shanghai Maritime Safety Administration, and Donghai Rescue Bureau. These suits also named Bright Shipping as one of the defendants.
40. The suit of AIG, the insurer of cargo on board Crystal, was commenced on 31 May 2018 against Changhong, Bright Shipping and NITC. The claim is for the damage and loss to cargo in the amount of RMB 6.4 million odd. On 10 August 2018, the SMC formally accepted the claim and issued to the defendants a notice of calling for response, a notice of adducing evidence and a maritime accident investigation form with an investigation questionnaire. NITC raised a jurisdictional challenge on 11 September 2018 and the SMC convened a hearing on 19 September 2018.
41. Shanghai Maritime Safety Administration brought a claim on 1 June 2018 against Bright Shipping, Steamship Mutual Underwriting Association Ltd (Sanchi’s liability insurer), Changhong, Assuranceforeningen Skuld (Gjensidig) Hong Kong branch (Crystal’s liability insurer) and NITC, in respect of incurred emergency response costs of RMB 158 million and oil pollution clean-up. The claim was registered against the limitation fund as RMB 300 million. It was formally accepted by the SMC on 10 August 2018 and similar notices and form were issued to the defendants.
42. The suit of Donghai Rescue Bureau was commenced on 7 June 2018 against the same five parties as the suit brought by Shanghai Maritime Safety Administration. The claim is for incurred emergency response costs of RMB 39.5 million and oil pollution clean-up. It was registered against the limitation fund as RMB 50 million. On 10 August 2018, the SMC formally accepted the claim and issued similar notices to the defendants.
43. On 30 August 2018, Changhong and Skuld applied to the SMC for extension of time of three months to submit the statement of defence and to adduce evidence regarding the claims filed by Shanghai Maritime Safety Administration and Donghai Rescue Bureau and reserved their right to apply for further time extension. The claimants of those two suits had also applied for extension of time to adduce evidence[16].
44. It was submitted on behalf of Changhong that the above limitation and liability proceedings are material to the consideration if the SMC is a clearly more appropriate forum for the trial of this inter-ship action in two respects.
45. First, the significance of a host of other claims registered against the limitation fund in the SMC is this. It is not just the difference in tonnage limitation in the PRC Maritime Code and the LLMC which applies to Hong Kong as noted by the judge (the relevant monetary limit in Hong Kong is roughly 3.6 times of that in the PRC). Changhong asserted that it should be entitled to limit liability for all the claims made against it to a single tonnage limit, and it should not be burdened with liability up to two separate limits. If the shipowner and cargo interests of Sanchi are allowed to proceed with their claims against Changhong in Hong Kong, they would enjoy not only a higher limit but exclusive access to a separate limit, and the claimants registered against the limitation fund in the SMC would recover more if they would not need to share with the claimants in Hong Kong. The outcome is that Changhong would bear liabilities up to two separate limits in the PRC and Hong Kong, and that the total liability would be greater than the amount stipulated in either jurisdiction.
46. Mr Yuen submitted that this would defeat the object and purpose of the limitation regimes in both jurisdictions. Both the PRC Maritime Code and the LLMC provide for limits of liability to apply to the aggregate of all claims that arise on “any given occasion”[17] or “any distinct occasion”[18]. This is to afford the shipowner an overall limit on his aggregate civil liability for the incident. He submitted that it is appropriate that all civil proceedings in respect of the incident should be concentrated in a single forum and the SMC is the only forum where a single limit could be fairly and justly administered for all claims.
47. Second, in respect of the liability proceedings in the SMC, even though they are not true lis alibi pendens, they are inter-connected with the inter-ship action as they arose from the same collision and the inter-ship liability is likely to feature in those proceedings. The issues which determine liability in the inter-ship action may be closely connected with those which determine liability in the claims by third parties in the liability proceedings in the SMC.
48. Mr Sussex described this as possibly akin to the “Cambridgeshire” factor mentioned in The Spiliada at 485E to 486C. Staughton J, who heard the application of Cansulex, the shipper of a cargo of sulphur, to stay the proceedings brought against it by the owner of the Spiliada, had already heard a substantial part of the trial of a very similar action against Cansulex and others in respect of the shipment of sulphur on another vessel the Cambridgeshire. The allegation in both actions was that severe damage was caused to the ships by the cargo of sulphur loaded. The Cambridgeshire action was very heavy litigation, with difficult scientific questions involved and experts were engaged. In refusing to stay proceedings, Staughton J (who was upheld by the House of Lords) considered it crucial to take into account the fact that the accumulated knowledge and experience of the legal teams and experts derived from their participation in the Cambridgeshire action would contribute to efficiency, expedition and economy and was in the objective interests of justice.
49. We consider first the limitation proceedings which the judge regarded as of little relevance. He did not deal with the arguments concerning the subjection of Changhong’s liability to two separate limits. Reyes J in The Peng Yan at §§35 to 37 considered the question of the Hong Kong court giving recognition in some way to the limitation regime in the Ningbo court and opined that this “may be a difficult question”. Notwithstanding this possible difficulty in giving recognition to the Ningbo limitation regime, Reyes J did not regard the limitation action as a strong factor militating for the stay of the Hong Kong action to Ningbo.
50. Mr Sussex referred us to the decision of Brandon J (as Lord Brandon then was) in The Giacinto Motta [1977] 2 Lloyd’s Rep 221 at 227 col 2, in which there was discussion of the “well established” right of a shipowner, who has already paid a claim arising out of a collision, when limiting his liability under the Merchant Shipping Acts 1894 to 1974, to have taken into account, in the distribution of the fund, the sum previously paid by him in respect of such claim. This right exists “whether the payment is made by way of settlement of the claim out of Court here or abroad, or in satisfaction of the judgment of a foreign Court”. It is “an equitable right to be given credit, in the distribution of the fund, for a payment made by him in respect of a claim, which could have been brought against the fund but has not been so brought, and cannot now be brought because it has been satisfied by the payment concerned.”
51. It seems to us that this kind of equitable right should address the concern of Changhong that it might be subjected to two separate limits of liability in the PRC and Hong Kong, and that its total liability might exceed the limit stipulated in either jurisdiction. We do not think the judge was in error in attaching little relevance to the limitation proceedings.
52. We turn to the liability proceedings. We do not think the present situation is on a par with the Cambridgeshire factor held to be crucial in The Spiliada. The inter-ship action cannot be regarded as very heavy litigation. There is no suggestion of any scientific question involved and the learning curve of the legal team in the present action would not be comparable to that in The Spiliada. Further, the legal teams had prepared for and fought a substantial part of the Cambridgeshire action when the stay application was heard in The Spiliada. That could not be said to be the state of affairs as regards the liability proceedings in the SMC.
53. The judge was clearly alive to the undesirability of the same issues being tried in different courts at the same time[19]. Nevertheless, on his assessment of all the factors of the appropriate forum for the trial of the inter-ship action, he took the view that the related proceedings in the SMC do not in themselves render Shanghai the appropriate forum. As Lord Brandon had said in The Abidin Daver at 423G to H, “the mere disadvantage of multiplicity of suits cannot of itself be decisive in tilting the scales; but multiplicity of suits involving serious consequences with regard to expense or other matters, may well do so”. The judge obviously did not think the multiplicity of suits in this instance would involve serious consequences of the kind envisaged in The Abidin Daver, his assessment was that this is a matter of balance of convenience[20].
54. We do not think the judge has wrongly applied a test of undue hardship that must be shown to achieve a stay of proceedings, as submitted by Mr Yuen, on a fair and proper reading of §§45 to 49 of the decision. Further, the judge has specifically referred to LN v SCCM at §24, in which Cheung JA explained Nan Tung Bank Ltd v Wangfoong Transportation Ltd [1999] 2 HKC 606 at 610 and interpreted the statements there consistently with The Abidin Daver. Cheung JA held that the general rule that a multiplicity of proceedings is insufficient to stay an action may be departed from in “exceptional cases where the bringing of the home action while the foreign action was proceeding might cause an unusual hardship to a particular defendant”. In §33 of LN v SCCM, having assessed the serious consequence of conflicting decisions, Cheung JA considered this “a clearly exceptional situation where the undesirability of proceedings should preclude Hong Kong from assuming jurisdiction”.
55. Mr Yuen submitted that Lord Diplock had held in The Abidin Daver at 411E to G that proceedings abroad involving the same issue are “ordinarily a ground for a stay unless [the plaintiff] shows an overriding legitimate advantage of Hong Kong”. We do not think that is correct. As pointed out by Mr Sussex, this has ignored the fact that Lord Diplock was referring to a situation where parallel proceedings exist in a foreign court which is the natural forum in any event. The words used by Lord Diplock were “where there is already a lis alibi pendens in a foreign jurisdiction which constitutes a natural and appropriate forum for the resolution of the dispute” (at 411C) and “there was already proceeding in a natural and appropriate forum … litigation between the same parties about the same subject matter” (at 411E).
56. Mr Yuen also criticised the judge in holding that The Chou Shan, which also involved a collision in the EEZ of the PRC, is not of much assistance to Changhong’s case[21]. He contended that whilst the law in Australia is different, The Chou Shan remains highly relevant and illustrative for this appeal. There is nothing in this criticism. As the judge has pointed out[22], the Australian court applied a test different from the Spiliada test, namely, whether Australia was a “clearly inappropriate forum” and the focus is “upon the chosen local forum – its advantage and disadvantages, rather than on a true comparative analysis”.
57. We see no basis to interfere with the judge’s assessment that lis alibi pendens and related proceedings do not tip the balance in the stage 1 analysis.
Other factors in the stage 1 analysis
58. We turn to the other three errors submitted by Mr Yuen.
59. Mr Yuen contended that the judge simply followed Reyes J’s observations in The Peng Yan regarding the availability of evidence and witnesses on the issues of liability and quantum without realizing that those observations could not be fully applied in this instance. As in The Peng Yan, the judge took a similar view that the main evidence going to the respective fault of both ships would come from the Report of the joint investigation led by the Shanghai Maritime Safety Administration, which contained a detailed summary of the evidence collected from the investigation.
60. Mr Yuen made the point that the investigation was conducted for the purpose of preventing maritime casualties and incidents, and that the investigation team came to divergent conclusions over the cause of the collision. Further, the judge made no mention of an independent witness on a PRC fishing vessel and has failed to appreciate the importance of his testimony notwithstanding the availability of documentary evidence and Voyage Data Recorder (“VDR”) from Sanchi.
61. We do not think the criticisms are justified. The judge is right in taking the view that the most important evidence on the liability issue, being the Report and the VDR, is readily available in documentary form. There is much to be said for Reyes J’s observation it is doubtful if much evidence can usefully be obtained from the crew many months after the event. The fact that maritime authorities of different nations and jurisdictions came to different conclusions as to the causative potency and blameworthiness of the navigational faults of the two ships is irrelevant. As for the independent witness on the PRC fishing vessel, the judge has acknowledged there are two independent witnesses based in the Mainland, but held, correctly, that the location of witnesses is rarely a real obstacle in this age[23].
62. The other complaints go to the inadequate or excessive weight given by the judge to various factors – the lack of commercial operation in Hong Kong of Changhong and Changfeng, the location of witnesses, the fact that the Hong Kong action was brought as of right. Applying the principles on the approach of the appellate court in this kind of appeal, we are not persuaded there is any valid basis for us to interfere with the judge’s evaluation.
Stage 1 analysis
63. For the above reasons, we uphold the judge’s conclusion on the stage 1 analysis. We are not persuaded that he has erred in principle or was wrong in reaching the conclusion which he did. The appeal must be dismissed on this ground.
Stage 2 analysis
64. It is not strictly necessary to go to the stage 2 analysis (whether Bright Shipping has shown that it will be deprived of a legitimate personal or juridical advantage if the action is tried in the SMC). Out of deference to the arguments advanced on both sides, we will give our views succinctly on the submissions on the significant disparity in tonnage limitation an obiter basis.
65. The first matter to consider is whether there is any binding authority of the Court of Appeal that a significantly higher limitation figure that applies in Hong Kong as compared to a lower figure in the alternative forum may be a decisive personal juridical advantage in favour of granting a stay.
66. Mr Yuen submitted that neither The Adhiguna Meranti nor The Kapitan Shvetsov is a binding authority of the Court of Appeal. In respect of the former, he said that the court was not dealing with competing tonnage limitation figures in that the limit in the alternative forum was unascertainable as the law in Indonesia was uncertain. As for the latter, he submitted that the observations of the court on competing limitations were obiter.
67. We do not agree with him. We are inclined to agree with Mr Sussex that although the difference between the Hong Kong limit and the Indonesian limit was extreme in The Adhiguna Meranti, Hunter JA did make clear at 922E that the Hong Kong limit reflects international public policy and to deprive the plaintiffs of that limit would be unjust to them and is capable of being a decisive factor in refusing a stay.
68. In respect of The Kapitan Shvetsov, while Litton VP (who gave judgment for the majority) had stated that Singapore was not clearly or distinctly the more appropriate forum, he went on to consider stage 2 of the analysis and expressed the view that “when one moves to consider stage (II) in The Adhiguna Meranti test, the scales tip even more heavily in favour of the Russian owners” (at 380I to J). He then held in contrast to the position in Singapore (which applied the regime under the 1957 international convention), Hong Kong had adopted a much higher ceiling of liability (under the 1976 LLMC) and as a result there was a considerable juridical disadvantage to the Russian owners (at 381D to 382G). The stage 2 analysis was not obiter but an additional reason for his judgment.
69. We should not depart from these binding decisions of the Court of Appeal unless we are satisfied that they are plainly wrong. We do not think we can be so satisfied.
70. Further, Mr Sussex submitted that the debate in The Herceg Novi v Ming Galaxy about the appropriateness of comparing the “abstract justice” of the 1957 and 1976 limitation regimes (at 246h to 247b) does not arise in the present situation. The difference in limitation arises because the Hong Kong limits have been increased twice since adopting the 1976 LLMC following the increase of limits by the International Maritime Organization (“IMO”), via the 1996 Protocol to that convention and an amendment thereto, to reflect the loss of value due to inflation, whereas the limits in the PRC Maritime Code have remained static at a level equivalent to the 1976 computation.
71. The unit of measurement for monetary liability under the LLMC is the Special Drawing Right, which is an interest-bearing international reserve asset created by the International Monetary Fund based on a basket of international currencies. The 1996 Protocol was adopted by the IMO as it was found that the limits of liability prescribed by the 1976 LLMC had been eroded by inflation and were no longer adequate to satisfy possible claims (Limitation of Liability in International Maritime Conventions by Norman Gutiérrez (2011 ed), Chapter 3). As monetary values have further changed since 1996 due to inflation, the IMO announced in 2012 to increase the liability limit. Hong Kong has enacted legislation to incorporate these increases in the liability limits under the LLMC.
72. We are inclined to agree with Mr Sussex it must be doubted if substantial justice can be achieved in the SMC by awarding a sum which has been significantly eroded by inflation. We agree with the judge if it had been necessary to undertake the stage 2 analysis, Bright Shipping has shown that it will be deprived of a legitimate juridical advantage if the action is tried in the SMC.
Conclusion and costs
73. We dismiss the appeal of Changhong. Both parties accept that costs should follow the event. We therefore order Changhong to pay the costs of Bright Shipping of this appeal, with a certificate for two counsel.
| (Susan Kwan) | (Aarif Barma) |
| Vice President | Justice of Appeal |
Mr Charles Sussex SC and Mr Jason Yu, instructed by Holman Fenwick Willan, for the Plaintiff (Respondent)
Mr Rimsky Yuen SC and Mr Edward Alder, instructed by Reed Smith Richards Butler, for the Defendant (Appellant)
[1] Decision dated 25 February 2019, §2. On 1 August 2019, the judge refused to grant leave to appeal to Changhong against his decision on 29 January 2019 refusing to stay the proceedings in a related action (HCAJ 6/2018) brought against it by Hanwha Total Petrochemical Co Ltd and Hanwha General Insurance Co Ltd (the consignee of the cargo carried on board Sanchi and the insurer of the cargo) arising out of the same collision between Crystal and Sanchi. Changhong renewed its application to the Court of Appeal for leave to appeal (CAMP 197/2019) and was represented by the same solicitors and counsel. We have dealt with the leave application on paper and judgment is handed down at the same time as the judgment in the present appeal.
[2] Decision, §§17 and 23
[3] With Mr Edward Alder
[4] Decision, §27
[5] Promulgation in Hong Kong of the Law of the PRC on the EEZ & the Continental Shelf, adopted on 4 November 1998 by the Standing Committee of the National People’s Congress, see Annex III to the Basic Law of the Hong Kong SAR.
[6] Decision, §§30 to 33
[7] Decision, §§45 to 49
[8] Decision, §§34 to 38
[9] Decision, §§14, 23 and 54
[10] Decision, §§56 to 57
[11] With Mr Jason Yu
[12] 1st affirmation of Tomoi Sawaki filed on 5 October 2018, §§7 to 17
[13] Changhong also brought proceedings in the SMC against the cargo interests of Sanchi including the shipper and the consignee on 30 January 2018.
[14] Decision, §47
[15] Decision, §48
[16] 4th affirmation of Chen Xiangyong dated 15 October 2018, §§14, 15
[17] Article 212 of the PRC Maritime Code
[18] Article 9 of the LLMC
[19] Decision, §§48, 49, 53
[20] Decision, §48
[21] Decision, §50
[22] Decision, §51
[23] Decision, §§35 and 37