Shipping & International Trade Law: Limitation

Section 12 of the Merchant Shipping (Limitation of Shipowners Liability) Order (Cap. 434) gives the Convention on Limitation of Liability for Maritime Claims, London 1976 (‘LLMC’) the force of law in Hong Kong.

Despite ongoing discussions and consultation, Hong Kong has not adopted the 1996 Protocol (cf the UK).

Limitation proceedings are commenced with the filing of an in personam writ on behalf of the persons entitled to limit to constitute the limitation fund following a collision.

Assuming that there is then the required payment into court of the LLMC limitation fund, the High Court will normally allow a 90-day period within which all parties wishing to make a claim against the limitation fund should notify their claims, by way of a ‘claim in reference’ filed in the High Court. That 90-day period (which can be extended on application of a party/parties) is normally advertised locally and internationally pursuant to directions of the Registrar of the High Court (Ordinance 75, rule 39 of the RHC).

The claims in reference will include reference to any salvage contributions made by cargo interests as well as any general average security provided, and of course all cargo loss, damage, wasted freight, etc.

Once a limitation fund is constituted and the various claims in reference are filed, the focus as between the two vessel interests normally shifts to negotiation of percentage liability apportionment as between each vessel. Important evidence in this process is any Marine Department report, the transcripts from the respective voice data recorders, seaworthiness of the vessel, deployment of proper procedures and charts, training, competence and alertness of crew, compliance with port procedures and directions, etc.

As in the UK, cargo interests normally treat themselves as bound by any agreed apportionment negotiated as between the two vessel interests.

For solicitors representing cargo interests, once the claims in reference in the limitation fund action are filed, focus often shifts to obtaining further clarity/details from cargo interests and underwriters (care, as always, needs to be taken to avoid duplication of quantum elements), discussions are commenced between cargo interests to try and agree on respective heads of claim for the purpose of presenting a united case for at least an interim payment from the limitation fund, and thereafter – once all quantum information has been collated – final claim figures against the limitation fund can be presented to and negotiated with vessel interests.

If settlement does not result then recourse to the Admiralty Court is required. See again section 2.3 supra.

2. Which parties can seek to limit?

Under Article 1 of the 1976 Convention, the shipowners, salvors, persons for whose acts the owner or salvor is responsible and the insurers of liability for claims are entitled to seek to limit.

The types of claims that are subject to limitation are listed in Article 2 of the LLMC.
It is worth noting that Hong Kong has not reserved the right to exclude from limitation the claims set out in Article 2(1)(d) and (e) of the LLMC, which relate to:

(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; and

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

Article 18 of the LLMC permits member states to reserve the right to exclude the abovementioned claims from limitation. Many countries (including the UK) have done so due to the high costs that tend to be associated with wreck removal in recent times.

3. What is the test for breaking the limitation?

Article 4 of the LLMC sets out the test for breaking limitation. The person seeking to limit loses the entitlement to limit liability if ‘it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.’

4.  To what degree do any limitation provisions found jurisdiction for the substantive claim?

Article 14 of the LLMC provides that where a limitation fund has been constituted ‘any person having made a claim against the fund shall be barred from exercising any right in respect of such a claim against any other assets of a person by or on behalf of whom the fund has been constituted’.

There are, however, more complex conflict of laws issues arising from limitation funds. In The Peng Yan [2009] 1 HKLRD 144, the Hong Kong Court of Appeal held that (given the particular factual backdrop of this case), the fact that there was a limitation fund in Ningbo, PRC, which had been properly set up pursuant to the Maritime Code of the PRC, was not reason enough to stay the in rem action against the defendant’s sister ship in Hong Kong. The Court of Appeal commented (at pages 156-157):

‘There is a certain attraction in the simplicity of the defendants submissions [that the Hong Kong in rem proceedings should be stayed in favour of proceedings in Ningbo, PRC], but upon closer analysis, it amounts to saying no more than, at its highest, there exist parallel proceedings in Hong Kong and in the Ningbo Maritime Court. As stated above, this is by no means unusual in admiralty matters and specifically within this rubric, limitation actions …’.

5. Which package limitation figure applies?

Hong Kong applies the HVR compulsorily in certain scenarios. Where the HVR apply compulsorily, any attempt to use contractual provisions to reduce the carrier’s liability below the package or unit limitation calculation amount stipulated in the HVR will be null and void (Article III (8) of the HVR).
Article IV (5)(a) of the HVR provides that the package or unit limitation figure is either:

• 666.67 units of account per package or unit; or
• 2 units of account per kilogram of gross weight of the goods lost or damaged,

whichever is higher.

‘Unit of account’ means the Special Drawing Right (‘SDR’) as defined by the International Monetary Fund (Article IV(5)(d)). In Hong Kong, SDRs are converted at the rate specified by the Hong Kong Monetary Authority (section 7 of the COGSO).
If the HVR do not apply compulsorily to a contract of carriage, then the parties are free to contract for whatever package or unit limitation figure/formula they please, subject to the provisions of the CECO (see generally section 8.6.2 below, and more specifically, sections 7-8 of the CECO).

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