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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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.