SUN WAI WAH TRANSPORTATION LTD v. CHEUNG KEE MARINE SERVICES CO. LTD. AND ANOTHER

HCAJ 134/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 134 OF 2009

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BETWEEN

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J U D G M E N T

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1.  Sun Wai owns the barge “WANG FAT NO.3”.

2.  Sun Wai chartered the barge to Cheung Kee under a Hire Agreement dated 18 April 2009. In addition, on the same date, Sun Wai entered into an Indemnity Agreement with Cheung Kee. By that Indemnity Agreement, Sun Wai contracted to indemnify Cheung Kee against “all action, liability, loss suits, claims, demands, proceedings, costs, charges, or expenses whatsoever” and “[t]o pay [Cheung Kee] on demand the full amount of any loss or damage whatsoever which [Cheung Kee] may incur as a result of, in connection with or in any way related to the performance of the services”.

3.  On 26 April 2009, as the barge was being towed outside Basalt Island, it rolled violently to about 45 degrees for about 2 minutes. Some containers fell off the barge into the sea and some containers remaining on the barge sustained loss and damage.

4.  Sun Wai seeks a limitation decree under the 1976 Convention on Limitation of Liability for Maritime Claims. The Convention has force of law in Hong Kong by s.12 of the Merchant Shipping (Limitation of Shipowners’ Liability) Ordinance (Cap.343).

5.  Apart from Cheung Kee, no one objects to Sun Wai being granted a limitation decree.

6.  As charterer, Cheung Kee itself faces claims from parties whose cargo was lost or damaged as a result of the incident off Basalt Island. It is Cheung Kee’s case that, under the Indemnity Agreement, Sun Wai is obliged to indemnify Cheung Kee against the full amount of claims for which Cheung Kee may be held liable to third party cargo interests. Accordingly, Cheung Kee contends that Sun Wai should not be allowed to limit that full liability by being granted a limitation decree under the Convention.

7.  Mr. Chan Pat Lun (appearing for Cheung Kee) submits that, by entering into the Indemnity Agreement, Sun Wai waived any benefit to which it may be entitled under the Convention. Article 1 of the Convention (Mr. Chan points out) only says that shipowners “may” limit their liability for claims. Nothing prevents a shipowner from accepting a fuller liability than that provided for in the Convention.

8.  In support of his contention, Mr. Chan cites THE ‘SATANITA’ [1897] AC 59 (HL). There yacht-owners agreed to be liable for “all damages” arising from disobeying the rules of a club race. Yacht A sank Yacht B as a result of improper navigation not due to the fault or privity of the owner of Yacht A. The House of Lords held that, as matter of construction of the relevant agreements, the obligation to compensate for “all damages” meant that the owner of Yacht A was not entitled to limitation under the Merchant Shipping Amendment Act 1862. Lord Macnaghten stated (at 67): “[T]he expression ‘all damages arising therefrom’ means what it says, and ... the generality of this expression is not to be cut down or restricted by anything outside the rules”. Similarly, absent express words to such effect, there is no scope (Mr. Chan stresses) of reading the Indemnity Agreement as somehow “subject to the 1976 Convention”.

9.  I am not persuaded by Mr. Chan’s argument.

10.  Mr. Tsui (appearing for Sun Wai) notes that, since THE ‘SATANITA’ was decided, limitation legislation has changed. For instance, in 1897 the relevant legislation required that claims sound in damages in order to qualify for limitation. Claims for an indemnity pursuant to a contract to indemnify would not have qualified for limitation. Now, however, by Art.2(2) of the Convention, except for certain specific types of claims identified in Arts. 2(1)(d)-(f), claims “shall be subject to limitation of liability even if brought ... for indemnity under a contract”.

11.  Thus, I should construe the Indemnity Agreement in the context of Art.2(2) of the Convention. The existence of the Convention is part of the factual matrix. There is no evidence that Sun Wai or Cheung Kee (both experienced in the business of carrying goods by sea) would have been unaware of the provisions of the Convention.

12.  When the parties entered into the Indemnity Agreement, they must be taken to have done so in the context of a shipowner (such as Sun Wai) being able to apply for limitation under the Convention even in respect of a liability to indemnify. In the absence of clear words to the contrary, I do not think that I can read the references to full indemnification in the Indemnity Agreement as meaning other than a full indemnity within the terms of what the Convention permits.

13.  I add that such a conclusion does not operate unfairly against Cheung Kee.

14.  As charterer, Cheung Kee is itself entitled to apply for a limitation decree. Its liability (if any) to third parties would thereby be limited to the extent allowed by the Convention. Such limitation under the Convention would not exceed Sun Wai’s liability under a limitation decree. There could then be no possibility of the quantum of Cheung Kee’s liability to third parties being greater than the amount of Sun Wai’s limited liability. There would be no “excess” which Cheung Kee might have to bear on its own.

15.  There is a further consideration. Any claim by Cheung Kee against Sun Wai for indemnification under the Indemnity Agreement would be subject to an obligation on Cheung Kee’s part to take reasonable steps to mitigate loss. It seems to me that Cheung Kee would thus be under an obligation to limit potential loss by itself seeking a limitation decree. Otherwise, its claims against Sun Wai might be characterised as unreasonably greater than what they should otherwise have been.

16.  For the above reasons, I think that Sun Wai is entitled to a limitation decree.