NORTHROP GRUMMAN SHIP SYSTEMS, INC v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL "ASIAN ATLAS"

HCAJ60/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 60 OF 2007

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Admiralty Action in rem Against the Ship or Vessel “Asian Atlas”
(LR No.7388712) Registered at the Port of Seychelles

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J U D G M E N T

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1. Typically this is end of term and I am going away.  Although I would like in this very interesting case to have more time to sit down and write a judgment more worthy of the arguments (a very interesting argument if I may say so, specially from Mr Coleman), I have reached a clear conclusion as to what the result should be and I would therefore give judgment now.

2. In reaching my decision, I am assisted greatly by the most learned and scholarly judgment of Mr Justice David Steel in the case of Beatanavis v. Owners of the Banglar Kakoli which is unreported.  A copy of the Judgment appearing in Westlaw has been supplied to the court.

3. This is a claim brought by the plaintiff in an action in rem against the vessel “Asian Atlas” (“Vessel”)which was the subject of an incident in America in the River of Mississippi some years ago.  The plaintiff was the owner of the slipway in that part of River of Mississippi.  The Vessel was entering the area under compulsory pilotage by local pilots and assisted by tugs.  Unfortunately, as a result of something obviously going seriously wrong, the Vessel hit the underwater structure which is part of the slipway extending from the plaintiff’s land and under its control.  There was supposed to be a buoy indicating the extent of the slipway.  Unfortunately the incident happened, resulting in the stranding of the Vessel and in extensive damage being done to the Vessel’s bottom.  Some 70 days of the ship’s earning was lost.  The total claim of the loss suffered by the former owner and manager of the Vessel was said to be some US$4 million.

4. The extraordinary twist in this case was that the former owner had sold the Vessel not long after the incident (should also be after repair) to the present owner, which is a Hong Kong based company, which had the misfortune to have purchased the Vessel.  As new owner the defendant in this action and its Vessel was sued on the basis that a maritime lien attaches to the Vessel notwithstanding the sale of the Vessel to the new owner.  As is well known, maritime lien lumbers the new owner with all liabilities attached to the Vessel at whatever time prior to the sale.

5. A claim was brought in America by the former owner and manager of the Vessel against a larger number of people including the pilots, Pilotages Association, the tug people, the County government, the present plaintiff, that is Northrop, and the American government for the defective charting, and that proceedings is still ongoing.

6. The plaintiff Northrop, faced with that large exposure, brought proceedings in rem in Hong Kong, arrested the Vessel, obtained security from the Vessel of some US$4.5 million.  The Vessel was released.  The present motion had been brought by the defendant, namely the new owner of the Vessel, for basically three reliefs.

7. The first relief is for the setting aside of the part of the claim, what is called by Mr Coleman as “the First Part of the Claim”, and that is the part of the claim relating to the seeking of indemnity by the plaintiff in respect of its exposure in the American proceedings.  Part Two of the claim in the endorsement is for the damage that the plaintiff’s slipway has suffered and that part is non-controversial.  So the first relief sought by the defendant is for setting aside of the Writ in rem in relation to the First Part, because the defendant says that there is no maritime lien in respect of that first part of the claim.

8. The second relief sought is on basis of material non-disclosure and that therefore the warrant of arrest should be set aside.

9. The third relief sought is that in any event the security given should be reduced in the particular circumstances.  The bulk of the time spent is of course on the first relief, and I will try to deal with this question as briefly as possible.

10. The maritime lien is well-known concept and has an ancient pedigree.  (e) of the statutory provision is under attack by Mr Coleman.  The (e) is part of Section 12A(2) which provides:

“	The questions and claims refer to in subsection 1(a) are-
		...
	(e)	any claim for damage done by a ship; ...”

In order for a claim to be brought in admiralty it has to come within one of the questions listed out in section 12A(2) from (a) to (s).

11. The maritime lien is dealt with separately under 12B(3) where it says :

“

(3)

In any case in which there is a maritime lien or other charge on any ship, aircraft or other property for the amount claimed, an action in rem may be brought in the Court of First Instance against that ship, aircraft or property.”

Strictly speaking, of course, the maritime lien covered by section 12B(3) makes no express reference to (e), but I think it is common ground that in this case if the first part of the claim is not within (e) then there is no jurisdiction in rem, so that is a narrow scope of the contest before me.

12. The question is having regard to the fact that the second part, that is, the damage to the slipway itself is admitted to be a claim for damage done by the Vessel, whether the consequential loss, which is what Mr McGowan for the plaintiff sought to put it, under the first part of the claim, that is, the indemnity against the claim in America arising out of this accident, could be said to be within this scope of (e) or is consequential loss under (e) as “any claim for damage done by the ship”.

13. This case looks deceptively simple because of the extremely helpful judgment of Mr Justice David Steel.  In that Beatanavis case, which is very similar to ours, there was an alleged negligent navigation on the part of the defendant’s vessel which led to the plaintiff’s vessel colliding with a third vessel-a ferry as well as a jetty, and the claim brought in Beatanavis was for a claim in relation to the loss to “Beatanavis” itself for only US$13,000; for the loss arising out of the jetty damage US$20,000; and for the third party vessel’s claim of US$570,000 which was included as part of the claim of “Beatanavis”.  A similar objection was taken by the defendant in that case on the basis that there was no right in rem in relation to the third party loss.  Mr Justice David Steel had no difficulty in coming to the conclusion that a claim in rem did lie and that the application for setting aside was dismissed.

14. In the limited time available, I would not attempt to either describe or to summarise what had been a very clear judgment except perhaps to refer to the sentence on page 5 of the judgment where the Judge said :

“	... there is no dispute that the claim falls within this definition.”

That is the definition of Mr Justice Clarke in Dagmara [1988] 1 Lloyd’s Rep, 431.  The Judge then went on to say:

“	What is in issue is the legitimacy of adding in some consequential losses.”

That is the heart of the dispute.  There can be no doubt that the claim now made under the first part is a consequential loss rather than a direct loss suffered. The dispute is whether that consequential loss is legitimate.

15. In the course of the argument of Mr Coleman, he did not in anyway seek to cast doubt on the correctness of the judgment in Beatanavis which makes my task much easier. Mr Coleman in his usual fair and analytical way has only sought to make really one point against the exercise of jurisdiction.

16. He pointed out that what the plaintiff is seeking is against the background of the particular twist in the whole case, namely of two owners of the Vessel at oppose ends. The former owner in the America who had made the claim against the plaintiff here. You have the new owner in Hong Kong who is the defendant in Hong Kong. The defendant in Hong Kong, the new owner, is being asked to pay for the claim of the old owner in America for the damage suffered by the Vessel as a result of the incident.  The apportionment of liability is of course nowhere to be known.  We do not know at the end of the day what view either the American court or the Hong Kong court would take as to who is at fault and in what proportion for the accident.  But it is certainly on the cards there is substantial possibility that at the end of the day the Vessel might be held to be at fault, to what degree, to what percentage, no one knows, and possibly also the plaintiff’s slipway might be held to be also partly at fault, and to what extent, of course one does not know.  I suspect the pilot would probably be more likely than not to be held to be at fault.  Pilots are supposed to know their local jurisdiction so that such an incident as this should not occur. 

16. The twist, as I said, is in that the new owner is being asked to pay to the old owner by way of the plaintiff for the incident.  As I have indicated throughout the hearing to Mr Coleman, I have the greatest of sympathy for the defendant, the new owner.  It is innocent, it got no involvement with this incident at the time and it bought the Vessel not knowing of the latent liability of the accident.  I take it that possibly it did not have either a warranty or guarantee sufficient to cover the present exposure that it is suffering in Hong Kong by this piece of litigation.  But the fact of the matter is that this is largely a legal question, a legal question on the true interpretation of the scope of section 12A(2)(e).

17. Unfortunately, there has been no clear definition or a case which construes in a systematic way the extent or the scope or the limit of what is meant by “damage done by a ship”, and it is the word “damage” in particular that is capable of so many possibilities.  I have to do the best I can in the very limited time available and having heard counsel at such length, I can only express very briefly my conclusion that, in my view, it seems to me wrong, as Mr Justice David Steel had said, to draw a line to say that certain consequential loss has to be eliminated from the scope of the ordinance.  The gravamen of the argument of Mr Coleman (I think there is considerable force in this argument) is really this : the only way the plaintiff would be exposed to the claim is if the plaintiff is held to be at fault, whether it is 1% or 10% does not matter, it will be held at fault and as a joint tortfeasor by operation of the American law (I think the same thing applies in Hong Kong) it would then be held liable for the damages payable by everyone.  So if there is someone who has no adequate asset to pay, or does not pay, the plaintiff would have to pay the whole of the US$4 million.  The plaintiff says : “I need the indemnity.” and Mr Coleman said : “You shouldn’t have the indemnity because your indemnity arises not from my fault of navigation but from your fault of navigation.”  That strictly speaking is both right and not right. 

18. The indemnity can only arise as a combination of the fault of both.  Thesituation, as I see it, is that the claim was brought about in America as a combination of the fault of both the plaintiff and others

19. The indemnity sought here by the plaintiff can only be successful, if it is also established that there was fault of the Vessel.  The wording of the ordinance does allow a situation where there is a fault of the Vessel for the claim to be brought. 

20. Should the Court either on principle or on authority come to a view that the ordinance operates only narrowly.  That is the question for me to answer.  I believe I should not, for all of the reasons given firstly by Mr Justice David Steel in his judgment and I would not attempt to repeat them.  But in addition, because this is a unique part of our case, it seems to me that it is wrong in principle to exclude a partly to blame for party, such as the plaintiff, from its right to seek contribution.  In the usual way, that sort of indemnity is sought everyday where there is road traffic accident.  Why should, as a matter of principle, the court take a narrow view of the ordinance and seek to make an artificial distinction and says because someone is partly at fault and therefore he should, in the case where the defendant’s Vessel is at fault, be excluded from seeking his proper remedy in rem.  I do not see the logic of this and I do not see that it is sanctioned by any of the policies behind the statute. 

21. Furthermore in the review of the authorities, that approach does not seem to be borne out.  I see our case not that differently from the case of Beatanavis where same sort of situation arises except of course there is not the same twist as is here of the former owner and the new owner.  So both on the basis of authorities as well as on principle, I see no reason to accede to the large request made by Mr Coleman for striking out the part of the in rem claim.  I therefore decline to accede to the first relief.

22. So far as the second relief is concerned, I think that is much more straightforward.  I have no doubt so far as material non-disclosure in relation to the correctness or incorrectness of maritime lien is concerned that there is anything in that point.  American maritime lien has got nothing to do with Hong Kong maritime lien.  It is a matter for Hong Kong Court to decide what is the scope of the Hong Kong maritime lien which I am trying to do here.  Nor do I think there is any material non-disclosure in relation to the usage or non-usage of or the value or non-value of the slipway.

23. So far as the third relief is concerned about reducing the amount of security, I think the present affidavit evidence clearly shows that the amount of US$0.5 million is nothing excessive in relation to the 2^nd part.  I therefore decline to make any change in security.

24. The motion therefore regrettably must be refused with costs.