The facts and judgment at first instance are summarised in CMI2766. The defendants appealed and argued, among other things, that: (1) the plaintiff did not suffer a loss of AUD 35,000 for wreck removal but, even if it did, the defendants were entitled to limit their liability for that; and (2) the LLMC 1957 (the Convention) did not permit an award of interest on the limitation sum.

The plaintiff cross-appealed, seeking full compensation on the ground that the defendants were not entitled to limit their liability. The plaintiff argued that there were two reasonably possible causes of the collision which the defendants had not proved were without the actual fault or privity of the owner, namely that: (1) the second defendant's vessel was steaming with its deck lights on thereby obscuring its side navigation lights, which reduced the time which the plaintiff had to avoid the accident; and (2) the second defendant's vessel had no lookout before the collision.

The plaintiff alleged that the second defendant knew that the lighting on the Pelorus interfered with a lookout kept from the vessel. It also alleged that the second defendant company's system failed to ensure that proper procedures were observed on the Pelorus. Although the plaintiff did not allege that the lighting on the Pelorus prevented an observer placed on another vessel gaining an accurate impression of its course when it was underway in darkness, on cross-appeal the plaintiff resorted to that argument.

Held: Appeal allowed. Cross-appeal dismissed.

The Judges agreed on the disposal of the appeal and cross-appeal, despite differences in reasoning.

The defendants' claim to limit liability is made under Pt VIII of the Navigation Act 1912 (Cth) (the Act). By s 333 of the Act, the Convention, other than art 1.1.c thereof, has the force of law. The Convention text was incorporated as Sch 6 to the Act. The Protocol of Signature of the Convention allowed any State at the time of signing, ratifying, or acceding to the Convention to make certain reservations, one of which was reservation of the right to exclude the application of art 1.1.c. Section 333 of the Act excluded art 1.1.c from becoming part of Australian law. Otherwise, art 1.1.c would have governed the respondent's claim for AUD 35,000.

Breaking Limitation

To limit liability, the defendants must show that the occurrence giving rise to the claim did not result from the actual fault or privity of the owner: James Patrick & Co Ltd v Union Steamship Co of New Zealand Ltd (1938) 60 CLR 650 (James Patrick) 654; Gaggin v Moss (1984) 2 Qd R 513 (Gaggin v Moss) 517; The Norman [1960] 1 Lloyd's Rep 1 (HL) (The Norman) 11. When the shipowner is found at fault, it 'must prove that the damage did not flow from [its] fault' so as to limit its liability: The Norman 10, 11, 15-17; The Marion [1982] 2 Lloyd's Rep 52, 57; The Lady Gwendolen [1965] P 294 (CA) 348. See also The England [1973] 1 Lloyd's Rep 373 (CA) 377.

It was unreasonable to find that the second defendant's fault contributed to the collision. The second defendant was not aware of complaints about the Pelorus' deck lights, which were irrelevant to the collision. Regarding lookouts, the second defendant need not have made a rule that the bridge should never be left unattended. The failure to insist upon the writing up of a sufficient log by the master was not a fault of the second defendant. There was evidence that the Pelorus was properly equipped and adequately crewed, which satisfied the 'primary responsibility' of a shipowner: James Patrick 670-671. Gaggin v Moss is distinguishable.

Wreck Removal and Limitation of Liability

The Court was divided over whether the plaintiff had suffered a recoverable loss for wreck removal expenses. Kelly and McPherson JJ held that the plaintiff sustained no recoverable loss. Macrossan J made obiter observations to the contrary.

The Court was also divided over whether the defendants were entitled to limit liability for the wreck removal expenses if those were recoverable. Macrossan J held that the defendants would be able to limit liability. Kelly and McPherson JJ made obiter observations to the contrary.

According to Macrossan J, the legislature was prepared to grant limited liability for claims between shipping owners but was not prepared to reduce the effectiveness of wreck removal laws. The scope of art 1.1.c and the joint coverage of arts 1.1.a and 1.1.b are not necessarily mutually exclusive. The decision to enact only arts 1.1.a and 1.1.b might be due to a realisation that those two paras provided all the coverage which was desired. Had art 1.1.c been enacted, a faultless owner of a lost ship could have limited liability against a demand based upon an obligation imposed by law to remove it. By declining to enact art 1.1.c, the legislature intended that statutory authorities should not be limited in their power to compel wreck removal.

Without art 1.1.c, the faultless owner of a lost ship would have no available limitation upon its obligation to meet the expense of removal when demanded by a statutory authority. The faultless shipowner might then demand compensation from the wrongdoing ship that caused the shipwreck (the wrongdoer owner). On an ordinary reading of the art 1.1.a and 1.1.b, the wrongdoer owner can limit its liability against that demand.

The word 'other' in 'any other property' refers to property other than that which is on the ship of the owner who is seeking to limit its liability and therefore would include the lost ship. Limitation would apply because of the very width of the phrase 'in respect of claims arising from ... loss of or damage to ... property'.

When the innocent shipowner seeks to recover from the wrongdoer the expenses of wreck removal which it has been forced to pay, it is making a claim arising from the loss of its ship for just another item of special damage flowing from such loss. On the other hand, at the earlier stage, when the Harbour Authority demands, as against the innocent shipowner, removal of the wreck or seeks to recover the expense of removal, it is not making a claim arising from the loss of a ship (which would be a tort claim) but is making a claim (a statutory demand in debt) simply arising out of an owner's failure to remove an obstruction. For this reason, while the innocent shipowner cannot limit liability against the Authority's demand, the wrongdoing owner can limit liability against the innocent owner.

Under art 1.1.b, the claim, if it is to be limited, must be one that arises from the occurrence of loss of or damage to property. In The Stonedale [1953] 1 WLR 1241, Willmer J expressed sympathy with the view that the expenses of raising a sunken ship should be regarded as part of the loss caused to that vessel when its owner claims for those expenses. Macrossan J thought that that view was correct. In The Arabert [1963] P 102 (PDA) (The Arabert), it was conceded that the expenses of raising a wreck in response to an imposed statutory obligation were part of the damages claimable against a wrongdoer ship, but the question considered in that case was whether a limitation could be applied to the claim.

Macrossan J was not substantially assisted by reference to any further parts of Sch 6. The English cases decided on differently worded legislation do not assist. Section 503(1) of the Merchant Shipping Act 1894 (UK) (the MSA) refers to liability in 'damages' unlike the much broader art 1.1 expression of 'in respect of claims arising'.

Meanwhile, Kelly J also thought that English cases decided under different legislation were unhelpful. However, Kelly J thought that arts 1.1.b and 1.1.c were mutually exclusive. Kelly J emphasised the word 'any' in the phrase 'any ship' under art 1.1.c.

Article 1.1.c is therefore not limited to a claim in relation to the ship of the owner seeking to limit its liability, but extends also to the ship of an innocent shipowner claiming against the owner who is at fault and seeking to limit liability. Article 1.1.c was intended to cover a category of cases which does not come within art 1.1.b. Thus, it is incorrect to interpret art 1.1.b to include matters which are the subject of art 1.1.c. By excluding art 1.1.c, the legislature intended that art 1.1.c claims should not be the subject of limitation of liability.

Kelly J thought that the question was whether it is permissible to have regard to art 1.1.c in interpreting art 1.1.b. Viewed in isolation, it is arguable that art 1.1.b would cover the claim. However, it is unclear whether the claim falls within 'loss of or damage to any other property' (that is, property other than property on board the ship of the owner seeking to limit its liability, which is included in art 1.1.a) so as to enable it to be said that art 1.1.b is unclear such that reference may be made to the whole of art 1.1 as contained in the Convention to ascertain the scope of art 1.1.b: Hogg v Toye & Co [1935] 1 Ch 497 (CA) 520; Salomon v Comrs of Customs & Excise [1967] 2 QB 116 (CA) 143-145.

In contrast, McPherson J thought that English cases could provide guidance on the meaning of parts of art 1, as art 1 and s 503(1) of the MSA had sufficient similarity in wording. Those cases show that a claim to recover the expenses of wreck removal may arise in one of several different forms, and that formerly the form might be decisive in deciding whether a shipowner called upon to meet its requirements is entitled to limit liability.

Such a claim may be made by a port or harbour authority for the expenses incurred by it in removing a wrecked ship. This claim is ordinarily made against the owner on the basis of: (1) a statutory right; or (2) the authority's common law right to recover the expenses as damages resulting from obstruction by the wreck of a navigable channel: Dee Conservancy Board v McConnell [1928] 2 KB 159 (CA). The nature of a claim falling within (1) is debt due on a statute. Because of this, a limitation right confined to liability 'to damages' (s 503(1) of the MSA) was not available to a shipowner sued to recover expenses of the kind due under statute: The Millie [1940] P 1 (PDA); The Stonedale No 1 [1954] P 338 (CA), affd [1956] AC 1 (HL); The Berwyn [1977] 2 Lloyd's Rep 99 (CA) (The Berwyn) 102. The legal position is different where the claim is under basis (2) ie negligence (The Putbus [1969] P 136 (CA) (The Putbus) 150-151, 153, 155) and perhaps also public nuisance. Such a claim sounds in damages and so is susceptible of limitation under a provision like s 503(1): The Putbus; The Berwyn 102. A third class of case occurs where the wrecked vessel (the innocent ship) was not, but another vessel (the negligent ship), was to blame for the casualty that results in the wreck removal expenses. If in such a case the innocent ship claims from the negligent ship the removal expenses which the former is liable to pay to the port authority, the question has arisen whether the owner of the negligent ship is entitled under s 503(1) of the MSA to limit its liability for those expenses. The question has received different answers in Scotland (The Urka [1953] 1 Lloyd's Rep 478) and in England (The Arabert), where an affirmative answer was given.

It was in the foregoing legal context that the Convention was signed in 1957: see s 330(1) of the Act. Article 1.1 is expressed in the form of a right or privilege of limiting 'liability' only, and not liability 'to damages' (s 503(1) of the MSA), in respect of claims - which are not identified according to their nature or legal classification - 'arising from … occurrences'. The occurrences that follow in arts 1.1.a, 1.1.b, 1.1.c describe events, such as 'loss of life', 'personal injury', 'loss of, or damage to, any property', etc. That is perhaps less true of art 1.1.c, which refers to 'any obligation or liability imposed'; but it seems permissible to read the 'occurrence' in this case as the imposition of such an obligation or liability. In the present instance such an imposition of liability would have occurred when the Harbour Master's notice requiring removal of the wreck was given, or at latest when the time specified in it expired.

The question then is whether such an occurrence (ie the imposition of liability for wreck removal expenses) is within the scope of art 1.1. It is within the scope of art 1.1.c. The words 'liability imposed by any law' shows that art 1.1.c can cover common law and statutory liability. Being part of an international Convention, the right to wreck removal expenses may in the case of some of the signatory nations rest exclusively upon provisions of the general law requiring proof of fault, for example, as in the case of the Netherlands: The Putbus.

A claim for wreck recovery expenses can also fall within art 1.1.b. Such a claim, whether made by a port authority or by the innocent vessel, is a claim 'arising from' an 'occurrence', namely art 1.1.b, 'loss of or damage to any other property' ie the sunken ship. Even if it is not within that description, it is capable of being a claim arising from 'an infringement of any rights': The Putbus 150.

Despite the omission of art 1.1.c, the owner of a ship which through negligence causes the channel to be obstructed may, if the occurrence is one that takes place without its fault or privity, be entitled pursuant to art 1.1.b to limit its liability for wreck removal expenses, whether claimed by the port authority under statute or at common law, or by the innocent ship against the negligent ship. In such cases the claim appears to be one that, within art 1.1.b, arises from 'loss' of the sunken ship; or from 'infringement of any rights', whether of the port authority, or of the owner of the innocent vessel: cp The Arabert.

If so, then the deliberate omission of art 1.1.c has achieved nothing. Although it is reasonable to suppose that its omission was intended to exclude wreck removal expenses from the ambit of claims subject to limited liability, it has failed in its purpose. Mere omission of art 1.1.c is admittedly not the verbal equivalent of the express exclusion of its subject-matter from art 1.

But a literal reading leads to a result that is manifestly absurd or unreasonable and defeats legislative intention. The Court must adopt a construction of the Act to promote its underlying purpose: s 15AA(1) of the Acts Interpretation Act 1901 (Cth).

The legislature desired to exclude the wreck removal and other expenses specified in art 1.1.c from the ambit of claims having limited liability whether under art 1.1.c or otherwise: s 333 of the Act.

It made no difference that the claim is made by the owner of the sunken ship against the vessel or its owner responsible for the ship being sunk and having to be removed. The expenses incurred in doing so, and the liability to do so, fall under art 1.1.c. On that footing, The Arabert is inapplicable in Australia.

Interest

The defendants argued that there was no power to award interest because their liability was limited by art 3 of the Convention, and to award interest is to exceed that limit. This argument was rejected.

According to Kelly and Macrossan JJ, the Convention did not prevent the Court from awarding interest. The legislature did not intend to alter the previous practice as to the payment of interest on the limitation amount. Shaw Savill & Albion Co Ltd v Commonwealth of Australia (1953) 88 CLR 164 followed the rule that in cases of collision interest is to be included as part of the damages decreed on the basis that the loss was not paid at the proper time and considered that this was a matter of substantive right and liability and not a matter of procedure. Under admiralty court practice, simple interest was awarded on the limitation amount: Polish Steam Ship Co v Atlantic Maritime Co [1985] QB 41 (CA) (Polish Steam Ship). By then effect had been given to the Convention, which was referred to: Polish Steam Ship 52-53.

Meanwhile, McPherson J stated that, unlike previously (The Northumbria (1869) LR 3 Adm & Ecc 6; The Kong Magnus [1891] P 223, 225), the Convention did not make the right to limit dependent on liability for damages. The words used in art 1 are 'claim', and 'liability', which are very wide and prima facie capable of including a claim or liability for interest. The Convention answers the question whether interest can be awarded. Article 5.5 specifically provides that 'questions of procedure relating to actions brought under the provisions of this Convention ... shall be decided in accordance with the national law of the Contracting State in which the action takes place'. Article 4 leaves to the national law 'all rules of procedure' in the matter of constituting and distributing the limitation fund. Here, the 'national law' means the procedure of the Supreme Court of Queensland, to which the determination of the limit of liability is referred by s 335(1)(b) of the Act. Awarding interest is a matter of curial procedure which by art 5.5 is to be decided, as also are time limitations, under local law. The rules of substantive law confer no general right to interest. Swiss Bank Corp v Brink's MAT Ltd [1986] 1 QB 853 (QBD) is distinguishable.

Separately, and overturning the trial Judge's order as to costs, the Court unanimously held that the appellant/defendant should pay the respondent/plaintiff the costs of the issue of negligence and that the respondent/plaintiff should pay the appellant/defendant the costs of the issue of the limitation of liability.