This was an appeal from the decision of Collier J (Commonwealth of Australia v Shenzhen Energy Transport Co Ltd [2015] FCA 757 CMI89) refusing discovery by Shenzhen, the owners of the Shen Neng I, which grounded on the Great Barrier Reef at Douglas Shoal in 2010 causing extensive damage.

The primary judge refused to order discovery on the ground that the Commonwealth (the applicant) had pleaded that the initial grounding was a single cause of action in negligence and that it was one distinct occasion within the meaning of the LLMC 1976 as amended by the 1996 protocol. Her Honour reasoned that, because Shenzhen had admitted that the grounding was caused by the negligence of the Chief Officer of the ship, the Commonwealth would need leave to amend its statement of claim to plead one or more other distinct occasions so as to entitle it to the discovery sought. As Shenzhen admitted the cause of the grounding, there was no pleaded issue to warrant ordering discovery of the ship’s and other documents.

The full court was satisfied that the primary judge erred in those conclusions and leave to appeal was granted. The issue on the appeal was who had the onus of alleging and proving the Commonwealth’s claim for loss or damage fell within art 2.1.a and/or art 2.1.f or art 6.1 of the LLMC 1976.

Held: Appeal allowed. Shenzhen was ordered to give discovery as sought in the amended interlocutory application and to pay the costs of the interlocutory application and subsequent appeal.

In reaching this conclusion, the court considered the circumstances in which a defendant may avail itself of the limitation of liability provided for by the LLMC 1976. First, a shipowner may bring proceedings to establish a limitation fund under art 11 of the LLMC 1976 and secondly, may plead a specific defence invoking a right to limit its liability under art 10 of the LLMC 1976.

The defence of limitation of liability is a defence the shipowner must plead and prove as applicable to its liability for 'claims in respect of loss or damage to property (including ... waterways ...)… occurring … in direct connexion with the operation of the ship, … and consequential loss resulting therefrom' (art 2.1.a) or 'claims … in respect of measures taken in order to avoid or minimize loss for which the person liable may limit his liability in accordance with this Convention, and further loss caused by such measures' (art 2.1.f). The chapeau to art 2.1 provides that it applies to the classes of claims that it specifies 'whatever the basis of liability may be'. In Strong Wise Limited v Esso Australia Resources Pty Ltd (No 2) [2010] FCA 575, Rares J held that art 2.1 was concerned with claims, whatever their basis, and not with occasions or occurrences for which the shipowner might seek to limit its liability under the Convention and art 6. Art 6.1 creates a right of the shipowner to limit liability for claims arising on a 'distinct occasion'.

The purpose of the LLMC 1976 is clear. It is to allow the shipowner to limit its liability for claims arising out of a particular identifiable act, neglect, or default that gives rise to claims of the kind identified in art 2.1. If the shipowner’s conduct involves more than one act, neglect or default, it cannot limit liability in one fund for all the claims arising from the second or subsequent act, neglect or default. The shipowner must constitute separate funds for each individual act, neglect or default. What is deemed a distinct occasion will be a question of common sense and factual enquiry. A shipowner cannot use the LLMC 1976 as a shield to escape liability for a second occurrence. Here, on the pleadings there is no reason to think that the original act, neglect or default that resulted in the grounding of the Shen Neng I causing the damage was not a distinct occasion but the matter was uncertain. The determination of whether Shenzhen could prove its defence would be intensely factual. The pleading raised an issue as to whether Shenzhen was entitled to limit its liability to one occasion. It also raised causation and damages issues and the application of arts 2.1.a and 2.1.f. The combination of all these issues necessitated that Shenzhen give discovery of the documents the Commonwealth sought.