On 5 October 2011 the Rena ran aground on Astrolabe Reef (Otaiiti) while en route to the port of Tauranga. The Rena could not be removed from the reef, and sometime after the grounding broke in two. In addition to the loss of the ship, and loss of or damage to cargo (some containers were lost overboard), oil was discharged into the sea. Some of the oil was washed ashore onto nearby beaches.

The plaintiffs applied for an order under Part 7 of the New Zealand Maritime Transport Act 1994 (the Act) that they were entitled to limit their liability in respect of claims arising from the grounding of the Rena. Daina Shipping Company, the first plaintiff, was the registered owner of the Rena. The second and third plaintiffs were companies that provided management services for the owner and the ship. The fourth plaintiff was the liability insurer of the first plaintiff.

Mr Lancaster, the third defendant, owned a business hiring kayaks and catamarans to members of the public from Mount Maunganui beach. He was operating the business when the Rena ran aground. In an affidavit, Mr Lancaster said the beach was shut to the public for approximately 6 weeks because of the pollution, and that over this period he could not trade, and he lost an estimated NZD 3,000 in rental income.

Mr Lancaster made a disclosure application, asking the plaintiffs to provide a number of documents on the grounds that he did not have enough information to enable him to decide whether or not to dispute the plaintiffs’ limitation application. 

The main issue in the limitation application was whether there was jurisdiction in New Zealand to make an order for the establishment of a limitation fund. 

Held: 1.There is jurisdiction in New Zealand to establish a limitation fund. 2. Mr Lancaster’s disclosure application would be refused.

Factual findings

The court adopted the following factual findings from the earlier criminal action against the master and second officer of the Rena:

• The master had become obsessed with the need to arrive at the pilot station outside Tauranga Harbour by 03h00. In order to ensure this time of arrival, the master had sanctioned various shortcuts that departed from the vessel’s passage plan.
• At 00h18 the vessel’s course was back consistent with the passage plan, and on track to arrive at the pilot station by 03h00, although this would have been close.
• At about 01h35 the second officer, without the prior knowledge of the master, as a further shortcut, initiated what was the last course change. This put the vessel on a direct collision course with the reef.
• This was a substantial deviation from the passage plan.
• The master then failed to identify the problem until the vessel actually struck the reef at 02h14, 40 minutes later.
• Factors in the final casualty included failing to plot the Rena’s position accurately or at all, relying on GPS, and failing to consult charts and other resources available on board which clearly and accurately showed the reef and its position.

The registered owner of the vessel, Daina Shipping, was also charged with, and pleaded guilty to, a strict liability offence under the Resource Management Act arising out of the spillage of oil. The sentencing judge found that:

• The actual cause of the collision with the reef was the result of poor navigational skills of the captain and second mate, and a rush on their part to reach Tauranga, which proved to be unnecessary.
• At no point during the course of the hearing in relation to them, or this, has there been any suggestion that Daina Shipping had put any pressure of time, or of operational requirements, on those persons actually responsible for the ship running aground.

LLMC 1976 and losing the right to limit

Part 7 of the Act contains provisions for ship owners to limit their liability, which are broadly in line with the provision of the 1976 Convention on Limitation of Liability for Maritime Claims (LLMC 1976). The pivotal provision in respect of the present applications is s 85(2) of the Act, which prescribes the circumstances in which limitation of liability will be excluded. This provision is based on art 4 of the LLMC 1976. The court began its analysis by considering the history of the legislation. Compared to the earlier LLMC 1957, the LLMC 1976 shifted the burden of proof. Under the new regime, the owner is no longer required to establish absence of fault and absence of privity. Instead, art 4 requires the party opposing limitation to establish that the owner intended to cause the loss suffered, or was reckless in that regard and acted with knowledge that the loss would probably result.

Woodhouse J then conducted a review of various English authorities, quoting Sheen J from The Bowbelle [1990] 1 WLR 1330, 1335, who described art 4 as imposing ‘a very heavy burden’ on the (anti-limitation) claimant, and Lord Phillips of Worth Matravers MR in The Leerort [2001] EWCA Civ 1055 who said ‘… when a claim is made for damages resulting from a collision, it is virtually axiomatic that the defendant ship owner will be entitled to limit his liability'. In The Saint Jacques II and Gudermes [2002] EWHC 2452 (Admlty) Gross J said that ‘it is likely that only truly exceptional cases will give rise to any real prospect of defeating an owner’s right to limit'. In New Zealand, in The Tasman Pioneer [2004] 1 NZLR 650 (HC), [2003] 2 Lloyds Rep 713, Williams J commented that it seems accepted that the limits will normally be unbreakable – a trade-off for the higher limits established in the LLMC 1976.

Returning to the present case, Woodhouse J analysed the required elements to prevent an owner from limiting its liability as follows:

i. The disentitling act or omission must be that of an identified person, and if the owner is a corporation, the identified person must be an alter ego of the corporation. In cases involving a corporate owner, the law was that the conduct would have to be that of the alter ego of the corporation, a person of sufficient seniority in the management structure of the company for that person’s actions and state of mind to be equated with that of the company itself. Usually this restricted the class of eligible people to the board of directors, or the managing director, or an equivalent officer of the company. Conduct by an agent or a servant, or another person whose relationship with the company might give rise to vicarious liability in other areas of the law, is insufficient (The Tasman Pioneer [51], The Leerort [13], The Saint Jacques II and Gudermes [16]). Although there is some doubt as to whom Parliament intended to be the alter ego of the company in a particular statutory context, Woodhouse J accepted the submission that the relevant personnel for consideration of any claim to break limitation are still likely to be restricted to no lower than chief management level. 

ii. The identified person must have one of the states of mind stipulated in s 85(2) of the Act: either an intention to cause ‘such loss or injury or damage’ or a combination of recklessness at the time of the conduct accompanied by knowledge that ‘such loss or injury or damage would probably result’. In the present case, there was no suggestion on behalf of Mr Lancaster that there is any basis for arguing actual intent; the focus was on the alternative of recklessness accompanied by knowledge. Woodhouse J remarked that the time element is likely to be similar for both limbs, meaning for present purposes, that knowledge of the probability of loss must be had at the time the alleged act or omission was done recklessly. 

iii. The ‘loss or injury or damage’ alleged to have been intended or known about must be the actual loss or injury or damage claimed by the (anti-limitation) claimant to have occurred. On this issue, Woodhouse J rejected the submission that the phrase in quotation marks was a reference to the casualty, ie the grounding on the reef. Instead, the Court held that the phrase refers to the harm that is caused to the claimant (here, for example, Mr Lancaster) as a result of the casualty with the ship. Quoting the Court of Appeal of England and Wales in The Leerort, the Court accepted that there is a requirement of foresight of the very loss that actually occurs, not merely of the type of loss that occurs. Woodhouse J noted that, in collision cases, a shipowner will only lose its right to limit if it can be proved that the shipowner deliberately or recklessly acted in a way which it knew was likely to result in the loss of or damage to the property of another in circumstances where, inevitably, the same consequences would be likely to flow to its own vessel. Although maritime history has some instances of scuttling, Woodhouse J was not aware of one involving deliberate collision with another vessel. More pertinently, counsel were unable to point to any collision case in any jurisdiction where the right to limit under the LLMC 1976 has been successfully challenged. Woodhouse J also remarked that an obligation to prove knowledge of the very loss that actually occurred is consistent with a primary objective of the LLMC 1976: the objective of making it very difficult to break the limit as the trade-off for a substantial increase in the amount of the limit. 

In consequence, the court held that the disclosure application by Mr Lancaster would be dismissed. This was largely because it was considered an expensive expedition up a blind alley, since extensive information was already available to Mr Lancaster. Further, even on Mr Lancaster’s theory that senior management directives caused the captain and other senior officers on the ship to cut corners, literally and figuratively, that still came nowhere near to establishing the knowledge that was required to be established for the purposes of s 85(2) of the Act. In addition, further inquiry was unlikely to yield support for the defendant’s theory given the conclusion already reached in criminal prosecution of the owners (the first plaintiff) and the master and the second officer.  Further, r 25.26(5) of the New Zealand rules of court was not the equivalent of a right to discovery of documents in a conventional action. Mr Lancaster requested a large number of documents in a wide range of categories. He did not put in a request for information with the nature of the information clearly defined. This suggested to the Court that Mr Lancaster was on a fishing expedition to see what would emerge. This was not a proper basis for an application under r 25.26(5). Finally, it was held that the exercise Mr Lancaster was asking the plaintiffs to embark on in relation to disclosure was wholly disproportional to the quantum of his claim (an estimated NZD 3,000 in rental income).

Establishment of a limitation fund in New Zealand

Article 11 of the LLMC 1976 expressly provides a right for an owner to constitute a limitation fund with the court or other competent authority in any state which is a party to the convention. However, there is no provision in the Act or in the rules of court which expressly provide that a New Zealand court may authorise the constitution of a limitation fund. This has given rise to some uncertainty as to whether there is jurisdiction for the court to do so. In The Tasman Pioneer Williams J held that the Court does not have jurisdiction to direct a ship owner to constitute a fund when the owner is opposed to doing so. However, the question as to what happens when an owner wishes to constitute a fund remained open. The Court embarked on a historical review of the legislation in force in New Zealand, including a short criticism of the technique of paraphrasing elements of the LLMC 1976 into the text of a statute rather than including the whole convention as a schedule to the relevant Act (which was done in relation to other conventions).  

Woodhouse J then held that, although Part 7 of the Act does not state, in as many words, that an owner may apply to the court for an order authorising the constitution of a limitation fund, there are a number of provisions which refer expressly, or by necessary implication, to a limitation fund. For example, s 86(1), s 87, s 88 and in particular s 88(1)(a) (which provides that ‘The units of account shall be converted to their monetary value according to the value of the New Zealand currency at the date on which the limitation fund is constituted …’), and s 91. Woodhouse J concluded that the problematic reference in s 89 of the New Zealand Act to s 86(2) arose through a drafting error, which could be corrected, as the test for correcting a drafting error in a statute under New Zealand law had been met. The court thus held that rule 25.4 of the court rules, in conjunction with the provisions of Part 7 of the New Zealand Act, and in particular s 88(1)(a), provides jurisdiction to authorise an owner to constitute a limitation fund in New Zealand. To the extent that it might be required, the Court’s inherent jurisdiction can also be invoked for the purpose of giving better effect to the express statutory provision of limitation of liability and constituting a limitation fund.

The fourth plaintiff, as the applicant on the limitation fund application, proposed that the limitation fund should be constituted by the lodging of a letter of undertaking. Evidence was provided which satisfied the court that so acting would provide proper security for the limitation sum, and a formal order to this effect was made.