On 7 November 2013 Eleni Maritime (plaintiff)’s ship, The Eleni, collided with Heung-A Shipping (first defendant)’s ship, the Heung-A Dragon, off Phu My in Vietnam. The Heung-A Dragon sank, along with all its cargo on board. The plaintiff commenced action against the first defendant under HCAJ 188/2013 claiming damages. The plaintiff admitted liability for the sinking of the Heung-A Dragon with the attribution of blame for the collision agreed at 70:30.

The Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 1976), which provides for a simple and practical regime for disposing of claims arising from collision at sea, is given the force of law in Hong Kong by the Merchant Shipping (Limitation of Shipowners Liability) Ordinance. Under this regime, shipowners can limit their liability and have their vessels released on payment of a security calculated according to their tonnage to sail their vessels out of port and continue with ordinary commercial activities. In addition, claimants benefit from security in court. In this way, lengthy litigation arising from collision at sea can be avoided.

The plaintiff, seeking to limit its liability in the collision, initiated limitation action against the first to fourth defendants under Order 75 of the Rules of the High Court. On 14 May 2014, a limitation decree (the decree) was granted. On 21 May 2014, the plaintiff constituted a limitation fund (the fund) by making payment into court in accordance with the decree. The decree set out inter alia, 28 November 2014 (about one year after collision) as the date for filing of claims. However, this was extended to 28 January 2015 (less than 15 months after the collision). Section 7(1) of the Merchant Shipping (Collision Damage Liability and Salvage) Ordinance provides for a limitation period of two years for making claims arising out of collision at sea. The later date of 28 January 2015 would then be nearly a year before the expiry of the limitation period under s 7(1).

In mid-2015, more claims were instructed against the plaintiff by 22 additional claimants based outside Hong Kong among which an insurer was from the People’s Republic of China (PRC) and two others from Vietnam. This came well after the expiry of the administrative deadline of 28 January 2015, but about six months before the expiry of the two-year limitation period. Instead of seeking an extension of time for filing of claims under the decree or to have the decree set aside, the second to fourth defendants and the other additional claimants filed a writ of action on 6 November 2015 against the plaintiff just before the expiry of the limitation period. Later, on 14 October 2016, they sought an extension of the deadline under the decree to file claims against the fund. The plaintiff took a neutral stance, but the first defendant objected. The first defendant submitted that the in rem proceedings issued by the additional claimants constituted an abuse of process and could not be relied upon as protecting them against the time bar. These proceedings were not intended to be used for the purpose of enforcing their claims and were only issued a day before the expiry of the statutory limitation period. Furthermore, if the additional claimants were granted an extension of time to claim against the fund, they would be barred from claiming against any other property of Eleni Maritime under the writ action already filed. These additional claimants had not arrested any property of Eleni Maritime and if they sought to arrest the Eleni within the jurisdiction of the Hong Kong Court, the Hong Kong Court would be obliged to release the vessel (art 13.2 of the LLMC 1976).

The statutory claim regime (Order 75 of the Rules of the High Court) is available to the shipowner who does not dispute liability but wishes to take advantage of the limitation of liability. Essentially, to invoke the regime, a shipowner seeking to limit its liability commences a limitation action to determine whether the shipowner has a right to limit its liability before commencing a reference action.

The limitation action is an application by the shipowner to limit its liability in an action or actions arising out of the collision at sea. The limitation action begins with issue of a writ by the shipowner and concludes with the granting of or refusal to grant a limitation decree. It may be commenced by the shipowner at any time, even after expiry of the limitation period under the Merchant Shipping (Limitation of Shipowners Liability) Ordinance for commencing actions by claimants. It is not an action in which the claimants sue the shipowner for damages caused by the collision. There is no issue about a time bar, let alone one applicable to the claimants. The claimants’ entitlement to claim is not an issue. The only issue is whether the shipowner has a right to limit its liability. That will turn on whether the loss resulted from the shipowner’s personal act or omission, committed with the intent to cause loss, or recklessly and with knowledge that such loss would probably result (art 4 of the LLMC 1976). 

The reference action is to process the claims against the shipowner and for a fund to be constituted which would limit its liability to the amount it has paid in. Once the fund is constituted, the shipowner ceases to have any interest in disputing anybody’s claim because it is liable only for the amount it has paid in, and all competing claimants to the fund are entitled to dispute one another’s claims against the fund.

If the shipowner does not invoke the regime, the claimants would have to proceed by way of the usual writ action.

There were two issues concerning this application to extend the deadline under the limitation decree.

First, what was the true and proper construction of s 7(1) of the Merchant Shipping (Collision Damage Liability and Salvage) Ordinance, which provides: ‘Subject to subsection (3), no action shall be maintainable to enforce any claim or lien against a vessel or its owners in respect of any damage or loss to another vessel … unless proceedings in the action are commenced within 2 years from the date when the damage, loss or injury was caused’. Was the word ‘action’ equally competent to include the filing of a claim arising from collision damage in a limitation reference?

Second, what was the inter-relationship between that statutory time limit and the time limit fixed by the court in the limitation decree?

Held: The court held that it could exercise its discretion and its inherent jurisdiction to extend the administrative deadline in the limitation decree.

For the first issue, the judge reasoned that the word ‘action’ in s 7(1) must be read subject to its qualification ie ‘to enforce any claim or lien against a vessel or its owners’, which followed. With the constitution of the fund, the vessel arrested was released and the lien ceased to exist (art 13.1 of the LLMC 1976). The limitation reference, being an action against the fund, was not an action to enforce any claim or lien against a vessel or its owners.

For the second issue, the judge considered the hypothetical scenario akin to the present case where a claimant commences action against the shipowner within time but filed its claim in the reference after the expiry of the administrative deadline. In such a scenario, leave to extend the administrative deadline under the decree is required, but would invariably be granted subject to showing good reasons for the delay and lack of prejudice to other claimants.

There were good and sufficient reasons to exercise its discretion to extend the administrative deadline in the limitation decree. First, the administrative deadline expired before expiry of the statutory limitation period. Second, the additional claimants only came to know about the fund long after the administrative deadline had expired. Third, the first defendant took no steps to inform the additional claimants about the constitution of the fund. Fourth, the plaintiff and the first defendant did not seek any direction to advertise the decree in the PRC or Vietnam. Fifth, dilution of the distribution from the fund cannot in law amount to prejudice.

Finally, the judge did not agree that the proceedings commenced by the additional claimants constituted an abuse of process. The additional claimants’ intention was to forgo their remedy in rem by commencing the reference and to allow themselves to be caught by art 13.1 of the LLMC 1976, so that they might participate in the fund. The obvious benefits of doing so included savings in time and costs, and security. It was not reasonable to infer that these additional claimants had no intention to pursue the remedy in rem if it became not open to them to pursue against the fund, even though their chances of obtaining a remedy in rem by the writ actions might appear remote. Moreover, aside from Hong Kong and those other three locations set out in art 13.2, art 13.2 of the LLMC 1976 does not protect the Eleni from arrest at other LLMC 1976 contracting state ports.