Fong Yau Hei (the plaintiff) suffered severe injuries due to being hit by the recoil of a tow rope that suddenly broke. At the time of the accident, the plaintiff was employed by Tung Shun Transportation & Engineering Ltd (the second defendant), which contracted with Gammon Construction Ltd (the first defendant) to supply vessels and crew for construction works. Cheng Kan Ho (the third defendant) and the plaintiff were the only persons on the tugboat. The fact that the rope recoiled and hit the plaintiff with such force to cause serious injuries could only be consistent with the rope being under tension when it broke. The plaintiff claimed against the three defendants for breach of obligations. The second and third defendants raised a defence of limitation of liability. They relied on the Convention on Limitation of Liability for Maritime Claims of 1976 (LLMC 1976) which had been made part of Hong Kong law by the provisions of the Merchant Shipping (Limitation of Shipowners' Liability) Ordinance, Cap 434. The second and third defendants sought to limit the quantum of their liability to HKD 2.2 million.

At first instance (see Fong Yau Hei v Gammon Construction Ltd [2006] HKCFI 58 (CMI1163)), the Recorder held that art 3.e of the LLMC 1976 was applicable to the plaintiff's claim, because s 7(1) of the Control of Exemption Clauses Ordinance, Cap 71, (the Ordinance) provides that an employer is not allowed to limit its liability to an employee for damages or for personal injuries arising out of or in the course of employment. In the Recorder's view, this section was sufficient for the purpose of manifesting the requisite intention of opting out and thereby excluding the operation of the LLMC 1976.

The defendants appealed to the Court of Appeal. The majority of the Court of Appeal dismissed the appeal (see Fong Yau Hei v Gammon Construction Ltd [2007] HKCA 52 (CMI1162)) but granted leave to appeal to the Court of Final Appeal (see Fong Yau Hei v Gammon Construction Ltd [2007] HKCA 164 (CMI1164)).

Held: Appeal dismissed.

The LLMC 1976 became part of the law of Hong Kong in October 1993 upon the enactment of the Shipowners Limitation Ordinance. Article 3.e is material and states:

The rules of this Convention shall not apply to – ...

(e) claims by servants of the shipowner or salvor whose duties are connected with the ship or the salvage operations, including claims of their heirs, dependants or other persons entitled to make such claims, if under the law governing the contract of service between the shipowner or salvor and such servants the shipowner or salvor is not entitled to limit his liability in respect of such claims, or if he is by such law only permitted to limit his liability to an amount greater than that provided for in Article 6.

Under art 6, the Convention, where it applies, limits liability by reference to the tonnage of the vessel concerned - in this case the tugboat. It is common ground that unless excepted by art 3.e, the limitation is available to the defendants.

The plaintiff relies on s 7(1) of the Ordinance as a law governing the contract of service prohibiting the shipowner from limiting its liability. That section states: 'A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.' On its plain words, as held in the courts below, s 7(1) meets the terms of art 3.e. The law governing the contract of service is Hong Kong law. Under s 7(1), the plaintiff cannot have imposed upon him by his employer a limitation of liability for personal injury resulting from negligence. His claim therefore is outside the Convention and the limitation of liability it provides.

It was argued for the defendants that:

The ordinary meaning of the words of Article 3(e) contemplates that there might sometime exist a provision of Hong Kong law that states that a shipowner or salvor does not have the right to limit liability under the Convention in respect of claims of crew members or their servants on board ship. This is not at all the same thing as a law that controls or restricts any Hong Kong employer’s freedom to contract with a servant in relation to an injury caused by negligence.

This is incorrect. Article 3.e contemplates in its terms a law by which a shipowner is not entitled to limit its liability in respect of claims by servants, whose duties are connected with the ship. Section 7(1) prohibits any person from restricting its liability for personal injury. That must prevent a shipowner restricting its liability to his servants in negligence. A shipowner could not seek to do that other than by contract or notice.

The defendants submitted that they are not seeking to limit their liability by contract or notice in terms of s 7(1), but by relying on the limitation provided for by law, that is by the Convention itself. But this is a circular argument. The very issue is whether the LLMC 1976 can be relied upon. It cannot be relied upon if (in terms of art 3.e), there is a law under which the shipowner is not entitled to limit his liability in respect of such claims.

Counsel relied heavily on an argument that the legislative history in the United Kingdom points away from s 7(1) being construed as a provision triggering operation of the exclusion in art 3.e. In England there have been statutory limits by reference to tonnage on claims against shipowners at least since the enactment of the Merchant Shipping Act 1894 (UK) (the 1894 Act). Those limits were not available, however, in respect of claims by persons carried on a ship who suffered personal injuries arising from negligence ('actual fault or privity'). In 1957, the LLMC 1957 was concluded. Article 1.4.b of that Convention was, so far as is presently relevant, in the same terms as art 3.e of the LLMC 1976. This gave rise to some consequential amendments to s 503 of the 1894 Act by s 2 of the Merchant Shipping (Liability of Shipowners and Others) Act 1958 (UK), including a provision invoking the exclusion available under art 1.4.b in the case of persons employed on board under a contract of service governed by the law of any country outside the United Kingdom. The position regarding employees whose contracts of employment were governed by United Kingdom law remained unchanged.

After the LLMC 1976 was acceded to, a different legislative approach was adopted in the United Kingdom. In the Merchant Shipping Act 1979 (UK) (the 1979 Act), s 17(1) gave the revised Convention the force of law in the United Kingdom. But by s 35(2) of that Act, the provisions of the Convention, having the force of law, were stated not to apply to:

any liability in respect of loss of life or personal injury caused to, or loss of or damage to any property of, a person who is on board the ship in question or employed in connection with that ship or with the salvage operations in question if –

(a) he is so on board or employed under a contract of service governed by the law of any part of the United Kingdom ...

This is a statutory exclusion of the operation of the Convention in respect of the stated liability. It is not a provision contemplated by art 3.e of the Convention by prohibiting shipowners from limiting their liability.

Section 35 of the 1979 Act also removed the limitation available under s 503 of the 1894 Act in respect of claims for personal injury to persons on board ships under contracts of service governed by United Kingdom law. At the time s 35(2) was enacted there was in force s 2(1) of the Unfair Contract Terms Act 1977 (UK) upon which s 7(1) of the Ordinance was based. Whether or not that provision was considered to give effect to the exclusion in art 3.e of the Convention, the legislature chose to enact a broader express provision by which the Convention as it applies in specified circumstances did not become part of the law of the United Kingdom.

It does not follow that because, by the Shipowners Limitation Ordinance, the LLMC 1976 was made part of the law of Hong Kong without there being enacted a specific exclusion corresponding to s 185(4) of the United Kingdom Act, that s 7(1) should be construed as not triggering the operation of art 3.e of the Convention. Nor is that affected by whether or not s 2(1) of the Unfair Contract Terms Act 1977 (UK) would bring art 3.e into effect if there was a part of the law in that country on which it could impact.

The United Kingdom legislation provides no imperative to give to the words of s 7(1) a narrower meaning than they plainly bear. Section 7(1) of the Ordinance on its face reads on to art 3.e of the Convention so as to render the Convention limitation inapplicable.

There remains to consider the further argument that the effect of s 7(1) of the Ordinance is negated by s 18(1). Section 18(1) reads:

Nothing in this Ordinance removes or restricts the effect of, or prevents reliance upon, any contractual provision which –

(a) is authorized or required by the express terms or necessary implication of an enactment; or
(b) being made with a view to compliance with an international agreement which applies to Hong Kong, does not operate more restrictively than is contemplated by the agreement.

In the same section, 'enactment' is defined as meaning any ordinance and any instrument having effect by virtue in the Ordinance so that it would include the LLMC 1976.

The defendants' argument was that each of the two limbs of s 18(1) overrides the operation of s 7(1) in the circumstances of this case. This is said to be because a contractual provision limiting a shipowner’s liability either would be authorised by the Convention or would be made with a view to compliance with the Convention. The argument is that this provision, where it applies (as here), saves any contract that s 7(1) otherwise would prohibit, so that the art 3.e exclusion does not operate. This argument, if accepted, would create an anomalous situation. If, as contended, s 18(1) saves any contractual provision limiting a shipowner’s liability, it would mean that s 7(1) would not operate to exclude the Convention as it relates to a contractual limitation but would do so as it applies to a limitation imposed by notice. Section 18(1) does not override s 7(1) in these circumstances.

While the Convention constitutes an enactment, it does not expressly authorise any contractual provision limiting a shipowner’s liability, nor is there any implication to that effect. The Convention does not compellingly imply authorisation merely by providing for limitation of liability while recognising that such contracts can be prohibited under domestic law. The same applies in respect of s 18(1)(b). 'Compliance' connotes a requirement to be satisfied. There is no requirement in the Convention for contracts limiting liability. On the contrary, the Convention recognises that such contracts may be prohibited.

Section 18 thus does not detract from the operation of s 7(1), which excludes the entitlement to limitation under the Convention in this case.