On the night of 28 July 2000, a pilot vessel, the Robert Whitmore, collided with a dinghy in Newcastle Harbour. Gary Pevitt, Patrick Wallace, and Darren Schlenert were seriously injured, and Mr Wallace later died from his injuries.

Mr Wallace's widow, Mr Pevitt, and Mr Schlenert (the defendants) commenced proceedings against Newcastle Port Corp (the plaintiff) in the District Court claiming substantial damages for negligence. The plaintiff filed defences denying liability, and cross-claimed for contribution or indemnity against Mr Schlenert, alleging that the collision was due to his negligence.

The plaintiff filed in the Admiralty Jurisdiction of the Supreme Court of New South Wales against the defendants arguing that it was entitled to limit any liability which it may have to them in respect of the collision in accordance with the Limitation of Liability for Maritime Claims Act 1989 (Cth) (the Act) which gave domestic effect to the LLMC 1976. The plaintiff sought an order for the constitution of a limitation fund under s 9(2) of the Act.

The sole issue to be decided was whether the limitation of liability for a claim under art 2 of the LLMC 1976 was inclusive of any costs order which might be made in proceedings establishing the claim.

The plaintiff submitted that the words 'claims in respect of' the various categories of loss identified in art 2.1 of the LLMC 1976 are of wide import. A claimant's claim for the costs of establishing that he or she has suffered a relevant loss within art 2.1 is a claim 'in respect of' that loss.

Second, the LLMC 1976 must be construed in the light of its purpose, which is to encourage shipping and trade by limiting claims against shipowners and salvors. It is consistent with that purpose that a shipowner will be able to know exactly the limit of its liability for all claims covered by the LLMC 1976 which may arise from a distinct occurrence. Where there are multiple claims the legal costs of establishing those claims might be considerable. It would anomalous and inconsistent with the purpose of the Convention if the shipowner’s liabilities for legal costs arising from such claims and the shipowner were exposed to proceedings for the enforcement of costs orders.

Third, art 13.1 of the LLMC 1976 shows an intention that the limitation fund is to be the sole source of satisfaction of all claims arising from a relevant occurrence. It would be inconsistent with the policy of the Convention and art 13.1 if a claimant were entitled to payment of a judgment debt out of the limitation fund and were then entitled to claim against assets of the shipowner to satisfy a consequential costs order.

Fourth, the limitation of liability 'in respect of any other claims' referred to in art 6.1.b applies to claims for the costs of establishing a claim under that article.

Fifth, if the drafters of the LLMC 1976 had intended that the claims referred to in art 2.1 were not meant to include claims for costs, they would have said so. In its legislation adopting the LLMC 1976, Finland makes it clear that claims in art 2 do not include claims for legal costs. Australia has not made any similar provision in its Act.

Finally, in Noferi v Smithers [2002] NSWSC 508 [48], Newman AJ accepted that a limitation fund established under art 11 of the LLMC 1976 was inclusive of the costs of the proceedings establishing the claim.

The defendants submitted that 'claim', where used in art 2.1, meant the asserted substantive right to compensation arising out of the relevant occurrence: see Caspian Basin Specialised Emergency Salvage Administration v Bouygues Offshore SA (No 4) [1997] 2 Lloyd's Rep 507. A 'claim', in this sense, may be accepted immediately by a shipowner so that the claimant incurs no legal costs in establishing it. But if the shipowner disputes the claim, the costs of the ensuing legal proceedings are not part of the claim itself - they are a consequence of the dispute as to its validity.

Second, the law relating to costs of legal proceedings is domestic procedural law. The LLMC 1976 is intended to alter claimants' rights to compensation under substantive law, not the procedural law of the particular court in which the claim may be brought.

Held: Judgment for the defendants. A limitation fund established under art 11 of the LLMC 1976 is exclusive of any legal costs which may be incurred in establishing a claim against that fund.

There is substance in each of the competing constructions of art 2.1 advanced by the parties and there is ambiguity in the phrase 'claims in respect of' where used in that article and in other articles in the LLMC 1976.

The practice in the UK has been that where the damages which would otherwise have been awarded to a plaintiff exceed the amount of the limitation fund, damages limited to the full amount of the fund are given and a separate order is made for costs: see Wheeler v London & Rochester Trading Co Ltd [1957] 1 Lloyd's Rep 69, 73; Beauchamp v Turrell [1952] 1 Lloyds Rep 266, 272.

Article 1 of the first international Convention for the limitation of shipowners’ liability, the LLMC 1924, limited liability in respect of:

(1) Compensation due to third parties by reason of damage caused, whether on land or on water, by the acts or faults of the master, crew, pilot, or any other person in the service of the vessel;

(2) Compensation due by reason of damage caused either to cargo delivered to the master to be transported, or to any goods or property on board.

'Compensation' has a wider import than the term 'damages' has in the common law of England and Australia.

There is no express provision in the LLMC 1924 as to the costs of establishing a claim for compensation. However, art 14 provides: 'Nothing in the foregoing provisions shall be deemed to affect in any way the competence of tribunal modes of procedure, or methods of execution authorized by the national laws.' This seems to be a precursor of art 14 in the LLMC 1976. Article 8 also recognises that for the purpose of implementing its provisions, questions of procedure are to be governed by the law of the forum.

Although the UK was a signatory to the LLMC 1924, it was never given the force of law in the UK. In 1957, it was replaced by the LLMC 1957. The LLMC 1957 was adopted in the UK by the Merchant Shipping (Liability of Shipowners and Others) Act 1958, by means of amendments to the 1894 Merchant Shipping Act. Article 1 of the LLMC 1957 adopted neither the phrase 'liable to damages' nor the phrase 'compensation due … by reason of damage'. Article 1.1 of the LLMC 1957 provided: 'The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention in respect of claims arising from any of the following occurrences, unless the occurrence giving rise to the claim resulted from the actual fault or privity of the owner'. There is no express provision in the LLMC 1957 dealing with costs, as there is in the Warsaw Convention. But Article 4 provides: 'Without prejudice to the provisions of Article 3, paragraph (2) of this Convention, the rules relating to the constitution and distribution of the limitation fund, if any, and all rules of procedure shall be governed by the national law of the State in which the fund is constituted.'

The LLMC 1957 was incorporated into Australian law by ss 330, 333, and Sch 6 of the Navigation Act 1912 (Cth). It remained in force in Australia until 31 May 1991, when the LLMC 1976 was adopted upon the taking effect of the Act.

There is no decision in the UK or in Australia which expressly decides whether a claim which is subject to limitation of liability under the LLMC 1957 includes the costs of establishing that claim. In Marsden, The Law of Collisions at Sea, para 455 it is said that '[p]laintiffs in limitation actions are liable for costs given or awarded against them, in addition to the full amount payable as damages under the statutory limitation'. However, the authorities cited in support of that proposition were decided under the law as it was prior to s 503 of the 1894 Merchant Shipping Act (UK), or under s 503 and s 504 of that Act, which expressly made the position as to costs clear.

The only Australian case which has any relevant bearing on the LLMC 1976 Convention is Noferi, upon which the plaintiff relies. In that case, the plaintiffs sued the defendant for injuries received in a boating accident off the New South Wales coast. It was agreed between the parties that the claims were within the limitation provisions of the LLMC 1976 and the amount of the limitation fund constituted under art 11 was agreed at AUD 975,000.

There is no discussion at all in the judgment of the reasons which led his Honour to conclude that the limitation fund was inclusive of the costs of establishing the plaintiffs' claims. The fact that all issues except assessment of damages had been compromised between the parties during the course of the hearing, and the fact that his Honour gives no reasons for his costs order, suggest that there was no dispute between the parties that the limitation fund included the costs of the proceedings. In those circumstances, this decision does not have great persuasive weight.

A limitation fund established under art 11 of the LLMC 1976 is exclusive of any legal costs which may be incurred in establishing a claim against that fund. Each of the three Conventions recognised the distinction between substantive rights created or limited by the Convention on the one hand and, on the other, idiosyncratic rules of procedure which would be applicable in different domestic courts and tribunals in proceedings invoking these substantive rights or limitations: see art 14 of the LLMC 1924, art 4 of the LLMC 1957, and art 14 of the LLMC 1976.

The nexus between a liability and the legal costs of establishing it in a court or tribunal is not as self-evident or as strong to lawyers in other countries which are parties to the LLMC 1976 Convention. In some countries legal costs do not 'follow the event' with nearly the same degree of predictability or to the same extent as is the case in the UK, Australia and New Zealand. For example, in Japan, which is a party to the LLMC 1976, the recoverable costs of the winning party do not normally include the largest component of those costs, namely, the attorney's fees, so that it is rare for a Japanese litigant to enforce the relatively small costs orders made in their favour.

Even in the UK, where the rule that costs normally follow the event is so strongly entrenched, admiralty lawyers have long regarded the costs of establishing a claim against a limitation fund as separate and distinct from the claim itself. Bearing this in mind, the construction of the words 'claims in respect of' in art 2.1 should be considered without a predisposition to be influenced by the nexus between liability for a claim and the legal costs of establishing that liability.

Approached in this way, phrases in art 2 such as 'claims in respect of loss of life' carry a literal meaning which goes no further than their express words: a claim 'in respect of loss of life' simply means 'a claim for compensation for loss of life'. A claim for reimbursement of the legal expenses incurred in prosecuting a disputed claim for compensation for loss of life is not a 'claim for compensation for loss of life' and is, therefore, outside the scope of art 2.1.a. The same construction applies to the other claims identified in art 2.1.

'Claims' referred to in arts 6 and 7 for the purpose of calculating the limitation fund do not include claims for reimbursement of legal expenses, and 'claims in respect of which limitation of liability can be invoked' for the purpose of payment out of the limitation fund under art 9 likewise do not include claims for reimbursement of legal expenses.

The LLMC 1976 recognises in art 14 that it can only go so far in limiting claims against shipowners: calculation of the limits of compensation payable to claimants can be made uniform no matter what national jurisdiction determines those claims, but the procedures for determining whether the claims are established and how they are to be dealt with could not be made uniform without invasion of domestic procedural law, which would be contentious, inconvenient, and unnecessary.