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.

Held (by majority, Cheung JA dissenting): Appeal dismissed.

The Merchant Shipping (Limitation of Shipowners Liability) Ordinance, Cap 434, was enacted on 1 October 1993. Section 12 of the Ordinance provides that the provisions of the Convention on Limitation of Liability for Maritime Claims 1976 set out in Sch 2 have the force of law in Hong Kong. For present purposes, only art 3.e of the LLMC 1976 is relevant:

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.

The relevant law governing the contract of service is Hong Kong law. The question is therefore whether, at the date the Convention became part of the laws of Hong Kong, a shipowner was not entitled to limit its liability in respect of claims by servants of the shipowner in respect of loss of life or personal injuries under Hong Kong law. Prior to the adoption of the Convention as part of the local law, the relevant position was as follows. The Ordinance was enacted on 1 December 1990. Section 7(1) prohibits the exclusion or restriction of liability for death or personal injury resulting from negligence by contract or by notice. Section 18 contains a savings provision:

Saving for other relevant legislation

(1) 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.

The defendants' argument is that the Convention is an 'enactment' which authorises by express terms or necessary implication contractual provisions that limit a shipowner’s liability for personal injuries resulting from its negligence within s 18(1)(a). That construction is incorrect.

For the purposes of art 3.e of the Convention, the critical date for ascertaining whether Hong Kong law permitted the limitation of liability for personal injuries claim is the date the Convention became part of the domestic law. If such limitation was not permitted at that time, that is the end of the matter. The Ordinance was enacted in 1990. At that date, although the Convention was already in existence and in fact had been in existence since 1976, it was not part of the law of Hong Kong. The Convention became part of the law of Hong Kong some years later, in 1993. At the time, did the domestic law permit such limitation? Despite there being a savings provision, at the critical date, there was no 'enactment' then in existence upon which s 18(1) could operate. The law was as stated in s 7(1) of the Ordinance.

The defendants' construction is premised on the Convention already being part of the law of Hong Kong at the moment of its adoption. Or put differently, if it is said that one has to ascertain what the governing law was at the date of the accident, the answer is no different. As a matter of statutory construction, it is not permissible to take into consideration the provisions of the Convention itself. To do so would be, as it were, to hoist the Convention with its own petard. That cannot be right. Had the Convention predated the Ordinance in the sense that had it been part of the law of Hong Kong prior to the enactment of the Ordinance in 1990, the defendants might have a stronger case. The other parts of s 18(1) of the Ordinance are even of less assistance to the defendants. The Convention certainly does not require a contractual provision limiting liability to be incorporated into the relevant contracts. Article 1.1 of the Convention is permissive rather than mandatory.

The Court's attention was drawn to the fact that ss 7 and 18 of the Ordinance are provisions equivalent to and obviously based upon ss 2 and 29 of the Unfair Contract Terms Act 1977 (UK). In the United Kingdom, s 185(4) of the Merchant Shipping Act 1995 (UK) (the MSA) expressly excludes the operation of the Convention. It was suggested that had the limitation authorised by the Convention not been applicable, section 185(4) of the MSA would not have been necessary. But the short answer is that the fact that the United Kingdom chose to enact the MSA cannot be determinative on the question of statutory construction.

Cheung JA (dissenting): The effect of s 18(1) of the Ordinance is that a party is entitled to impose a contract term which is 'being made with a view to compliance with an international agreement' so long as that term 'does not operate more restrictively than is contemplated by the (international) agreement'. In other words, despite the s 7(1) prohibition, s 18(1)(b) allows such a term to be included in a contract which effectively removes the prohibition in s 7(1).

There is, of course, no provision in the Convention which requires a shipowner to incorporate it in a contract so as to comply with the Convention. But if a shipowner chose to include a contract term which limits its liability for damages arising from personal injury of his employee as provided for by the Convention, can it not be said that the term was made 'with a view to compliance with' the Convention? I think it can. I do not regard the words ‘compliance with’ to be terms of art or somehow must be restrictively construed. On any view, section 18(1)(b) must have contemplated a situation such as this. I would allow the appeal.

[For the successful application to appeal to the Hong Kong Court of Final Appeal, see Fong Yau Hei v Gammon Construction Ltd [2007] HKCA 164 (CMI1164). For the ultimate dismissal of the appeal by the Hong Kong Court of Final Appeal, see Fong Yau Hei v Gammon Construction Ltd [2008] HKCFA 27 (CMI1168).]