In March 2007, the ships Hui Rong and Peng Yan collided off Zhoushan Island near Ningbo, China. The cargo on board the Hui Rong sank with the ship.

In May 2007, the cargo owners (the plaintiffs) arrested the Peng Wei, a sister ship of the Peng Yan, in Hong Kong. Letters of undertaking were issued on behalf of the shipowners (the defendants) to secure the release of the Peng Wei and to forestall further arrests.

In March 2008 and thereafter, other cargo interests and claimants commenced proceedings against the defendants in the Ningbo Maritime Court (Ningbo Court).

In April 2008, the defendants applied to set up a limitation fund in the Ningbo Court. The Ningbo Court eventually ruled that the limitation fund should be equivalent to 100% of the amount needed to constitute a limitation fund in Hong Kong. The defendants said that they had appealed against this decision of the Ningbo Court to buy time to constitute the fund. The fund, however, was not constituted.

In July 2008, the defendants applied for a stay of the plaintiffs’ proceedings in favour of the Ningbo Court on the ground of forum non conveniens.

Held: Application dismissed.

The Court was not persuaded that the Ningbo Court was the more appropriate forum. The various connecting factors raised by the defendants did not clearly point to Ningbo as the appropriate forum.

The Court found (among other things) that the defendants' choice of Ningbo for a limitation action was not a strong factor in favour of Ningbo. The Court disagreed with the defendants' suggestion that there could be no loss of juridical advantage if the plaintiffs were forced to litigate in Ningbo because the limitation amounts would remain the same. The Court observed that the defendants had not yet constituted a 100% limitation fund in Ningbo when they should have been able to do so. It was still possible that the defendants would somehow be unable to put up the requisite security for the 100% limitation fund. Undertakings offered by the defendants fell short of an actual guarantee that the requisite security would materialise. As such, the 100% limitation fund factor would marginally favour Hong Kong.

The Court considered art 13.2 of the Convention on Limitation of Liability for Maritime Claims 1976 (the LLMC 1976). Given that the Court may release security held in relation to a relevant claim after a limitation fund has been constituted, the Court would refuse to grant a stay in favour of the Ningbo proceedings where there remained a chance that something less than a 100% fund would be constituted.

[For the unsuccessful appeal to the Court of Appeal, see The Owners of The Cargo Lately Laden on Board the Ship or Vessel 'Hui Rong' v The Owners and/or Demise Charterers of the Ship or Vessel 'Peng Yan' [2008] HKCA 504 (CMI1316).]