On 17 March 2007, the Peng Yan collided with the Hui Rong near Zhoushan Island in the People's Republic of China (PRC). The Peng Yan sustained damage to its bow. The Hui Rong sank with nine dead crew members, eight missing crew members and cargo loss. The collision also resulted in an oil spill and consequential pollution damage.

On 5 May 2007, one group of cargo interests (the plaintiffs) commenced in rem proceedings in Hong Kong against the owners of the Peng Yan (the defendants) and the owners and charterers of the Hui Rong. On 12 May 2007, the Peng Wei, a sister ship of Peng Yan, was arrested.

On 15 May 2007, the defendants provided a letter of undertaking (LOU) in the sum of USD 2.5 million to procure the Peng Wei's release. The LOU reserved the owners' right to dispute the jurisdiction of the Hong Kong courts. However, the LOU did not reserve the owners' right to limit their liability, whether by statute, Convention or otherwise. The defendants also provided a second LOU dated 3 April 2008 for USD 100,000 to cover an additional cargo claim, and a third LOU dated 28 December 2007 for USD 5 million to prevent the arrest of either Peng Yan or a sister ship by a second group of cargo interests (the claimants). All three LOUs had materially the same terms.

On 30 April 2008, two admiralty writs were served on the defendants, who concurrently commenced a limitation action in the Ningbo Maritime Court under the PRC Maritime Code to set up a limitation fund. The Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 1976) is given domestic effect in Hong Kong via the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap 434). In contrast to the LLMC 1976, the PRC Maritime Code halves the limitation of liability for a ship not exceeding 300 tons engaging in coastal services within the PRC.

The Peng Yan was engaged in a voyage between ports in the PRC, but its gross tonnage was 34,886 tons. The Ningbo Maritime Court decided that the 50 per cent reduction was inapplicable. The defendants appealed against that decision, but the appeal was dismissed on 25 August 2008. The purpose of the appeal was to buy time to pay the security ordered by the Ningbo Maritime Court to constitute the limitation fund. The PRC limitation fund was set up on 29 August 2008.

The defendants applied to stay the present proceedings in Hong Kong on the ground of forum non conveniens. Reyes J dismissed the stay application (see The Owners of and/or Other Persons Entitled to Sue in Respect 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] HKCFI 731 (CMI1341)). The defendants appealed.

Held: Appeal dismissed.

The basic approach is well-known. In the case where Hong Kong jurisdiction has been founded as of right, a Hong Kong court will only order a stay when the applicant shows that another forum is clearly or distinctly more appropriate. There will be questions regarding the deprivation of personal or juridical advantages and any consequential balancing exercise.

The founding of jurisdiction as of right in admiralty proceedings arises upon the arrest of a ship or a sister ship. The basis of the arrest jurisdiction is the provision of security for various types of maritime claims. Even though there may be little or no connection with Hong Kong aside from the arrest, the burden of demonstrating that another jurisdiction is clearly or distinctly more appropriate is borne by the stay order applicant who argues forum non conveniens, and not the party suing in Hong Kong.

If parallel proceedings were to exist between the Hong Kong Court and the Ningbo Maritime Court, there might be a risk of inconsistent findings if both Courts were to adjudicate common issues. However, the risk is more apparent than real, because the Hong Kong proceedings and the Ningbo limitation action are not parallel proceedings. The LOUs form the security for the Hong Kong proceedings. This is not the case in the Ningbo limitation action, where a limitation fund has been established. Although the LOUs reserve the right to challenge the Hong Kong courts' jurisdiction, they do not contain an express reservation of the defendants' right to limit liability by reference to the LLMC 1976.

The plaintiffs will be secured in the Ningbo limitation action only to the extent of the limitation fund. In Hong Kong, they can be secured for a larger amount. The existence of security for a claim is a relevant factor in consideration of stay applications based on forum non conveniens. The defendants seek to cancel the LOUs in the stay application, so that the amount of security will be the same for both the Ningbo limitation action and the Hong Kong proceedings. The defendants were also unsuccessful in the PRC appeal. Hence, the applicable limits of liability under the PRC Maritime Code and those which will be applied in Hong Kong under the LLMC 1976 are the same.

Even if there were parallel proceedings, the existence of parallel proceedings in admiralty matters is neither unusual, nor should it necessarily incline a court towards staying an action on the ground of forum non conveniens (The Abidin Daver [1984] AC 398, 423 (CMI2222); The Kapitan Shvetsov [1998] 1 Lloyd's Rep 199, 217; The Caspian Basin [1997] 2 Lloyd's Rep 507, 525). The Albaforth principle, as stated in Cordoba Shipping Co Ltd v National State Bank, Elizabeth, New Jersey (The 'Albaforth') [1984] 2 Lloyd's Rep 91, 96 (Goff LJ)), points to the place of the commission of the tort, but is only useful as a convenient starting point (Esquel Enterprises v Tal Apparel Ltd [2006] 2 HKC 384). It is important to examine the closeness of the connection with a forum, and the basic test to be applied was that stated in Spiliada Maritime Corp v Cansulex Ltd [1987] 1 Lloyd's Rep 1 and The Adhiguna Meranti [1988] 1 Lloyd's Rep 384 to consider the more substantial factors. It is not uncommon for there to be no obvious or natural forum, as in the present case.