On 13 December 2008, the vessel APL Sydney drifted from its anchorage in a gale, and its anchor struck, fouled, ruptured, and bent a submarine ethane gas pipeline owned by the first two defendants, Esso Australia Resources Pty Ltd (Esso) and BHP Billiton Petroleum (Bass Strait) Pty Ltd (BHP). Strong Wise Ltd (SWL) owned the vessel. Two 'distinct occasions' were recognised as arising from this event, from which claims arose. The first distinct occasion was comprised of the events leading up to and immediately following when the APL Sydney's anchor fouled the pipeline at around 15h44 to 15h45 on 13 December. The second distinct occasion comprised the events on that same day, beginning at around 16h19, which led to and immediately followed from the pipeline rupturing and bending.

Esso commenced an action in rem in the Federal Court against the APL Sydney on 19 December 2009 and had the ship arrested. The writ against the ship was based on a general maritime claim for damage done by APL Sydney, under s 4(3)(a) of the Admiralty Act 1988 (Cth). SWL's hull and liability insurer, Gard Marine & Energy Ltd (Gard), paid into Court the maximum single limitation fund amount that could be constituted under the LLMC 1996 of USD 21.5 million, and agreed to give a letter of undertaking in favour of Esso and BHP for the remaining value of the APL Sydney (which was USD 36 million, making a difference of USD 14.5 million). Gard agreed it would pay the difference plus costs, and the defendants agreed not to rearrest APL Sydney, and that this would be the maximum amount (including costs) that Gard would have to pay to the defendants in regard to a final judgment or settlement on the matter. Gard's letter of undertaking (LOU) described the damage to the pipeline as a singular incident, and related to all of the claims 'arising from or in relation to or in any way connected' with that incident.

This hearing proceeded from Rares J's decision in Strong Wise Ltd v Esso Australia Resources Ltd [2010] FCA 240 (CMI1187), which held that there had been two distinct occasions from which claims arose. His Honour's preliminary view was that SWL should establish two separate limitation funds for the claims that would arise from each distinct occasion.

SWL and the first two defendants both held very different views on what orders should be made. SWL argued that the Court should order it to create a limitation fund for all claims arising out of the first distinct occasion, and also declare that SWL was entitled to limit its liability regarding the second distinct occasion. In addition, SWL argued that it was entitled to a favourable costs order, and wished to have surplus funds returned to it after the money that it had paid into Court had been used to constitute a limitation fund. SWL also sought the return of other security it had provided to obtain the release of the APL Sydney.

Esso and BHP argued that these proceedings should be dismissed, because SWL in its previous arguments had contended that all the events of 13 December 2008 comprised a single distinct occasion, not two separate distinct occasions. In addition, the defendants argued that the Court lacked the jurisdiction to grant SWL any other relief, and that SWL's substantive claim had failed because of the ultimate conclusion that there were, in fact, two separate distinct occasions.

In the defendants' view, the LOU evinced an intention by Gard and SWL to make all claims payable from a single limitation fund in respect of all liability arising from a singular distinctive event. In terms of the Court's jurisdiction, they argued that s 25 of the Admiralty Act 1988 (Cth) did not grant the Court the jurisdiction to permit SWL to widen its claim for relief, beyond its initial pleadings. Alternatively, if the Court did have that jurisdiction, they contended that SWL should be denied leave to amend its pleadings.

Held: SWL was entitled to limit its liability for claims falling within the meaning of arts 2.1.a, 2.1.b, 2.1.c, and 2.1.f of the LLMC 1996). This was in respect to the two distinct occasions arising from the APL Sydney's anchor damaging the submarine pipeline owned by the first and second defendants. The plaintiff's liability for claims arising on each distinct occasion was limited, under art 6 of the LLMC 1996, to an amount calculated by reference to the most current SDR conversion rate into AUD, as published by the IMF, multiplied by 13,997,300 Units of Account (calculated by reference to the gross registered tonnage of the APL Sydney, which was 35,991 mt), plus interest. The plaintiff was instructed to constitute a limitation fund in respect of claims arising from the first distinct occasion. SWL would also pay 50% of the first and second defendants' costs.

Jurisdiction of the Court

Rares J examined s 25 of the Admiralty Act 1988 (Cth), and concluded that the defendants had misinterpreted its meaning when they argued that the Court lacked jurisdiction to grant SWL relief. Section 25(1) states that a person who apprehends that a claim for compensation under a law giving effect to the provisions of a Liability Convention may be brought against them, has the right to apply to the Federal Court to decide whether their liability in respect of that claim may be limited under the relevant law. Rares J was of the opinion that this section should be given a wide construction, and that the LLMC 1996 had in mind that claims might arise on a number of occasions and shipowners should be entitled to limit their liability for each individual occasion.

This jurisdiction to decide if a person could limit their liability under a Liability Convention in respect of a claim or claims, was particularly broad, and Rares J was reluctant to impose any limitations on a reading of the section. Moreover, s 25(3)(b) referred to 'claims' in respect of which an applicant was entitled to limit their liability, and undeniably contemplated the existence of more than one claim. The purpose of the powers under s 25(3) was to grant all the relief under the LLMC 1996 to which the controversy between the parties gave rise.

Rares J also referred to s 39B(1A)(c) of the Judiciary Act 1903 (Cth), which granted the Federal Court jurisdiction over any matter arising under a law made by the Parliament, including the Limitation of Liability for Maritime Claims Act 1989 (Cth) (the LLMCA). This legislation gives the LLMC 1996 the force of law in Australia. Section 9 of the LLMCA refers to persons who have had claims brought against them or anticipate such claims being brought, and permits these persons to apply to a relevant Court to determine the limit of their liability. In essence it resembles s 25 of the Admiralty Act 1988 (Cth), but does not exclude or limit that section's operation. In this case, SWL anticipated claims against it, and it applied to the Court to decide the limit of its liability with reference to the LLMC 1996.

Although SWL had initially only sought to limit its liability in regard to a single distinctive occasion under the LLMC 1996, this was justified as Esso's writ in rem against the APL Sydney had been based on only one cause of action for damages. Gard's LOU also only ever mentioned a single distinctive occasion, without contemplating the possibility that there were several, but Rares J considered that at the time neither Esso nor BHP seemed to realise that they could bring claims against SWL that had arisen on different occasions. The debate as to the number of distinct occasions was always present.

If the defendants' argument on jurisdiction held water, this would mean that shipowners would never be able to amend their pleadings under s 25 of the Admiralty Act 1988 (Cth) to limit their liability, if their opponent argued that claims had arisen from more than one distinct occasion. Shipowners retained the right under the LLMC 1996 to limit their liability in respect of more than one claim or occasion and to have multiple limitation funds.

Article 1.1 of the LLMC 1996 entitles shipowners to limit their liability in accordance with the rules concerning claims as provided in art 2. Article 2.1.a provides that liability for claims in respect of loss or damage to property occurring in direct connection with the operation of a ship, as well as consequential loss resulting from that damage, can be limited, no matter the basis of that liability. This is a broad, and substantive, right belonging to the shipowner.

The claims can arise from more than one distinct occasion, but the number of occasions is not always immediately clear to the parties. In Rares J's view, there was no good reason why an initial failure to identify the number of distinct occasions should lead to limitation proceedings failing for want of jurisdiction, and it would be particularly absurd considering that s 25(1) of the Admiralty Act 1988 (Cth) allows shipowners to invoke the Court's jurisdiction merely on the expectation that they will be sued, and that they will need to limit future liability.

There is nothing in the LLMC 1996 to imply that shipowners are prevented from limiting their liability for certain distinct occasions that they did not earlier identify. Once a Court's jurisdiction was invoked under s 25 to determine to what degree a shipowner could limit their liability under a Convention, that jurisdiction would not be limited by the number of distinct occasions foreseen by the shipowner.

Relief available to the shipowner

Esso and BHP also argued that they had fought the case on the pleadings, and that they had not assumed a positive burden of proof when they pleaded that there had been four distinct occasions, and that the onus of proof for each of these occasions fell on SWL as the shipowner seeking to limit liability. Because of this, they argued, SWL had not discharged its onus of proof, and the shipowner's case had no merit because it had been found that there was more than one distinct occasion. Further, in the defendants' view, the right to limit under the LLMC 1996 extended to the cumulative total of claims arising on a distinct occasion, and art 6 set out the total sum that could be placed into one limitation fund. Because of this, SWL needed to prove that all claims against them arose on the one occasion.

Rares J rejected all of these contentions, referring back to his earlier conclusion that the LLMC 1996 did not prevent shipowners from limiting their liability merely because they misapprehended the number of distinct occasions from which claims would arise. The scheme of the LLMC 1996 was that shipowners would be entitled to limit their liability for every distinct occasion, unless the circumstances described in art 4 applied. The art 4 exception is that shipowners cannot limit their liability when the event from which claims have arisen was caused by their personal act or omission, committed with the intent to cause it, or caused recklessly with the knowledge that such a result was likely.

It was noted, too, that the LLMC 1996 was an international treaty, not a domestic statute. Under art 15.1, it would apply whenever a person referred to in art 1 was seeking to limit their liability before the Court of a State Party to the Convention, or was seeking to have a ship or other property released to them. The current case fitted within these parameters, thus the LLMC 1996 applied.

The intent of arts 6, 7, and 9 was to pinpoint the limitation amount applicable to the total number of claims arising from each distinct occasion, and had the purpose also of placing some restrictions on the otherwise unqualified right to limit liability in arts 1.1 and 2. Article 2 itself does not refer to 'occasions', but to the right to limit liability regardless of the basis of that liability. Article 10 provides for the limitation of liability without constituting a limitation fund, which is the domain of art 11, meaning that art 10 is evidence of the shipowner's right to limit, but arts 11, 12, and 13 enable the enforcement of that right.

If SWL only created a limitation fund in respect of the first distinct occasion, the provisions of the LLMC 1996 would be of no use when claims arose from the second occasion. The finding in this case and in the previous proceedings that there were two distinct occasions was an invitation for SWL to create a limitation fund for both occasions. There was no compelling reason for denying shipowners their right to limit by narrowly interpreting the LLMC 1996. The right to limit is not a defence - rather, it is a means of limiting damages the shipowner would be obliged to pay.

Rares J also observed that because of the finding that there were two distinct occasions, SWL would be entitled to plead defences under the LLMC 1996 in separate proceedings, to the effect that it could limit its liability for both occasions. If SWL pleaded the effect of the Court's conclusions about there being two distinct occasions in the defendants' action for damages, it would be entitled to summary judgment, because an issue estoppel had been brought into being. The defendants' argument that there had been four distinct occasions had already been rejected, so these could not be relitigated. Shipowners are able to bring limitation proceedings under the LLMC 1996 even after they have been sued to judgment on a claim under art 2.1, and they may then establish a limitation fund in the following limitation proceedings, and make the judgment answerable only to that fund.

When there is more than one distinct occasion for which a shipowner may limit their liability, that right to limit is simultaneously restricted and expanded. It is restricted because a fund must then be established for each distinct occasion for which the shipowner wants to limit their liability, and expanded because the shipowner's right now encompasses every occasion for which a fund is established.

In regard to the situation when a shipowner is seeking to establish a limitation fund to free their ship from arrest or future arrest, mistaking the number of distinct occasions in the initial pleadings should not be an obstacle to that end. A limitation fund established on behalf of a ship has the same function as a fund created through the sale of a ship in an action in rem. Under art 13.1 of the LLMC 1996, when that fund is created, every person who has a claim (that is subject to limitation) must go through the fund. All maritime liens against the ship are removed upon creating the fund.

Can SWL can limit its liability under art 10 for more than one distinct occasion?

Rares J confirmed that no new issue would be raised by permitting SWL to rely on the finding in the previous case that there were two distinct occasions, not one. The key controversy in the previous case was always whether claims arose on one or more occasions, and the defendants continued to debate in this case the potential unfairness of allowing SWL to limit its liability with respect to the first distinct occasion, and to receive a declaration that it was entitled to limit in respect of the second. SWL's main position was never that more than one occasion had arisen, because its intention was to concentrate all liability into one occasion if possible. It was simply Rares J's conclusion in the prior case that there was more than one occasion, but not four occasions, as the defendants had argued, so neither party had 'won'.

Rares J decided to give effect to the findings he had made in the earlier case and to order that SWL constitute a limitation fund in respect of the first distinct occasion, as well as make a declaration in respect of the second.

His Honour sought to grant relief to the parties in such a way that would dispose of and finally determine the entire controversy as had been resolved in the prior case, when it was found that SWL could invoke limitation of liability for two distinct occasions. This would avoid multiplicity of proceedings, for the sake of convenience to the parties, the public, and the Court itself. Rares J disregarded the defendants' argument that the proceedings should be dismissed, because SWL could still plead and establish its right to limit its liability in respect of one or both distinct occasions in other litigation, all parties would be bound in such litigation by the issue estoppel created in this case, SWL would be entitled to summary judgment in respect of the distinct occasions issue in other proceedings, and because this case had already run for a considerable period of time and much effort and expense had been invested into it.

The practical solution (and the solution in the greatest public interest) was to support SWL's right to limit and the extent of that right, as provided in art 10 of the LLMC 1996.

It was consistent with SWL's initial pleadings as to the existence of a single distinct occasion that the Court should order SWL to establish a limitation fund for claims arising from that occasion. A declaration under s 25(3)(a) of the Admiralty Act 1988 (Cth) that SWL could establish a limitation fund for the claims arising from the second occasion would also reflect SWL's entitlement to limit its liability under art 10 of the LLMC 1996. Both of these orders would dispose of the matter at hand and prevent multiplicity of proceedings, as SWL would have nothing more to litigate in respect of its right to limit liability.

Release of security

Rares J rejected SWL's application for an order that the balance of the money that it paid into the Court, that exceeded the amount needed to constitute a limitation fund for the first distinct occasion, be returned to it. SWL's attempt to have the Gard LOU returned was also denied.

The money that Gard paid into Court on SWL's behalf as well as the letter of undertaking for the remainder was a substitute for the total value of the APL Sydney, and was intended to meet Gard's maximum possible liability. Rares J found that because of the findings about the two distinct occasions, this security would be insufficient to allow for the release of the LOU or the balance of the money paid into Court, unless SWL created a second limitation fund. Creating the second fund would limit all of SWL and Gard's possible liabilities under the LLMC 1996. Until then, the security provided for the release of the APL Sydney would have to remain untouched.

Nonetheless, the money that had already been paid into Court could be used to constitute the limitation fund for the first distinct occasion. In Rares J's view, this would leave sufficient security remaining to satisfy all claims arising from the second distinct occasion.