Take it to the limit (but no further)

In a recent judgment handed down on 12 April 2016, the Hong Kong Admiralty Court examined whether or not crew members' acts or omissions could be regarded as a shipowner's personal acts or omissions for the purposes of breaking limitation under the Convention on Limitation of Liability for Maritime Claims 1976 ("LLMC") [FN1].

LLMC in Hong Kong

Hong Kong first adopted the LLMC in 1993.  On 3 May 2015, the limitation levels were increased by the adoption of the 1996 Protocol.

With an increased level of limitation comes a heavier burden of proof on those who seek to break limitation.  In effect, a shipowner has an "almost indisputable right to limit" [FN2]. 

If a person seeks to break limitation, he must prove as per Article 4 of the LLMC that his loss resulted from a shipowners' "personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result".

Brief Facts

On 23 March 2014 at about 3.00am, the barge FLOATA 97 ("Barge") arrived at the North Lamma anchorage in Hong Kong and anchored next to the vessel HEUNG-A SINGAPORE ("Vessel") to assist with the unloading of containers from the Vessel.

During the course of operations, some of the containers fell onto the Vessel whilst others fell into the sea.  

It was found on investigation by the Hong Kong Marine Department that the cause of the incident was that:

• the containers on the Barge were not evenly distributed to prevent undue listing of the Barge,
• the containers on the Barge were not properly stowed and secured, and
• no risk assessment had been conducted prior to commencement of the cargo works.

The derrick operator on the Barge was prosecuted for failing to load, stow and secure cargo such as to prevent its loss overboard [FN3].  He pleaded guilty and was fined HK$2,500. 

Analysis

The Plaintiff was the registered owner of the Barge and applied to the Hong Kong Court to limit its liability in the face of claims by the Vessel and cargo owners.  The applicant, Mr Cheung Wai Yiu, was a defendant in the action, being a person claiming to have sustained loss or damage by reason of the incident.  Mr Cheung claimed to be the owner of a cargo of automobile accessories stored in one of the containers that fell into the sea, and he applied to break limitation.

The Court held that in order for Mr Cheung to succeed in breaking limitation, he had to establish by evidence sufficient prima facie grounds that:

• the loss of the container resulted from a personal act or omission of the Plaintiff Barge owner which was reckless, and
• actual knowledge of the Plaintiff that such loss (i.e. the loss of the container) would probably result.

Mr Cheung relied upon the actions of the crew on board the Barge, in particular the derrick operator, to show that there was a "personal act or omission" on the part of the Barge owners.

The issue before the Court was whether the crew members' acts or omissions could be regarded as the Barge owners' personal act or omission for the purposes of breaking limitation.  The Court held that they could not.

It is trite law that an incident caused by the acts of the Master or crew of a vessel would generally not be regarded as an act of the shipowner [FN4].  Only actions attributable to the shipowning company's management at board level, or the actions of someone such as the head of the traffic department with responsibility for running its ships, could be regarded as someone whose acts were the very acts of the company itself.

This approach to determining a shipowning company's acts or omissions (or "actual fault or privity" as the case may be) dates back over 100 years [FN5].  In these cases, it was held that the offending "fault or privity" element had to be that of not merely a servant or agent, but somebody for whom the company is liable because his action would be regarded as an action of the company itself.  As such, the wrongs of servants or agents in themselves would not constitute the "actual fault or privity" of the shipowner.

In the same vein, under the LLMC a shipowner's right to limit its liability would not be defeated by the wrongs of its servants or agents, including its Master and/or crew.  Therefore, the acts or omissions of the Barge's crew in this instance did not constitute a "personal act or omission" of the Barge owners.

On this basis, Mr Cheung failed to establish that his loss resulted from a personal act or omission of the Barge owners, and his attempt to break limitation failed.

Conclusion

In Hong Kong, the position remains that shipowners are prima facie entitled to limit their liability pursuant to the LLMC (with the 1996 Protocol limits).  The Admiralty Court is mindful that with a higher level of limitation comes a heavier burden of proof on those who seek to break limitation, and it is accordingly very difficult to do so.

Hong Kong therefore remains an attractive jurisdiction in which to commence limitation proceedings pursuant to the LLMC.

[FN1]  Floata Consolidation Limited v Man Lee Hing (Hong Kong) Vehicles Limited & Ors (HCAJ 178/2014)

[FN2]  The Bowbelle [1990] 1 WLR 1330, cited with approval in The MSC Rosa M [2000] 2 Lloyd's Rep. 399 and The Leerort [2001] 2 Lloyd's Rep. 291

[FN3]  Contrary to sections 34(4) and 34(5) of the Merchant Shipping (Local Vessels) (General) Regulations (Cap. 548F)

[FN4]  The Lady Gwendolen [1965] P 264

[FN5]  Lennard's Carrying Co v Asiatic Petroleum Co Ltd [1915] AC 705, more recently applied in Meridian Global Fund Management Asia Ltd v Securities Commission [1995] 2 AC 500