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Can a claimant always pick the jurisdiction with the highest limitation of liability? Round two

News / / London

Pusan Newport Co Ltd v. Owners and/or demise charterers of the ships or vessels “Milano Bridge” and “CMA CGM Musca” and “CMA CGM Hydra” (Milano Bridge) [2022] HKCA 157
We have previously reported on the first instance decision in this matter (read here), in which the defendant Owners (represented by Ince Hong Kong) were successful in obtaining a stay of proceedings brought in Hong Kong by the plaintiff Terminal.

Following the first instance decision, the Terminal sought leave to appeal.  The application for leave to appeal was refused by the first instance judge (see [2021] HKCFI 1653), but was renewed before the Court of Appeal. A rolled-up hearing of both the application for leave to appeal and the substantive appeal took place on 5 November 2021. At the conclusion of that hearing, the Court indicated that it was granting leave to appeal, but reserved its judgment on the substance of the appeal. That judgment has now been handed down.

The background facts

On 6 April 2020, the containership Milano Bridge allided with a berth and multiple gantry cranes at Busan, South Korea. The terminal at which the incident occurred was operated by Pusan Newport Co Ltd (the “Terminal”)

Shortly after the incident, the Owners of the Milano Bridge constituted a limitation fund in South Korea. As a matter of Korean law, the limitation amount was to be determined by reference to the law of the flag of the vessel, which in this case meant Panamanian law.  Under Panamanian law, the limit was as prescribed by the Convention on Limitation of Liability for Maritime Claims 1976 (“LLMC 1976”) in its original form, without any subsequent increase or amendment. The relevant limitation figure was thus approximately US$ 24m. There were also a number of other actions commenced before the Korean courts arising out of the same incident.

A short time later, on 24 June 2020, the Terminal arrested a sister ship of the Milano Bridge, the CMA CGM Musca, in Hong Kong. In order to obtain the release of the CMA CGM Musca, security in a sum of approximately US$ 83m was provided. That figure was calculated by reference to the limitation amount under Hong Kong law, Hong Kong having enacted both the 1996 Protocol to the LLMC 1976 and the 2015 revisions thereto.

In July 2020, the Terminal also commenced proceedings in Japan, where the Owners of the Milano Bridge are incorporated. The limitation amount under Japanese law would be essentially the same as that under Hong Kong law.

The first instance decision

The Terminal served its Statement of Claim in the Hong Kong proceedings commenced by the arrest of the CMA CGM Musca. The Owners then sought a stay of the Hong Kong proceedings, on grounds of forum non conveniens. The application for a stay was heard by the Admiralty Judge, the Hon. Mr Justice Anthony Chan, on 29 April 2021. As mentioned above, the Owners were successful at first instance in their application for a stay and it is against that decision which the Terminal appealed.

The test

In deciding matters of forum non conveniens, the Hong Kong courts apply the test as set out by the House of Lords in The Spiliada [1986] UKHL 10, as endorsed by the Hong Kong Court of Final Appeal in SPH v. SA [2014] HKFCA 56.

In order to obtain a stay, the applicant will have to establish, first, that Hong Kong is not the natural or appropriate forum and, second, that there is another available forum which is clearly or distinctly more appropriate than Hong Kong (stage 1). If the applicant can establish both of those things then the plaintiff must show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong (stage 2). If that is shown, the Court will balance the advantages of the alternative forum with the disadvantages which the plaintiff may suffer (stage 3).

In this case, it was common ground that Hong Kong was not the natural or appropriate forum.  At first instance, the plaintiff had disputed that South Korea was clearly or distinctly more appropriate. However, that contention was not pursued on appeal and it was, therefore, common ground that the first stage of the test discussed above was to be determined in the Owners’ favour.

It had never been disputed that the availability of a higher tonnage limit in Hong Kong was a juridical advantage to the Terminal of proceeding in Hong Kong, rather than in South Korea. However, the Terminal had sought to argue at first instance that this advantage was decisive and meant that a stay had to be refused. That argument was rejected at first instance and was not pursued on appeal.

The appeal focused on the judge at first instance having castigated the Terminal’s actions in seeking to proceed in Hong Kong as “forum shopping” and contended that the judge had thus not placed sufficient weight on the juridical advantage of the higher tonnage limit when conducting the balancing exercise at stage 3 of the Spiliada exercise. On that basis, the Terminal contended that the first instance decision should be set aside and the discretion re-exercised by the Court of Appeal. The Terminal further argued that the discretion should be exercised against a stay, on the basis that the limitation figure available in South Korea would not represent substantial justice.

The Court of Appeal Decision

The Court of Appeal accepted that the first instance judge had erred in characterising the Terminal’s actions pejoratively as “forum shopping”. The decision emphasises that this is only a conclusion to be drawn after working through the entire Spiliada analysis, in the event that it is found that the other forum is more suitable for the interests of all the parties and the ends of justice. In other words, seeking a juridical advantage of a higher limit of liability by seeking to bring proceedings in Hong Kong is not necessarily forum shopping, even if there are no connections to Hong Kong other than a vessel having called in the jurisdiction and been arrested.

It followed from this first conclusion that the Court of Appeal was entitled to exercise afresh the discretion as to whether or not to grant the stay, which it duly did.

In re-exercising the discretion, the matter to be decided was whether, balancing the advantages and disadvantages to both parties of the alternative forum, it could be established that substantial justice would still be done there.

The Court of Appeal rejected the Terminal’s submission that the lower limit under Panamanian law (and thus applicable in South Korea) was a consequence of legislative inaction or oversight. It also did not accept that the 1996 Protocol represented international public policy, bearing in mind how many jurisdictions have not implemented the 1996 Protocol.

The Court of Appeal accepted that the higher tonnage limit in Hong Kong was an advantage which the Terminal would lose if the matter were tried in South Korea. However it considered that this was outweighed by the “overwhelming” connections with South Korea which the Owners relied upon. The Court emphasised in particular that the Terminal was a Korean company and had chosen to carry on business there operating a terminal although it was aware of the risk that allisions might occur. The Terminal could not, in the Court’s view, then complain about being forced to try the matter in its own courts, all the more so where that was where the alleged tort occurred.

Importantly, the Court of Appeal recognised the wider implications if a stay were to be refused in a case of this kind:

If this action is allowed to proceed for the reason of the advantage relied on, it will be hard to imagine any case, where limitation has a significant impact, in which the Hong Kong court will not pronounce that justice is not obtainable in the natural and otherwise clearly more appropriate forum simply because that jurisdiction applies the unrevised 1976 Convention limit. In my opinion that would not be an approach in keeping with comity.

The Court went on to distinguish other previous cases in which the contrary conclusion had been reached, emphasising the extent to which each decision in this area will turn on its own facts.

Comment

Much like the first instance decision, this decision will certainly be welcomed by shipowners and their insurers seeking to limit their liability for major incidents. The confirmation that the availability of a higher limit is only one factor among many, rather than always being decisive, will be especially welcome. As the quotation above illustrates, had the contrary decision been reached then that would have had very significant implications in terms of allowing almost any case of this kind to proceed in Hong Kong, regardless of how weak the connections to the jurisdiction might be.

It remains to be seen whether the Terminal will seek leave to take the matter to the Court of Final Appeal.

The authors of this article acted for the successful Owners in this matter.
Ruaridh Guy

Ruaridh Guy Partner

Richard Oakley

Richard Oakley Partner

Alex Ngai

Alex Ngai Associate

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