In September 2019, the Hong Kong Court of Appeal released a judgment (Bright Shipping Ltd v Changhong Group (HK) Ltd CACV 102/2019) (the “Hong Kong Action”) which sheds light on the approach taken by the Hong Kong Court in deciding whether an action should be stayed based on the ground of forum non-conveniens where there are parallel proceedings in different jurisdictions.

Case background

On 6 January 2018, a collision at sea occurred between a cargo vessel, CF Crystal (“Crystal”) owned by the Defendant (“Changhong”) and a tanker, SANCHI (“Sanchi”) owned by the Plaintiff (“Bright Shipping”). Sanchi exploded immediately upon collision and both vessels caught fire. Crystal managed to escape the fire yet Sanchi sunk on 14 January 2018. The collision resulted in pollution due to the split bunkers of both vessels and natural gas condensate from Sanchi.

The collision took place at about 125 nautical miles from Changjiang Kou Light Ship in the East China Sea, outside of the PRC’s territorial waters but within the PRC’s exclusive economic zone (“EEZ”). Article 3 of the United Nations Convention on the Law of the Sea (“UNCLOS”) provides that the breadth of the territorial sea does not exceed 12 nautical miles. Article 55 of UNCLOS defines the EEZ as an area beyond and adjacent to the territorial sea. Article 57 provides that the breadth of the EEZ shall not extend beyond 200 nautical miles. The point of collision appears to lie within the EEZ of Korea and Japan.

Procedural History in Hong Kong and Shanghai

The collision was followed in the personam collision action brought by Bright Shipping against Changhong in Hong Kong on 9 January 2019 and a number of legal actions in the Shanghai Maritime Court (“SMC”), including the constitution of two limitation funds by Changhong in SMC on 9 January 2019.

The Hong Kong Action was an appeal brought by the defendant, Changhong against the decision of Anthony Chan J on 15 November 2018 dismissing its application to stay an action brought in Hong Kong by Bright Shipping on the ground of forum non-conveniens. The Court of Appeal (“CA”) was invited to decide the correct approach to be taken in an application for stay of an action on the ground of forum non-conveniens when there are parallel proceedings in different jurisdictions.

Legal principles governing application for
stay of proceedings for forum non-conveniens

The CA referred to SPH v SA (2014) 17 HKCFAR 364 which summarized the principles governing the application for stay of proceedings for forum non-conveniens in Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460 and held that:

1.         The single question to be decided is whether there is other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action, i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

2.         The applicant must establish two elements: first, Hong Kong is not the natural or appropriate forum, i.e. the forum has the most real and substantial connection with the action; and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong (“Stage 1 Analysis”).

3.         After the applicant establishes the two elements, the respondent must show that he will be deprived of a legitimate personal or judicial advantage if the action is tried in a forum other than Hong Kong (“Stage 2 Analysis”).

4.         The Court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court's satisfaction that substantial justice will be done in the available appropriate forum.

The CA further held that it may only interfere with an application for a stay for forum non-conveniens which involves the exercise of discretion in three circumstances:

1.         The judge misdirected himself with regard to the principles in accordance with which his discretion had to be exercised;

2.         The judge, in exercising his discretion, has taken into account matters which he ought not to have done or failed to take into account matters which he ought to have done; or

3.         The judge’s decision is plainly wrong.

It was also held by the CA that “the fact that an appellate court would have given more weight than the judge to one of the many factors to be taken into account in exercising the discretion is not a ground for interfering with the exercise of his discretion”.

Issue

The major issue face by the CA is whether Changhong can satisfy the second question of the Stage 1 Analysis, i.e. whether SMC is clearly and distinctly more appropriate than Hong Kong as the forum for the trial of the inter-ship action.

To satisfy the requirement, Counsel for Changhong submitted two arguments in relation to two fundamental errors made by the Judge:

1.         The judge’s use of the term “international waters” as the location of the collision is inapt in the context of an EEZ. He failed to appreciate the link between the collision and the claims for incident response costs and environmental damage (for greater amounts than the inter-ship losses as claimed) brought in the SMC, which has exclusive jurisdiction over those claims and in which Changhong has established two limitation funds to avail itself of its rights of limitation, hence making the SMC clearly and distinctly more appropriate than Hong Kong as the forum for the inter-ship action. He made no reference to the national laws relating to the exercise of the sovereignty of the PRC over the EEZ which apply in Hong Kong.

2.         The judge’s analysis in respect of lis alibi pendens (i.e. parallel proceedings in different jurisdictions) is wrong in law in that he applied the test that proceedings abroad involving the same issue are not of itself a material factor for the consideration of forum non-conveniens and where there are such proceedings the defendant must show unusual hardship to achieve a stay of proceedings.

Decision

The CA held that both arguments submitted by the Defendant cannot stand and the judge’s approach remains correct.

Regarding the first argument, CA held that the focus is on the appropriateness of the forum from the point of view of the trial of the action and on that basis considered the primary issues for trial, namely, the inter-ship apportionment of liability and the assessment of the respective quantum of loss, from the angle of the evidence likely to be adduced for those issues. The claims for incident response costs and environmental damage brought in the SMC do not make the SMC more appropriate forum for the trial of the inter-ship claim in the present action.

It was held that the Constitution of limitation funds in the SMC is not a legal bar to bringing proceedings in Hong Kong in the present case. Hong Kong is a state party to the Convention on Limitation of Liability for Maritime Claims (“LLMC”). Article 13 of the LLMC provides for the barring of other actions but this is expressly predicated on there being a fund constituted in accordance with Article 11 in any state party in which legal proceedings are instituted. Since China is not a state party to the LLMC, there is no statutory bar on Bright Shipping bringing any action against Changhong in Hong Kong, notwithstanding the constitution of the limitation funds by Changhong in the SMC.

Regarding the second argument, CA ruled that since Bright Shipping has never submitted itself to the jurisdiction of the SMC, the possibility of conflicting decisions and the problem relating to estoppel per rem judicatam and issue estoppel will not arise. The mere disadvantage of multiplicity of suits cannot of itself be decisive in tilting the scales; but multiplicity of suits involving serious consequences with regard to expense or other matters, may well do so. The judge was correct in applying the test of undue hardship that must be shown to achieve a stay of proceedings, i.e. the general rule that a multiplicity of proceedings is insufficient to stay an action may be departed from in exceptional cases where the bringing of the home action while the foreign action was processing might cause an unusual hardship to a particular defendant.

In the end, the CA dismissed the appeal and held that there was no basis to interfere with the judge’s assessment that lis alibi pendens and related proceedings do not tip the balance in the Stage 1 Analysis.

Conclusion

Due to the inherent cross border nature of the shipping business, disputes in the shipping industry often involve multiple jurisdictions. The Court of Appeal decision in the Hong Kong Action provides clear guidance on the approach taken by the Hong Kong Court in deciding whether an action should be stayed on the ground of forum non-conveniens where there are parallel proceedings in different jurisdictions.  In particular, the fact that the limitation funds are set up in another non-LLMC jurisdiction would not bar any legal proceedings in Hong Kong.  Therefore, it is of pivotal importance that parties to shipping disputes, in deciding its choice of jurisdiction to set up any limitation funds, to check whether the jurisdiction is a state party to the LLMC so as to enable the constitution of the limitation funds to achieve its purpose of limiting liabilities.