In Perusahaan Perseroan (Persero) PT Pertamina v Trevaskis Ltd [2023] HKCFA 20, the Court of Final Appeal (“CFA”) held that the owner of a vessel involved in a collision cannot rely on the Convention on Limitation of Liability for Maritime Claims 1976 (the “Convention”), which had been incorporated into the laws of Hong Kong by the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434) (the “Ordinance”), to limit its liability for claims in respect of the other ship’s wreck removal costs.

Background

In January 2019, the Appellant’s ship “ANTEA” collided with the “Star Centurion” in Indonesian waters. As a result of the collision, “Star Centurion” was a total loss. The Indonesian officials issued a wreck removal order requiring the owner of “Star Centurion” to remove the wreck. The Appellant has accepted that “ANTEA” was entirely responsible for the collision.

The owner of “Star Centurion” commenced proceedings in Hong Kong against the Appellant claiming damages for loss of the vessel and the wreck removal expenses. The Appellant commenced proceedings in Hong Kong against the owner of “Star Centurion” and all other persons claiming or entitled to claim damages arising from the collision (the “Respondents”) to limit its liability to their claims pursuant to the Convention, which was incorporated into the laws of Hong Kong by the Ordinance.

The Appellant paid HK$175,062,000 to the Court to constitute a limitation fund (the “Limitation Fund”), which is to be distributed among claimants in proportion to their established claims against the Limitation Fund.

The wreck removal expenses incurred by the Respondents as at 6 August 2020 was approximately HK$139 million, and was expected to increase. As a result, the Respondents’ claims against the Appellant are likely to exceed the amount of the Limitation Fund so that there will certainly be little left to cover the actual loss of “Star Centurion”. The Respondents sought a declaration in the Appellant’s limitation proceedings that the Appellant is not entitled to limit its liability to the Respondents for the wreck removal expenses incurred by them. Article 2(1)(d) of the Convention provided that claims in respect of wreck removal are subject to limitation of liability. However, according to Article 18(1), any contracting state of the Convention may exclude the application of Article 2(1)(d) when the Convention is to be incorporated in local laws. In Hong Kong, Article 2(1)(d) was disapplied by s15 of the Ordinance pursuant to Article 18(1). The Respondents argued that since the application of Article 2(1)(d) has been excluded, their claims in respect of wreck removal were not subject to limitation.

At the Court of First Instance, the Court agreed with the ground raised by the Respondent and held that the Appellant is not entitled to rely on Article 2(1)(d) of the Convention to limit their liability. The Court of Appeal upheld the decision of the Court of First Instance for the same reasons.

The issue

Article 2(1)(a) of the Convention provided that claims in respect of loss of or damage to property in direct connexion with the operation of the ship or salvage operations, and consequential loss resulting therefrom are subject to limitation of liability. The Appellants argued that wreck removal costs fall within the scope of Article 2(1)(a), and so its liability for claims in respect of wreck removal expenses could be limited pursuant to Article 2(1)(a).

Leave to Appeal to the CFA was granted on the following question: “Where a Contracting State has enacted [the Convention] Article 2(1) in full into local law but has, by a provision of local law (pursuant to Article 18), disapplied (permanently or temporarily) head (d), is a shipowner nonetheless entitled to limit its liability for a Private Recourse Claim under head (a), or does the existence and/or suspension of head (d) exclude the shipowner’s reliance upon head (a) for such claims?”

Appeal dismissed

The CFA dismissed the Appellant’s appeal and held that a shipowner is not entitled to limit its liability for claims in respect of wreck removal costs.

Reading the Convention as a coherent whole and in accordance with common sense and ordinary usage, Article 2(1)(d) was unqualified in its scope of limiting liability, regardless of the legal basis of the claim or the identity of the claimant as a private claimant or harbour authority. What mattered was the relationship between the Respondents’ claim and the factual basis of occurrence of the loss or expense in respect of which the claim was made.

In this case, the Respondents’ claim in respect of the expenses incurred from the wreck removal falls within in the scope of Article 2(1)(d). If such claim could be interpreted as being consequential to the sinking of the ship, it would also fall within the scope of Article 2(1)(a). However, this would render Article 2(1) incoherent since if such claim is regarded as a claim under Article 2(1)(d), the liability of the defendant could not be limited if the contracting state disapplies Article 2(1)(d) pursuant to Article 18(1), but if such claim is regarded as a claim under Article 2(1)(a), such liability could be limited.

Article 18(1) of the Convention assumes that a claim of the kind set out in Article (2)(1)(d) is identifiable, i.e. any claim in respect of wreck removal expenses, so that it can be disapplied by the legislature of a contracting state. The evident purpose of Article 18(1) can be achieved only if the disapplication of Article 2(1)(d) by the contracting state is effective, even though the expenses of wreck removal might also fall within the language of Article 2(1)(a).

The CFA also rejected the Appellant’s argument that Article 2(1)(d) of the Convention was concerned with claims by harbour authorities only, holding that such a qualification to the scope of Article 2(1)(d) had no basis in the wording of the Convention.

Key takeaways

When collision of vessels occurred and wreck is to be removed, shipowners shall be mindful that they could not rely on Article 2(1)(d) of the Convention to limit their liability for claims in respect of expenses incurred from wreck removal in Hong Kong, as the application of Article 2(1)(d) has been expressly excluded by s 15 of the Ordinance pursuant to Article 18(1) of the Convention.