Introduction

Oftentimes more than one court have jurisdiction over claims arising out of a shipping collision. Parties will naturally prefer the jurisdiction which will be advantageous for them to proceed. As a result, disputes arise as to which jurisdiction is the appropriate forum. In the recent Court of Appeal case 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” [2022] HKCA 157, the Court of Appeal considered whether the conduct of litigation in a jurisdiction with a higher tonnage limit amounts to forum shopping.

Facts

The Plaintiff operates a commercial terminal (“Terminal”) with large gantry cranes at the port of Busan, South Korea. The Defendants are the joint owners of the vessel “Milano Bridge”, registered in Panama and flies the Panamanian flag.

In April 2020, an incident occurred at the Terminal where Milano Bridge allided with the cranes at the Terminal and another vessel (“Incident”). The cranes were damaged as a result. At the time of the Incident, Milano Bridge was under compulsory pilotage of a Korean pilot and was assisted by Korean tugs. Korean contractors were also conducting maritime works to remove a small island nearby.

The Plaintiff’s claim is that the Defendants, their servants or agents were negligent in the navigation or management of Milano Bridge, causing the Incident and thus the loss and damage to the Plaintiff. The sum claimed by the Plaintiff against the Defendants was over US$90 million.

The Plaintiff commenced an in-rem action against the Defendants in Hong Kong (the “Hong Kong Action”) where the vessel “CMA CGM Musca”, a sister ship of the Milano Bridge also owned the Defendants, was arrested at Hong Kong in June 2020. At the same time, the Plaintiff commenced similar proceedings against the Defendants in Japan, where the Defendants were incorporated. On the other hand, the Defendants commenced an action against the Plaintiff in South Korea, where the Incident took place, and a limitation action in South Korea (the “Korean Actions”) and deposited about US$24 million to constitute the limitation fund for the Korean Actions.

The Defendants took out a Summons seeking a declaration that the Hong Kong court should not exercise any jurisdiction it may have and a permanent stay of the Hong Kong Action.

Limitation of liability

By virtue of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434), Hong Kong adopted the Convention on Limitation of Liability for Maritime Claims 1976 (“1976 Convention”) as amended by the Protocol of 1996 (“1996 Protocol”) including the June 2015 limit increases. The applicable tonnage limit under Hong Kong law for the Hong Kong action is therefore about US$82.6 million.

On the contrary, South Korea enacted a domestic limitation regime, under which the questions of (1) whether a shipowner is entitled to limit liability and (2) if so in what amount, are to be determined by reference to the law of the flag of the vessel concerned. In the present case, the law of Panama governs these two questions. Panama has not ratified the 1976 Convention but substantially reproduces its original terms in its domestic legislation, which means not incorporating the subsequent increases in limit. In the circumstances, the applicable limit to the Korean Actions will be about US$24 million.

As such, the maximum amount recoverable by the Plaintiff in the Hong Kong Action is more than that recoverable in the Korean Actions by about US$58.6 million.

High Court decision

The High Court Judge allowed the Defendants’ application on the ground of forum non conveniens. The Judge adopted the 3-stage test established by the House of Lords in Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460 (“Spiliada Test”) in deciding whether the Hong Kong Court is an appropriate forum:

·         In Stage 1, the defendant must establish that (1) Hong Kong is not the natural or appropriate forum; and (2) there is another available forum clearly or distinctly more appropriate than Hong Kong. ‘Appropriate’ means having the most ‘real and substantial’ connection with the action.

·         In Stage 2, the plaintiff may show that if the action is tried in a forum other than Hong Kong he will be deprived of a legitimate personal or juridical advantage available to him in Hong Kong;

·         In Stage 3, the court balances the advantages of trial in the alternative forum with the disadvantage(s) the plaintiff will suffer. The defendant has to establish that substantial justice will be done in the available appropriate forum.

In going through the Spiliada test, the Judge noted it was common ground that the higher tonnage limit in Hong Kong was a juridical advantage in favour of the Plaintiff. Yet, the Judge considered choosing Hong Kong as a forum primarily on the higher tonnage limit amounts to forum shopping by the Plaintiff. The Judge further cited the case The Adhiguna Meranti [1987] HKLR 904 to support that the deprivation of juridical disadvantage would not outweigh a case where proceedings were commenced in Hong Kong for little more than reason of forum shopping. The Plaintiff appealed against the Judge’s decision to the Court of Appeal.

Court of Appeal’s decision

The Court of Appeal held that the advantage of higher tonnage limit is conferred by Hong Kong law and should be regarded as a legitimate juridical advantage. This should have led to a favourable conclusion for the Plaintiff in Stage 2 of the Spiliada test. Yet, the High Court Judge failed to do so and incorrectly characterized the Plaintiff’s conduct of litigation in Hong Kong because of the higher tonnage limit as “forum shopping”. Further, the High Court Judge erred in giving this juridical advantage little or no weight when carrying out the balancing exercise under Stage 3 of the Spiliada test.

Despite the High Court Judge’s erroneous characterization, in exercising the discretion afresh, the Court of Appeal considered that justice will be obtainable in the Korean Actions, with South Korea being the natural and appropriate forum to which the claim is strongly connected. The Court of Appeal did not consider that the 1996 Protocol represents international public policy such that sending a plaintiff away to a foreign forum with a lower limit will be contrary to public policy. The Court of Appeal therefore dismissed the appeal.

Key takeaway

The Court of Appeal made it clear that commencing proceedings in Hong Kong with a view to obtaining the juridical advantage of a higher limit of liability should not in itself be categorized as forum shopping or render the Hong Kong Court jurisdiction not an appropriate forum. On the other hand, the mere presence of such juridical advantage will not lead to a conclusion that the Hong Kong Court jurisdiction is an appropriate forum and that a stay application should be refused. It is a factor to be balanced against the advantages of the alternative forum in Stage 3 of the Spiliada test.