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Raising wreck recoveries

Wednesday, 23 August 2023 | 00:00
A significant new judgment issued by the Hong Kong SAR Court of Final Appeal (CFA) is likely to add new impetus to tactical considerations for parties where a collision results in wreck removal.

The question before the court in Perusahaan Perseroan (Persero) Pt Pertamina v Trevaskis Ltd and Others [2023] HKCFA 20 (STAR CENTURION c/w ANTEA 13 January 2019) was whether the owner of a vessel involved in a collision can limit liability for claims in respect of the other ship’s wreck removal costs under the Convention on Limitation of Liability for Maritime Claims 1976 (LLMC).

The CFA concluded that the answer is ‘No’.

As a result, although a shipowner can limit its liability to the other vessel for damages in respect of loss of property (and personal injury, etc.) the recovery claim for the costs of wreck removal is not limited, and so is potentially recoverable in full.
In the Hong Kong case, the wreck removal costs alone were approximately HK$139m (US$17.828m) as against a limitation fund of HK$175m (US$22m). The total claims substantially exceeded the fund.

Following the judgment in Hong Kong, not only might the owners of sunken vessels be minded to seek to seize the courts of Hong Kong with jurisdiction for their collision actions, but they might also seek to test the position in other LLMC jurisdictions, particularly common law jurisdictions.

There is a degree of difference globally as to the interpretation of the LLMC. For example, in the Netherlands the wreck removal claim is also limited but in a separate fund; in Norway a recent judgment held that claims between ships were to form part of the property fund; and in England the position “remains unclear, with meritorious arguments both in favour and against limitation in respect of recourse claims for wreck removal expenses” (Limitation of Liability for Maritime Claims, Griggs et al, 4th Edition, Chapter 3) but with a palpable market presumption, at least prior to the CFA decision, that wreck removal claims would also form part of the same property fund.

The net exposure for the innocent vessel will therefore likely vary significantly depending on the jurisdiction(s) seized with the claim and fund.

Provision

The primary relevant provision of the LLMC is Article 2, which provides (in extract) as follows:

‘Article 2: Claims subject to limitation

1. Subject to Articles 3 and 4 the following claims, whatever the basis of liability may be, shall be subject to limitation of liability:

a) Claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connection with the operation of the ship or with salvage operations, and consequential loss resulting therefrom; …

d) Claims in respect of the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship; …

2. Claims set out in paragraph 1 shall be subject to limitation of liability even if brought by way of recourse or for indemnity under a contract or otherwise. However, claims set out under paragraph 1(d), (e) and (f) shall not be subject to limitation of liability to the extent that they relate to remuneration under a contract with the person liable.’

Article 18(1) provides that contracting states may reserve the right to exclude the application of Article 2(1)(d) and in both England and Hong Kong the implementing legislation had the effect of not applying Article 2(1)(d).

Questions have arisen as to whether, despite Article 2(1)(d) not applying in England or Hong Kong, claims for indemnities for wreck removal costs between the parties would nonetheless be limited by the broad terms of Article 2(1)(a), which covers consequential losses.

Approach in England

There is yet to be a directly applicable precedent in England, but many have held the presumption that the English court might find inter-party wreck removal claims fall within Article 2(1)(a), and so fall to be limited.

It is clear as a matter of English law that a purposive construction must be given to international conventions, leading Thomas J in The Aegean Sea [1998] 2 Lloyd’s Rep. 39 to find himself encouraged by the applicable precedent on interpretation to apply the LLMC to all cases which can reasonably be brought within its language.

It has been suggested that the decision by the legislators not to bring Article 2(1)(d) into force arises from the concern that harbour authorities should be able to recover the full cost of wreck removal, and not be left under-compensated. There is no evidence of an intention to prevent limitation of inter-ship recourse claims for wreck removal expenses, viewed as limited by the (pre-convention) judgment in The Arabert (No.2) [1961] 1 Lloyd’s Rep. 363.

The LLMC also excludes salvage costs from limitation when incurred directly with a salvor, in Article 3, but if the party that incurred salvage costs (or contributions) submits an indemnity claim in damages against the other party, then that claim would be limited under Article 2(1)(a), as was held by the English Court in The Breydon Merchant [1992] 1 Lloyd’s Rep. 373. Commentators have therefore suggested an English court would likely continue The Arabert approach and be willing to view wreck removal costs the same way.

Hong Kong Courts’ approach

In the Court of First Instance judgment the court focused on the maxim ‘generalia specialibus non derogant’ (general provisions do not overrule specific provisions), and so reasoned that the general provisions of Article 2(1)(a) should give way to the specific provision for wreck removal claims in Article 2(1)(d) – and the deliberate intention of the domestic legislature not to apply that provision. The view was taken that as Article 18(1) separates Article 2(1)(d) from the others, to construe a wreck removal claim as nonetheless included would render that provision and the decision not to implement Article (2)(1)(d) meaningless.
The Court of Appeal agreed with the lower court, and noted that there is no distinction in the wording of Clauses 2(1)(d) or 18(1) between statutory, common law, private, or consequential wreck removal costs (i.e. to evidence the intention to protect harbour authorities).

The CFA referenced the English judgments in The CMA Djakarta [2004] 1 All ER (Comm) 865 and The Ocean Victory [2017] 1 WLR 1793 to note that the task of the court in construing the convention is to do so ‘without any English preconceptions’, including those stemming from The Arabert, or otherwise in respect of any distinction between damages and debt/under statute.

As to the maxim, the CFA noted it was only part of a more general principle, to give effect to the coherent whole of a document. The CFA therefore agreed it was relevant that 2(1)(d) concerns only wreck removal expenses, and Article 2(1)(a) makes no mention of wreck removal at all. There is also no qualification in Article 2(1)(d) between claims by harbour authorities as against shipowners. The court further noted the Article 18(1) would not be given effect if a contracting state disapplied Article 2(1)(d) (as England and Hong Kong have) yet expenses of wreck removal fell within other heads of Article 2(1).

Reference was made to a similar Australian judgment (in respect of the 1957 limitation convention), in which the majority found that if the wreck removal claim fell within the equivalent of Article 2(1)(a), the deliberate intention of the parliament not to include the equivalent of Article 2(1)(d) would have ‘achieved nothing’, but did not even need to rely on the maxim in the process.

Further, Article 2(2) states expressly that claims under Article 2 shall be subject to limitation of liability even if brought by way of recourse or for indemnity under a contract or otherwise.

As to the alleged ‘harbour authorities’ distinction, the CFA noted that interpretation would require an implied amendment to Article 2(1)(d) to the effect that it provided specifically for ‘claims by harbour authorities in respect of’ wreck removal, but there was no reason for reading those extra words in, and that doing so would be inconsistent with both the express provisions of the chapeau to Article 2(1) and the terms of Article 2(2).

As to The Breydon Merchant arguments, in effect that as salvage indemnity claims fall under Article 2(1)(a), wreck removal indemnity claims should also do so, the CFA acknowledged that The Breydon Merchant judgment was correct. However, whereas in The Breydon Merchant the cargo owner’s claims could be limited as they were found to be properly categorised as claims for damages for breach of contract (rather than claims for salvage services performed) the CFA declined to extend that approach to wreck removal. The CFA noted that nothing in Article 2(1) encourages doing so, and even where the legal basis for the claim included consequential loss, it remains ‘perfectly sensible’ to say that the loss or expense that is the factual basis of the claim is the expense of wreck removal.

Comment

As alluded to above, although the judgment arguably places Hong Kong as an outlier in its desirability of jurisdiction for the wrecked ship, with the potential for unlimited recovery for wreck removal claims, that outlier status might not remain for long.

It is not inconceivable that the lower level courts of some LLMC contracting states might find the CFA judgment persuasive to them by deference alone, and others may find it persuasive in general application.

Nonetheless, in light of both the English precedent and the general presumption to the opposite, it cannot be ruled out that the same question might be determined differently in other courts, in particular in England.

The English court might find greater attraction to the comment in The Aegean Sea that, for the purposes of limitation, ‘The Court is concerned with the claim being made against the party seeking limitation, not the original claim or its original factual or legal basis’, and so find the Article 2(1)(a) route more appealing, especially where the issue of contrasting positions for harbour authorities and commercial owners was exactly that which English law provided for prior to the LLMC. The English court also might find that The Aegean Sea obliges it to interpret the LLMC so that all cases which can reasonably be brought within its language are so brought, in line with The Tojo Maru [1971] 1 Lloyd’s Rep 269 jurisprudence. This is to view the purpose of limitation as ensuring no unnecessary discouragement of the operation of small vessels by companies of limited financial resources. The English court might equally find less reason to distinguish between salvage expenses and wreck removal expenses, and so not share the Hong Kong CFA’s distinction of The Breydon Merchant.

On balance, however, even were a similar dispute to be before the English courts, the CFA judgment would stand as a substantial hurdle to argue against should the judiciary be inclined to interpret the application of the LLMC in England to arrive at the opposite outcome.
Source: Hill Dickinson

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