Worldwide: Consequential loss claims for pure economic loss are subject to a fund established under the Convention on Limitation of Liability for Maritime Claims 1976

Last Updated: 10 October 2009
Article by Michael Mitchell

Consequential loss claims for pure economic loss are subject to a fund established under the Convention on Limitation of Liability for Maritime Claims 1976

Qenos Pty Limited v Ship "APL Sydney" [2009] FCA 1090

  1. Federal Court of Australia1

In Brief

  • Consequential loss claims in contract are covered by Article 2.1(a) of the 1976 Convention, even though the claimant has not suffered any direct "loss of or damage to property". They are therefore subject to a limitation fund established under the 1976 Convention.
  • "Infringement of rights other than contractual rights" in Article 2.1(c) of the 1976 Convention extends beyond statutory or proprietary rights and includes claims in tort for pure economic loss, which are therefore also subject to a limitation fund.


On 13 December 2008, the ship "APL Sydney" was anchored in Port Phillip Bay waiting for a berth to become available in the Port of Melbourne. The ship drifted and dragged her anchor, which struck a submarine pipeline used to transport ethane gas. The supply of ethane gas through the pipeline was cut off and a number of businesses suffered loss as a result.

On 23 January 2009, the ship owner established a limitation fund under the Convention on Limitation of Liability for Maritime Claims 1976 (1976 Convention) in the sum of A$32,112,540. The 1976 Convention has the force of law in Australia by operation of the Limitation of Liability Maritime Claims Act 1989 (Cth).

By this time, four plaintiffs had commenced actions against the ship in negligence, seeking damages arising from the cutting off of the supply of ethane. It was clear that the aggregate of the claims (if proved) would significantly exceed the amount of the fund.

Two of the plaintiffs sought an order to the effect that their claims fell outside the 1976 Convention. Their claims were non-contractual claims for "pure economic loss" arising from the cutting off of the supply of ethane gas, which in turn led to interruption of production at their factories, the need to purchase alternate supplies of ethane and alternative materials, higher operating costs, loss of business, and miscellaneous expenses.

The plaintiffs contended that their claims did not fall within either Article 2.1(a) or 2.1(c) of the 1976 Convention.

Interpretation of the 1976 Convention

Article 2.1 relevantly provides:

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

  1. 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."
  2. ....

(c) claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connection with the operation of the ship or salvage operations". [emphasis added]

Finklestein J held that the principles governing construction of the 1976 convention are laid down in the Vienna Convention on the Law of Treaties 1969, referring in particular to the decision in the Iron Rhine Railway Arbitration Award.2 Article 31 of the Vienna Convention provides for interpretation in accordance with the ordinary meaning of the text and in the light of its object and purpose. Article 32 provides for recourse to supplementary means of interpretation in cases of ambiguity and the like.

His Honour also derived assistance from the well-known dictum of the Supreme Court of the United States in Just v Chambers:

"The statutory provision for limitation of liability, enacted in the light of the Maritime Law of Modern Europe and of Legislation in England, has been broadly and liberally construed in order to achieve its purpose to encourage investments in shipbuilding and to afford an opportunity for the determination of claims against the vessel and its owner."3

The plaintiffs' argument on Article 2.1(a)

In relation to Article 2.1(a), the plaintiffs relied on the fact that they themselves had not suffered any "loss of or damage to property" (as they did not own the submarine pipeline) and therefore could not be said to have suffered consequential loss "resulting therefrom". Academic authority was cited in support of this interpretation.4

Finkelstein J rejected this argument. The concept of awarding damages for confidential loss in circumstances where the plaintiff has no entitlement to damages for direct loss is well known to the law in general: For example, most common law countries have adopted Lord Campbell's Act5 which provides for the recovery of pure financial loss following death caused by a wrongful act which did not directly affect the plaintiff. A similar position exists in some continental countries.6 His Honour saw little significance in the omission of the words "or damage" after the expression "consequential loss". He pointed out that dicta in the Aegean Sea Traders Corporation v Repsol Petroleo SA 7 and in the "Breydon Merchant" 8 supported this interpretation.

The plaintiffs during argument referred to the position in England regarding the difficulty of bringing an action for pure economic loss caused by the negligent act of a third party. However, Finkelstein J declined to accept this as relevant, noting authority of both the High Court of Australia and the House of Lords that principles of domestic law usually have no role to play in the construction of international conventions: Stag Line Limited v Foscolo Mango & Co Limited; The Shipping Corporation of India Limited v Gamlen Chemical Co [A/Asia] Pty Limited.9

The plaintiffs' argument on Article 2.1(c)

The plaintiffs contended that "infringement of rights other than contractual rights" in Article 2.1(c) was restricted to infringement of statutory or proprietary rights, and therefore did not include their claims which were purely tortious.

Finkelstein J rejected this contention. It would leave Article 2.1(c) with little work to do, and ignored the fact that in most civil law countries it is permissible to bring a claim for pure economic loss.10 He referred to the travaux préparatoires of the 1976 Convention which indicated that the predecessor to Article 2.1(c) used 'infringement of rights" in a broad sense.11

Finkelstein J held:

"In my opinion, the word 'rights' in the expression 'infringement of rights' includes a legally enforceable claim which results from the act or omission of another person. ... It follows that claims in tort for pure economic loss fall within article 2.1(c), provided the other criteria are satisfied."12


  • The Federal Court of Australia has supported the decision of Thomas J on this point in Aegean Sea Traders Corporation v Repsol Petroleo SA [1998] 2 Lloyds Rep 39.
  • Claimants against sea-going ships must consider before commencing proceedings that any consequential loss claim is likely to be subject to a limitation fund established by the ship-owner under the Convention on Limitation of Liability for Maritime Claims 1976.


1. Finkelstein J (25 September 2009)

2. Arbitration regarding the Iron Rhine ("Ijzeren Rijn") Railway (Belgium/Netherlands), Award of 24 May 2005, page 23, para 45. As cited in R Gardiner, "Treaty Interpretation" (2008) 12-13

3. Just v Chambers 312 US 383, 385 (1941)

4. S Derrington and J Turner, "The Law and Practice of Admiralty Matters" (2007) at p 249

5. Fatal Accidents Act 1846 (9 and 10 Vict. C.93)

6. See for example the German Environment Liability Act of 10 December 1990 and the German Road Traffic Act of 19 December 1952

7. [1998] 2 Lloyds Rep 39 per Thomas J

8. [1992] 1 Lloyds Rep 373

9. [1932] AC 328, 350 and (1980) 147 CLR 142, 159

10. Referring to W Tetley, "Damages and economic loss in marine collision: Controlling the Floodgates" (1991) 22 Journal of Maritime Law and Commerce 539

11. The predecessor to Article 2.1(c) of the 1976 Convention was Article 1(1) of the International Convention relating to the Limitation of the Liability of Owners of Sea-Going Ships (1957)

12. Judgment at paras 35 and 37

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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