Australia: Significant Decision On Limitation Of Liability

Last Updated: 23 October 2009
Article by Ron Salter

The recent case of Qenos Pty Limited v Ship 'APL Sydney' [2009] FCA 1090 throws light on the issues of consequential loss claims for pure economic loss and the meaning of 'infringement of rights' under the Convention on Limitation of Liability for Maritime Claims 1976.


The Convention on Limitation of Liability for Maritime Claims 1976 (1976 Convention) is enshrined in Australian law through the Limitation of Liability for Maritime Claims Act 1989 (Cth).

The 1976 Convention allows shipowners (which includes charterers, managers and operators) and salvors to limit their liability for major losses to an overall amount which is calculated by reference to the ship's tonnage. A shipowner is entitled to seek a declaration from a court limiting liability, and can then establish a limitation fund, which is administered in much the same way as are the remaining assets of a company in liquidation. Thus, if a limitation fund is established at say AU$10,000,000, and the total of all claims against the shipowner arising out of the particular incident is AU$20,000,000, each claimant receives 50% of the amount that is claimed.

The Case Of 'APL Sydney'

In December 2008, the container ship 'APL Sydney' dragged an anchor during heavy weather while awaiting a berth in Port Phillip Bay, Melbourne. The anchor then caught on a submarine pipeline used for the transport of gas across Port Phillip Bay to industrial plants in the western suburbs in Melbourne. Quite apart from damage to the pipeline itself, the owner of the 'APL Sydney' faced substantial claims from two manufacturers who relied upon the gas to produce various products. These manufacturers suffered no actual loss of or damage to property (the pipeline belonging to other parties), but claimed considerable economic loss from the disruption of supply.

The shipowners, faced with a number of claims, established a limitation fund in the sum of AU$32,112,540. The two manufacturers concerned, whose claims alone were said to exceed $37,000,000, sought to argue in the Federal Court of Australia that these claims were not subject to limitation, and argued their case on this point before Justice Finkelstein in the Federal Court. Sadly for the manufacturers, and happily for the owners of the 'APL Sydney' and shipowners generally, Justice Finkelstein held that limitation applied.

Article 2 of the 1976 Convention provides as follows: '1. Subject to Article 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 connexion with the operation of the ship or with salvage operations, and consequential loss resulting therefrom;
  2. Claims in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;
  3. Claims in respect of loss resulting from infringement of rights other than contractual rights, occurring in direct connexion with the operation of the ship or salvage operations;...'

The claimants sought to argue before the Court that the consequential loss referred to in Article 2.1(a) had to be loss suffered by the person whose property was damaged, and that while their loss was consequential upon the damage to the pipeline, that was not the consequential loss intended by the 1976 Convention. While Justice Finkelstein observed that 'this construction of Article 2.1 is not without its supporters', he noted that Article 31 of the Vienna Convention on the Law of Treaties 1969 required that a treaty should be interpreted in accordance with the ordinary meaning to be given to the term in the treaty and in the light of its object and purpose. With the support of some comments by English judges in a couple of cases, he expressed the view that the claims before him for economic loss were indeed consequential loss claims within the meaning of Article 2.1(a). He stated that this conclusion was 'in accordance with a common sense (bona fide) reading of the Article, bearing in mind the purpose of the [1976] Convention (the limitation of liability), and is also consistent with the cases.'

While deciding in favour of the shipowners on this point, he also went on to consider whether Article 2.1(c) might be applicable on the basis that the claims were in respect of other loss 'resulting from infringement of rights'.

In reaching a conclusion that the claims fell within Article 2.1(c) as well Article 2.1(a), Justice Finkelstein examined the history of the provision and the basis for use of the expression 'infringement of rights' in the 1976 Convention. He held that the word 'rights' in the expression 'infringement of rights' included a legally enforceable claim which resulted from the act or omission of another person. So if a particular system of law (ie the Australian system) gave rise to a cause of action, that system conferred a right on the party with the cause of action, the violation of which was a wrong. The claimants argued the expression 'infringement of rights' must mean something else by pointing out that in England there was great difficulty in bringing a claim for pure economic loss in tort. However, his Honour disagreed, stating that a claim for pure economic loss could be made in Australia and in most civil law countries.


In our view, Justice Finkelstein's decision is plainly correct. However, the case may yet go on appeal. Even if that does not occur, further interest in consequences of the 'APL Sydney' pipeline incident will follow soon, as a decision is awaited from Justice Rares, also of the Federal Court, in connection with other interesting points arising out of the 1976 Convention. Nevertheless for claimants the decision means the door is firmly bolted and, unless overturned on appeal limitation will be strictly applied to claims for future economic loss. For shipowners and their insurers there will be a greater degree of comfort in the certainty the decision brings about.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

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