UK: Limitation Convention - Article 6 "All You Need is Common Sense for a Distinct Occasion"

Last Updated: 28 July 2010
Article by Robert Springall

Introduction

Justice Rares of the Australian Federal Court recently handed down a landmark judgment concerning limitation of liability. The proceedings between Strong Wise Ltd (the "shipowner"), Esso Australia Resources Pty Ltd and BHP Billiton Petroleum (Bass Strait) Pty Ltd concerned the fouling of a pipeline by the ship "APL Sydney" (the "Vessel") in Port Phillip Bay in December 2008. The judgment, has already been recognised as an important decision of international significance due to its interpretation of Article 6 of the Convention on Limitation of Liability for Maritime Claims 1976 ("the Convention").

Background facts

On 13 December 2008, the Vessel, whilst anchoring in the outer anchorage of Port Phillip Bay, dragged her anchor and ruptured a submarine gas pipeline jointly owned by Esso and BHP Billiton thereby resulting in a loss of gas and the shutdown of onshore manufacturing plants for approximately three months whilst repairs were undertaken.

Shortly after the incident, Esso and BHP Billiton (the Defendants in the Limitation action) commenced separate proceedings against the shipowner due to the loss and damage arising from the rupture of the pipeline. The end users of the ethane gas, Qenos Pty Ltd and Huntsman Chemical Co Australia Pty Ltd, also commenced proceedings against the shipowner claiming damages for economic loss.

The present judgment follows the limitation proceedings which had been initiated by the shipowner against Esso, BHP Billiton and other parties who may have claims within the meaning of Article 2 of the Convention. The shipowner contended that it was entitled to limit its liability pursuant to the Limitation of Liability for Maritime Claims Act 1989 (Cth), which gives effect in Australia to the Convention.

Issues and arguments

Article 6(1)(b) of the Convention entitles a shipowner to limit its liability for claims "arising on any distinct occasion". The limitation proceedings concerned the meaning of that expression.

The shipowner argued that the incident amounted to one "distinct occasion" under the Convention and that all the damages and/or losses arose from the one distinct occasion. Accordingly, the shipowner was entitled to establish a single limitation fund to meet any valid claims arising from the rupture of the ethane gas pipeline. Esso and BHP Billiton, on the other hand, contended that there were four "distinct occasions" arising from the incident and the shipowner was obliged to establish four separate limitation funds, i.e. one for each "distinct occasion".

According to Justice Rares, therefore, the central issue for determination was "whether there was a single distinct occasion, or more than one, that gave rise to all claims within the meaning of Article 2(1)(a) of the Convention in respect of damaged property in direct connection with the operation of the ship and consequential loss resulting therefrom". If there was more than one distinct occasion, the shipowner could not limit its liability in one fund for all the claims, rather they must constitute separate funds for each distinct occasion.

The Decision

(i) Policy

Justice Rares accepted that the policy underlying the Convention was "the protection of the shipowner...from financial ruin where his vessel causes damage of the described kind".

(ii) Test for Causation

Justice Rares indicated that the determination of whether a claim arises on a distinct occasion involves the application of a test for causation and the formation of a judgement about the existence or absence of the fact of a sufficient connection between the two. The judgement is arrived at after a balance of fact and degree. More specifically, when a single act, neglect or default of a shipowner places him in such a relationship that, as a matter of common sense, it is a cause of loss or damage suffered by a third party, that third party will have a claim under Article 2 of the Convention; a claim that is caused by an occurrence arising on that distinct occasion. But where a subsequent act, neglect or default of the same shipowner separately operates to cause a different or separately identifiable loss or damage to the same third party, or to others, then a new claim or claims will arise on that later distinct occasion. The latter occasion is distinct because, firstly, there is a new event and, secondly, there is new loss or damage and, thirdly, the new cause is, as a matter of common sense, not a necessary or inseparable consequence of the earlier act, neglect or default.

Thus, whether one occasion is distinct from the other will depend on whether the causes of the claims that arise from each act, neglect or default are sufficiently discrete that, as a matter of common sense, they can be said to be distinct from one another.

(iii) Two "Distinct Occasions"

Justice Rares held that there were two distinct occasions that occurred in direct connection with the operation of the Vessel on the afternoon of 13 December 2008 that gave rise to claims for loss of or damage to property and consequential loss resulting therefrom within the meaning of Articles 2(1)(a) and 6(1) of the Convention.

The first distinct occasion was the chain of events leading to and immediately following the anchor fouling the pipeline at about 15:44-15:45. The force of the initial impact of the anchor on the pipeline lifted it out of the seabed and damaged it to such an extent that it was no longer fit to carry gas under pressure and required immediate repair by replacing the length of pipe that had been plastically deformed to the degree that adversely affected its structural integrity. The Judge accepted that events between 15:45 and 16:20 may have caused further damage to the pipeline. However, that damage did not give rise to a distinct occasion because the damage was to the already damaged part of the pipeline that by 15:45 already required replacement.

The second distinct occasion was the chain of events leading to and immediately following the rupture of the pipeline at about 16:20-16:21. Justice Rares held that the decision by the Pilot, which was implemented by the Captain around 16:20-16:21 to put the engine to 'dead slow ahead' was unjustified and negligent. It resulted in the rupture of the pipeline which allowed a not insignificant quantity of gas to escape. The decision to put the engine 'dead slow ahead' indicated a change in navigational priorities which demonstrated that, at this time, a distinct occasion had occurred. It was a distinct occasion because new claims arose from an avoidable and unnecessary act, neglect or default of the persons responsible for the conduct and navigation of the ship.

(iv) Orders

Justice Rares invited the parties to address him on the relief that should be ordered as a result of his decision and on 8 June 2010 made orders and declarations in the following terms:

  1. The Plaintiff, Strong Wise, as owner of the APL Sydney, is entitled to limit its liability for claims ("claims") within the meaning of Article 2 of the Convention in respect of each of the following distinct occasions that occurred in Port Phillip Bay, Victoria on 13 December 2008 when the APL Sydney drifted and its anchor struck, became fouled, ruptured and bent the submarine pipeline, owned and operated by Esso and BHP Billiton, namely:

    (a) Claims arising on the occasion comprised of the events that led to and immediately followed the anchor of APL Sydney fouling the pipeline at about 15:44 to 15:45 on that day and that preceded the events referred to in (b) below ("the first distinct occasion");
  2. (b) Claims arising on the occasion comprised of the events on that day commencing at about 16:19:51 that led to the rupture of the pipeline and its subsequent bending ("the second distinct occasion").

  3. The liability of the Plaintiff for claims arising on each distinct occasion referred to in Order 1 is limited to an amount in respect of each occasion calculated by reference to the SDR conversion rate into Australian Dollars as at the date of constitution of the limitation fund multiplied by 13,997,300 Units of Account (calculated by reference to the gross registered tonnage of the APL Sydney being 35,991 metric tons), plus interest on that sum from 13 December 2008 to the date of constitution of the respective limitation fund.
  4. Strong Wise constitute a fund in respect of claims subject to limitation arising on the first distinct occasion by paying the limitation amount, i.e. approximately A$27.3m, into Court.

Conclusions

This case is a landmark decision that is unlikely to be resolved quickly between the various parties. Justice Rares himself noted that it is inevitable there will be appeals from the decision on the construction of the Convention before any trial on liability and damages can occur. Not only is it of particular interest to the Australian shipping industry, but it is of potential significance worldwide due to its interpretation of the Convention. The question of construction of the Convention raised in these proceedings has not been decided by any court anywhere else in the world. It remains to be seen now whether any appeals will be filed by the due date, i.e. 29 June 2010.

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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