TT Talk - Legal eagle: the Spiliada forum rules applied
By way of update, the Hong Kong Appeal Court confirms the rejection of jurisdiction based solely on a ship’s arrest, thus thwarting an attempt to secure potential greater ship’s limitation fund. This follows the existing legal tests relating to the natural and appropriate forum for a hearing.
The Milano Bridge collided with gantry cranes at Busan, South Korea and the terminal operator subsequently claimed repair and business interruption costs. The ship owner constituted a limitation fund in South Korea.
Ship’s limitation under Korean law was determined by the flag of the ship which was, in this instance Panama. The latter has ratified the original 1976 Convention on Limitation on Liability for Maritime Claims (LLMC) 1976, producing a figure of approximately US$24 million.
The terminal operator issued parallel civil proceedings in South Korea and Japan, the latter being the place where the ship was managed. Subsequently, the terminal arrested a sister ship of ‘Milano Bridge’ in Hong Kong and obtained security for approximately US$83 million. This latter figure was calculated under Hong Kong law, which had enacted the 1996 Protocol and the 2015 revisions to the LLMC (a similar limitation figure would have applied under Japanese law).
The ship owner sought a stay of the Hong Kong proceedings on grounds of forum non conveniens.
The First Instance Hong Kong Court applied the two stage test set out in the 1986 English House of Lords case Spiliada Maritime Corp v Cansulex, as also endorsed by the Hong Kong Court of Final Appeal. The first stage requires the defendant to discharge the burden that the court where the application is made is not the natural or appropriate forum, and that there is another available forum which is more appropriate. If this condition is met, the court will ordinarily grant a stay, unless the plaintiff can show why it should not. The second stage requires the plaintiff to show that it will suffer a juridical or personal disadvantage if the stay application is allowed.
The First Instance Court distinguished Hong Kong precedents, also basically driven by disparities in limitation amounts, when proceedings had not been stayed. In one case a more natural forum might have been Indonesia, but limitation there would have been uncertain and possibly derisory. In another case there was a natural forum, but neither of the parties had chosen it. In a third case, the defendant was a Hong Kong company, thereby failing the first stage of the Spiliada test.
In this case, it was common ground that Hong Kong was not the natural or appropriate forum. However, the claimant contended that South Korea was not clearly or distinctly the more appropriate forum. The terminal further contended that it would be deprived of a legitimate juridical advantage if compelled to proceed in South Korea because of the lower limitation amount, and that this latter point was decisive.
The First Instance court rejected the claimant’s argument that the question of juridical advantage was decisive. The connection with Hong Kong was weak – none of the parties were resident there – and depended entirely on the location of the arrest. South Korea was clearly and distinctly the more appropriate forum. The incident had happened in Korea, the witnesses were based there, much of the relevant documentation was in Korean and the law applicable to the incident was Korean. The stay was therefore granted.
The First Instance Court expressed little sympathy for ‘forum shopping’ motivated purely by economic factors and stated that the claimant, as a South Korean company, should accept the ethos of the jurisdiction where it operated. The court also speculated that the claimant may in the past have benefited as defendant from the lower Korean limit, and from consequent lower insurance premiums.
The terminal operator appealed to the Hong Kong Court of Appeal. The decision at first instance that juridical advantage was not decisive was conceded. However, the Appeal Court found that the judge at first instance had erred in characterising the terminal’s actions pejoratively as ‘forum shopping’. This conclusion could be drawn only after an analysis of the interests of all the parties and the ends of justice, which the Appeal Court proceeded to make.
The Appeal Court found there was no evidence of the rationale behind Panama’s failure to adopt the 1996 Protocol to support the claimant’s submission that it was due to a legislative oversight. It also did not accept that the 1996 Protocol represented international public policy, given the number of jurisdictions which had not implemented it. The Appeal Court in principle followed the First Instance Court in finding that the claimant knew that the Korean terminal was frequented by ships subject to different tonnage limitation laws. Further, the terminal’s own terms of trade contemplated limits which were even lower than the Panamanian limits.
The Appeal Court reviewed the Hong Kong precedents, as the First Instance Court had done, and found that each depended on its particular facts. In this case, the advantage of the higher tonnage limit in Hong Kong was outweighed by the overwhelming connections with South Korea, as found at first instance and the appeal was dismissed. Any other decision would set an incorrect precedent that a natural and otherwise clearly more appropriate forum could be rejected for the sole reason that it applied the lower unrevised 1976 Convention limit.
The result might have been different if the facts had been less clear, for example if there had been a collision on the high seas.
Although this is a Hong Kong case, the decision depends, at least partly, on an English House of Lords judgment.
If this application had succeeded it, would, as the Court of Appeal stated, have set a surprising and unwelcome precedent. The Appeal Court decision confirms that Hong Kong is not a soft touch with regard to jurisdiction.
PUSAN NEWPORT CO LTD v OWNERS OF MILANO BRIDGE & CMA CGM MUSCA&HYDRA
 HKCA 157
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TT Talk 287 Chinese Translation 635 KB
Risk Management Director
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