Fong Yau He v. Gammon Construction & Others (HKCFA)

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Fong Yau Hei v (1) Gammon Construction Limited (2) Tung Shun Transportation & Engineering Limited (3) Cheng Kan Ho (4) Leung Siu Wing (The "Shun King 6")
Hong Kong SAR Court of Final Appeal: Li CJ, Bokhary, Chan and Ribeiro PJJ and Gault NPJJ: FACV No. 13 of 2007: 18 April 2008 ([2008] 3 HKLRD 604;
Mr Russell Coleman SC (instructed by Messrs Ince & Co) for the Appellants/second and third Defendants, Tung Shun Transportation and Cheng Kan Ho
Mr Simon HW Lam and Mr Stephen Fong (instructed by Messrs Anthony Kwan & Co) for the Plaintiff, Fong Yau Hei
Ms Gladys Li SC and Mr Patrick D Lim (instructed by Messrs Cheng, Yeung & Co) for the first Defendant, Gammon Construction
This is the first case in Hong Kong in which a defendant employer tried to limit his liability for the injury of his employee under the International Convention on Limitation of Liability for Maritime Claims 1976 ("the Convention"). The Court of Final Appeal upheld the judgment of the Court of First Instance and the Court of Appeal that the case fell within the exception under Article 3(e) of the Convention and denied limitation accordingly. The employment contract was governed by Hong Kong law and the Control of Exemption Clauses Ordinance forbad an employer from contracting out of his liability in negligence for injury or death.

DMC Category Rating: Developed

This note has been contributed by Ken Lee To-ching, LLB(Hons), PCLL (University of Hong Kong), BCL Student at Oxford University

The Plaintiff suffered serious injuries as a result of being hit by the recoil of a tow rope which suddenly broke. The accident happened in 2000 on board a tugboat called "Shun King 6" ("the tug boat") which was engaged in towing a hopper barge called "Sing Kong 19" ("SK 19"). In the Court of First Instance, judgment was entered against the first, second and third Defendants, which were respectively (i) the principal contractor of the construction work; (ii) the owner of the tug boat and employer of its crew, including the Plaintiff and (iii) the Master of the tug boat. The case against the fourth Defendant, a major shareholder and director of the second Defendant, was dismissed.

The second and third Defendants, as the shipowner and master of the tug boat respectively, sought to limit their liability under Part II of the Merchant Shipping (Limitation of Shipowners’ Liability) Ordinance ("the MSO") (Chapter 434 of the Laws of Hong Kong). Section 12 of the MSO makes the Convention on Limitation of Liability for Maritime Claims ("the Convention") part of Hong Kong law. If this limitation of liability applied, the amount recoverable by the Plaintiff would have been limited by reference to the tonnage of the vessel to an amount in the region of HK$2.2 million.

Article 1(4) of the Convention provides that:

"If any claims set out in Article 2 are made against any person for whose act, neglect or default the shipowner or salvor is responsible, such person shall be entitled to avail himself of the limitation of liability provided for in this Convention."

Article 2(1)(a) further provides that:

"Subject to Articles 3 & 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 … occurring on board or in direct connection with the operation of the ship or with salvage operations, and consequential loss resulting therefrom…"

However, a claim that falls within Article 2(1)(a) of the Convention is subject to the several exceptions laid down in Article 3, and in particular Article 3(e), which is in issue in this case:

"The rules of this Convention shall not apply to:-

  1. claims by servants of the shipowner or salvor whose duties are connected with the ship or the salvage operations, including claims of their heirs, dependants or other persons entitled to make such claims, if under the law governing the contract of service between the shipowner or salvor and such servants the shipowner or salvor is not entitled to limit his liability in respect of such claims, or if he is by such law only permitted to limit his liability to an amount greater than that provided for in Article 6."

Section 7(1) of the Control of Exemption Clauses Ordinance ("the CECO") (Chapter 71 of the Laws of Hong Kong) provides that:

"A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence."

Section 18(1) of the CECO further provides that:

"Nothing in this Ordinance removes or restricts the effect of, or prevents reliance upon, any contractual provision which-

  1. is authorized or required by the express terms or necessary implication of an enactment; or
  2. being made with a view to compliance with an international agreement which applies to Hong Kong, does not operate more restrictively than is contemplated by the agreement."

Court of First Instance Judgment

The Court held that the second and third Defendants were prima facie entitled to limitation of liability under Article 2(1)(a) of the Convention, and the question was whether Article 3 (to which Article 2 is subject) applied.

The Defendants argued that there was no law in Hong Kong prohibiting employers from limiting their liability, and that the CECO is concerned only with control of contractual limitation of liability, and not with limitations of liability imposed by legislation (under the MSO).

The Court rejected this submission and held that the "law" governing the contract of service was Hong Kong law. It was further held that under Hong Kong law, and in particular section 7 of the CECO, an employer is not allowed to "restrict his liability for death or personal injury resulting from negligence." Therefore, the present claim did fall within the exception under Article 3(e) of the Convention and, accordingly, the Defendants were not entitled to limit their liability.

The Court was of the view that this accords with the rationale of Article 3(e) of the Convention, which recognises that a state party under the Convention could opt out of limitation of liability in case of employees’ claims. Such opting out does not have to be in the form of a specific legislative provision, such as that found in section 158(4) of the Merchant Shipping Act 1995 in England.

The second and third Defendants appealed to the Court of Appeal only on the issue of limitation under the MSO and the Convention.

Court of Appeal Judgment [2007] 2 HKLRD 24;

In the Court of Appeal, the Defendants raised a new argument in support of limiting their liability in the present claim. They argued that a contractual clause allowing an employer to limit liability for personal injuries to an employee would either be authorised by the Convention (as enacted by the MSO) as an "enactment" under section 18(1)(a) of the CECO, or be made with a view to compliance with the Convention under section 18(1)(b) of the CECO. Therefore, section 18 of the CECO would preclude the operation of section 7 of the CECO.

The Court of Appeal (Le Pichon JA and Reyes J, Cheung JA dissenting) dismissed the appeal. All three judges held that section 7 of the CECO excluded limitation of liability for personal injuries. However, Le Pichon JA and Reyes J held against the Defendants with respect to their arguments on section 18 of the CECO.

The Defendants further appealed to the Court of Final Appeal on the issue of limitation of liability.

Court of Final Appeal Judgment

All five judges agreed that the appeal should be dismissed. The leading judgment was given by Gault NPJ, with whom all other judges agreed.

Gault NPJ held that section 7(1) of the CECO prohibits any person (including a shipowner) from restricting his liability for personal injury, and that such liability could only be limited by contract or notice. Therefore, under section 7(1), the employer could not impose on the Plaintiff a limitation of liability for personal injuries resulting from negligence. On its face, section 7(1) meets the terms of Article 3(e) of the Convention, and the limitation of liability under the Convention does not, therefore, apply.

Further, Gault NPJ held that while the Convention constitutes an "enactment" (as defined in section 18(3)) for the purpose of section 18(1)(a) of the CECO, it does not expressly or impliedly authorise any contractual provision limiting a shipowner’s liability. The Convention merely provides for limitation of liability while recognising that such contracts could be prohibited under domestic law. Similarly, section 18(1)(b) also does not apply as there is no "compliance" or requirement under the Convention for contracts limiting liability. Therefore, section 18 does not override section 7 in excluding the entitlement to limitation under the Convention.

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