Note: the decision at first instance in this case has been upheld by the Hong Kong Court of Appeal and by the Hong Kong Court of Final Appeal. To see the note on the judgment of the Court of Final Appeal, click here

DMC Category Rating: Developed

Background
The Plaintiff in this case suffered serious injuries as a result of being hit by the recoil of a tow rope which suddenly broke. The accident happened in the year 2000 on board a tugboat called "Shun King 6" ("the tug boat") which was engaged in the towing of a hopper barge called "Sing Kong 19" ("SK 19"). Judgment was entered against the first, second and third Defendants, with damages to be assessed. The case against the fourth Defendant was dismissed.

The second and third Defendants, as the shipowner and master of the tugboat, sought to rely on limitation of liability under Part II of the Merchant Shipping (Limitation of Shipowners’ Liability) Ordinance. Section 12 of the Ordinance makes the Convention on Limitation of Liability for Maritime Claims part of the Hong Kong Laws. If 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 2(1)(a) of the Convention reads as follows:
"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…"

Article 1(4) further 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."

However, a claim that falls within Article 2(1)(a) of the Convention is subject to the several exceptions laid down in Article 3:
The rules of this Convention shall not apply to:-

(e) 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."

The Plaintiff submitted that the limitation clause did not apply to the second Defendant in its capacity as the employer of the Plaintiff and also that, in reliance on Article 3(e), the Employees’ Compensation Ordinance was legislation governing the contract of service between the shipowner and the servant under which the shipowner was not entitled to limit its liability.

Judgment
The court rejected both arguments raised by the Plaintiff. The fact that the Plaintiff was an employee or servant of the shipowner was not by itself sufficient to exclude the operation of limitation of liability under the Convention and neither did any clause under the Employees’ Compensation Ordinance prohibit such limitation of liability. The court therefore held that the second and third Defendants were prima facie ("on initial examination") entitled to limitation of liability under the Convention.

On the other hand, the judge’s interpretation of Article 3(e) was that, for the Article to apply, there had to be a law [emphasis added] governing the contract of service between the shipowner and the servant, under which the shipowner is not entitled to limit his liability. The questions to be asked, therefore, were (i) what was the "law" governing the contract of service between the shipowner and the servant and (ii) whether under that law, the shipowner was not entitled to limit its liability in respect of such claims.

The judge held that the "law" governing the contract of service was Hong Kong law and under the Laws of Hong Kong, in particular section 7 of the Control of Exemption Clauses Ordinance, Cap 71, an employer is not allowed to "restrict his liability for death or personal injury resulting from negligence." Therefore, he held that the present claim did fall within the exceptions under Article 3(e) of the Convention and the shipowner was, accordingly, not entitled to limit its liability.