The "Peng Yan"

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Note: this judgment has been appealed to the Court of Appeal. The Court of Appeal's judgment is presently awaited. Editor, 15 November 2008

The "Peng Yan"
Hong Kong Special Administrative Region: High Court: Admiralty Jurisdiction
Reyes J.: 25 August 2008: HCAJ 76/2007 and 12/2008
Russell Colman, instructed by Richards Butler and Clyde & Co., for the cargo interests laden on board "Hui Rong"
Nigel Kat, instructed by Holman Fenwick Willan, for the "Peng Yan" vessel interests

In this case, the Admiralty judge in Hong Kong refused shipowners’ application for a stay of proceedings brought in Hong Kong against their vessel by cargo carried on board another ship with which their vessel had collided. The judge held that the shipowners had failed to discharge the burden upon them of establishing that the court of Ningbo, where shipowners had established a limitation fund, was the more appropriate jurisdiction to determine the cargo claims.

DMC Category Rating: Confirmed

This case note has been written with the help of Crump & Co, the International Contributor to the website for Hong Kong

The case concerned in rem actions brought by the owners of cargo on board the "Hui Rong" which, on 17 March 2007 was in collision off Zhou Shan Dao with the "Peng Yan". Shortly after the collision, the "Hui Rong" sank, with the loss of 17 men and all of its cargo.

A first group of cargo interests commenced an action in rem against the "Peng Yan" in the Hong Kong High Court in May 2007 and, after arresting her sister ship, obtained security for their claim on 15 May. A second group of cargo interests commenced in rem proceedings against the "Peng Yan" on 12 January 2008, having themselves obtained security for their claim in late December 2007. In March 2008, various cargo interests and other claimants commenced proceedings against the owners of the "Peng Yan" in the Ningbo Maritime Court, for losses arising from the collision.

On 30 April 2008, owners applied to set up a limitation fund in the Ningbo court. That application was approved by the court on 12 May but the approved amount was only 50% of the amount that would have been required to set up a limitation fund in Hong Kong. Since that time, the Ningbo court had ruled that the limitation fund should be increased, to an amount equivalent to 100% of the amount needed in Hong Kong. At the time the present case was heard, the owners, despite expressing a willingness to do so, had not yet constituted in Ningbo the 100% fund required.

In July 2008, owners applied to the Hong Kong court for a stay of the proceedings brought by the cargo interests, on the grounds of forum non conveniens [unsuitable forum for the case]. That meant that the owners had the burden of proving that the Ningbo court was "an available forum having competent jurisdiction, which is the appropriate forum for the trial of the action, that is, in which the case may be tried more suitably for the interests of all the parties and the ends of justice" – The "Spiliada" [1987] 1 AC 460, at page 476.

In support of their application, the owners argued:

1. The collision having taken place in PRC waters, the PRC was the natural forum for the trial.

2. The "Peng Yan" was registered in PRC and her owning company, Shenzhen Cosco, was a PRC company.

3. The crew of both vessels were Chinese nationals.

4. The collision was investigated by both the Hong Kong Marine Department and the Zhejiang Maritime Safety Administration. The electronic evidence (showing the vessels’ positions before, during and after the casualty) might be available to both the Hong Kong and Chinese courts but there was no evidence that the authors of the Maritime Safety Administration report would be prepared to attend trial in Hong Kong.

5. There were other actions, including the limitation proceedings, proceeding in Ningbo and it was more convenient for all claims to be adjudicated in the same jurisdiction.

6. The owners no longer contested setting up a 100% limitation fund in Ningbo.

Cargo interests argued that, if a stay were granted, they would suffer a number of disadvantages, such as:

1. Proceedings in the PRC were more cumbersome, requiring many forms and documents to be submitted.

2. They would not be able to recover their legal costs.

3. There was no general discovery in the PRC.

4. Interest on the limitation fund would be lower than in Hong Kong

5. There is foreign exchange control in the PRC, which might make it difficult for the cargo interests, if successful, to remit outside the PRC any damages awarded to them in RMB.

The judge refused the requested stay, as he was not persuaded that the "Ningbo Court was the more appropriate forum. He noted that, where – as here – a party had invoked the jurisdiction of the Hong Kong court as of right – this right "cannot be lightly disturbed." None of the matters raised by the owners was of sufficient weight to show that "the trial of this action should be more appropriately held in Ningbo…"

Taking in turn each of the factors relied upon by the owners, he said that, assuming that the collision took place in PRC waters, the mere fact that this would make the PRC the natural forum was insufficient to discharge the burden on the owners. The real question was whether this factor, taken with all the other factors, clearly pointed to Ningbo as the appropriate forum.

Second, the fact that the "Peng Yan" was PRC registered and its owners were a PRC company carried little weight. Hong Kong being a leading international port, one would expect, in an admiralty context, defendant ships to be registered in foreign jurisdictions and to be under the ownership of foreign companies.

Third, the PRC nationality of the crew might have some weight, particularly where members of the crew were to be called to give evidence. But the PRC is an enormous country and the most useful witness was the third officer of the "Peng Yan", who was resident in Shandong. There was no evidence that it was more convenient for him to come from Shandong to attend trial in Ningbo, as opposed to Hong Kong. At any rate, by the very nature of their work, crew members were usually at sea and it was unclear whether, at any given moment, the "Peng Yan’s" crew would be more or less inconvenienced by having to travel to attend trial in Ningbo as opposed to Hong Kong. Looking at the evidence in the round, the judge was "far from satisfied that trial in Ningbo would be more convenient to any member of the crew in terms of the time and cost involved in appearing as a witness."

Fourth, the collision was thoroughly investigated by the Marine Department in Hong Kong and the Zhejiang Maritime Safety Administration. That body of evidence would likely be available to both the Hong Kong and the Ningbo courts. So its existence could not be a compelling factor in favour of the owners’ application.

Fifth, the judge was unable to attach much weight to the fact that there were liability actions in Ningbo in relation to the same accident. It was far from clear to him on the evidence that the Ningbo court would consolidate all liability claims before it. One claim, for example, related to pollution. The judge doubted whether the Ningbo court could or would consolidate such a claim with the cargo claims arising from the collision. He did acknowledge that the claims before the Ningbo court included the owners’ limitation action, which might determine the relative liability of each vessel for the collision. But he recognised that there was nothing unusual about limitation and liability actions taking place in different jurisdictions and, in this case, it was the owners who, aware that proceedings had already been commenced against them in Hong Kong, chose Ningbo as the forum for limitation. Having made that choice, owners "should also take any consequences".

Sixth, as the limitation amounts were said to be the same in Ningbo and in Hong Kong, there was, owners argued, no juridical disadvantage to the cargo interests if they were compelled to litigate in Ningbo. But, the judge noted, owners’ appeal against the 100% limitation fund was still pending before the Ningbo court and he was not impressed by owners’ undertakings in that regard. Even then, the existence of an 100% limitation fund would be a neutral factor, pointing neither to Ningbo nor Hong Kong.

For all these reasons, he did not think that owners had discharged the burden of showing that Ningbo was the more appropriate forum.

For the sake of completeness, the judge then went on to deal with the disadvantages that the cargo interests had claimed they would undergo if the stay of the Hong Kong proceedings were granted [see above].

The judge held that the first three matters could not constitute a deprivation of a legitimate juridical advantage. As for 1), court proceedings in different jurisdictions typically require the filing of many forms – some jurisdictions more than others. But that could hardly be a ground for holding a jurisdiction inappropriate.

As for 2) and 3), these were typical features of many foreign jurisdictions, especially those which follow continental European models. "Considerations of comity," he said, "should make a court hesitate to claim superiority for a system simply because one has general discovery and can recover party-and-party costs."

As for the remaining two factors, the evidence was that cargo interests could apply for a higher rate of interest and similarly seek permission for the outward remittance of foreign currency. So, neither could be considered as a substantial disadvantage.

Had he be minded, therefore, to grant a stay of the present proceedings, he would not have found that the cargo interests would have been deprived of juridical advantages in consequence.

A typically robust judgment from the newly-appointed Admiralty judge in Hong Kong. It remains to be seen how the Hong Kong court would respond to a limitation decree issued by the Ningbo court, given that the PRC is not party to the 1976 Limitation Convention.

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