The “Asian Atlas”)

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DMC/SandT/10/04

Northrop Grumman Ship Systems, Inc v The Owners and/or Demise Charterers of the Ship or Vessel “Asian Atlas” (The “Asian Atlas”)

Hong Kong SAR Court of Appeal: Ma CJHC, Stone and Reyes JJ: CACV No. 257 of 2007: 23 April 2008 ([2008] 3 HKLRD 604

[1]

Mr James H M McGowan, instructed by Messrs Laracy Gall for the Plaintiff Northrop Mr Russell Coleman SC and Ms Queenie W S Ng, instructed by Messrs K H Lam & Co for the Defendants

ACTION IN REM UNDER HK HIGH COURT ORDINANCE, S.12A(2)(e): WARRANT OF ARREST: FOR “ANY CLAIM FOR DAMAGE DONE BY A SHIP”: SETTING ASIDE: MATERIAL NON-DISCLOSURE OF FACTS RELATING TO JURISDICTION

Summary

The Court of Appeal reversed the decision of the Court of First Instance and held that where a party is sued by a shipowner for damage caused to the ship, its claim for indemnity in respect of its joint liability with other co-defendants does not fall within the in rem admiralty jurisdiction. The indemnity claim is one for damage to the ship, not “damage done by a ship”.


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

Background

In 2004, while navigating in a harbour of a river in the US, the ship the “Asian Atlas” (“the Ship”) collided with a submerged submarine launchway owned by the Plaintiff Northrop (“the Collision”), and suffered extensive damage. At that time, the Ship was owed and operated by Cormorant Shipholding Corp (Cormorant) and Osprey Ship Management Inc (Osprey). At the time of the accident, the Ship was under compulsory pilotage, and there was supposed to be a buoy indicating the extent of the launchway.

In 2006, Cormorant and Osprey brought proceedings in the US against, among others, the Plaintiff and the compulsory pilots who were on board the Ship. The claim was for damages for the repairs to the Ship, and the loss of hire and earnings for the period of repair (as the Ship was then on charter).

In October 2006, the Plaintiff filed an in rem claim in the US proceedings against the Ship, claiming indemnity in case it were held liable in the main action. The basis of this claim for indemnity was that the Collision was caused by the pilots, and responsibility for the Collision thus lay with the Ship, as the ‘employer’ of the pilots. If both the pilots and the Plaintiff were held liable as joint-tortfeasors, Cormorant and Osprey could recover from the Plaintiff the full amount of damages awarded. The indemnity claim was brought, therefore, to recover that part of any payment made by the Plaintiff that related to the pilots’ share of liability in such a case.

However, the Ship had been sold to the Defendant in June 2005.

Service in rem on the Ship could only be made when she came to Hong Kong, and arrest was consequently made in April 2007. The writ in rem pleaded two heads of claim: a claim for indemnity for liability suffered by the Plaintiff arising from the Collision (to the same extent as the in rem action in the US) (“the Indemnity Claim”); and a claim for damages for damage caused to the launchway due to the Collision (“the Damage Claim”).

Following the arrest, the Defendant sought to set aside the warrant of arrest on the grounds that:

(a) the Indemnity Claim did not give rise to a statutory right in rem under section 12A(2)(e) of the High Court Ordinance (Chapter 4 of the Laws of Hong Kong); and

(b) there was a material non-disclosure in relation to the Damage Claim and, in any event, there was no evidence that damage was suffered.

Section 12A(2)(e) of the High Court Ordinance provides that:

“(2) The questions and claims referred to in subsection (1)(a) [for engaging the admiralty jurisdiction of the Court of First Instance] are-

(e) any claim for damage done by a ship;”

In the present case, the parties assumed that the Plaintiff could sue the Defendant on the basis that a maritime lien attached to the Ship, notwithstanding the sale of the Ship to the Defendant.

Court of First Instance Judgment [2007] 4 HKLRD 113 [2]

The Court dismissed the Defendant’s motion to set aside the warrant of arrest. It held that section 12A(2)(e) covers claims for consequential loss, and it is wrong in principle to exclude cases where a partly-to-blame-party seeks contribution. As the Indemnity Claim was premised on the fault of the Ship, it fell within section 12A(2)(e), and the Plaintiff was entitled to his remedy in rem.

It also held that there was no material non-disclosure in relation to the Damage Claim.

The Defendant appealed to the Court of Appeal on both issues.

Court of Appeal Judgment

The Court unanimously allowed the Defendant’s appeal, and set aside the warrant of arrest. The leading judgment was given by Ma CJHC.

Following The Rama [1996] 2 Lloyd’s Rep 281, Ma CJHC held that for a claim to fall within section 12A(2)(e) as a claim for “damage done by a ship”;

(1) the damage must be caused by something done by those engaged in the navigation or management of the ship in a physical sense;

(2) the ship must be the actual or noxious instrument by which the damage is done and

(3) the damage must be sustained by a person or property external to the ship.

The damage or loss that is caused need not be purely physical. Economic loss may come within section 12A(2)(e). Consequential loss was also covered if such a claim is consequent upon some damage that has been actually caused by the relevant ship as the instrument of such damage.

In the present case, only condition (1) stated above was satisfied, as the loss giving rise to the Indemnity Claim was caused by the compulsory pilots. As for conditions (2) and (3), it could not be said that the Ship was the actual or noxious instrument which has physically caused this damage. It was rather the damage to the Ship that had led to the possible situation where the Plaintiff might be liable.

The Court also held that as the Indemnity Claim and the Damage Claim were quite separate claims, the former could not “piggyback” onto the latter, even though the latter fell within section 12(2)(e).

In relation to the Damage Claim, the Court held that there was no evidence as to the quantum of the claim. The launchway also had not been in use for 36 years. If the Court had been informed of this fact when the warrant of arrest was sought ex parte, it may well have thought that no real claim existed. Therefore, there was material non-disclosure, and the warrant of arrest was set aside.