Newcastle Port Corporation v Pevitt & Ors

Supreme Court of NSW|2003-10-01|Before: Palmer J

CITATION : Newcastle Port Corporation v Pevitt & Ors [2003] NSWSC 888 HEARING DATE(S) : 29 August, 2003 JUDGMENT DATE : 1 October 2003

JURISDICTION: Equity Division Admiralty List JUDGMENT OF : Palmer J DECISION : Declarations and orders constituting the limitation fund should be made; declarations as to the construction of the 1976 London Convention in accordance with the reasons for judgment.

CATCHWORDS : ADMIRALTY - LIMITATION OF SHIPOWNERS' LIABILITY - 1976 LONDON CONVENTION - COSTS - Whether on true construction of 1976 London Convention on Limitation of Liability for Maritime Claims a claim on a limitation fund constituted under the Convention is inclusive or exclusive of any award of costs to the claimant in proceedings to establish that claim - history of the Convention discussed. HELD: A claim against a limitation fund is exclusive of the legal costs of establishing that claim - Noferi v Smithers ([2002] NSWSC 508) not followed. - Convention for the Unification of Certain Rules relating to the Limitation of Liability of Owners of Sea-going Vessels, 1924 - Convention relating to the limitation of liability of owners of sea-going ships, 1957 - Limitation of Liability for Maritime Claims Act 1989 (Cth) LEGISLATION CITED : - London Convention on Limitation of Liability for Maritime Claims, 1976 - Merchant Shipping Act 1894 (UK) - s.503. s.504, s.505 - Merchant Shipping (Liability of Shipowners and Others) Act, 1958 (UK) - Navigation Act 1912 (Cth) - s.330, s.333, Schedule 6 - Responsibility of Shipowners Act (1733) 7 Geo 2, c.15 - The "Amalia" (1863) 1 Moo PC (NS) 471 [15 ER 778] - Beauchamp v Turrell [1952] 1 Lloyd's Rep 266 - Caspian Basin Specialised Emergency Salvage Administration v Bouygues Offshore SA (No 4) [1997] 2 Lloyd's Rep 507 - The "Ettrick" (1881) 6 PD 127 - James Patrick & Co Ltd v Union Steamship Co of New Zealand (1938) 60 CLR 650 - Noferi v Smithers [2002] NSWSC 508 CASES CITED : - The "Stonedale No 1" [1955] 2 Lloyd's Rep 9 - Wheeler v London & Rochester Trading Co Ltd [1957] 1 Lloyd's Rep 69 - "Australian Law Reform Commission Report No.75, 'Costs shifting - who pays for litigation, 1995', Appendix C" - Griggs and Williams "Limitation of Liability for Maritime Claims" (3rd Ed., 1998) - Marsden's "The Law of Collisions at Sea" (11th Ed, 1961) - Meeson "Admiralty Jurisdiction and Practice" (2nd Ed, 2000) - Lord Mustill "Ships Are Different - Or Are They?" [1993] LMCLQ 490 - D. Steel QC "Ships Are Different - The Case for Limitation of Liability" [1995] LMCLQ 17 Newcastle Port Corporation - Plaintiff PARTIES : Gary Pevitt - First Defendant Nicola Jayne Wallace - Second Defendant Darren Schlenert - Third Defendant FILE NUMBER(S) : SC 001/03 COUNSEL : M. McHugh - Plaintiff I.G. Roberts - First and Second Defendants Withnell Hetherington - Plaintiff SOLICITORS : Palmieri Law Firm - First and Second Defendants Cantle Carmichael Lawyers - Third Defendant

1 At some time during the night of 28 July 2000 the Plaintiff's sea-going pilot vessel, the "Robert Whitmore" , collided with a dinghy in Newcastle Harbour. Three men in the dinghy, Messrs Gary Pevitt, Patrick Wallace and Darren Schlenert, were seriously injured and Mr Wallace later died of his injuries. 2 Mr Wallace's widow and Messrs Pevitt and Schlenert have commenced proceedings against the Plaintiff in the District Court at Newcastle, claiming substantial damages for negligence. The Plaintiff has filed its Defences denying liability and has cross claimed for contribution or indemnity against Mr Schlenert, alleging that the collision was due to his negligence. 3 By Summons filed in this Court in its Admiralty Jurisdiction the Plaintiff claims as against the Defendants (who are the plaintiffs in the District Court proceedings) that it is entitled to limit any liability which it may have to them in respect of the collision in accordance with the provisions of the Limitation of Liability for Maritime Claims Act 1989 (Cth) ("the Limitation Act "). The Limitation Act gives the force of law in Australia to the 1976 London Convention on Limitation of Liability for Maritime Claims ("the 1976 Convention"). The Plaintiff seeks an order for the constitution of a limitation fund under s.9(2) of the Limitation Act in a sum to be determined by the Court. 4 There is no issue between the parties that the Limitation Act applies, in the circumstances of the collision, to limit the liability of the Plaintiff to the Defendants. There is no dispute as to how the amount of the limitation fund is to be calculated and that the Plaintiff must pay the Defendants' cost of this application to the Court, subject to a qualification to which I will come. 5 The sole issue which has been debated between the parties raises an important question of practice and procedure, involving the construction of the 1976 Convention. The question is whether the limitation of liability for a claim under Article 2 of the Convention is inclusive, or exclusive, of any costs order which may be made in proceedings establishing that claim. In short, if the Defendants succeed against the Plaintiff in the District Court and the Plaintiff is ordered to pay their costs, will the Defendants be obliged to look to the limitation fund alone to satisfy both the judgments and the consequential costs orders (as the Plaintiff contends), or will they be entitled to obtain payment of the judgments out of the limitation fund and to enforce the costs orders directly against the Plaintiff (as the Defendants contend)? The answer to the question may well have serious consequences for the Defendants: if they succeed against the Plaintiff in the District Court it is quite possible that the aggregate of the damages awarded to them would exceed the limitation fund. Their awards of damages would have to be reduced so as not to exceed the limitation fund but those awards will, practically speaking, be reduced even further if the liability of the Plaintiff which is limited by the Convention includes liability for costs orders. 6 One would have thought that this issue would have arisen frequently in practice since adoption of the 1976 Convention in the United Kingdom and Australia and that it would have been authoritatively decided long ago. However, as far as the researches of Counsel and my own researches go, there has not been any decision by the Courts here or overseas which has considered the point directly.

7 Article 2 relevantly provides: "Claims subject to limitation

Subject to Articles 3 and 4 the following claims, whatever the basis of liability may be, shall be subject to limitation of liability:

(a) claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connexion with the operation of the ship or with salvage operations, and consequential loss resulting therefrom;

(b) claims in respect of loss resulting from delay in the carriage by sea of cargo, passengers or their luggage;

(c) claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connexion with the operation of the ship or salvage operations;

(f) claims of a person other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with this Convention, and further loss caused by such measures." 8 Article 4 provides: "Conduct barring limitation

A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result." 9 Article 6.1(a) provides the formula for calculating the limits of liability "in respect of claims for loss of life or personal injury" . Paragraph 1(b) provides the formula "in respect of any other claims" . 10 Article 7 makes special provision for limiting liability in respect of passenger claims. 11 Article 12.1 provides: "Distribution of the fund

Subject to the provisions of paragraphs 1, 2 and 3 of Article 6 and of Article 7, the fund shall be distributed among the claimants in proportion to their established claims against the fund." 12 Article 13.1 provides: "Bar to other actions

Where a limitation fund has been constituted in accordance with Article 11, any person having made a claim against the fund shall be barred from exercising any right in respect of such claim against any other assets of a person by or on behalf of whom the fund has been constituted." 13 Article 14 provides: "Governing law

Subject to the provisions of this Chapter the rules relating to the constitution and distribution of a limitation fund, and all rules of procedure in connexion therewith, shall be governed by the law of the State Party in which the fund is constituted."

14 I should acknowledge at the outset that I am grateful for the assistance provided by the capable and thorough arguments of Counsel appearing in the case, Mr M. McHugh for the Plaintiff and Mr I. Roberts for the First and Second Defendants. However, as both Counsel acknowledged, there is very little in the way of authority which assists in the resolution of the question raised in this case. 15 Mr McHugh's submissions may be summarised thus:

the words "claims in respect of" the various categories of loss identified in Article 2.1 are of wide import. A claimant's claim for the costs of establishing that he or she has suffered a relevant loss within Article 2.1 is a claim "in respect of" that loss;

the 1976 Convention must be construed in the light of its purpose, which is to encourage shipping and trade by limiting claims against shipowners and salvors. It is consistent with that purpose that a shipowner will be able to know exactly the limit of its liability for all claims covered by the 1976 Convention which may arise from the same occurrence. Where there are multiple claims the legal costs of establishing those claims might be considerable. It would anomalous and inconsistent with the purpose of the 1976 Convention if the shipowner's liabilities for legal costs arising from such claims were left at large and the shipowner were exposed to proceedings for enforcement of costs orders;

Article 13.1 evidences an intention that the limitation fund is to be the sole source of satisfaction of all claims arising from a relevant occurrence. It would be inconsistent with the policy of the 1976 Convention and with Article 13.1 if a claimant were entitled to payment of a judgment debt out of the limitation fund and were then entitled to levy execution against assets of the shipowner to satisfy a consequential costs order;

the limitation of liability "in respect of any other claims" referred to in Article 6.1(b) applies to claims for the costs of establishing a claim under paragraph 1(a);

if the drafters of the 1976 Convention had intended that the "claims" referred to in Article 2.1 were not to include claims for costs, it would have been very easy to say so, as was done, for example, in Article 22(4) of the Warsaw Convention as amended at The Hague, 1955. Finland, in its legislation adopting the 1976 Convention, has made it expressly clear that "claims" in Article 2 do not include claims for legal costs. Australia has made no similar provision in the Limitation Act , so that it can be inferred that the Australian Parliament did not wish to remove claims for legal costs from the limitation provisions of the Convention;

in Noferi v Smithers [2002] NSWSC 508 at [48], Newman AJ accepted that a limitation fund established under Article 11 of the 1976 Convention was inclusive of the costs of the proceedings establishing the claim. 16 Mr Roberts' submissions may be summarised thus:

"claim", where used in Article 2.1, means the asserted substantive right to compensation arising out of the relevant occurrence: for indirect support of this submission he relies on Caspian Basin Specialised Emergency Salvage Administration v Bouygues Offshore SA (No 4) [1997] 2 Lloyd's Rep 507. A "claim", in this sense, may be accepted immediately by a shipowner so that the claimant incurs no legal costs in establishing it. But if the shipowner disputes the claim, the costs of the ensuing legal proceedings are not part of the claim itself - they are a consequence of the dispute as to its validity;

the law relating to costs of legal proceedings is domestic procedural law. The 1976 Convention is intended to alter claimants' rights to compensation under substantive law, not the procedural law of the particular court in which the claim may be brought. The antecedents of the 1976 Convention

17 It seems to me that there is substance in each of the competing constructions of Article 2.1 advanced by Counsel and that there is ambiguity in the phrase "claims in respect of" where used in that Article and in other Articles in the Convention. Some guidance in the construction of the 1976 Convention may, therefore, be obtained from a brief review of its antecedents. 18 The concept of limiting the liability of shipowners is neither recent nor is it a creation of the English common law: it is seen enacted in statute as early as 1603 in the Statutes of Hamburg, in the Hanseatic Ordinances of 1614 and 1644, in the Maritime Code of Sweden in 1667, and in the French Maritime Ordinance of 1681. England adopted the notion in 1733 by the Responsibility of Shipowners Act 7 Geo 2, c.15, which made clear by its preamble that the policy of the Act was "to promote the increase of the number of ships and vessels and to prevent any discouragement to merchants and others from being interested and concerned therein". The Act limited shipowners' liability for theft of cargo by the crew. In 1786, limitation of liability was extended to "any act, matter or thing or damage or forfeiture done or occasioned or incurred … without the privity or knowledge of the owners" (26 Geo 3, c.86). In 1813 liability was extended further to claims arising out of collisions (53 Geo 3, c.159), and in 1854 to claims for loss of life and personal injury: see generally Marsden's The Law of Collisions at Sea (11th Ed, 1961, p.128ff) and Meeson Admiralty Jurisdiction and Practice (2nd Ed, 2000, p.241ff). 19 The policy of limiting the liability of shipowners was not without its opponents. In The "Amalia" (1863) 1 Moo PC (NS) 471, at 473 [15 ER 778], Dr Lushington said: "The principle of limited liability is that full indemnity, the natural right of justice, shall be abridged for political reasons."

Brett LJ described the limitation Acts as "tyrannical" : The "Ettrick" (1881) 6 PD 127, at 136. Whether limitation of liability is a good thing or a bad thing is still actively debated: cf. Lord Mustill "Ships Are Different - Or Are They?" [1993] LMCLQ 490, and D. Steel QC "Ships Are Different - The Case for Limitation of Liability" [1995] LMCLQ 17. 20 In the United Kingdom shipowners' rights of limitation of liability were consolidated in s.503 of the Merchant Shipping Act 1894 (UK). Section 503 relevantly provided: "(1) The owners of a ship, British or foreign, shall not, where all or any of the following occurrences take place without their actual fault or privity … be liable to damages beyond the following amounts …"

The "occurrences" specified include loss of life, personal injury and damage to property, whether on board the shipowner's ship or on board another ship. The limitation amounts provided for the various categories of occurrence were calculated by reference to the tonnage of the shipowner's ship.

Section 504 provided: " Where any liability is alleged to have been incurred by the owner of a British or foreign ship in respect of loss of life, personal injury, or loss of or damage to vessels or goods, and several claims are made or apprehended in respect of that liability, then, the owner may apply in England and Ireland to the High Court, or in Scotland to the Court of Session, or in a British possession to any competent court, and that court may determine the amount of the owner's liability and may distribute that amount rateably among the several claimants, and may stay any proceedings pending in any other court in relation to the same matter, and may proceed in such manner and subject to such regulations as to making persons interested parties to the proceedings, and as to the exclusion of any claimants who do not come in within a certain time, and as to requiring security from the owner, and as to payment of any costs, as the court thinks just."

Section 505 provided: "All sums paid for or on account of any loss or damage in respect whereof the liability of owners is limited under the provisions of this Part of this Act, and all costs incurred in relation thereto, may be brought into account among part owners of the same ship in the same manner as money disbursed for the use thereof." 21 It is quite clear from these provisions that the limitation of liability created by s.503 was not inclusive of the claimant's costs of establishing that liability against shipowners. Section 505 treats as separate and distinct items sums paid on account of loss or damage in respect of which liability is limited by s.503 and "all costs incurred in relation" to such payments. Those costs must include the legal costs of establishing or resisting the claimant's entitlements to such payments. 22 Further, as was said by Viscount Simonds in The "Stonedale No 1" [1955] 2 Lloyd's Rep 9, at 13: "The relief given to shipowners [under s.503] is in respect of their liability to damages and nothing else … until I heard it argued, I did not think it arguable that the relief extended so far as to enable shipowners to limit their liability except where their liability lay in damages. Nor has the argument of Counsel convinced me to the contrary." 23 Consistently with these views, the practice in the United Kingdom has been that where the damages which would otherwise have been awarded to a plaintiff exceeded the amount of the limitation fund established under s.504, damages limited to the full amount of the fund were given and a separate order was made for costs: see Wheeler v London & Rochester Trading Co Ltd [1957] 1 Lloyd's Rep 69 at 73; Beauchamp v Turrell [1952] 1 Lloyds Rep 266 at 272. 24 The phrase "liable to damages" which had appeared in s.503(1) of the 1894 Merchant Shipping Act was not reproduced in the first international convention for the limitation of shipowners' liability, the 1924 Convention for the Unification of Certain Rules relating to the Limitation of Liability of Owners of Sea-going Vessels ("the 1924 Convention"). Article 1 of that Convention limited liability in respect of: "(1) Compensation due to third parties by reason of damage caused, whether on land or on water, by the acts or faults of the master, crew, pilot, or any other person in the service of the vessel;

(2) Compensation due by reason of damage caused either to cargo delivered to the master to be transported, or to any goods or property on board; …"

"Compensation", it will be observed, has a wider import than the term "damages" has in the common law of England and Australia. 25 There is no express provision in the 1924 Convention as to the costs of establishing a claim for compensation. However, Article 14 provides: "Nothing in the foregoing provisions shall be deemed to affect in any way the competence of tribunal modes of procedure, or methods of execution authorized by the national laws."

This seems to be a precursor of Article 14 in the 1976 Convention. Article 8 also recognises that for the purpose of implementing its provisions questions of procedure are to be governed by the law of the forum. 26 Although the United Kingdom was a signatory to the 1924 Convention, that Convention was never given the force of law in the United Kingdom. In 1957, it was replaced by the Brussels Convention relating to the limitation of liability of owners of sea-going ships ("the 1957 Convention"). That Convention was adopted in the United Kingdom by the Merchant Shipping (Liability of Shipowners and Others) Act 1958 , by means of amendments to the 1894 Merchant Shipping Act . Article 1 of the 1957 Convention adopted neither the phrase "liable to damages" from s.503 of the 1894 Merchant Shipping Act , nor the phrase "compensation due … by reason of damage …" from the 1924 Convention. Article 1(1) of the 1957 Convention relevantly provided: "(1) The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention in respect of claims arising from any of the following occurrences, unless the occurrence giving rise to the claim resulted from the actual fault or privity of the owner …" [Then follow the occasions causing loss of life, personal injury and damage to property.] 27 There is no express provision in the 1957 Convention dealing with costs, as there is in Article 22(4) of the Warsaw Convention. But Article 4 provides: "Without prejudice to the provisions of Article 3, paragraph (2) of this Convention, the rules relating to the constitution and distribution of the limitation fund, if any, and all rules of procedure shall be governed by the national law of the State in which the fund is constituted." 28 The 1957 Convention was incorporated into Australian law by s.330, s.333 and Schedule 6 of the Navigation Act 1912 (Cth). It remained in force in Australia until 31 May 1991, when the 1976 Convention was adopted upon the taking effect of the 1989 Limitation Act . 29 There is no decision in the United Kingdom or in Australia which expressly decides whether a claim which is subject to limitation of liability under the 1957 Convention includes the costs of establishing that claim. In Marsden The Law of Collisions at Sea (para.455) it is said that "Plaintiffs in limitation actions are liable for costs given or awarded against them, in addition to the full amount payable as damages under the statutory limitation" . However, the authorities cited in support of that proposition were decided under the law as it was prior to s.503 of the 1894 Merchant Shipping Act , or under s.503 and s.504 of that Act, which expressly made the position as to costs clear.

30 Griggs and Williams Limitation of Liability for Maritime Claims (3rd Ed, 1998) says at p.54: "Costs incurred in establishing the claim

Article 2 of the [1976] Convention lists the claims in respect of which there is a right to limit liability and Article 14 provides that the rules relating to the constitution and distribution of the limitation fund shall (except to the extent that express provision is made in Articles 11, 12 and 13) be governed by the law of the State Party in which the fund is constituted. If, as in England, no express provision has been made in relation to costs, it is submitted that the question of whether or not costs of proving the claim are recoverable depends on whether, as a matter of law, (a) recoverable costs do or do not form part of the claim; and (b) if they do not form part of the claim, to what extent they are recoverable on collection from the fund.

Whilst there appears to be no relevant authority on this issue under the Convention, the traditional rule in England was that those seeking to limit their liability were liable for costs given or awarded against them, in addition to the full amount payable as damages under the statutory limitation. In the opinion of the authors, the same rule applies under the 1976 Convention. It would be an odd result if the recovery of legal costs incurred by a claimant in proving his claim against the fund could have the effect of reducing the recovery from the fund of a claimant who chose not to instruct a lawyer. Therefore, it is submitted that if costs are recoverable at all then they are recoverable not as part of the claim against the fund but in addition to the fund to the extent that a court, in exercising its inherent discretion in relation to costs, determines what costs shall be paid and by whom." [Citations omitted] 31 As authority for the "traditional rule in England" the learned authors cite cases referred to in Marsden. As authority for the very last proposition in the passage quoted, the authors say in a footnote: "A similar view seems to have been adopted by Bingham J in relation to a claim under the Warsaw Convention. See Swiss Bank Corp v Brink's Mat [1986] 2 All ER at 190-191."

As I have noted above, I do not think that cases decided prior to the 1894 Merchant Shipping Act or under s.503 of that Act are of any real assistance in construing the 1976 Convention, nor is authority which considers the Warsaw Convention, because that Convention expressly provides for costs in Article 22(4). 32 In Meeson Admiralty Jurisdiction and Practice , the learned author expresses the view at para.8-104 that the costs of establishing a claim against a limitation fund are dealt with separately from the limitation fund itself. He refers to a case decided prior to the 1894 Merchant Shipping Act and to a section of the 1958 Act which adopted the 1957 Convention and says that, while these considerations have no direct application to the 1976 Convention: "… the position does not appear to have altered in that Article 11 of the 1976 Convention provides that the limitation fund shall be available 'only for the payment of claims in respect of which limitation of liability can be invoked' and would therefore appear to rule out invoking limitation against an order for legal costs, which is not a claim mentioned in Article 2 of the Convention where the claims against which limitation may be invoked are specified.

There are also reasons in principle why orders for costs in liability actions should not be included in the claims against the limitation fund. It would encourage shipowners to contest liability safe in the knowledge that any award of costs made against them would simply form part of the claim against the limitation fund, so that the action was brought in effect at the defendant's expense. In a multi-party case, it could also potentially adversely affect other defendants by altering the relative proportions of the claims against the fund.

Finally, the Convention is international in character and the recoverability of legal costs is not uniform across the various Contracting States, so that if costs were to be included in claims against the fund, the limitation fund would in effect vary in amount in different Contracting States which was not the intention of the framers of the Convention. In cases where limitation of liability is raised as a defence (as opposed to being raised in a limitation action) it is the practice to give judgment for the amount of the limit of liability together with costs : see e.g. Beauchamp v Turrell [1952] 1 Lloyd's Rep 266."

Beauchamp was, of course, a case decided under s.503 of the 1894 Merchant Shipping Act .

33 The only Australian case which has any relevant bearing on the 1976 Convention is Noferi v Smithers , upon which Mr McHugh relies. In that case, the plaintiffs sued the defendant for injuries received in a boating accident off the New South Wales coast. After five days of hearing it was agreed between the parties that the claims were within the limitation provisions of the 1976 Convention and the amount of the limitation fund constituted under Article 11 was agreed at $975,000. The Judge then noted that the only remaining task of the Court was "…to assess the damages which should be awarded to the two plaintiffs and having done so then make an apportionment pro rata so that the plaintiffs will receive an award limited by the gross amount of the fund but bearing a direct relationship to the proportion between the two assessments of damage." 34 His Honour assessed the first plaintiff's damages at $1,560,935.50 and the second plaintiff's damages at $632,629.17. He then calculated what proportion of the limitation fund each of the plaintiffs should receive and concluded: "Applying the formula I thus assess the damages to be awarded to David Noferi in the sum of $693,808 and to John Lokys $281,192. As the fund created is inclusive of costs there will be judgment for each plaintiff in these amounts with no order as to costs." 35 There is no discussion at all in the judgment of the reasons which led his Honour to conclude that the limitation fund was inclusive of the costs of establishing the plaintiffs' claims. The fact that all issues except assessment of damages had been compromised between the parties during the course of the hearing and the fact that his Honour gives no reasons for his costs order suggest that there was no dispute between the parties that the limitation fund included the costs of the proceedings. In those circumstances, I cannot regard this decision as having great persuasive weight. Conclusions

36 In my opinion, a limitation fund established under Article 11 of the 1976 Convention is exclusive of any legal costs which may be incurred in establishing a claim against that fund. My reasons for this conclusion are as follows. 37 At the outset, I think that an Australian Court should be careful to resist the understandable inclination simply to construe the 1976 Convention against a background of its own law and procedure. The 1976 Convention and its precursors were the product of international maritime experience and their drafting had therefore to reflect the diversity of that experience. Each of the three Conventions recognised the distinction between substantive rights created or limited by the Convention on the one hand and, on the other, idiosyncratic rules of procedure which would be applicable in difference domestic courts and tribunals in proceedings invoking these substantive rights or limitations: see Article 14 of the 1924 Convention, Article 4 of the 1957 Convention, and Article 14 of the 1976 Convention. 38 Lawyers in the United Kingdom, Canada, New Zealand and Australia are conditioned to think that proving a disputed claim necessarily involves incurring legal costs and that the unsuccessful party will ordinarily be made liable for most, if not all, of the successful party's costs of that dispute. This way of thinking is so naturally ingrained in lawyers of those countries that it must be almost an automatic reflex for them to construe a limitation of liability "in respect of" a disputed claim as wide enough to encompass quite comfortably liability for the necessarily concomitant legal costs of proving that disputed claim. It may well have been this conditioned reflex which led the parties and the Court in Noferi v Smithers to an uncritical acceptance of the proposition that the limitation fund was inclusive of costs. 39 However, I think that the point is well made by Meeson (see paragraph 32 above) that this nexus between a liability and the legal costs of establishing it in a court or tribunal is not as self evident or as strong to lawyers in other countries which are parties to the 1976 Convention. In some countries legal costs do not "follow the event" with nearly the same degree of predictability or to the same extent as is the case in the United Kingdom, Australia and New Zealand. For example, in Japan, which is a Party to the 1976 Convention, the recoverable costs of the winning party do not normally include the largest component of those costs, namely, the attorney's fees, so that it is rare for a Japanese litigant to enforce the relatively small costs order made in his or her favour: see generally "Australian Law Reform Commission Report No.75, 'Costs shifting - who pays for litigation, 1995', Appendix C" . Even in the United Kingdom, where the rule that costs normally follow the event is so strongly entrenched, Admiralty lawyers have long regarded the costs of establishing a claim against a limitation fund as separate and distinct from the claim itself: see paragraphs 21-29. If one bears this in mind, one approaches the construction of the words "claims in respect of" in Article 2.1 without a predisposition to be influenced by the nexus between liability for a claim and the legal costs of establishing that liability. 40 Approached in this way, phrases in Article 2 such as "claims in respect of loss of life" carry a literal meaning which goes no further than their express words: a claim "in respect of loss of life" simply means "a claim for compensation for loss of life". A claim for reimbursement of the legal expenses incurred in prosecuting a disputed claim for compensation for loss of life is not a "claim for compensation for loss of life" and is, therefore, outside the scope of Article 2.1(a). The same construction applies to the other claims identified in Article 2.1. 41 Consistently with this construction, "claims" referred to in Articles 6 and 7 for the purpose of calculating the limitation fund do not include claims for reimbursement of legal expenses and "claims in respect of which limitation of liability can be invoked" for the purpose of payment out of the limitation fund under Article 9 likewise do not include claims for reimbursement of legal expenses. 42 The construction of the phrase "claims in respect of" which I adopt allows a claimant's legal costs of prosecuting a disputed claim under Article 2.1 to be dealt with by the law of the forum in which the disputed claim is tried. This follows either because the 1976 Convention says nothing at all about the way in which legal costs of disputed claims are to be dealt with, or else because the establishment of a disputed claim is a necessary part of the process involved in the "distribution of a limitation fund" within the operation of Article 14, so that under that Article domestic law governs the procedure whereby the claim is established. 43 In short, to construe "claims" under Article 2.1 in this way produces the result that a claimant against a limitation fund who has not incurred legal costs in establishing the claim will not be disadvantaged because the claims of other claimants are swollen by the inclusion of their legal costs. Further, those claimants who establish their claims under domestic procedural rules which award full indemnity for legal costs to the successful party will retain the benefit of that procedure, while those claimants whose domestic procedural rules award little or no costs will be no worse off. 44 I do not think that the other matters raised by Mr McHugh militate against this conclusion. He says that it would be inconsistent with the purpose of the 1976 Convention to limit claims against shipowners for compensation while leaving at large their liabilities for legal costs arising from such claims. 45 The answer to this submission is, I think, that the Convention recognises in Article 14 that it can only go so far in limiting claims against shipowners: calculation of the limits of compensation payable to claimants can be made uniform no matter what national jurisdiction determines those claims, but the procedures for determining whether or not the claims are established and how they are to be dealt with could not be made uniform without invasion of domestic procedural law, which would be contentious, inconvenient and unnecessary. 46 As to Mr McHugh's submission that "any other claims" referred to in Article 6.1(b) includes claims for the legal costs of establishing claims under s.6.1(a), I am unable to agree. In my opinion, it is clear that Article 6.1(b) refers to claims identified in Article 2.1, other than claims for loss of life and personal injury, which are the subject matter of Article 6.1(a). 47 Finally, I do not think that I should follow the decision in Noferi v Smithers because, as I have observed, the question whether the limitation fund is exclusive or inclusive of legal costs does not appear to have been argued and his Honour therefore did not give reasons for his conclusion. On the other hand, after full argument from Counsel and careful deliberation I have come to a clear view about the matter.

48 During the course of the hearing, Mr McHugh gave on behalf of the Plaintiff a guarantee for the purpose of constituting a limitation fund under Article 11.2. Mr Roberts did not dispute that that guarantee was sufficient and the parties then agreed that the calculation of the fund would be determined under Article 8 by reference to the exchange rates fixed by the Reserve Bank as at 4.00pm on that day, that is, 29 August 2003. That calculation will be made and the result will be included in the Short Minutes of Order which are to be brought in by the parties.

49 The parties have agreed that the costs of this application to the Court, apart from the issue as to the construction of the 1976 Convention, must be borne by the Plaintiff. This is in accordance with the usual practice in an application to establish a limitation fund that the applicant pays the costs of the proceedings, except the costs of issues or questions which the defendant raises unreasonably, or which are of a special and unusual nature and on which the defendant fails: James Patrick & Co Ltd v Union Steamship Co of New Zealand (1938) 60 CLR 650, at 677-8 per Dixon J. 50 In the present case, the issue as to the construction of the 1976 Convention was of a special and unusual nature but, as the Plaintiff has failed on that issue, it must bear the whole of the costs of the proceedings in accordance with the usual practice. Orders

51 The orders which I propose to make are as follows:

there will be a declaration that the Plaintiff is entitled to limit its liability arising out of the collision, in accordance with paragraph 1 of the Summons;

there will be an order that a limitation fund be constituted by the guarantee given by the Plaintiff on 29 August 2003;

there will be an order as to the amount of limitation fund, calculated in accordance with the agreement of the parties reached during the hearing;

there will be an order that, if the Defendants or any of them establish their claims against the fund, the fund be distributed amongst such of them as have established their claims in the proportion that the established claim of each Defendant bears to all established claims against the fund;

there will be a declaration that, on the true construction of the 1976 Convention, a claim subject to limitation of liability under the Convention does not include any claim or order for reimbursement to the claimant of the legal costs and expenses incurred in establishing that claim. 52 I will stand the proceedings over for a short time to enable the parties to bring in Short Minutes of Order. - oOo -

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At a glance

Court

Decision date

Before

Source

Judgment (49 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (2)