Qenos Pty Ltd v Ship 'APL Sydney'

REASONS FOR JUDGMENT 1 On 13 December 2008 the ship "APL Sydney" was anchored by its starboard anchor in Port Phillip Bay awaiting its berth at the port of Melbourne to become available. Between approximately 3:05 pm and 4:25 pm (local time) the ship drifted and dragged her anchor. At approximately 4:25 pm (local time) the anchor struck a submarine pipeline jointly owned by Esso Australia Resources Pty Ltd and BHP Billiton Petroleum (Bass Strait) Pty Ltd and used to transport ethane from their gas treatment facility at Longford. Four negligence actions are now pending against the APL Sydney. In each action the shipowner (Strong Wise Limited) contends that its liability is limited by the Convention on Limitation of Liability for Maritime Claims 1976. In two actions, one by Qenos Pty Ltd and the other by Huntsman Chemical Co Australia Pty Ltd, each plaintiff says its claim falls outside the 1976 Convention. It is agreed that this issue should be determined before each trial. 2 The APL Sydney is a fully cellular container ship which was on time charter to American President Lines (APL). It was employed on a liner service operated by APL carrying cargo between Asian and Australian ports. The vessel had sailed from Hong Kong bound for the port of Melbourne to discharge her cargo. The vessel's gross register tonnage is 35,991 and its twenty-foot equivalent unit is 3,534. 3 Qenos is the plaintiff in action NSD 2004 of 2008. It manufactures and supplies polyethylene and olefin products at a plant in Altona, Victoria. It uses ethane delivered via the pipeline in the production of polyethylene. When the pipeline ruptured, Qenos' supply of ethane stopped. In its action against the ship Qenos contends that the shipowner, by its servants or agents, negligently caused the rupture of the pipeline thus causing Qenos to suffer economic loss. In particular the loss is said to result from: (a) the need to switch to using LPG as a feedstock in the production of polyethylene which is more expensive, has a lower yield than ethane, and produces other by-products that are required to be disposed of and result in higher plant cleaning costs; (b) the inability to run its production facilities at full rates on LPG resulting in a substantial reduction in the plant's overall ability to produce polyethylene; (c) the need to import polyethylene in order to meet customer orders at a greater cost than producing polyethylene from ethane supplied via the pipeline; (d) higher operating costs; and (e) the inability to meet customers' demands through production and imports, causing some customers to switch to alternative suppliers. 4 Huntsman is the plaintiff in action QUD 431 of 2008. It manufactures styrene monomer, polystyrene and expendable polystyrene from a plant at West Footscray, Victoria. Ethane is a necessary feedstock in the manufacturing process. Huntsman acquires it ethane via the pipeline. In its action, which is also based in negligence, Huntsman asserts that it also suffered economic loss when its supply of ethane stopped. Huntsman's loss is said to result from: (a) it being unable to operate the plant; (b) the need to ration the supply of existing stock to customers; (c) the purchase of alternative supplies of styrene monomer and expendable polystyrene; (d) it incurring dead freight obligations associated with shipments rendered unnecessary because it is unable to operate its plant; and (e) its inability to meet customer demands as a result of which some customers may elect to source their requirements from alternative suppliers, either temporarily or permanently. 5 Qenos has provided detailed particulars of its loss. For commercial reasons the parties have agreed to keep the details confidential. For present purposes it is sufficient to note that Qenos' claim in damages exceeds $30 million. 6 Huntsman Chemical Co has also provided particulars of its loss. The details are also confidential. Its claim exceeds $7 million. 7 The question in issue in each action is whether a claim for economic loss is covered by the 1976 Convention. 8 The 1976 Convention came into force as domestic law by s 6 of the Limitation of Liability for Maritime Claims Act 1989 (Cth). It permits shipowners and others to limit their liability in respect of certain claims to an amount calculated by reference to the ship's tonnage (as distinct from the ship's value or the owner's worth). The policy underlying the limitation provisions of the 1976 Convention is to protect shipowners and their servants and also to create a fund to be equitably (proportionately) distributed among claimants who have suffered loss from a particular event: Victrawl Pty Ltd v Telstra Corporation Ltd (1995) 183 CLR 595, 601. The Supreme Court of the United States said of similar provisions: "The statutory provision for limitation of liability, enacted in the light of the maritime law of modern Europe and of legislation in England, has been broadly and liberally construed in order to achieve its purpose to encourage investments in shipbuilding and to afford an opportunity for the determination of claims against the vessel and its owner": Just v Chambers 312 US 383, 385 (1941). 9 The following parts of the 1976 Convention are relevant: Article 1 Persons entitled to limit liability 1. Shipowners and salvors, as hereinafter defined, may limit their liability in accordance with the rules of this Convention for claims set out in Article 2. 2. The term "shipowner" shall mean the owner, charterer, manager and operator of a seagoing ship. 3. … 4. … 5. In this Convention the liability of a shipowner shall include liability in an action brought against the vessel herself. 6. … 7. … Article 2 Claims subject to limitation 1. 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; … Article 11 Constitution of the fund 1. Any person alleged to be liable may constitute a fund with the Court or other competent authority in any State Party in which legal proceedings are instituted in respect of claims subject to limitation. The fund shall be constituted in the sum of such of the amounts set out in Articles 6 and 7 as are applicable to claims for which that person may be liable, together with interest thereon from the date of the occurrence giving rise to the liability until the date of the constitution of the fund. Any fund thus constituted shall be available only for the payment of claims in respect of which limitation of liability can be invoked. 2. A fund may be constituted, either by depositing the sum, or by producing a guarantee acceptable under the legislation of the State Party where the fund is constituted and considered to be adequate by the Court or other competent authority. … Article 13 Bar to other actions 1. 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. 2. After a limitation fund has been constituted in accordance with Article 11, any ship or other property, belonging to a person on behalf of whom the fund has been constituted, which has been arrested or attached within the jurisdiction of a State Party for a claim which may be raised against the fund, or any security given, may be released by order of the Court or other competent authority of such State. However, such release shall always be ordered if the limitation fund has been constituted: (a) at the port where the occurrence took place, or, if it took place out of port, at the first port of call thereafter; or (b) at the port of disembarkation in respect of claims for loss of life or personal injury; or (c) at the port of discharge in respect of damage to cargo; or (d) in the State where the arrest is made. 3. The rules of paragraphs 1 and 2 shall apply only if the claimant may bring a claim against the limitation fund before the Court administering that fund and the fund is actually available and freely transferable in respect of that claim. 10 On 23 January 2009 the shipowner established a limitation fund in the sum of $AUD 32,112,540. The shipowner says this fund is the limit of its liability in respect of the damage to the pipeline and all loss resulting from that damage. Further, the shipowner says that all claimants who are successful in their respective actions against the vessel cannot seek recovery beyond the fund. In respect of the claims made by Qenos and Huntsman, the shipowner says they are covered by the 1976 Convention as they fall under Art 2.1(a) or Art 2.1(c). 11 The issues raised by this dispute depend upon the meaning of Art 2.1(a) and Art 2.1(c). The principles to be applied to ascertain the meaning are not in doubt. The general rules governing the construction of a treaty are laid down in the Vienna Convention on the Law of Treaties 1969. While the Vienna Convention did not come into force until 1980, it is accepted that it reflects customary international law and may be applied to treaties concluded before 1980: Arbitration regarding the Iron Rhine ("IJzeren Rijn") Railway (Belgium/Netherlands), Award of 24 May 2005, p 23 para 45 ("It is now well established that the provisions on interpretation of treaties contained in Articles 31 and 32 of the [Vienna] Convention reflect pre-existing customary international law, and thus may be (unless there are particular indications to the contrary) applied to treaties concluded before the entering into force of the Vienna Convention in 1980. The International Court of Justice has applied customary rules of interpretation, now reflected in Articles 31 and 32 of the Vienna Convention, to a treaty concluded in 1955 … and a treaty concluded in 1890, bearing on rights of States that even on the day of Judgment were still not parties to the Vienna Convention … There is no case after the adoption of the Vienna Convention in 1969 in which the International Court of Justice or any other leading tribunal has failed so to act" as cited in R Gardiner, Treaty Interpretation (2008) 12-13). 12 The general rule of interpretation is found in Art 31 of the Vienna Convention. It reads: Article 31 General rule of interpretation 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 3. There shall be taken into account, together with the context: (c) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (d) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (e) any relevant rules of international law applicable in the relations between the parties. 4. A special meaning shall be given to a term if it is established that the parties so intended. 13 Article 32 is also important. It provides: Article 32 Supplementary means of interpretation Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable. 14 Article 31 has three elements to which regard must be had: (a) the ordinary meaning of the terms of a treaty; (b) the context in which the terms are used; and (c) the purpose and objects of the treaty. In applying these elements, a "holistic approach" ought be adopted, with primacy to be given to the text of the treaty: Applicant A v Minister for Immigration and Ethnic Affairs (1997) 190 CLR 225, 254 citing Golder v United Kingdom (1975) 1 EHRR 524. 15 Article 31 therefore invites the following approach. First, determine the ordinary meaning of a term. Second, ask whether that meaning (or one of several meanings) should be adopted having regard to the context. The context includes the Article in which the word is found, as well as the whole treaty (and may also include the previous treaties). Third, the purpose and object of the treaty must be considered. But the third step should not be undertaken in isolation from the terms of the treaty, but rather as part of the context which can shed light on the meaning of particular terms. 16 When following this approach it is necessary to be unconstrained by principles of domestic law, which usually have no role to play in the construction of international conventions: Stag Line Ltd v Foscolo Mango & Co Ltd [1932] AC 328, 350; The Shipping Corporation of India Ltd v Gamlen Chemical Co (A/Asia) Pty Ltd (1980) 147 CLR 142, 159. 17 In addition to the general rules of interpretation provided for in Art 31, Art 32 allows the use of supplementary means of interpretation in certain circumstances. For present purposes, it is sufficient to note that Art 32 permits consideration of the negotiating history leading to the conclusion of a treaty, to determine the meaning of a treaty when the interpretation according to Art 31 leaves the meaning ambiguous. 18 With this background in mind, it is now appropriate to consider the interpretation of Art 2 of the 1976 Convention. Article 2.1(a) is concerned with three types of claim: (a) loss of life or personal injury; (b) loss of or damage to property; and (c) consequential loss resulting therefrom. There is nothing controversial about the first two categories of claim. As to the third category regarding consequential loss, two observations can be made. First, the loss must result from or be caused by (ie be consequential on): (a) loss of life or personal injury; or (b) loss of or damage to property. Second, the loss may be: (a) further loss of life or personal injury; (b) further loss of or damage to property; (c) financial loss resulting from loss of life or personal injury; or (d) financial loss resulting from loss of or damage to property. These types of losses may be characterised as "concrete" (i.e. loss of life or personal injury and loss of or damage to property) and "abstract" (i.e. financial loss resulting from a "concrete" loss). 19 By way of contrast Art 2(1)(b) and Art 2.1(c) deal solely with "abstract" loss not covered by Art 2.1(a). This, I think, is clear, in the case of Art 2.1(b) from the nature of the claim with which that paragraph is concerned (delay in carriage) and, in the case of Art 2.1(c), because it deals with claims in respect of "other loss", that is, loss other than of the kind covered by Art 2.1(a) and Art 2.1(b). 20 What I have said to this point as regards the operation of Art 2.1 is reinforced by the preparatory works. By way of example, the following appears in the Chapeau (disambiguation) to the Hamburg Draft Convention (which forms part of the Travaux Préparatoires of the 1976 Convention): Sub-paragraph (a) is the hard core in the definition of limitable claims: claims arising from loss of life or personal injury or loss of or damage to property. The words 'loss' and 'damage' in this connection are used in the concrete sense: physical loss and, broadly speaking, physical damage. The words are used in the same sense both in Article 1 of the 1957 Convention and Article 4, 1, (iv) of the 1967 Liens and Mortgages Convention. However, consequential damage - physical damage as well as abstract damage - arising out of loss or damage in the concrete sense shall give rise to limitation of liability as well as to a maritime lien. 21 The plaintiffs seek to avoid the operation of Art 2.1(a) in the following way. They accept that their claims are for consequential loss in the abstract sense (ie financial loss from the interruption of the supply of ethane) as a result of damage to property (ie the burst pipeline). The plaintiffs say, however, that the reference to consequential loss in Art 2.1(a) is to consequential loss suffered by a person resulting from a "concrete loss" suffered by that same person. Put differently, the plaintiffs contend that a person who neither suffers personal injury nor property damage is not a person who relevantly suffers "consequential loss resulting therefrom". 22 This construction of Art 2.1 is not without its supporters. For instance, S Derrington and J Turner, The Law and Practice of Admiralty Matters (2007) observe at 249: "There are two possible meanings which could be ascribed to the phrase …. [t]hey could relate to further loss (or damage) resulting from, eg, the loss of property (such as bunkers), such as pollution of beaches and resulting clean-up costs; alternatively, they may be confined to 'consequential loss' in the narrower sense, ie losses caused to the property owner consequential upon the loss of or damage to his property, such as loss of profits." 23 The authors accept (at 250) that the competing views are "finely balanced" but tentatively submit that "the narrower construction is the better one … the absence of the words 'or damage' and the difficulty of applying any notion of 'consequential loss' (in the wider sense) to loss of life (to which the phrase also applies) tip the scale in favour of the narrow reading of the words". 24 With great respect to the authors there is no difficulty with the idea of consequential loss (including financial loss) resulting from loss of life. Most common law countries have adopted the Fatal Accidents Act 1846 (9 & 10 Vict. c.93) (often referred to as Lord Campbell's Act) which provides for the recovery of financial loss following death caused by a wrongful act, neglect or default. A similar position exists in some continental countries: see by way of example the German Environmental Liability Act of 10 December 1990 and the German Road Traffic Act of 19 December 1952. In any event, little if anything can be made from the failure (if it be a failure) to include the words "or damage" in the expression "consequential loss". It is impermissible to base a construction of the Article on such an approach; namely by looking at Art 2 with a grammar in one hand and a dictionary in the other. 25 Not surprisingly, the wider view also has its supporters. The most important is the opinion of Thomas J in the Aegean Sea Traders Corporation v Repsol Petroleo SA [1998] 2 Lloyd's Rep 39. The shipowners made a claim against the charterer following the grounding of the vessel which resulted in her destruction and the loss of most of her cargo of crude oil. There were several heads of damages the shipowners sought to recover, including an indemnity in respect of claims brought against them for property damage, clean up costs and loss of profit claims by fishing boat owners in Spain under legislation giving effect to the Civil Liability Convention on Oil Pollution Damage 1969. 26 The principal issue was whether the charterers were entitled to limit their liability in respect of claims bought by the shipowners. Thomas J held that the 1976 Convention does not apply where a shipowner brings the claim. This finding disposed of the action. Nonetheless, the judge went on to consider whether the particular claims were covered by the 1976 Convention. As regards the claims for indemnity, Thomas J said they fall within Art 2.1(a) albeit they were unrelated to the damage to the ship. His reasons (at 52) are short: The three types of loss or damage claims occurred, in my view, in direct connection with the operation of the ship … I do not accept owners' contention that because the claims were strict liability claims they did not occur in direct connection with the operation of the ship … 27 There is also support for this construction in The "Breydon Merchant" [1992] 1 Lloyd's Rep 373. In that case cargo was salvaged following a serious fire which occurred on the ship. The salvors had a lien on the ship and cargo for their salvage reward. The issue was whether the claim by the cargo-owners for their proportionate share of salvage, plus additional stevedoring and transhipment costs, was to be made against a limitation fund. Sheen J held that the lien diminished the value of the cargo, and therefore constituted property damage for purposes of Art 2.1(a). He did not specifically address the additional stevedoring and transhipment costs, but treated them as part of the cargo-owner's consequential loss, albeit the loss did not flow from any property "damage" to the cargo but, rather, was the consequence of damage to the ship. 28 In my opinion the claims by Qenos and Huntsman for economic loss are consequential loss claims within Art 2.1(a). Such a conclusion is in accordance with a common sense (bona fide) reading of the Article, bearing in mind the purpose of the Convention (the limitation of liability), and is also consistent with the cases. But in case my construction of Art 2.1(a) is wrong, I propose to consider whether the claims fall under Art 2.1(c). 29 The resolution of this question turns on the meaning of the phrase "infringement of rights other than contractual rights". The issue is whether the phrase is limited to the infringement of statutory or proprietary rights. 30 In order to resolve this issue it is appropriate to consider, first, the International Convention Relating to the Limitation of the Liability of Owners of Sea-Going Ships 1957 which the 1976 Convention replaced. Under Art 1 of the 1957 Convention the claims which, subject to certain immaterial exceptions, were subject to limitation include those: Art 1 (1) [A]rising from any of the following occurrences …: loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to, any property on board the ship; loss of life of, or personal injury to, any other person, whether on land or on water, loss of or damage to any other property or infringement of any rights caused by the act, neglect or default of any person on board the ship for whose act, neglect or default the owner is responsible or any person not on board the ship for whose act, neglect or default the owner is responsible: Provided however that in regard to the act, neglect or default of this last class of person, the owner shall only be entitled to limit his liability when the act, neglect or default is one which occurs in the navigation or the management of the ship or in the loading, carriage or discharge of its cargo or in the embarkation, carriage or disembarkation of its passengers; … (emphasis added) 31 The phrase "infringement of any rights" in sub-paragraph (b) was the subject of discussion by the negotiating parties. Initially it was proposed that the expression "infringement of any rights should read "any rights of any nature". At the meeting held on 19 September 1955 the Norwegian representative said of the original proposal: According to our understanding, the term 'rights' covers all contractual rights; this paragraph therefore applies to compensations for lateness or non-fulfilment of contracts concerning the operation of the vessel. This is manifestly not the intention of the writers, given that the English report at the Brighton conference explicitly excluded such claims for limitation. The word 'rights' seems to have been borrowed from the British proposition presented at the diplomatic conference in Brussels in 1909; 'injuries or losses caused to the goods or rights of any nature'. At the 1910 conference this statement was replaced without comment by that used in article 1, 1 of the current convention 'injuries caused' (minutes pg. 174). Neither the English project of 1909 nor a later publication gave any explanation of the term 'rights'. If, however, in the current project this term does not include contractual claims, then it should signify 'real rights', which corresponds approximately to the English expression 'property interests'. With the aim of clarifying the text, we propose to remove the words 'rights of any kind' both in this paragraph and in any other instances where it has been used … When the text was changed the proposal that "rights" be confined to "real rights" or "property interests" was not adopted. (Interestingly, the Norwegian proposal to exclude contractual rights from the Article did find its way into the 1976 Convention). 32 The nature of the "rights" referred to in Art 1.1(b) of the 1956 Convention was also the subject of commentary and negotiations for the 1976 Convention. At the Hamburg Draft Convention the following was said: The 1957 Convention uses the term 'infringement of any rights'. In English law the term has no exact meaning, and the definition proposed by the International Sub-Committee was 'claims in respect of other loss in direct connection with the operation of the ship or salvage operations, not capable of being based on contract'. This is the formula used in the Liens and Mortgages Convention. As, however, the 'infringement of rights' conception has not caused undue difficulties in the application of the 1957 Convention the Conference preferred to retain it with the qualification 'right other than contractual rights' in order to exclude loss occasioned by breach of contract. 33 Finally at the fifth meeting of the negotiating parties, the French representative put forward a draft of Art 2.1 which recapitulated all the existing drafts' substance but in simpler and more general form. It was a proposal which the French representative said made no substantial change to the basic text. Paragraph 1 of the French draft covered proposed Art 2.1(a) and Art 2.1(c) and read: "Subject to Articles 3 and 4, the persons specified in Article 1 may limit their liability to contracting parties or third parties if the damage was caused on board the ship or is directly connected with the navigation or operation of the ship". It is clear that the French representative was of the view that "rights" were not confined to property rights. The issue in contention, and the point discussed at the convention by the delegates, was whether "rights" should include contractual rights. 34 With this background in mind, I can now deal with what is meant by the phrase "infringement of rights". 35 In my opinion the word "rights" in the expression "infringement of rights" includes a legally enforceable claim which results from the act or omission of another person. Thus if a system of law provides that an act or omission by A which causes damage to B gives rise to a cause of action (claim) by B, that system confers a right on B and a co-relative duty on A. B has a protected interest (the right), the violation of which is a wrong. 36 This conclusion is reinforced when regard is had to the interaction between Art 2.1(a) and Art 2.1(c). If the word "right" in Art 2.1(c) was limited, as proposed by the plaintiffs then, given the scope of Art 2.1(a) (which includes "damage to property"), Art 2.1(c) would have little work to do. 37 It follows that claims in tort for pure economic loss fall within Art 2.1(c), provided the other criteria are satisfied. 38 In reaching this conclusion I have not, as I was invited to do, had regard to the position in England regarding the difficulty of bringing an action for pure economic loss caused by the negligent act of a third party. I do not regard the difficulty that confronts a litigant under the common law in bringing a claim for pure economic loss as relevant to the construction of the 1976 Convention. For one thing, such an approach runs counter to accepted principles of construction. Further, the approach ignores the fact that in most civil law countries it is permissible to bring a claim for pure economic loss. For a short survey as regards shipping claims see W Tetley, 'Damages and Economic Loss in Marine Collision: Controlling the Floodgates' (1991) 22 Journal of Maritime Law and Commerce 539. 39 I will hear theparties as to what orders should be made. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein