FEDERAL COURT OF AUSTRALIA

Commonwealth of Australia v Shenzhen Energy Transport Co Ltd

[2015] FCAFC 116

THE COURT ORDERS THAT:

1.    The applicant be granted leave to appeal.

2.    The draft notice of appeal stand as the notice of appeal.

3.    The appeal be allowed and the orders made by the Court on 23 July 2015 be set aside and in lieu thereof the Court orders that:

(a)    the respondent give discovery of the categories of documents in paras 1.1 to 1.5 of the amended interlocutory application e-filed on 27 July 2015 on or before 1 September 2015 other than the voyage data recorder itself referred to in para 1.1.3;

(b)    if the respondent seeks any extension of time in accordance with Order 3(a) in respect of any particular documents in para 1 of the amended interlocutory application, it do so before the docket judge on 28 August 2015;

(c)    the respondent pay the applicant’s costs of the interlocutory application.

4.    The respondent pay the appellant’s costs of the application for leave to appeal and the costs of the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    The Commonwealth seeks leave to appeal from the decision of the primary judge to refuse discovery by Shenzhen Energy Transport Co Ltd, the respondent owners of Shen Neng I, of the ship’s and other documents concerning her grounding on the Great Barrier Reef at Douglas Shoal at 17:05 hours on 3 April 2010 and the alleged extensive damage occasioned to an area of between 80,000m2 and 400,000m2 of the reef in the 12 subsequent days before she was re-floated.

2    The primary judge refused to order discovery on the ground that the Commonwealth, as applicant, had pleaded that the initial grounding of Shen Neng I on the reef was a single cause of action in negligence and that that was one distinct occasion within the meaning of the Convention on Limitation of Liability for Maritime Claims 1976 as affected by the 1996 Protocol to amend that Convention, as given force of law in Australia by s 6 of the Limitation of Liability for Maritime Claims Act 1989 (Cth).

3    Her Honour reasoned that because the owners had admitted that the initial grounding was caused by the negligence of the chief officer of the ship, the Commonwealth would need leave to amend its statement of claim to plead one or more other distinct occasions so as to entitle it to the discovery sought (at [15]). The primary judge held that this conclusion was supported because “claimable damage following a negligent act can clearly extend beyond the initial stages of the event” and that the statement of claim related all the damage claimed to the consequences of the original grounding (at [16]). Her Honour concluded that because of the owners’ admission of the cause of the grounding there was no pleaded issue to warrant ordering discovery of the ship’s and other documents.

4    We are satisfied that her Honour erred in those conclusions and that leave to appeal should be granted. The issue on the appeal is whether the Commonwealth or the owners had the onus of alleging and proving that the Commonwealth’s claim for loss or damage fell within Art 2(1)(a) and/or (f) or Art 6(1) of the Convention.

The Statutory Scheme

5    The owners were entitled to plead a defence of limitation of liability under the Convention pursuant to s 25 of the Admiralty Act 1988 (Cth) that relevantly provided:

25    Limitation of liability under Liability Conventions

(1)    A person who apprehends that a claim for compensation under a law (including a law of a State or a Territory) that gives effect to provisions of a Liability Convention may be made against the person by some other person may apply to the Federal Court to determine the question whether the liability of the first-mentioned person in respect of the claim may be limited under that law.

…

(4)    Where a court has jurisdiction under this Act in respect of a proceeding, that jurisdiction extends to entertaining a defence in the proceeding by way of limitation of liability under a law that gives effect to provisions of a Liability Convention.

6    Relevantly, Art 2 of the Convention provided:

(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.

…

(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.

                                [emphasis added]

7    Article 6 set out the quantum of limitation of liability commencing with the following important expression:

1.    The limits of liability for claims other than those mentioned in Article 7, arising on any distinct occasion, shall be calculated as follows …

[emphasis added]

8    Next Art 9(1) provided:

1.    The limits of liability determined in accordance with Article 6 shall apply to the aggregate of all claims which arise on any distinct occasion:

(a)    against the person or persons mentioned in paragraph 2 of Article 1 and any person for whose act, neglect or default he or they are responsible;

…

9    Under Art 10(1), a person could seek to invoke limitation of his, her or its liability without constituting a limitation fund in accordance with Art 11, in which case Art 10(3) provided that questions of procedure were to be decided in accordance with the law of the forum.

The owner’s submissions

10    The owners argued that the decisive issue before the primary judge and on appeal was one of pleading. They argued that the Commonwealth had pleaded a single claim against them and had not raised or pleaded in either the statement of claim or reply (that simply joined issue on the limitation and other defences) that any liability for loss or damage had arisen on any occasion distinct from the cause of action created by the initial grounding of Shen Neng I on the reef. They argued that her Honour had not misapprehended the nature of the plea of limitation under the Convention as a defence, or the construction given to it or s 25 of the Admiralty Act by Rares J in Strong Wise Ltd v Esso Australia Resources Ltd (2010) 185 FCR 149 and Strong Wise Ltd v Esso Australia Resources Ltd (No 2) (2010) 185 FCR 237. The owners contended that the Commonwealth, as applicant in a liability proceeding, in order to overcome the admission of liability in the defence, had to plead and prove that the owners, as respondent, was liable for loss or damage arising on more than one distinct occasion. The owners contended that this required the Commonwealth to specifically identify each such alleged distinct occasion in a pleading. Thus, the owners argued that, if, for example, the Commonwealth wished to make a case that the Master’s actions in seeking to re-float the ship at 02:25 on 4 April 2010 were a separate act, neglect or default giving rise to another distinct occasion, it had to plead such a case.

11    The owners repeated their arguments to the primary judge and contended that her Honour had correctly identified that the pleadings raised no basis on which the discovery sought could be ordered. They submitted that because the Commonwealth had not identified in its reply any circumstance other than the negligence in the original grounding, there was no justification for requiring them to discover the ship’s and other documents.

12    For the purposes of the argument before the primary judge and us, both parties accepted the correctness of the construction given by Rares J to the Convention and Australian Acts in both Strong Wise judgments.

Consideration

13    The primary judge erred in accepting the owners’ arguments as to the nature of the issue raised by their plea of limitation of liability. The plea was a substantive defence to the Commonwealth’s claim for, we were informed, damages of over $50 million. The statement of claim alleged that the grounding, first, was caused solely by the negligent navigation of Shen Neng I, secondly, the grounding caused extensive damage to the reef and thirdly, the Commonwealth had suffered loss and damage. The Commonwealth gave particulars in the statement of claim to the allegation of the cause of the initial grounding that asserted that the chief officer failed to keep the ship to the planned course.

14    The owners pleaded that the grounding “was solely caused by the negligent navigation of the chief officer of the vessel” and otherwise denied the allegation of negligence. Notably, the defence limited the negligence for which the owners were allegedly liable to the particularised, but not pleaded, negligence of the chief officer alone. The defence did not admit the claim that the grounding had caused extensive damage to the reef (para 4) or that the Commonwealth had suffered loss and damage (para 5). The defence also pleaded:

8.    The claim made in the Statement of Claim is:

a.    a claim in respect of loss of or damage to property occurring in direct connection with the operation of the Shen Neng 1 and/or consequential loss resulting therefrom; and/or

b.    a claim in respect of loss resulting from infringement of rights (other than contractual rights) occurring in direct connection with the operation of the Shen Neng 1; and/or

c.    a claim in respect of measures taken in order to avert or minimise loss of the type referred to in sub-paragraph (a) and/or sub-paragraph (b) above and/or further loss caused by such measures.

9.    By reason of the matters pleaded in paragraphs 6 to 8 above, the Respondent is entitled to avail itself of the limitation of liability provided for in the Convention on Limitation of Liability for Maritime Claims, 1976, as applied by s. 6 of the Limitation of Liability for Maritime Claims Act 1989 (Cth).

15    The defence also alleged that by reason of the matters pleaded, including that Shen Neng 1 was a seagoing ship of 36,575 tons, the owners were entitled to limit their liability under the Convention to 14,172,500 Special Drawing Rights (para 11).

16    The Commonwealth pleaded in its reply that it admitted that the ship was a seagoing ship by the tonnage pleaded, but otherwise joined issue with the owners on their defence.

17    There are two means by which a shipowner can invoke a right to limit liability under the Convention; first by bringing proceedings to establish a limitation fund under Art 11 of the Convention and s 25(1) of the Admiralty Act and secondly, by pleading a specific defence invoking a right to limit its liability under Art 10 and s 25(4) of the Admiralty Act. Strong Wise 185 FCR 149 and 237 involved the former kind, namely, proceedings to constitute a limitation fund against which numerous persons had claims for loss and damage that arose from the fouling and rupture of a natural gas pipeline caused by dragging of the anchor of a ship, APL Sydney, in a gale. There were other, separate, liability proceedings then on foot that were resolved after limitation funds had been established.

18    Here, the Commonwealth pleaded a general maritime claim for damage done to the reef by the ship under s 4(3)(a) of the Admiralty Act based on the tort of negligence but it was to recover loss and damage within the meaning of Arts 2(1)(a) and (f) of the Convention. That pleading was sufficient to enable the Commonwealth, if it proved that the navigation of Shen Neng I was negligent, to recover all the loss or damage that resulted from the initial grounding, regardless of any intervening or subsequent further acts, errors or omissions by the crew of the ship. There was no requirement in the common law system of fact pleading, under the Admiralty Rules 1989 (Cth) or the Federal Court Rules 2011 (Cth) for the Commonwealth to plead or prove specifically each or every further alleged or possible act, error or omission that had occurred in the 12 days during which the ship remained grounded on the reef in order for it to recover the full amount of loss or damage that it could prove that it sustained as a result of the original grounding or its sequel. In Agar v Hyde (2000) 201 CLR 552 at 577 – 578 [64], Gaudron, McHugh, Gummow and Hayne JJ said:

… as Barwick CJ observed in Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd ((1981) 148 CLR 457 at 473):

[In] fact pleading as it was introduced in the judicature system, there is no necessity to assert or identify a legal category of action or suit which the facts asserted may illustrate, involve or demonstrate and on which the particular relief claimed is based or to which it is relevant.

19    The defence of limitation of liability is a defence that a shipowner must plead and prove as applicable to its liability in proceeding for “claims in respect of loss or damage to property (including … waterways …) … occurring … in direct connexion with the operation of the ship, … and consequential loss resulting therefrom” (Art 2(1)(a)) or “claims … in respect of measures taken in order to avoid or minimize loss for which the person liable may limit his liability in accordance with this Convention, and further loss caused by such measures” (Art 2(1)(f)).

20    Importantly, as Rares J noted in Strong Wise (No 2) 1985 FCR at 246-247 [24] – [28], [34], the chapeau to Art 2(1) provided that it applied to the classes of claims that it specified “whatever the basis of liability may be”. He held that Art 2(1) was concerned with claims, whatever jurisdictional basis they had, and not with occasions or occurrences for which the shipowner might seek to limit his liability under the Convention and, relevantly, Art 6. In contrast, Art 6(1) created a right of the shipowner to limit his liability for any claims “arising on a distinct occasion”.

21    In Strong Wise 185 FCR at 166-167 [52], [55] – [57], Rares J explained that for the purposes of the Convention an occasion was an act, neglect or default of the shipowner, or a person for whom the shipowner was responsible, that gives rise to a claim. He said:

55    The purpose of the Convention is clear. It is to allow the shipowner to limit his liability for claims arising out of a particular, identifiable act, neglect or default that gives rise to claims of the kind described in Art 2(1). Such claims will often have attached to the ship as maritime liens at the moment they arose; eg on a collision (Art 2(1)(a)). If the shipowner's conduct involves more than one act, neglect or default, each of which would entitle a person to bring a separate claim under Art 2(1), the shipowner cannot limit his liability in one fund for all the claims arising from the second or subsequent act, neglect or default. The shipowner must constitute, if he wishes to limit his liability under the Convention, separate funds for each such individual act, neglect or default.

56    This construction is reinforced by the exception provided to a shipowner's entitlement to limitation in Art 4. That disables a person liable from limiting his liability where it is proved that the loss resulted from “his personal act or omission” committed with the intent to cause that loss or recklessly with knowledge that the loss would probably result. Once again, the focus of that exception is upon an act or omission. An “omission” is similar to or connotes the concept of “neglect or default” used elsewhere in the Convention.

57    The Convention allows the shipowner to limit his liability in respect of each particular, distinct occasion. A shipowner who commits more than one distinct navigational error, even within a short period of time, each of which causes damage to third parties or even to the same third party, ordinarily will not be entitled to assert that all of the acts, neglects or defaults amount to a cognate “distinct occasion”. As a matter of commonsense, usually, they do not. There is more than one “distinct occasion”, and the shipowner is liable for each. The ordinary and natural meaning of the Convention accords with the commonsense meaning. The shipowner cannot use the Convention as a shield to escape that second source or occasion of his liability. However, there may be instances where the occasions will not be “distinct”. This will depend upon all of the circumstances, but, in particular the existence of some connection or lack of distinctiveness.

22    Here, the grounding of Shen Neng I extended over 12 days. She passed over a considerable area of the reef and, no doubt, her crew were not idle in seeking to disengage her from contact with the reef for those 12 days. At the moment, on the pleadings, there is no reason to think that the original act, neglect or default that resulted in the grounding was or was not the sole occasion or occurrence that caused all the loss or damage that the Commonwealth seeks to recover in the proceedings. That matter is uncertain.

23    The owners put in issue, in their defence, that all of the loss or damage claimed by the Commonwealth was caused by the grounding and that they were entitled to limit the liability under Arts 2(1)(a) and (f) and 6(1). The right to limit under Art 2(1) is in respect of a claim for loss or damage “whatever the basis of liability may be”. As Rares J said in Strong Wise 185 FCR at 169 [67]:

The degree of connection between events or circumstances is often examined in order to ascertain whether one is a cause of another. The Convention uses the concept of all claims arising on any distinct occasion to identify the degree of connection between an act, neglect or default and the causation of the class of claims for which a shipowner may limit its liability. The determination of whether a claim arises on a particular occasion, involves the application of a test for causation and the formation of a judgment about the existence or absence of the fact of a sufficient connection between the two. That judgment is arrived at after a balancing of fact and degree. Its formation involves the selection, consciously or unconsciously, of values used to establish the presence or absence of a sufficient degree of connection between the claim and the occasion.

24    Of course, it may well be that when all of the facts are known, there will have been but one distinct occasion entitling the owners to limit their liability in a single sum for the whole 12 day period in question. The determination of whether the owners can prove their defence of limitation is intensely factual: cf Strong Wise 185 FCR at 217 [284], 225 [236].

25    The intention of the framers of the Convention, as reflected in Art 4, and the Minister’s second reading speech for what became the Limitation of Liability for Maritime Claims Act was to create “a virtually unbreakable system of limiting liability”: Strong Wise 1985 FCR at 163 [43] – [45]. Nonetheless, that intention was related to limiting liability in rem for claims where the shipowner or other person entitled to such a defence under Art 1 brought a limitation proceeding to set up a fund (or where pleaded as a defence for a claim or claims by a particular plaintiff or applicant) arising out of a particular, identifiable act, neglect or default that could itself constitute the basis of a claim within the meaning of Art 2(1) (185 FCR at 166 [55]). And, as his Honour held at 185 FCR at 173 [84]:

The purposes of the Convention would be subverted if shipowners or claimants could identify any antecedent, act, neglect or default as giving rise to a claim merely because of its logical association with the loss or damage and so invoke or break the limitation provisions of the Convention by this artificial mechanism. The act, neglect or default must, as a matter of commonsense, be sufficiently discrete from an earlier occurrence (or act, neglect or default) and sufficiently related to the particular loss or damage the subject of a claim within Art 2 to make the claim one that arises from that occasion.

26    Thus, the question of whether the owners can establish a right to limit their liability for all the loss or damage that the Commonwealth claimed to just the acts, neglects or defaults that resulted in the original grounding is a question of fact that was not concluded by the mere qualified admission by the owners that the acts, neglects or defaults of the chief officer on or prior to 17:05 on 3 April 2010 was the only cause of the grounding.

27    Rares J rejected the use of common law concepts to govern the construction or application of the Convention because of its international character and application to both civil and common law jurisdictions with varying juridical bases on which liability could be established: Strong Wise 185 FCR at 169 [67], 171 [75].

28    The primary judge erred in relating what Rares J had said in Strong Wise 185 FCR at 172 [78] – [80] to the pleadings as opposed to the facts established after a trial. It is only after the facts are known that it is possible to determine whether a shipowner can limit his liability to one or however many distinct occasions had been found to exist for the purposes of Art 6(1) of the Convention.

29    Here the pleading raised an issue as to whether the owners were entitled to limit their liability to one distinct occasion. It also raised the causation and damages issues identified in [14] and [15] above and the application of Arts 2(1)(a) and (f) as described in [19] above. The combination of all these issues necessitated that the owners give discovery of the ship’s and other documents that the Commonwealth sought.

Conclusion

30    Accordingly, the Commonwealth should be granted leave to appeal. The appeal should be allowed and the shipowner should be ordered to give discovery as sought in the amended interlocutory application. The Commonwealth’s draft notice of appeal should stand as its notice of appeal. The shipowners should pay the Commonwealth’s costs of that interlocutory application and these proceedings. Any application by the owners as to the time at which they should give discovery of particular documents can be made to the docket judge on 28 August 2015.

Associate:

Dated:    24 August 2015