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Cargo owners’ claims against shipowner’s limitation fund not time-barred

In the recent case of Eleni, the High Court of Hong Kong rejected the argument that cargo owners’ claims against a shipowner’s limitation fund were time-barred because they had not been commenced within the two-year period, by filing a claim against the fund.

Background

ELENI collided with Heung-A Dragon off the coast of Vietnam on 7 November 2013, resulting in Heung-A Dragon sinking with a loss of all of its cargo. Eleni established a limitation fund, pursuant to Schedule 2 of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance.

Once established, the shipowner’s liability is limited to the amount of the fund. The court will then make an order that, among other things, claims be made against the fund (known as “references”) within a certain time limit. In this case, the final deadline for claims against the fund was January 28, 2015; some 15 months after the collision, but well within the two-year limitation period.

Dispute

Certain cargo owners, and their subrogated insurers, were based outside of Hong Kong. They only became aware of the fund after January 28, 2015, but before the expiry of the two-year time limit. Settlement of cargo owners’ claims under the relevant insurance policies occurred after January 28, 2015. The cargo owners commenced court proceedings (by writ) to protect their claims before the expiry of the two-year limitation period. They also applied to the court for an extension of time in which to file their claims against the fund.

The first defendant, a competing claimant and the other shipowner, argued that although a claim would be properly protected by the issuance of a writ if a limitation fund had not been set-up within two years, where the fund was established during this time the only way to protect a claim was by filing it against the fund within the two-year time limit. Therefore, the first defendant argued it was entitled to rely on a time-bar defence to defeat the cargo owners’ claims.

There was a dearth of case law in Hong Kong or England providing guidance on the correct way to protect a claim in such circumstances, but the cargo owners cited what appeared to be the only relevant authority, being The Disperser.

Decision

The court decided that on its clear wording, the statutory time-bar period (of two-years) in section 7(1) of the Ordinance applied to claims against a vessel or its owner. The cargo owners' claims against the fund were not caught by this provision.

The court noted that the cargo owners, having commenced court proceedings to protect their position, were seeking to extend the administrative deadline for filing their claims against the fund. Given that the competing claimants could not avail themselves of a shipowner’s defence of time-bar, permission to extend the administrative deadline would normally be granted on good reasons being shown for any delay and in the absence of prejudice to other competing claimants.

The court found that there were such good reasons. The cargo owners only came to know about the limitation fund long after the administrative deadline had expired on January 28, 2015. Both shipowners (the plaintiff and the first defendant) had not done enough to inform the cargo owners about the constitution of the fund. The identities of the cargo owners and the consignees of the lost goods should have been apparent from the bills of lading and cargo manifests.

As for the issue of prejudice, the court noted that there was no prejudice to the plaintiff shipowner whose liability had been capped.

Therefore, the court allowed the cargo owners’ application for an extension of time in which to file their claims against the fund.

Andrew Horton of RPC acted for the successful cargo owners and subrogated insurers. andrew.horton@rpc.com.hk

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