On the night of July 28 2000 the plaintiff's seagoing pilot vessel, the Robert Whitmore, collided with a dinghy in Newcastle Harbour. Three men in the dinghy were seriously injured, with one later dying of his injuries. As a result, the injured men and the deceased's widow commenced proceedings against the plaintiff in the Newcastle District Court (New South Wales (NSW)), claiming substantial damages for negligence.

By summons filed in the NSW Supreme Court in its admiralty jurisdiction, the plaintiff claimed against the defendants (the plaintiffs in the district court proceedings) that it was entitled to limit any liability which it might have to them in respect of the collision, in accordance with the provisions of the Limitation of Liability for Maritime Claims Act 1989. That act gives the force of law in Australia to the 1976 London Convention on Limitation of Liability for Maritime Claims.

The fact that the act applied was not in dispute. The sole issue was whether the limitation of liability for the claim under Article 2 of the convention was inclusive or exclusive of any costs order which may be made in proceedings establishing that claim. Surprisingly, there was no previous decision by the courts of Australia or elsewhere which had decided this point directly.

The plaintiff submitted that the words 'claims in respect of' the various categories of loss identified in Article 2.1 of the convention were of wide import. Further, Article 13.1 shows an intention that the limitation fund is to be the sole source of satisfaction for all claims arising from a relevant occurrence.

The plaintiff also relied upon a decision of Acting Justice Newman in Noferi v Smithers (NSW Supreme Court, unreported June 7 2002), where the court accepted that a limitation fund established under Article 11 of the convention was inclusive of the costs of proceedings establishing the claim.

The defendants submitted that the term 'claims', as used in Article 2.1, meant the asserted substantive rights to compensation arising out of the relevant occurrence. Further, a claim in this sense may be accepted immediately by a shipowner so that the claimant incurs no legal costs in establishing it. If the shipowner disputes the claim, the costs of the ensuing legal proceedings are not part of the claim itself. Rather, they are a consequence of the dispute as to its validity.

As there was no decision directly relevant in relation to the 1976 convention, the court looked at the position under the earlier 1957 convention. However, again there was no directly relevant decision. While The Law of Collisions at Sea (Marsden, paragraph 455) stated that plaintiffs are liable for costs in addition to the limitation amount, the authorities cited in support of that proposition were decided under the law as under the 1894 Merchant Shipping Act, which expressly made the position as to costs clear.

The court considered the opinions of commentators such as Griggs and Williams, in Limitation of Liability for Maritime Claims (3rd Ed, 1998), and Meeson, in Admiralty Jurisdiction and Practice. Both authorities were of the view that the costs of establishing a claim against a limitation fund should be dealt with separately from the limitation fund itself.

The only Australian case which had any relevant bearing on the 1976 convention was Noferi v Smithers, upon which the plaintiff relied. An examination of the judgment in that case showed that there was no discussion at all of the reasons which led the court to conclude that the limitation fund was inclusive of the costs of establishing the plaintiffs' claims. Rather, the judgment suggested that there was no dispute between the parties that the limitation fund included the costs of the proceedings, and in those circumstances the court considered that the decision in Noferi v Smithers was of little persuasive weight.

Justice Palmer held that a limitation fund established under Article 11 of the 1976 convention is exclusive of any legal costs which may have been incurred in establishing a claim against the fund. Phrases in Article 2 such as "claims in respect of loss of life" carry a literal meaning which go no further than their express words: '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 other claims identified in Article 2.1.

Consistent with this construction, the court held that 'claims' referred to in Article 6 and 7 of the 1976 convention for the purpose of calculating the limitation fund do not include claims for the reimbursement of legal expenses. Further, 'claims in respect of which liability can be invoked', for the purpose of payment out of the limitation fund under Article 9, do not include claims for the reimbursement of legal expenses.

For further information on this topic please contact Drew James at Ebsworth & Ebsworth by telephone (+61 2 9234 2366) or by fax (+61 2 9235 3606) or by email ([email protected]).