All questions

Shipping contracts

i Contracts of carriage

Contracts of carriage in Hong Kong are governed by the Carriage of Goods by Sea Ordinance (Cap 462), which gives the full force of law to the Hague-Visby Rules (the Rules), which have been ratified by Hong Kong. Provided that one of the criteria set out in the Rules applies (e.g., shipment from Hong Kong, bill of lading issued in Hong Kong, or if the bill of lading provides for the Rules to apply), then the only instance when the Rules will not apply is when the contract of carriage does not require a bill of lading or similar document of title to be issued. The Bills of Lading and Analogous Shipping Documents Ordinance (Cap 440) defines what constitutes a bill of lading under Hong Kong law. Although the Rules do not apply to charter parties per se, they are frequently incorporated in charter parties by agreement by way of a clause paramount.

The Rules govern the rights and liabilities of both the carrier and the shipper. Hong Kong is a party to the International Convention for the Safety of Life at Sea (the SOLAS Convention), which makes the International Maritime Solid Bulk Cargoes Code (requiring a declaration to be made by the shipper on the nature of cargo) mandatory for the carriage of bulk cargoes. This is relevant where allegations are made that a shipper has shipped dangerous goods in breach of the Rules. As regards the application of the Rules, see Section II.

Under common law in Hong Kong, a shipowner may exercise a lien on cargo, freight or subfreight (or both) in certain circumstances and if the relevant contract gives the shipowner such precise right in respect of the sums that the shipowner is due. A discussion of the applicable law is beyond the scope of this chapter.

Cabotage does not apply in Hong Kong. As Hong Kong is deemed a foreign port under Chinese legislation, it is not subject to Chinese cabotage rules. As a result, Hong Kong remains an attractive transshipment hub for relaying cargoes to Chinese ports. That said, the Chinese cabotage restrictions have been gradually relaxed in certain parts of the mainland since 2013. It was estimated in 2016 that if the mainland's cabotage restrictions were fully relaxed, Hong Kong could lose up to 2.4 million TEUs in transshipment cargo, that is about 14 per cent of Hong Kong's annual total container throughput. However, China's central government indicated in 2017 that a full relaxation of the laws was not planned thus far. Currently, China's coastal ports, such as Qingdao, Ningbo and Guangzhou, have been lobbying for a relaxation of their own cabotage rules on foreign vessels. The Nansha Free Trade Zone in Guangdong province is progressively introducing measures to promote transshipment trade, which can increase competition for Hong Kong.

ii Cargo claims

In Hong Kong, cargo claimants generally plead on three bases: in contract (bill of lading), in tort or in bailment.

Contracts (bills of lading)Who is able to sue?

Under Section 2(2) of the Bills of Lading and Analogous Shipping Documents Ordinance, anybody who is the 'lawful holder' of a bill of lading has title to sue. This includes (1) a person in possession of the bill who is identified on the bill as the consignee of the goods, (2) a person in possession of the bill as a result of completion, by delivery of the bill, by endorsement of the bill or by transfer of the bill, and (3) a person in possession of the bill as a result of any transaction where he or she would have become a holder under point (1) or (2) when the transaction took place at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates. The holder must be a holder in good faith.

Who can be sued?

It is important for cargo interests to determine who is the contractual carrier to be sued. If a demise clause is incorporated into the bill, even if the bill is not provided by the shipowner or demise charterer of a vessel (e.g., a charterer's bill), a contract may exist between the shipowner or demise charterer and the shipper. The demise clause will have to show a clear intention to act in such a manner. This has been the subject of previous (English) case law, as has the way in which the bill of lading is signed, which can also have legal consequences. In The 'Starsin', the House of Lords decided that the printed demise clause on the reverse of the bill was overridden by specific provisions of the bill (e.g., the signature) on its front and the bill was evidence of a contract with the charterer.

Are the charter party terms incorporated into the bill of lading?

Often, particularly when there is a voyage charter (e.g., GENCON), charter party terms are incorporated into the bill of lading (e.g., CONGENBILL). Whether the charter party terms are incorporated into the bill of lading will depend on the construction of the incorporation clause in the bill. It is thought that when there is a question of which charter party (when a chain exists) applies, the one with the most appropriate legal relationship to the parties will apply. The position in Hong Kong on the incorporation of a jurisdiction clause mirrors that under English law – the mere incorporation of a charter party in a bill of lading does not bring an arbitration clause with it, unless sufficiently clear words exist to show that intention. The legal analysis applied to determine whether other charter party terms are incorporated (e.g., terms that relate to 'charterers') also follows English law.

Suing under a letter of indemnity

Bills of lading are documents of title. As a result, disputes can arise if cargo is released without presentation of the original bills. In the River Globe case, the shipowners accepted a letter of indemnity (LOI) issued by head charterers who had, in turn, received an LOI from sub-charterers. Subsequently, the true holder of the bills brought a claim against the shipowners for the wrongful release of the cargo and threatened the arrest of the vessel. The shipowners relied upon the LOI and demanded that the head charterers either put up bail or security, or pay the claim. Head charterers made a similar demand on the sub-charterers under the second LOI; the sub-charterers refused. The head charterers successfully applied for a mandatory injunction compelling the sub-charterers to provide bail or security under the LOI. In Cargill International Trading Ltd v. Loyal Base Development Ltd, the Hong Kong court again enforced an LOI for delivery of cargo without presentation of original bills of lading by granting a mandatory injunction compelling the LOI provider to perform the undertakings given in the LOI.

Time limits and bars

Time limits apply to any cargo claim made under the Hague-Visby Rules. Notice of loss or damage must be given by the party claiming the damage within three days of the cargo being delivered (failure to do so has evidential consequences), while any proceedings, unless an extension of time is agreed between the parties, will be substantively time-barred if they are not brought within one year of the date of delivery or the date when the cargo should have been delivered.

If the Hague-Visby Rules do not apply, then the normal six-year time bar for contract and tort applies; however, for cargo claims, the Hague-Visby Rules generally will apply (e.g., by virtue of a clause paramount, sub-bailment on terms or a Himalaya clause) and cautious claimants will respect the one-year time bar even if in doubt as to whether it applies. To protect time, proceedings must be commenced in the correct jurisdiction. If that is in Hong Kong, a writ must be issued and served within its validity (one year counting from the date of issuance of the writ).

iii Limitation of liability

On 3 May 2015, the Merchant Shipping (Limitation of Shipowners Liability) (Amendment) Ordinance 2005 came into effect in Hong Kong and increased the limits for personal injury and other claims from the traditional 1976 limits to the limits provided for by the original 1996 Protocol. Only the provisions of the Convention on Limitation of Liability for Maritime Claims 1976 (the LLMC Convention) 'as set out in Schedule 2' of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap 434) (LSL Ordinance) have force of law in Hong Kong (see Sections 12 to 23 of the Ordinance). The 1996 Protocol limits under the LLMC Convention were increased on 8 June 2015. On 4 December 2017, Hong Kong applied the IMO's latest amendments to the limits under the 1996 Protocol. These amendments significantly increased the limits of liability that were in force from 2015. In respect of loss of life and personal injury claims for ships not exceeding 2,000 tons, the new limit is 3.02 million special drawing rights (SDRs) (up from 2 million SDRs) plus additional amounts for larger vessels. In respect of any other claims for ships not exceeding 2,000 tons, the new limit is 1.51 million SDRs (up from 1 million SDRs) plus additional amounts for larger vessels. These increased figures can be found in Schedule 2 to the LSL Ordinance.

Under Hong Kong law, a person may limit his or her liability for claims in respect of loss of life or personal injury, or loss of or damage to property (such as other ships, harbour works, basins or waterways and aids to navigation). To limit liability, a person merely has to establish that the claims in respect of which he or she is alleged to be liable fall within Article 2 of the Convention as set out in Schedule 2 of the LSL Ordinance. Once this is established, he or she will be entitled to a decree limiting his or her liability, unless any person opposing the making of the decree proves that his or her conduct bars entitlement to limitation. Article 4 provides that a person liable shall not be entitled to limit his or her liability if it is proved that the loss resulted from a 'personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result'. This is a high burden to overcome. The English Admiralty Court commented obiter in Saint Jacques II that 'it is likely that only truly exceptional cases will give rise to any real prospect of defeating an owner's right to limit'. The UK limits were in fact successfully broken in Atlantik Confidence, but that decision turned on a set of unique facts. Therefore, the position in Saint Jacques II is likely to be followed by the Hong Kong courts.

Under Section 22(4) of the LSL Ordinance, 'owner' includes any part owner, charterer, manager or operator of a ship, and in Metvale Ltd v. Monsanto International Sarl (The 'MSC Napoli'), the English Admiralty Court held that the word 'charterer' in the equivalent UK legislation includes a slot charterer. This case is likely to be followed by the Hong Kong courts.

Articles 6 and 7 explain how the (new) general limits and passenger limits are computed. A limitation fund is constituted under Article 11 and distributed under Article 12. Pursuant to Article 13, where a fund has been constituted, any person who has made a claim against the fund is barred from exercising any right in respect of his or her claim against any other assets of the person by or on behalf of whom the fund has been constituted.