Clearly inappropriate forum test applied and stay of Australian proceedings upheld where concurrent proceedings likely to be oppressive. Indication as to how to obtain increased security in Australia.

In the recent Full Court of the Federal Court of Australia decision of CMA CGM SA v Ship ‘Chou Shan’ [2014] FCAFC 90, the Court upheld the stay of Australian proceedings in favour of Chinese proceedings and examined the application of the clearly inappropriate forum test in Australia.

Facts

On 19 March 2013, the 'Chou Shan' collided with the 'CMA CGM Florida' in the East China Sea approximately 100 nautical miles off the Chinese coast; within China's Exclusive Economic Zone ("EEZ"). After the collision, the two ships immediately proceeded to different Chinese ports. TheCMA CGM Florida leaked oil within China's EEZ. Both vessel owners were required to provide security to the Shanghai maritime safety administration ("the Shanghai MSA") in relation to pollution clean-up costs and damage to fisheries.

On 9 April 2013, the owners of the CMA CGM Florida ("CCF") filed a writ in rem in the Federal Court, commencing proceedings against the Chou Shan in relation to the collision.  On 6 May 2013, the owners of Chou Shan ("Rockwell") applied, and were subsequently granted approval, to establish a limitation fund in the Ningbo Maritime Court in China. On 17 May 2013, Rockwell caused CMA CGM Florida to be arrested in China and commenced a civil complaint against CCF in the same Court.

On 17 May 2013, the plaintiff, CCF obtained an arrest warrant from the Australian Federal Court for the arrest of the Chou Shan which was duly arrested in Port Hedland, Australia. Rockwell filed a stay application in respect of the Australian proceedings on the basis that Australia was a clearly inappropriate forum. On 29 July 2013, CCF registered its claims as a creditor against the limitation fund in China, under protest as to the jurisdiction of the Court.

First decision – main findings

At first instance, McKerracher J found the Federal Court to be a clearly inappropriate forum. He concluded that while no one factor led to the Court being a clearly inappropriate forum, there were multiple factors, taken cumulatively, which led to that conclusion, namely:

  1. there were proceedings before a Chinese court that had jurisdiction over all persons and claims, such that substantial justice could be done in China;
  2. the benefit of avoiding multiple proceedings which had the potential to produce inconsistent findings and cause serious inconvenience to the parties (vexatious and oppressive grounds);
  3. the natural and obvious forum for all disputes relating to the collision was China;
  4. there was no connection whatsoever with Australia; and
  5. the loss of a legitimate juridical advantage (higher security) was insufficient to offset the other factors 

Grounds for appeal

There were five principal grounds of appeal . The Court found that all the grounds were interrelated and could be reduced to the proposition that the primary judge erred by applying the wrong test .

Decision

The Full Court (Allsop CJ, Besanko and Pagone JJ) delivered a joint judgment, and held that, taken as a whole, it was not persuaded that the primary judge did anything other than apply the clearly inappropriate forum test, notwithstanding that some of the expressions used in the judgment appeared to align more with that of the English test of more appropriate forum.

Clearly inappropriate forum

The Full Court confirmed that the appropriate test in Australia is whether the Court is a clearly inappropriate forum. The Court's focus was directed to the risk of inconsistent findings, and as such, it was not prepared to conclude that the juridical advantage of the greater security was sufficient to overcome the determination that the Court was a clearly inappropriate forum.

The Court held that the mere fact that the primary judge used expressions such as 'natural and obvious forum' or examined factors as to the suitability of China does not necessarily betray any misapplication of the Australian principle. While the focus will be on the chosen local forum – its advantages and disadvantages, rather than on a true comparative analysis; the appropriateness of another forum is relevant.  Specifically, the Court held that:

‘The primary judge’s conclusion as to China being the natural and obvious forum was both defensible in fact and relevant to the assessment of suitability of Australia.  In the context of the risk of inconsistent findings from two hearings, the clear proximity to China in terms of distance, the role of the Shanghai MSA, the commencement of suits there by a variety of parties, and the ships steaming to Chinese ports for repair, all place the over-arching control by a competent and skilled Chinese court as a natural and convenient consequence.  That reflects as much on Australia (as a posited competing forum) as it does on China.’

Juridical advantage

The juridical advantage of the increased security is a factor to be considered when applying theclearly inappropriate forum test .  However, the Court held that a juridical advantage is not always decisive in determining the clearly inappropriate forum test and must be weighed against the other advantages and disadvantages.

The focus upon the local Court and its inappropriateness means that any juridical advantage has a greater part to play than it would in the United Kingdom. However, whilst the juridical advantage is to be assessed in that context, it must also be considered together with the other factors identified inVoth v Manildra Flour Mills Pty Ltd  in determining whether Australia is a clearly inappropriate forum.

Temporary stay and increased security

Despite the Court ruling that the primary judge was correct in his finding that the advantage of increased security was insufficient to undermine the factors in favour of the Court being a clearly inappropriate forum, the Court provided insight as to how the increased security in Australia might be attained.

The Court held, that as China is not a Party to the 1976 Convention, Article 13 (which provides for the barring of other actions where a fund is constituted pursuant with the convention) does not operate to bar proceedings being brought in Australia. Therefore, the Court suggested:

‘In a legal environment governed by Voth where a plaintiff had a legitimate advantage in an Australian limitation of liability regime in the enforcement of a maritime lien claim, in circumstances where the risk of inconsistent findings in parallel proceedings could be eliminated, or at least significantly ameliorated, it might be difficult to conclude that the Federal Court was a clearly inappropriate forum.  In this context, the managed and staged approach in the Caltex case may well be a mechanism to vindicate rights under Australian law without engaging the risk of the vexation of inconsistent finding that may be unnecessary.’

In the Caltex case , the plaintiff sued in England in order to attain the higher 1976 Convention limits  despite there being a limitation fund set up in Singapore (also the place of incident) under the 1957 Convention . The defendant sought to stay the English proceedings. The Court there granted a temporary stay until the quantum had been resolved in Singapore.  In other words, the trial to resolve merit and quantum would occur in one place (Singapore), but the plaintiffs would not be denied the advantage of the higher limit in England once these issues had been determined.

This suggests that the Federal Court may entertain an application to temporarily stay a proceeding such as this until the matter is resolved in the foreign Court and where the limit of liability provided under that regime does not sufficiently cover the quantum of claims identified in that Court.  That is, the Court would then exercise its jurisdiction over the matter and could apply the higher level of security without interfering with the findings in the foreign Court.  This means that the proceeding would no longer be considered a clearly inappropriate forum, as the factors weighing in that favour (cost of two proceedings and the risk of inconsistent findings) would no longer be present.

Law to be applied in the EEZ

Finally, the Court examined what law should be applied within the EEZ (i.e. what was the lex causae). The Court held, that although China has sovereign authority to deal with the protection of the environment that does not give China rights to regulate ships of other nations as to navigation generally. Whilst pollution was caused, the activity concerned was the freedom of both parties to navigate. The importance of the conclusion that the lex causae was not Chinese law, is that it was unnecessary for the Court to further consider whether that meant that the Chinese limitation provisions necessarily applied to the exclusion of the Limitation of Liability for Maritime Claims Act 1989 (Cth).

Conclusion and comments

This case confirms that the clearly inappropriate forum test is to be used in analysing the stay application in Australia.  It also confirms the importance of balancing the relevant factors to reach this conclusion and that the juridical advantage of increased security will not necessarily be enough, especially in circumstances where there is a risk of oppression due to the cost of concurrent proceedings and the risk that there would be inconsistent findings.

The Court has also pointed out that while the analysis might look similar to that of the more appropriate forum test used in England, the difference is that the focus is on the weighing of the advantages and disadvantages of Australia as the forum for the proceeding. As part of its consideration of the disadvantages, the Court may consider the appropriateness of another forum.

The case also gives an interesting suggestion that a plaintiff in such a case may achieve its objective of obtaining the increased security, by simply deferring the Australian proceedings until the foreign Court has determined the mater.  However, such a situation has not yet been tested in Australia.