Strong Wise Ltd v Esso Australia Resources Pty Ltd (ACN 091 829 819) and Others [2010] FCA 240

Introduction

Strong Wise Ltd, the owner of the “APL Sydney” sought to limit its liability after its ship had ruptured an ethane gas pipeline while anchored during a gale in Port Philip Bay, Victoria.

The case provided a unique opportunity to determine the question of the construction and application of the Convention on Limitation of Liability for Maritime Claims 1976.

Key points

  • the case concerned the interpretation of Article 6 of the Convention which entitles a Shipowner to limit its liability for claims “arising on any distinct occasion” by establishing a limitation fund to the value of the ship
  • total claims estimated to exceed AU$66 million
  • it represents the first time a court has determined the issue and will potentially have significance worldwide.

Outcome

The judgment provides a valuable analysis of the construction of the Convention and its underlying policy, especially with respect to Article 6. A notice of appeal was lodged by the Shipowner however has subsequently been withdrawn, leaving the findings of the Court currently unchallenged. Whether they will be tested elsewhere remains to be seen, however given the role a ‘distinct occasion’ has in determining the limitation of a shipowner’s liability, the decision will be of great interest to those in the shipping industry globally.

Convention on Limitation of Liability for Maritime Claims 1976

Damage to a gas pipeline during a gale in Port Philip Bay, Victoria has provided a unique opportunity for the Federal Court to determine the question of the construction and application of the Convention on Limitation of Liability for Maritime Claims 1976 (Convention), an issue which has, according to the Honourable Justice Rares and the parties, not been decided by any court anywhere in the world. The findings of His Honour adopted what we could consider to be a common sense approach to the natural meaning of the Convention and will be of significance not only for those in the Australian shipping industry but beyond to all Convention parties.

The proceedings were commenced by Strong Wise Ltd (Shipowner), the owner of the “APL Sydney” (Ship), who sought to limit its liability after the Ship had ruptured an ethane gas pipeline whilst being anchored in Port Philip Bay, Victoria. The series of events preceding the damage to the pipeline are as follows. In mid-December 2008 there was a gale and the Ship dragged its anchor fouling the pipeline. The fouling arrested the movement of the Ship and the Ship’s engine was put astern and then stopped. The Ship yawed from side to side in the gale for half an hour before the engine was put dead slow ahead. Shortly after this the pipeline ruptured and the Ship’s engine was stopped completely. When the engine was then put astern one end of the pipeline was pulled and bent almost to a right angle before breaking off, also freeing the anchor in the process. A significant quantity of ethane gas was lost.

The pipeline is owned by Esso Australia Resources Pty Ltd (Esso) and BHP Billiton Petroleum (Bass Strait) Pty Ltd (BHP), respectively the first and second defendants, and had to be shut down for repairs as a result of the damage. In separate proceedings, the first and second defendants sought damages from the Shipowner in respect of the cost of repair of the pipeline, estimated to exceed AU$27 million. The third defendants were persons who may have a claim under the Convention and although not represented, by the date of the hearing there were four other separate proceedings in the Federal Court where other plaintiffs had made claims resulting from the damage to the pipeline. The total of these claims is estimated to exceed AU$66 million.

Arising on any distinct occasion

The case concerned the interpretation of Article 6 of the Convention which entitles a Shipowner to limit its liability for claims “arising on any distinct occasion” by establishing a limitation fund to the value of the Ship, about AU$32 million for the APL Sydney, which is then distributed among claimants in proportion to their established claims. The issue was whether one or more distinct occasions occurred giving rise to claims for loss of or damage to property and consequential loss. The Shipowner argued that the whole episode was one ‘distinct occasion’ whereas Esso and BHP submitted that there were four ‘distinct occasions’ each causing new and separate damage.

The Convention comes from a long history of limitation provisions available to shipowners, traceable back to the beginning of the fourteenth century. The key objectives of such provisions have been to protect shipowners from financial ruin and to encourage international trade and commerce. His Honour supported this purpose and emphasised the virtually unbreakable system of limitation established by the Convention, which ensures that a globally recognised and enforceable cap will be placed on the liability of shipowners.

In His Honour’s approach to the construction of the convention, Justice Rares applied the natural and ordinary meaning as to what constituted a ‘distinct occasion’. His Honour determined that a claim under the Convention will arise where a single act, neglect or default of a shipowner places him in such a relationship that, as a matter of commonsense, it is a cause of loss or damage suffered by a third party. When more than one act occurs which may give rise to the liability of a shipowner, it is a question of fact and degree as to whether or not these circumstances amount to more than one distinct occasion. Essentially, an occasion will be distinct from a preceding event if first, it is a separate act, secondly, there is new loss or damage and thirdly, the new cause is, as a matter of commonsense, not a necessary or inseparable consequence of the earlier act.

Application

The Court found that there were two distinct occasions giving rise to claims under the Convention. The first distinct occasion being the chain of events leading up to and immediately following the anchor fouling the pipeline and the second distinct occasion being the chain of events leading up to and immediately following the rupture of the pipeline.

The chain of events leading up to the rupture of the pipeline was borne out of the direction to put the engine dead slow ahead. His Honour found that this direction indicated a change in navigational priorities thus demonstrating that a distinct occasion had occurred separate to the initial fouling of the pipeline. In making this determination His Honour was highly critical of the actions of the pilot who left the bridge very quickly after the order to drop the anchor was given. Notably the Port of Melbourne is a compulsory pilotage area requiring ships to be under the direction of the relevant authority in navigating the area. The captain’s order based on the advice of the pilot to put the engine dead slow ahead after the pipeline had been fouled was held to be unjustified and negligent and consequently claims resulting from the rupture of the pipeline arose from this avoidable and unnecessary act.

Conclusion

The judgment provides a valuable analysis of the construction of the Convention and its underlying policy, especially with respect to Article 6. It represents the first time a court has determined the issue and will potentially have significance worldwide. A notice of appeal was lodged by the Shipowner however has subsequently been withdrawn, leaving the findings of the Court currently unchallenged. Whether they will be tested elsewhere remains to be seen, however given the role a ‘distinct occasion’ has in determining the limitation of a shipowner’s liability, the decision will be of great interest to those in the shipping industry globally.