Increased Tonnage Limitation of Liability for Shipowners Now in Force in Hong Kong

Douglas Lee and Michael Ng, Laracy & Co. in association with Hill Dickinson Hong Kong LLP

Tonnage Limitation

Tonnage limitation is a historical feature of admiralty law that may strike non-shipping lawyers as unusual. To promote the merchant shipping trade, shipowners had long been given the statutory right to limit their liability by reference to the tonnage of their vessels (though tonnage limitation can be “broken” in some scenarios). Furthermore, a shipowner who may be regarded as a “wrongdoer” in the eyes of the law is entitled to commence a tonnage limitation action preemptively as Plaintiff, naming those to whom he is potentially liable as Defendant(s), and the motivation to benefit from a relatively low limitation cap is often an important factor for shipping lawyers’ selection of jurisdiction for such limitation actions.

Today, most maritime nations have adopted the tonnage limitation formulae based on the Convention on Limitation of Liability for Maritime Claims (the “LMCC”) 1957; the LMCC 1976; or the 1996 Protocol to the LMCC 1976. The limitation caps have been substantially increased over time with each successive international instrument because of international concerns that due to inflation and improvement in standard of living, the previous limitation caps were becoming inadequate for protection of passengers and cargo interests.

Limitation Caps Applicable in Hong Kong

Hong Kong adopted the LMCC 1976 in 1993 via the enactment of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434) (the “Ordinance”), and until last month, had been applying the LMCC 1976 limitation formulae.

The 1996 Protocol’s limitation levels were enacted into Hong Kong law in 2005, but had been in “hibernation” for a decade, until a recent notice published by the Chief Executive in Council in the Gazette on 30 April 2015. The notice brought the 1996 Protocol (with reservations) into operation as from 3 May 2015 in Hong Kong.

In short, this means the tonnage limitation caps for shipowners in Hong Kong are now substantially higher. However, just as Hong Kong has in a sense “caught up” to the 1996 Protocol level (which entered into force 13 May 2004), the other Member States to the 1996 Protocol have overtaken Hong Kong again by further increasing their limitation caps.

Article 8 of the 1996 Protocol provides a procedure for Member States to negotiate amendments to the limitation levels, which can enter into force effectively after 36 months from notification being given. A further increase to the original 1996 Protocol limitation caps was negotiated by Member States in 2012 via the Art.8 procedure, and came into force on 8June 2015. Due to the way the Ordinance was drafted, the said Art.8 is technically not part of Hong Kong law. The further increased limitation levels are therefore arguably not applicable to Hong Kong, and because of that, for the foreseeable future, the tonnage limitation levels applied in Hong Kong will likely remain considerably lower than those applied in other Member States, which have adopted the Art. 8 procedure (in this connection, compare s. 28 of the Hong Kong Ordinance to s. 185(2A)–(2E) of the UK’s Merchant Shipping Act 1995).

Accordingly, shipowners (as well as charterers, managers, operators and salvors), who are looking for a suitable jurisdiction in which to commence a tonnage limitation action, may still see major attraction in Hong Kong.

An Example

By way of an example, the table below demonstrates how the tonnage limitation cap for a cellular containership with the gross tonnage of 9,000 tons varies depending on the applicable tonnage limitation regime (assuming a straightforward cargo claim not involving any passenger, personal injury or loss of life, and ignoring interest).

Note, “SDR” refers to Special Drawing Rights, a virtual currency unit created by the International Monetary Fund. As of 14May 2015, each SDR is worth about HK$11 – with all the media hoopla, it is easy for forget that the Bitcoin was not the world’s first virtual currency.

Full formulae now in force in Hong Kong are set out in Schedule 2 of the Ordinance.