The Court of First Instance has jurisdiction to hear and determine shipping and maritime claims in Hong Kong. The Admiralty jurisdiction of the Court of First Instance is conferred under Section 12A of the High Court Ordinance (Cap. 4). While there is no separate court independently dealing with maritime and shipping claims in Hong Kong, in practice, the Court of First Instance has a distinct HCAJ list for hearing shipping and maritime claims. Matters fixed on this list are heard by an experienced Admiralty Judge.
Claims falling within the Admiralty jurisdiction of the Court of First Instance may be brought as either in rem proceedings or in personam proceedings. Claims commenced as an action in personam with a claim value of HKD3 million or below can also be heard or transferred to the District Court.
Section 12A of the High Court Ordinance provides for the full range of shipping and maritime claims that fall within the Admiralty jurisdiction of the Court of First Instance. The shipping and maritime claims that are commonly brought in Hong Kong include:
Introduction
Hong Kong is a member of the Tokyo MOU. The local authority responsible for implementation of port state control is the Port State Control Section (the “PSC Section”) of the Marine Department of Hong Kong (MARDEP). The inspection procedures are based on the Tokyo MOU Port State Control Inspection Manual and IMO Resolution A.1155(32) – Procedures for Port State Control.
General Powers
To ensure that ships visiting Hong Kong comply with the requirements under international maritime conventions, MARDEP has been given wide-ranging powers under the Shipping and Port Control Ordinance (Cap. 313) to:
Specific Powers for Marine Casualties
Where a ship has been stranded, grounded, abandoned or sunk in the waters of Hong Kong, MARDEP has powers under Section 21(1), Shipping and Port Control Ordinance (Cap. 313) to give any such directions as MARDEP deems fit, including directions for the removal, securing, raising or destruction of the ship.
If the owner, Master or such person in control of the ship fails to comply with the directions of MARDEP and cannot be located, MARDEP may also seize and detain such ship together with her cargo and things on board, and employ pilots, tugs and equipment to remove, secure, raise or destruct the ship (Section 21(3), Shipping and Port Control Ordinance (Cap. 313)).
For any shipping casualties that have occurred within or outside Hong Kong waters, which will or may cause imminent pollution in the waters of Hong Kong, MARDEP may give such directions to the owner, Master, or person in control of the ship, or her salvors, to prevent or contain the pollution (Section 6(2), (3), Merchant Shipping (Prevention and Control of Pollution) Ordinance (Cap. 413)).
If MARDEP is not satisfied with the measures taken despite the directions that have been issued, MARDEP can take such further action with respect to the ship and her cargo, including taking over control of the ship and undertaking operations for the sinking or destruction of the ship (Section 6(4), Merchant Shipping (Prevention and Control of Pollution) Ordinance (Cap. 413)).
Registration of ships in Hong Kong is handled by the Hong Kong Shipping Registry (HKSR) in MARDEP.
The main piece of domestic legislation applicable to the registration of ships in Hong Kong is the Merchant Shipping (Registration) Ordinance (Cap. 415) (MSRO) together with its subsidiary legislation as follows:
There are two types of ship registration in Hong Kong: (i) owner registration; or (ii) demise charter registration. To own or operate under demise charter a Hong Kong registered vessel, you must be a “qualified person” as defined under Section 11(4), MSRO:
Thus, foreigners who wish to own or operate under demise charter a Hong Kong registered ship may either incorporate a Hong Kong company for that purpose or register a foreign company as a non-Hong Kong company and maintain a place of business in Hong Kong. A ship ceases to be registrable under Section 11(2), MSRO if a majority interest in the ship ceases to be owned by a qualified person, or if the ship under charter demise is no longer operated by a qualified person.
Ships under construction are not registrable in Hong Kong. A “ship” as defined under Section 2, MSRO refers to a vessel that is capable of navigating in water and is not propelled by oars. So, until such time the ship has been built, it will not be registrable by the HKSR.
Provisional Registration
Provisional registration of a ship is permissible in Hong Kong under Section 27, MSRO. The grant of a provisional registration will only be valid for one month or upon full registration of the ship in Hong Kong, whichever is the earlier. The validity period for the provisional registration can, however, be extended by the Registrar of Ships for further one-month periods.
Dual Registration
Dual registration of a ship is not permitted in Hong Kong. In other words, if a ship is already registered in a place outside Hong Kong, the HKSR will not permit the registration of that ship in Hong Kong. Further, a ship ceases to be registrable in Hong Kong under Section 11(2) of the MSRO if she is at the time of registration registered in a place outside Hong Kong, or subsequently becomes registered in a place outside Hong Kong.
The HKSR is responsible for maintaining the registration of mortgages. When a ship mortgage is granted by a body corporate registered in Hong Kong, the mortgage will also need to be registered as a charge with the Hong Kong Companies Registry.
All ship mortgages registered with the HKSR have to be in a specified form (Form RS/M1). The HKSR will also require production of the original or certified true copy of the power of attorney, evidencing the powers granted to the attorney-in-fact executing the ship mortgage on behalf of the mortgagor. Prompt registration of the mortgage is essential as the mortgage will only take priority from the date and time when they are filed and accepted for registration by the HKSR, and not the date of the instrument.
Where the mortgagor is a body corporate registered in Hong Kong, a certified true copy of the ship mortgage together with a certified true copy of any supplemental deed of covenants should be presented to the Companies Registry, together with a Statement of Particulars of Charge. The submission needs to be made within one month from the date of the instrument.
Information on the ownership of and the mortgage(s) registered against a Hong Kong registered ship are generally available to the public. The information can be obtained by making an application to MARDEP for a Transcript of Register of the Hong Kong registered ship. The current fee for obtaining a certified transcript of register is HKD260 and an uncertified transcript of register is HKD110. The transcript of register is usually obtainable within four hours from the time of application.
Pollution
The international convention applicable to Hong Kong impacting on liability of owners and interested parties for the pollution of waters in Hong Kong is the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) and its 1997 Protocol (MARPOL). MARPOL is made applicable in Hong Kong through the Merchant Shipping (Prevention and Control of Pollution) Ordinance (Cap. 413).
For oil pollution damage in Hong Kong, the international conventions that will impact on owners and interested parties are:
These international conventions relating to oil pollution damage are given effect in Hong Kong through the Merchant Shipping (Liability and Compensation for Oil Pollution) Ordinance (Cap. 414) and the Bunker Oil Pollution (Liability and Compensation) Ordinance (Cap. 605). Apart from imposing or fixing strict liability on ship-owners for oil pollution, these international conventions deal with compensation for oil pollution damage (including the establishment of a compensation fund) and requiring compulsory insurance to be taken out by ship-owners.
Wreck Removal
The Nairobi Wreck Removal Convention 2007, which generally deals with liability of owners for locating, marking and removing ships and wrecks, does not apply in Hong Kong. While the People’s Republic of China has ratified the Nairobi Wreck Removal Convention, which came into effect on 11 February 2017, this has not been extended to Hong Kong SAR.
Notwithstanding the Nairobi Wreck Convention not being applicable to Hong Kong, MARDEP has extensive powers to direct an owner, Master or interested person to take all steps to remove, move, raise, secure or destroy the wreck under Section 21, Shipping and Port Control Ordinance (Cap. 313). Failure to comply with MARDEP’s directions constitutes a criminal offence in Hong Kong.
Further, it is to be noted that ship-owners are generally unable to limit their liability for the removal of a wreck in Hong Kong. For ship-owners to limit liability for the removal of a wreck, the Chief Executive of Hong Kong will need to agree for such limitation fund to be established under Section 15, Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434).
Collision
The international convention(s) applicable to Hong Kong impacting upon liability of owners and interested parties should a collision happen are:
Under the 1910 Collision Convention, liability for loss of or damage to property arising out of a collision is proportionate to each ship’s degree of fault, while liability for loss of life or personal injury is joint and several with owners of any other ships at fault.
The COLREGS contain a detailed set of navigational or traffic rules to be obeyed by ships for avoiding and/or reducing the risk of collisions with other ships. The rules in COLREGS are essentially the mechanism that enables blame to be apportioned between ships, whenever there is a failure by one or more ships to abide by the said rules resulting in the collision.
Separately, there is no international convention applicable in Hong Kong relating to general average. Apart from the common law principles, Section 66, Marine Insurance Ordinance (Cap. 329) provides for the contribution and recovery of general average expenditure or sacrifice from interested parties and insurers. The assessment and adjustment of general average is also commonly subject to the York Antwerp Rules, which in practice are incorporated expressly or by reference into charterparties and bills of lading.
Salvage
The international convention relevant to liability for salvage in Hong Kong is the International Convention on Salvage 1989 (the “Salvage Convention”). The Salvage Convention applies in Hong Kong through Section 9(1), Merchant Shipping (Collision Damage Liability and Salvage) Ordinance (Cap. 508). It is important to note that the provisions of the Salvage Convention can be excluded by contract between the owners and salvors under Article 6 of the Salvage Convention. To date, the most widely used international salvage agreement remains the Lloyd’s Open Form (LOF).
The 1976 Convention on Limitation of Liability for Maritime Claims (LLMC) is applicable in Hong Kong through the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434). The LLMC enables owners and salvors to limit their liability for any damage to property, and loss of life and personal injury, unless it can be proved that the loss resulted from a personal act or omission, committed with the intent or recklessly with knowledge that such loss would probably result. Compared to its predecessor (the 1968 Convention on Limitation of Liability for Maritime Claims), the LLMC sets a much higher threshold for breaking limitation of liability by owners and salvors. However, the limits of liability under the LLMC have also been raised considerably, compared to its predecessor.
Requirements for Establishing Limitation Fund
Limitation funds may be instituted in the Hong Kong Court of First Instance under Section 12A(1)(b) and Section 12A(3)(a)(vi) of the High Court Ordinance (Cap. 4), and pursuant to the provisions of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434) and the LLMC. Persons who may apply for the constitution of a limitation fund are ship-owners (defined in the LLMC to mean the owner, charterer, manager or operator of a seagoing ship) and salvors (defined in the LLMC as any person rendering services in direct connection with salvage operations).
The type of claims that may be subject to limitation (see Article 2, LLMC) include:
Claims not subject to limitation are set out in Article 3, LLMC and include:
Procedure
The procedure for constitution of the limitation fund in the Hong Kong Court of First Instance is governed by Order 75 rules 37–43, Rules of High Court. The person seeking relief should be named as plaintiff and is to commence proceedings in the Admiralty list of the Court of First Instance by issuing and serving a writ on the defendants. The defendants are given an opportunity to challenge the plaintiff’s right to limit its liability. If there is no challenge to the plaintiff’s right to limit liability, the court will then issue a decree limiting the plaintiff’s liability. The limitation fund is constituted by the plaintiff’s payment into court of a sum equivalent to the limitation amount, together with interest (as fixed by the Monetary Authority from time to time) from the date of the incident giving rise to their liability until the date of the constitution of the limitation fund.
Limitation Amount
The limitation amount is determined by reference to Articles 6 and 7 of the LLMC and is generally calculated by reference to the tonnage of the ship or the number of passengers on board the ship (for passenger claims involving loss of life or personal injury).
The international convention relevant to bills of lading and applicable in Hong Kong is the Hague-Visby Rules, together with the 1979 Protocol (the “Hague-Visby Rules”). The Hague-Visby Rules are made applicable in Hong Kong through Section 3 of the Carriage of Goods by Sea Ordinance (Cap. 462). The Rotterdam Rules and the Hamburg Rules do not apply in Hong Kong.
Generally, the person who is entitled to sue on a straight bill of lading is the shipper or the named consignee. For a negotiable bill of lading, the person entitled to sue is the lawful holder of the original bill of lading (see Section 4(1), Bills of Lading and Analogous Shipping Documents Ordinance (Cap. 440)). In practice, this often means the last person having physical possession of the bill of lading and to whom the bill of lading has been endorsed. If the negotiable bill of lading has already been spent by the time the holder comes into possession of the bill, there would be no rights of suit (see Section 4(2), Bills of Lading and Analogous Shipping Documents Ordinance (Cap. 440)).
Recent decisions in both Singapore and the United Kingdom have shown that courts in the common law jurisdiction are increasingly willing to closely examine or scrutinise the true nature of a bill of lading, and whether such bill of lading has become spent by the time the holder comes into possession. Many of these decisions have arisen in the context of trade finance and securities. Examples of reported decisions in Singapore include The “Yue You 902” [2019] SGHC 106, The “Luna” [2021] SGCA 84, The “STI Orchard” [2022] SGHCR 6, and Standard Chartered Bank v Maersk Tankers [2022] SGHC 242. An example of a reported decision in the UK is UniCredit Bank v Euronav [2022] EWHC 957. It is expected that, if and when an appropriate case arises in Hong Kong, the Hong Kong courts will likely follow the same rigorous approach and analysis adopted by the Singapore and the UK courts in determining the true nature of the bill of lading and whether such bill of lading has become spent.
The Hague-Visby Rules can apply mandatorily under Section 3, Carriage of Goods by Sea Ordinance (Cap. 462) or voluntarily by agreement between the parties through the incorporation of a “clause paramount” in the bill of lading. Under the Hague-Visby Rules, both the actual carrier and the contractual carrier are entitled to limit their liability (see the definition of “carrier” in Article 1 of the Hague-Visby Rules, which includes the owner of a vessel). Generally, the carrier will not be liable for any loss or damage to cargo which is caused by any unseaworthiness of the vessel, unless such unseaworthiness resulted from the carrier’s lack of due diligence (Article IV(1), Hague-Visby Rules). The carrier is also not liable for damage arising out of events or exceptions not within the control of or without the actual fault or privity of the carrier (Article IV(2), Hague-Visby Rules).
Where the carrier is held to be liable for the loss or damage to cargo, it is entitled to limit its liability to 666.67 units of account per package or unit or 2 units of account per kilogram of gross weight of the goods lost or damaged, whichever is the higher (Article IV(5)(a), Hague-Visby Rules). The “units of account” referred to here is the Special Drawing Right (SDR) as defined by the IMF (Article IV(5)(d), Hague-Visby Rules), which is converted into national currency based on the rate of exchange set by the Hong Kong Monetary Authority (Section 7(1), Carriage of Goods by Sea Ordinance (Cap. 462)). There are often contentious disputes as to what is “loss or damage” (see more recently the English decision of “Thorco Lineage” [2023] EWHC 26 (Comm), and what constitutes a “package” or “unit” for the purpose of limiting liability).
The carrier is at liberty to contractually agree to higher limits of liability (see Article IV(5)(a), (g), Hague-Visby Rules), but not of a lower amount. The cargo owners can also “break liability” (ie, the carrier will not be entitled to limit its liability) if it can prove that damage or loss was caused intentionally, or recklessly with knowledge that loss or damage would result (see Article IV(5)(e), Hague-Visby Rules).
Under Article III(5), Hague-Visby Rules, the shipper is deemed to have guaranteed to the carrier the accuracy of the marks, number, quantity and weight of the goods, and the shipper further agrees to indemnity the carrier for all loss, damage and expense arising from or resulting from any inaccuracies in particulars. So if there is any misdeclaration of cargo, the carrier will be entitled to bring a claim against the shipper under the said indemnity. There are no recent judgments in Hong Kong relating to a claim for indemnity by carriers against a shipper for misdeclaration of cargo.
On the assumption that the Hague-Visby Rules are applicable, the time bar for bringing a claim is within one year from the date of delivery of the cargo or from the date when the cargo should have been delivered. This time limit may, however, be extended by the parties by mutual agreement. (See Article III(6), Hague-Visby Rules.) Where the Hague-Visby Rules do not apply, the time bars generally applicable to contract and tort claims would be six years from the date on which the cause of action accrued (Section 4, Limitation Ordinance (Cap. 347)).
Hong Kong is a party to the International Convention on the Unification of Certain Rules Relating to the Arrest of Sea-going Ships (the “Arrest Convention”), 1952. Ship arrest is given effect in Hong Kong through Sections 12A and 12B, High Court Ordinance (Cap. 4). These provisions set out those claims that fall within the Admiralty jurisdiction of the Court of First Instance, and further provide for the mode by which the Court’s in rem jurisdiction may be invoked by a claimant.
The list of maritime liens recognised in Hong Kong are:
Maritime liens should not be confused with maritime claims. Maritime claims is a broad term used to refer to both maritime liens and statutory lien claims (the list of statutory liens are more fully set out in Section 12A, High Court Ordinance).
Maritime liens are a creature of common law. Maritime liens will “attach” to the res (ie, the ship) from the time a cause of action accrues until such time a writ is issued. Maritime liens will survive any change in ownership of the vessel (in other words, a writ may still be issued against a ship in respect of a maritime lien, notwithstanding any change in ownership of that vessel). See Section 12B(3), High Court Ordinance (Cap. 4).
Statutory liens are different from maritime liens, in that statutory liens do not survive any change in ownership of the vessel. Where a plaintiff has a statutory lien claim against a ship, but beneficial ownership of the ship had changed prior to the plaintiff’s issuance of the writ, the plaintiff will no longer be entitled to arrest the ship as security (see Section 12B(4), High Court Ordinance (Cap. 4)).
Further, no sister-ship arrest is possible with maritime liens, given that a maritime lien is specific to a vessel. Sister-ship arrest is, however, possible with statutory lien claims.
For maritime liens, there is no requirement that the owners or demise charterers will need to be liable in personam before any arrest can be effected. As mentioned earlier, maritime liens attach to a ship and will remain inchoate until such time as a writ has been issued. Likewise for those claims falling within Section 12A(2)(a), (b), (c) or (r), High Court Ordinance (Cap. 4).
For statutory liens falling within Section 12A(2)(e)–(q), High Court Ordinance (Cap. 4), there is a requirement that the owners or demise charterers must be personally liable on the claim before a ship may be arrested as security (see Section 12B(4), High Court Ordinance (Cap. 4)).
A bunker supplier may only arrest the vessel to whom bunkers were supplied if they can show that the beneficial owner or demise charterer of that vessel is personally liable on the claim (see the requirements under Section 12B(4) of the High Court Ordinance, Cap.4A). This often requires a direct contractual relationship between the bunker supplier and the owner or demise charterer of the vessel. If the bunkers were supplied to the vessel through a series or chain of contracts, then the physical bunker supplier themself may not be able to demonstrate that the owner or demise charterer of the vessel was personally liable to them, and hence may not be entitled to seek the arrest of the vessel.
To arrest a ship in Hong Kong, the arresting party will need to issue a writ of summons, together with a praecipe for warrant of arrest and an original affidavit setting out the factual basis giving rise to the right of arrest. The affidavit made in support of the arrest needs to be executed before a commissioner of oaths or notary public. The arresting party also needs to issue a written undertaking to pay all of the bailiff’s costs and expenses incurred in connection with the arrest and maintenance of the ship under arrest.
Prior to any arrest, the arresting party is required to conduct a search in the caveat book maintained with the bailiff to determine if there are any existing caveats against arrest of the vessel. Any caveats against the ship do not prevent the arrest of the ship (see Order 75 rule 6(2), Rules of High Court), but a person who causes a ship to be arrested despite the existence of a caveat and without good and sufficient reason may be ordered to pay damages (Order 75 rule 7, Rules of High Court).
Court documents may be submitted to the Court of First Instance in either English or Chinese. However, in practice, shipping matters in Hong Kong are usually conducted in the English language, given the international nature of the industry and the counsel and solicitors involved. Where documents submitted are not in the same language as those of the proceedings, translations of those documents will be required.
An arresting party does not need to furnish any security, save for the undertaking to the bailiff for the arrest cost and expenses as mentioned earlier.
It is possible to arrest bunkers and freight in Hong Kong. This is made clear by the provisions of Section 12B(2), (3), High Court Ordinance (Cap. 4), which allows “property” other than a ship to be arrested as security. The circumstances under which bunkers and freight can be arrested are, however, limited to those in connection with which the claim arose, and will need to be considered carefully.
In practice, there are difficulties with the arrest of bunkers. Quite apart from having to prove title to the bunkers, the owners of a ship may also be able to insist that any bunkers arrested be removed from the ship. This would result in a costly exercise for the arresting party in both the removal and storage of the arrested bunkers.
Sister-ship arrest is possible for certain statutory lien claims as set out in Section 12B(4)(ii) of the High Court Ordinance (Cap. 4). It is to be noted that sister-ship arrest is not the same as associated ship arrest, the latter of which is permissible in jurisdictions such as South Africa but not in Hong Kong.
It is possible to obtain an interim Mareva or freezing injunction for the purpose of ensuring that the assets of the defendant are not dissipated pending judgment.
The plaintiff will, however, have to prove:
To obtain the release of an arrested vessel, the owner or any other interested person may furnish security for the plaintiff’s claim. Acceptable types of security include:
Any party who has an interest in an arrested ship may apply for a judicial sale, whether before or after judgment in the action has been issued. The judicial sale of ships in Hong Kong is generally conducted by way of a sealed bids tender. Direct sales are not permitted, save in exceptional circumstances (see “The Margo L” [1998] 1 HKC 217). Other common law jurisdictions, such as Singapore and the United Kingdom, have adopted a similar approach in generally not permitting direct judicial sale of vessels. See, in Singapore, “The Turtle Bay” [2013] SGHC 165 and “The Sea Urchin” [2014] SGHC 24; and, in England, the decision of Teare J in “The Union Gold” [2013] EWHC 1696.
If, during the course of the arrest, the owners or demise charterers of the ship do not pay for the costs of maintaining the arrest, the liability for maintaining the ship falls upon the arresting party, whose solicitors would have given an undertaking to the court and the bailiff to pay for all such arrest and maintenance cost and expense. Thus, there is generally little incentive for an arresting party to keep a ship under arrest for extended periods of time, as a ship under arrest is a depreciating or diminishing asset. If security is not forthcoming from the owners or demise charterers, an arresting party should promptly consider whether an application for appraisement and sale is appropriate.
Once the court has issued an order for appraisement and sale of the ship, the bailiff will arrange for the ship to be valued by two appraisers, one of whom will conduct a physical survey of the ship and the other a desktop valuation. The average of the appraisers’ valuations will be used as the basis for the reserve value of the ship. On completion of the appraisement, the bailiff will prepare an invitation to tender, which is advertised in one local newspaper and one international shipping newspaper over two consecutive days.
Interested bidders may physically inspect the ship, and thereafter submit their bids together with a deposit of 10% of the offer (in the form of cashier’s order or bank draft drawn on a Hong Kong bank) in sealed envelopes prior to the close of the tender date as advertised. The tender requirements are intended to be complied with strictly. On the tender date, the Registrar will then open all sealed bids that have been submitted and decide if any of the bids meet the reserve value of the ship and, if so, which of the bids the court should accept – the court is not bound to accept the highest bid or any bid under the tender. Where the bids either do not meet the reserve value or are not accepted by the court, the court may call a second round of tender for the sale of the ship. Closing usually takes place within one week from the date on which any bid is accepted by the court.
On full payment of the purchase price, the buyer takes delivery of the vessel free and clean of all encumbrances, liens, mortgages and claims. Once the proceeds of sale are paid into court (proceeds from the bunkers constitute a separate fund), an application can be made to court for the determination of priorities and distribution. The general ranking of priorities against the sale proceeds of the ship are in the following order:
Hong Kong does not have an insolvency scheme that is similar to Chapter 11 of the United States Bankruptcy Code. While Hong Kong companies can enter into court-sanctioned schemes of arrangement to reorganise their debt and liability, there is no automatic moratorium on winding-up petitions made against the company. An example of a Scheme of Arrangement recently implemented in Hong Kong is that of Hongkong Airlines, which scheme of arrangement was approved by Justice Jonathan Harris on 14 December 2022.
The interaction between insolvency, schemes of arrangement, and the arrest and sale of ships is not an easy question to answer, as both foreign and local ships are susceptible to arrest in Hong Kong for an admiralty claim, but domestic company law legislation prohibiting the “attachment, sequestration, distress or execution” against assets upon the grant of a winding-up order is only applicable in respect of Hong Kong companies upon the grant of a winding-up order (Section 183, Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO)). The situation is not alleviated by the fact that Hong Kong is not a party to the UNCITRAL Model Law on Cross-Border Insolvency, which would have facilitated cross-border recognition insolvencies.
The tension between cross-border insolvency and ship arrest is illustrated by two conflicting decisions in Singapore: Re TPC Korea Co Ltd [2010] 2 SLR 617 and Re Taisoo Suk [2016] SGHC 195. In Re TPC Korea Co Ltd, Pillai JC was not willing to grant a pre-emptive moratorium in respect of vessels that would potentially enter Singapore waters, on the basis that the company was not registered in and did not otherwise have any other assets in Singapore. However, in Re Taisoo Suk, Abdullah JC, in respect of the Hanjin corporate rehabilitation, granted a temporary restraint of all proceedings against Hanjin Shipping Co and its subsidiaries, which included a restraint against the arrest of ships in Singapore that were owned by Hanjin, on the basis of the court’s inherent jurisdiction to render assistance towards foreign rehabilitation proceedings.
Briefly summarised, the position in Hong Kong is likely to be as follows.
The Hong Kong courts will only order damages for a wrongful arrest, if the arrest was malicious or so grossly negligent as to imply malice (crassa negligentia). The Hong Kong courts will generally be slow to make a finding of malice, and the threshold for proving wrongful arrest is therefore high.
The Athens Convention Relating to the Carriage of Passengers and their Luggage by Sea, 1974 is applicable in Hong Kong, through Section 3 of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434). Claims must be brought within two years from the date of death of or personal injury to a passenger, or from the date of loss of or damage to luggage. (See Article 16 rules 1 and 2 of the Athens Convention 1974.)
As for limitation of liability, the Convention on Limitation of Liability for Maritime Claims, 1976 together with the 1996 Protocol for Maritime Claims (LLMC) is given effect in Hong Kong through the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434). The LLMC limits liability of the owners in the case of passenger claims for loss of life or personal injury based on the number of passengers that the ship is authorised to carry (Article 7, LLMC) and in all other cases based on the tonnage of the ship (Article 6, LLMC).
The above applies to international carriage of persons and not to domestic carriage of persons. For domestic carriage of passengers that results in death or personal injury due to negligence, the carrier is not entitled to limit his liability (see Section 7, Control of Exemption Clauses Ordinance (Cap. 71)).
Generally speaking, the Hong Kong courts will recognise and give effect to valid choice of law and jurisdiction clauses stated in the bills of lading. For exclusive jurisdiction clauses, the Hong Kong courts will uphold them unless there are strong reasons or exceptional circumstances for departing from them. For an example of an exceptional circumstance in which the Hong Kong court assumed jurisdiction notwithstanding an exclusive jurisdiction clause, see Quaestus Capital v Everton Associates [2021] HKCFI 1367.
Forum non conveniens considerations will generally be applicable to non-exclusive jurisdiction clauses. The jurisdiction stated in the non-exclusive jurisdiction clause is only one of many factors going towards the forum non conveniens analysis.
The Hong Kong courts will generally recognise and give effect to a valid choice of law and arbitration clause of a charterparty incorporated into the relevant bill of lading. Where there is a valid arbitration clause, the court is bound to stay any court proceedings in favour of arbitration (Section 20(1), Arbitration Ordinance (Cap. 609)).
The 1958 New York Convention is applicable in Hong Kong through Section 87 of the Arbitration Ordinance (Cap. 609). However, it should be noted that, while the People’s Republic of China is also a party to the New York Convention, awards that are obtained from Mainland China and Macau are not enforceable in Hong Kong under the New York Convention.
Awards rendered in Mainland China are enforced in Hong Kong through Section 92 of the Arbitration Ordinance, which gives effect to the “Arrangement Concerning Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong”. Awards rendered in Macau are enforced in Hong Kong through Section 98A of the Arbitration Ordinance, which gives effect to the “Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Hong Kong Special Administrative Region and the Macau Special Administrative Region”.
Any award that is neither a Convention Award, Mainland Chinese or Macau award can be enforced in Hong Kong through Section 84 of the Arbitration Ordinance. Any such enforcement will require the permission of Hong Kong courts.
It is possible to arrest a ship in Hong Kong and to retain security for the satisfaction of a foreign arbitral award (see Section 12B(6A), High Court Ordinance (Cap. 4) and Section 20, Arbitration Ordinance (Cap. 609)). A ship may also be arrested even after a foreign arbitral award has been issued but which award remains unsatisfied ([2014] 4 HKLRD 160), provided the in rem action is commenced in respect of the original maritime claim and not in respect of the foreign arbitral award.
The position may, however, be different where foreign court proceedings are concerned. There is considerable doubt on whether it is possible to arrest a ship in Hong Kong as security in aid of a foreign judgment. It is to be noted that, unlike the United Kingdom, Hong Kong does not have a provision equivalent to Section 26, Civil Jurisdiction and Judgments Act 1982 (UK), which allows security to be retained for the satisfaction of a foreign judgment.
The Hong Kong courts may, however, in the context of a stay of proceedings jurisdiction order that a plaintiff is entitled to retain any security obtained in the in rem action for purpose of satisfying any subsequent judgment to be obtained in the in rem action itself. This is notwithstanding any stay of the in rem action in favour of foreign court proceedings (see “The Britannia” [1998] 1 HKC 221 and “The Rena K” [1979] QB 377). Should the terms of the foreign judgment not be complied with, the stay on the in rem action can then be lifted with judgment to be entered against the defendant on a summary basis based on issue estoppel, and any security obtained by the plaintiff will then be used to satisfy the judgment in the in rem action itself rather than in aid of a foreign judgment.
As of March 2019, the Hong Kong Maritime Arbitration Group (HKMAG), originally a part of the HKIAC, became an independent organisation to hear maritime disputes. HKMAG has arbitration rules that are identical for all intents and purposes to the LMAA Terms, save for logical changes. Other arbitration bodies in Hong Kong that have experience in dealing with maritime claims include: Hong Kong International Arbitration Centre (HKIAC); China Economic and Trade Arbitration Commission, Hong Kong (CIETAC Hong Kong); and China Maritime Arbitration Commission (CMAC).
Where proceedings are commenced in breach of a jurisdiction clause, the defendant may apply for a stay of the court proceedings under Order 12 rule 8 of the Rules of High Court (Cap. 4A). Where proceedings are commenced in breach of an arbitration clause, the defendant may seek a stay of the proceedings under Section 20, Arbitration Ordinance (Cap. 609).
Owners operating a Hong Kong registered ocean going vessel are exempted from payment of taxes in respect of their shipping income. See Section 23B, Inland Revenue Ordinance (Cap. 112).
The COVID-19 measures are constantly evolving, and ship-owners and agents will need to check MARDEP’s website from time to time for the latest directions. At the time of writing, Hong Kong like the rest of the world is moving towards a gradual easing of the COVID-19 measures.
As at 30 December 2022, MARDEP’s previous requirement for a 72-hour advance information and declaration submission on the arrangement of crew members is no longer required. Crew members are now treated as normal inbound travellers. Only medical surveillance (self-monitoring) is required, but otherwise all quarantine arrangements in Hong Kong have ceased.
Whether the COVID-19 pandemic can relieve a party in breach of a contract as result of the operation of force majeure clauses or under the common law doctrine of frustration, is a question of fact. It is conceivable that non-performance of a party owing to the effects of the COVID-19 pandemic may be relieved of its obligations, but that would depend on:
The COVID-19 pandemic has currently affected the world for more than three years (as of February 2023). So it can hardly be said that COVID-19 is an unforeseeable event. Accordingly, the prospect of successfully arguing COVID-19 as a frustrating event is increasingly diminished. Parties entering into a contract and who wish to seek relief from any non-performance due to changes in governmental regulations, will do well to insert a specific COVID-19 clause providing for such contingencies, or to at least include the occurrence of COVID-19 as part of its force majeure clause.
The decisions in Hong Kong dealing with issues of the COVID-19 pandemic as either a force majeure or a frustrating event occur mostly in the context of landlord and tenant disputes. As will be seen from the decisions in Holdwin Ltd v Prince Jewellery and Watch Co Ltd [2021] HKCU 4494; Vember Lord Ltd v The Swatch Group (Hong Kong) Ltd [2022] 2 HKC 349; and Sunbroad Holdings Ltd v A80 Paris HK Ltd [2022] 6 HKC 155, the Hong Kong courts are generally slow to make a finding that COVID-19 constitutes a force majeure event or a frustrating event.
“IMO 2020” has been implemented in Hong Kong through the Air Pollution (Fuel for Vessels) Regulation (Cap. 311AB). The legislation has preceded IMO 2020 and came into force on 1 January 2020. It imposes a 0.5% mass by mass limit on the sulphur content of marine fuels on board ships within Hong Kong waters, irrespective of whether the ship is sailing or berthing.
If a vessel is found to be using non-compliant fuel, the owner and the Master of the vessel each commit a criminal offence and will be liable on conviction to a fine of HKD200,000 and to imprisonment for six months (see Section 5 of the Air Pollution (Fuel for Vessels) Regulation (Cap. 311AB)). Defences available to such an offence include the vessel being in an emergency situation and the person having exercised all due diligence to prevent the use of non-compliant fuel.
Hong Kong only applies sanctions that are imposed by the United Nations Security Council. These sanctions have been given effect domestically through the United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575) and United Nations Sanctions Ordinance (Cap. 537).
The ongoing trade war between China and the United States has resulted in both trade and political sanctions imposed against various entities and individuals across various jurisdictions. The line separating trade from politics is increasingly blurred. Hong Kong is endeavouring not to be involved in the political or trade war between China and the United States, or the politics of the Russia-Ukraine war and the sanctions imposed in relation to that.
Thus, earlier in October 2022, MARDEP issued a strongly worded statement in connection with the docking of a Russian oligarch’s superyacht Nord in Hong Kong, stating: “The Hong Kong government does not implement, nor do we have the legal authority to take action on, unilateral sanctions imposed by other jurisdictions.”
Notwithstanding this strongly worded statement from MARDEP, it is important to bear in mind that financial institutions in Hong Kong, particularly those financial institutions with an international presence, will continue to adhere to and apply sanctions other than those imposed by the United Nations Security Council. This has created insuperable practical difficulties for many Russian businesses and individuals residing in Hong Kong, whether or not sanctioned as a result of the Russia-Ukraine war, in opening and maintaining bank accounts and conducting business in Hong Kong.
Hong Kong has introduced tax concessions for qualifying ship lessors and ship leasing managers through its Inland Revenue (Amendment) (Ship Leasing Tax Concessions) Ordinance 2020, which has been in effect since 1 April 2020. This provides tax exemptions for qualifying profits derived from ship-leasing activities in relation to operating leases and funding leases carried out by ship lessors. Additionally, qualifying profits derived from ship-leasing management activities can also enjoy tax concessions.
Rooms 4207-09
Tower One
Lippo Centre
89 Queensway
Admiralty
Hong Kong SAR
+(852) 2386 9976
+(852) 2386 9977
hongkong@helmsmanlaw.com www.helmsmanlaw.comGeneral Overview
Hong Kong has consistently been ranked as one of the top five shipping centres in the world. In the latest Xinhua-Baltic International Shipping Centre Development Index, Hong Kong was placed fourth on the list after Singapore, London and Shanghai. In arriving at these rankings, various factors such as port infrastructure and cargo throughput; availability of maritime support services including brokering firms, insurance, classification societies, lawyers, ship managers and ship financiers; and the general business environment including government transparency and tax treatment for shipping activities, were taken into consideration.
While Hong Kong has retained its spot as a major shipping centre in the world, it would not escape attention that Hong Kong has in recent years been slipping in these rankings. It is no longer enough for Hong Kong to maintain the status quo for it to retain a place in these rankings. Hong Kong continues to face increasingly strong competition from regional and overseas shipping centres, including Singapore, London, Shanghai and other port cities within Mainland China, all of whom have in recent years been aggressively rolling out initiatives to promote and improve the maritime industry. These initiatives include digitisation of port operations; adoption of green shipping initiatives; and enhancing infrastructure and institutional rules for the resolution of maritime disputes.
This chapter will highlight some of the challenges Hong Kong faces in maintaining its status as one of the major shipping centres, and will then discuss the efforts being undertaken by the Hong Kong government to make shipping more attractive to the international community. Finally, it will discuss current events affecting the shipping industry that are taking place in Hong Kong.
Challenges Facing Hong Kong
Hong Kong has in recent years suffered successive impacts to its shipping industry from the political tussle and from COVID-19.
Political impact
The 2019–20 Hong Kong protests and the subsequent enactment of the national security law in Hong Kong led to perceptions that Hong Kong would gradually lose its fundamental freedoms. Some overseas politicians and governments cast aspersions on the judicial independence of judges in Hong Kong. A few overseas non-permanent judges from the United Kingdom sitting in Hong Kong resigned from their positions, even if they did not consider there was any erosion of judicial independence. These events undoubtedly dented Hong Kong’s reputation as an international financial centre with a robust judiciary that would act fairly, independently and impartially, independent of politics. Businesses and people in Hong Kong explored opportunities elsewhere, including in the United Kingdom, Canada and Singapore.
Impact of COVID-19 and competitors
After COVID-19 hit and stringent measures were imposed by Hong Kong’s administration for an extended period of time, it led to a continued outflow of businesses and talent from Hong Kong. There were many incentives for shipping businesses to relocate to or to open an office in Singapore. The primary driver of shipping, the commodities market, is in Singapore. The tax regime in Singapore is comparable to Hong Kong, with attractive tax concessions and benefits. The digitisation of government services in Singapore has streamlined many processes and reduced the costs of labour or manpower in Singapore. The Singapore judiciary is seen to be robust, independent and impartial. There is also a wealth of shipping professionals in Singapore, including specialist shipping arbitrators, mediators and lawyers, together with a specialist maritime arbitration centre (Singapore Chamber of Maritime Arbitration) that can effectively and efficiently deal with maritime disputes outside London. PNI clubs previously based in Hong Kong have now also opened offices in Singapore.
London continues to be an unparalleled centre for the resolution of maritime disputes. Ship-building contracts, ship finance (including sale and leaseback) transactions, charterparties, and sale and purchase contracts continue to be governed by English laws and submitted to arbitration before the London Maritime Arbitrator’s Association (LMAA). London has a wealth of shipping professionals, including master mariners, marine engineers, barristers and solicitors who are able to tap into its rich history as the traditional maritime centre to provide legal services for the shipping industry.
The shipping sector has also continued to grow at a rapid pace in Mainland China. In the ship-building sector, Mainland China has now surpassed South Korea in terms of newbuilds. The ship finance space, once dominated by international banks (including international banks located in Hong Kong), has now been largely taken over by Chinese financial institutions. Zhoushan is now an important bunkering port for vessels in Asia, outside Singapore and Hong Kong. Cargo throughput in Shanghai port has also exceeded that in Hong Kong.
As a result of Hong Kong’s geographical location and being a part of Mainland China, Hong Kong has found itself in a somewhat odd relationship where it is both in competition with other neighbouring Chinese ports and also in co-operation with them as part of the Greater Bay Area. With the gradual relaxation of the cabotage rules in Mainland China, Mainland Chinese ports will continue to pose a greater challenge to the port of Hong Kong.
Cabotage
Mainland China’s default cabotage rule prohibits foreign-owned vessels from moving cargo from one Mainland Chinese port to another. These restrictions allowed Hong Kong to be the main entry point for cargo going into Mainland China, which was an advantage enjoyed by the Hong Kong ports. This began to change in September 2013 when the Shanghai Free Trade Zone was exempted from the national cabotage rule, allowing foreign-flagged (but Chinese-owned) vessels to transport goods from the Shanghai Free Trade Zone to other Mainland Chinese ports.
In November 2021, Mainland China went a step further and announced a trial, running until 2024, allowing eligible foreign-owned and foreign-flagged container liner companies to move between specific Mainland Chinese ports (including Dalian, Tianjin and Qingdao) and the Shanghai Yangshan port. With the gradual relaxation of these cabotage rules, it is expected that Hong Kong’s role as a gateway port into Mainland China may gradually diminish over time. Integration into the Greater Bay Area and alignment with the ports in Shenzhen and Guangzhou may, however, alleviate that impact.
Workforce
As a result of these regional and international developments, Hong Kong has seen a number of professionals and skilled workers in the shipping industry leave Hong Kong. There is currently a shortage of professionals and skilled workers for the shipping industry.
To keep the shipping businesses in Hong Kong, there needs to be a concerted effort by the Hong Kong government to encourage and train people to be shipping specialists and inviting shipping businesses to be based out of Hong Kong through tax incentives and concessions, so as to rebuild the thriving shipping community in Hong Kong.
We now turn to consider the more recent initiatives of the Hong Kong government.
Digitisation of Ports
In Hong Kong, there is no centralised port operator. Instead there are a number of private operators. The digitisation of ports is thus not a centralised government effort but one that requires initiative on the part of the private operators. The general consensus is that Hong Kong is falling behind other ports such as Singapore and Shanghai in the adoption of digitised solutions.
The latest efforts amongst the private operators began around 2019, when four out of the five container operators came together to form the “Hong Kong Seaport Alliance” with a view to introducing more port automative equipment and to deploy digital solutions. The operators are Hong Kong International Terminals Limited, Modern Terminals Limited, COSCO-HIT Terminals (Hong Kong) Limited and Asia Container Terminals Limited. Based on a report by Port Technology International in February 2019, the technology to be adopted would include innovations such as remote-controlled gantry cranes, tracking and tracing locations of the container trucks inside the yard area using Internet of Things solutions.
As of November 2021, the Hong Kong Maritime and Port Board formed a government Task Force to establish a smart and green port, which continues to advise the government and the industry on policies. Nonetheless, it would seem that the efforts towards automation thus far have been piecemeal and are mainly limited to Hong Kong International Terminals Limited’s Terminal 9 in its use of electronic payments and tracking, remote-control gantry cranes with an automated container stacking system.
As of 1 September 2022, the Hong Kong Container Terminal Operators Association also announced the roll out of the Electronic Booking Confirmation Note system, which would digitise the paper-based documentation process for export containers. It is expected that export booking data shall be fully transmitted electronically and export documentation will go paperless at the terminals with effect from March 2023.
LNG Bunkering
Hong Kong, like Singapore and Mainland China, is moving towards green shipping. Apart from enacting regulations on the use of low sulphur fuel oil, Hong Kong is currently putting in place the infrastructure for the use and distribution of LNG. An offshore jetty platform is currently being built in Hong Kong to moor the world’s largest floating storage and regasification unit (FSRU), “Bauhinia Spirit”, to supply LNG to Hong Kong’s power plants and as a possible bunkering facility. These developments are intended to meet the Hong Kong government’s plan, Clean Air Plan for Hong Kong 2035. The Kai Tak Cruise terminal in Hong Kong has also been identified by the Bureau Veritas Solutions Marine & Offshore for Worldwide Cruise Terminals, as manager and operator of the Kai Tak Cruise Terminal, as a potential bunkering facility for LNG.
Tax
In July 2022, Hong Kong passed the Inland Revenue (Amendment) Tax Concessions for Certain Shipping-related Activities) Ordinance. A ship operator whose income is derived from the operation of Hong Kong registered ships (including carriage and chartering) are now exempt from profits tax. Ship lessors are likewise assessed at a tax of 0%. Other shipping-related business including underwriting of marine-related risks and profits of qualifying ship agents, ship managers and ship brokers are assessed at half rate of 8.25%.
MATF
The Maritime and Aviation Training Fund (MATF) was introduced by the Hong Kong government in January 2014 to provide a pool of funds for building and training a pool of professionals and skilled persons for the shipping industry. This continues to remain in place today.
Governing Law and HKMAG
Effective September 2020, BIMCO included Hong Kong as one of the arbitration venues in its standard forms, alongside New York, London and Singapore. In addition, the Hong Kong Maritime Arbitrators’ Group, which largely adopts the rules of the London Maritime Arbitrator’s Association, was established in Hong Kong to deal with maritime arbitration.
Other Developments
In other news, Genting Hong Kong, the owner of the luxury cruise lines Dream Cruises, Crystal Cruises and Star Cruises, ceased operations in Hong Kong in March 2022 as a consequence of COVID-19. Genting Hong Kong allowed its listing with the Hong Kong Stock Exchange to lapse on 17 July 2022. Over the course of 2022, Genting’s luxury cruise vessels were also put up for sale. One of Genting’s cruise vessels under construction, formerly “Global Dream”, was recently sold to Disney for EUR40 million (notwithstanding reports that Genting had invested more than EUR1 billion into the ship).
Concluding Remarks
It remains to be seen what role Hong Kong will play in the Greater Bay Area, and the steps that the Hong Kong government will take to rebuild and maintain Hong Kong’s status as a shipping hub.
Rooms 4207-09
Tower One
Lippo Centre
89 Queensway
Admiralty
Hong Kong SAR
+(852) 2386 9976
+(852) 2386 9977
hongkong@helmsmanlaw.com www.helmsmanlaw.com