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Australia – Clearly Inappropriate Forum.

15 July, 2014

 

Legal News & Analysis – Asia Pacific – Australia – Shipping, Maritime & Aviation

 

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.

 

Chou Shan: Update

 

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:

 

a) there were proceedings before a Chinese court that had jurisdiction over all persons and claims, such that substantial justice could be done in China;
b) 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);
c) the natural and obvious forum for all disputes relating to the collision was China;
d) there was no connection whatsoever with Australia; and
e) 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 in Voth 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.

 

Atlasnavios Navegacao, LDA V The Ship “Xin Tai Hai” (No 2) [2012] FCA 1497

 

This case confirms that an Australian court must exercise its jurisdiction unless it is established to be a clearly inappropriate forum. The judgment examines the relevant principles and factors to be considered in determining that question. Moreover, it confirms the disclosure requirements for a party seeking an arrest warrant in the Federal Court of Australia. This case provides good commentary on the clearly inappropriate forum test but must be read in light of the more recent Full Court decision in Chou Shan.

 

On 29 July 2011 the vessels “B Oceania” and “Xin Tai Hai” collided in the Straits of Malacca. On 24 August 2011, the owners of the “Xin Tai Hai”, China Earth Shipping Inc. (“China Earth“), began proceedings in the Qingdao Maritime Court of China to establish a limitation fund. On 4 November 2011, the owners of the “B Oceania”, Atlasnavios Navegacao LDA (“Atlas“), commenced proceedings in the Federal Court of Australia seeking damages against “Xin Tai Hai”. The “Xin Tai Hai” was arrested at Port Headland on 2 May 2012.

 

Clearly Inappropriate Forum

 

The Court held, following the principles established in Voth, that an Australian Court must exercise the jurisdiction that is conferred upon it, except where it is established to be a clearly inappropriate forum. This position differs from the English position which requires local proceedings to be stayed where a more appropriate forum exists. As such, an Australian court will not be a clearly inappropriate forum merely because another is more appropriate. Therefore, the focus is directed to the inappropriateness of the Australian Court. This question is one that depends on the general circumstances of the case, taking into account the true nature and full extent of the issues involved.

 

It will be prima facie vexatious and oppressive to bring proceedings concerning the same issues in different countries that have jurisdiction in respect of the matter. Where the issues are not the same in the different courts, the question is whether, having regard to the controversy as a whole, the Australian proceedings are vexatious and oppressive in that it is ‘productive of serious and unjustified harassment’ or ‘seriously and unfairly burdensome, prejudicial or damaging.’ The Court may consider whether connecting factors exist (including the applicable law on substantive issues, convenience for the parties, expense and availability of witnesses) or a legitimate juridical advantage (including higher damages, more favorable limitation regimes or better trial procedures). These factors will provide valuable assistance in determining whether Australia is a clearly inappropriate forum.

 

The Court held that neither China nor Australia was a natural forum for litigation as the collision occurred in the Straits of Malacca and neither had any substantive connection to the parties or the law of the place of the wrong (lex loci delicti). The substantive law was likely to be the same in each jurisdiction except in respect of the quantum of the limitation fund. Whilst there were differences between the practice and procedure in the courts, there was no reason to think anything should turn on that. The Australian proceedings commenced when the writ was issued, not when it was later served, so it was not correct to say that the proceedings brought in the Chinese Court began before those in Australia. Based on these factors, the Court held that it would not be reasonable to conclude that the continuation of the Australian proceedings was oppressive or vexatious on the parties in the context of the parallel proceedings in the Chinese Court.

 

Atlas’ purpose in bringing proceedings in Australia was not improper as it had regularly invoked the Australian Court’s jurisdiction and sought the legitimate advantages of greater security for its claim. Once the limitation fund had been established under the domestic law of China, Atlas could not attain the status of a secured creditor. As China had not ratified the 1976 Limitation Convention the existence of the limitation fund in the Maritime Court did not inhibit anyone from arresting the ship in an action in rem anywhere else. The Court was not satisfied that the Australian Court was a clearly inappropriate forum in the circumstances and therefore a stay of the proceedings was not granted. 

 

Failure To Disclose The Chinese Proceedings

 

The Court held that it is not appropriate to impose a duty on a plaintiff seeking the issue of an arrest warrant to make full and frank disclosure of other material facts beyond those specified in theAdmiralty Rules. The registrar is only required to be satisfied that the form 13 affidavit establishes the facts that must be proved and that no disqualifying circumstance exists to authorise the issue of the warrant.

 

Accordingly, when the conditions required for an arrest warrant are satisfied, and no countervailing factor under rule 40(3) exists, the Court held that the plaintiff is entitled to arrest a ship named in the writ. The Court held that the complexities of the position in the Qingdao Maritime Court, which Atlas failed to disclose, would and should not influence the registrars’ decision to grant the arrest warrant.

 

Clyde & Co

 

For further information, please contact:

 

Maurice Thompson, Partner, Clyde & Co

maurice.thompson@clydeco.com

 

Renee Amundsen, Clyde & Co

renee.amundsen@clydeco.com

 

Joel Cockerell, Clyde & Co

joel.cockerell@clydeco.com


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