The Court of First Instance (CFI) has jurisdiction to hear and determine shipping and maritime claims in Hong Kong. The Admiralty jurisdiction of the CFI is conferred under Section 12A of the High Court Ordinance (Cap. 4) (HCO). While there is no separate court that deals independently with maritime and shipping claims in Hong Kong, the CFI 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 CFI may be brought as either in rem 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 HCO provides the full range of shipping and maritime claims that fall within the Admiralty jurisdiction of the CFI. The shipping and maritime claims that are commonly brought in Hong Kong include:

• ship mortgage enforcement;
• ship-building and ship repair;
• charterparty disputes;
• claims for loss of or damage to cargo under bills of lading; and
• collision claims and the constitution of limitation funds.

Introduction

Hong Kong is a member of the Tokyo MOU. The local authority responsible for the implementation of port state control is the Port State Control Section of the Marine Department of Hong Kong (MARDEP). 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) (SPCO) to:

• board a ship for inspection;
• investigate any deficiencies on board the ship, including requiring the production, inspection and taking copies of documents from the ship;
• give directions for the rectification of deficiencies;
• detain the ship; and
• give any directions as MARDEP deems appropriate from time to time.

Specific Powers for Marine Casualties

Where a ship has been stranded, grounded, abandoned or sunk in Hong Kong waters, MARDEP has powers under Section 21(1) of the SPCO 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 may employ pilots, tugs and equipment to remove, secure, raise or destroy the ship (Section 21(3) of the SPCO).

For any shipping casualties that have occurred within or outside Hong Kong waters and will or may cause imminent pollution in Hong Kong waters, 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) and (3) of the Merchant Shipping (Prevention and Control of Pollution) Ordinance (Cap. 413) (MSPCPO)).

If MARDEP is not satisfied with the measures taken despite the directions that have been issued, it can take 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) of the MSPCPO).

Where a casualty or fatality involving seafarers occurs within Hong Kong waters, MARDEP and its authorised officers have general authority to stop and board the ship at any time to investigate the casualty or fatality (Sections 59(1)(b) and 60 of the SPCO). MARDEP and its authorised officers also have similarly wide powers of inspection and investigation in respect of a Hong Kong registered ship (Section 115 of the Merchant Shipping (Safety) Ordinance). Following these investigations, MARDEP will publish reports with findings and recommendations, with the aim of improving the safety of life at sea.

The 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 ship registration in Hong Kong is the Merchant Shipping (Registration) Ordinance (Cap. 415) (MSRO), together with its subsidiary legislation:

• Merchant Shipping (Registration) (Fees and Charges) Regulations (Cap. 415A);
• Merchant Shipping (Registration) (Ships’ Names) Regulations (Cap. 415B); and
• Merchant Shipping (Registration) (Tonnage) Regulations (Cap. 415C).

There are two types of ship registration in Hong Kong: owner registration and demise charter registration. Only a “qualified person” defined as follows under Section 11(4) of the MSRO may own or operate a Hong Kong registered vessel under demise charter:

• a natural person holding a valid Hong Kong identity card, and who is ordinarily resident in Hong Kong;
• a company that is incorporated under the laws of Hong Kong; or
• a company that is registered with the Hong Kong Companies Registry as a non-Hong Kong company as defined in Section 2(1) of the Companies Ordinance (Cap. 622)).

Therefore, foreigners who wish to own or operate a Hong Kong registered ship under demise charter 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) of the 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 of the MSRO as a vessel that is capable of navigating in water and is not propelled by oars, so a ship will not be registrable by the HKSR until it has been built.

Provisional Registration

Provisional registration of a ship is permissible in Hong Kong under Section 27 of the 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 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: 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. Furthermore, a ship ceases to be registrable in Hong Kong under Section 11(2) of the MSRO if at the time of registration she is registered in a place outside Hong Kong, or subsequently becomes registered in a place outside Hong Kong.

The HKSR is responsible for maintaining mortgage registration. 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 also requires the production of the original or a 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 it is filed and accepted for registration by the HKSR, and not from the date of the instrument.

Where the mortgagor is a body corporate registered in Hong Kong, certified true copies of the ship mortgage and 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 is generally available to the public, and 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 HKD110 for an uncertified transcript of register. The transcript of register is usually obtainable within four hours from the time of application.

Pollution

The International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) and its 1997 Protocol (MARPOL) is applicable in Hong Kong and affects the liability of owners and interested parties for the pollution of waters in Hong Kong. MARPOL is made applicable in Hong Kong through the MSPCPO.

For oil pollution damage in Hong Kong, the following international conventions will affect owners and interested parties:

• the International Convention on Civil Liability for Oil Pollution Damage, 1992;
• the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992, excluding the 2003 Supplementary Fund Protocol; and
• the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2011.

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 require compulsory insurance to be taken out by ship-owners.

Wreck Removal

The Nairobi Wreck Removal Convention 2007, which generally deals with the 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.

However, MARDEP has extensive powers to direct an owner, Master or interested person to take all steps to remove, move, raise, secure or destroy a wreck under Section 21 of the SPCO. Failure to comply with MARDEP’s directions constitutes a criminal offence in Hong Kong.

Furthermore, 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 of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434) (MSLSLO).

Collision

The following international conventions are applicable in Hong Kong and affect the liability of owners and interested parties in the event of a collision:

• the 1910 Collision Convention, which applies in Hong Kong through Sections 2 and 3 of the Merchant Shipping (Collision Damage Liability and Salvage) Ordinance (Cap. 508); and
• the Collision Regulations (COLREGS), which apply in Hong Kong through the Merchant Shipping (Safety) (Signals of Distress and Prevention of Collisions) Regulations (Cap. 369N).

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 the owners of any other ships at fault.

The COLREGS contain detailed navigational or traffic rules to be obeyed by ships for avoiding and/or reducing the risk of collisions with other ships. The 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 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 of the 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 on Salvage 1989 (Salvage Convention) is relevant to liability for salvage in Hong Kong, and applies in Hong Kong through Section 9(1) of the 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.

The 1976 Convention on Limitation of Liability for Maritime Claims (LLMC) is applicable in Hong Kong through the MSLSLO. The LLMC enables owners and salvors to limit their liability for any damage to property, loss of life or 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 the limitation of liability by owners and salvors. However, the limits of liability under the LLMC have also been raised considerably.

Requirements for Establishing a Limitation Fund

Limitation funds may be instituted in the CFI under Sections 12A(1)(b) and 12A(3)(a)(vi) of the HCO, and pursuant to the provisions of the MSLSLO 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 types of claims that may be subject to limitation (see Article 2 of the LLMC) include claims for:

• damage to property;
• loss of life or personal injury;
• delay in carriage of cargo, passengers or luggage; and
• wreck removal.

Article 3 of the LLMC sets out claims that are not subject to limitation, including claims for:

• salvage (including special compensation under Article 14 of the Salvage Convention);
• oil pollution damage; and
• nuclear damage caused by nuclear ships.

Procedure

The procedure for the constitution of a limitation fund in the CFI is governed by Order 75 rules 37–43 of the Rules of High Court (RHC). The person seeking relief should be named as plaintiff and is to commence proceedings in the Admiralty list of the CFI 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 Maritime Labour Convention 2006 (MLC) is applicable in Hong Kong through the Merchant Shipping (Seafarers) Ordinance (Cap. 478) and its subsidiary legislation, with the main requirements under the MLC being implemented through the Merchant Shipping (Seafarers) (Working and Living Conditions) Regulation (Cap. 478AF). They provide for the employment standards, health and safety requirements, working standards and living conditions of seafarers.

The Hague-Visby Rules, together with the 1979 Protocol (Hague-Visby Rules), are made applicable in Hong Kong through Section 3 of the Carriage of Goods by Sea Ordinance (Cap. 462) (CGSO). 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 lawful holder of the original bill of lading is entitled to sue (see Section 4(1) of the 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) of the Bills of Lading and Analogous Shipping Documents Ordinance (Cap. 440)).

Recent decisions in both Singapore and the UK 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 thereof. 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.

If and when an appropriate case arises in Hong Kong, the Hong Kong courts are likely to follow the same rigorous approach and analysis adopted by the Singapore and 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 of the CGSO 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 that is caused by any unseaworthiness of the vessel, unless such unseaworthiness resulted from the carrier’s lack of due diligence (Article IV(1) of the Hague-Visby Rules). The carrier is also not liable for damage arising out of events or exceptions that were not within the control of or without the actual fault or privity of the carrier (Article IV(2) of the 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 two units of account per kilogram of gross weight of the goods lost or damaged, whichever is higher (Article IV(5)(a) of the Hague-Visby Rules). The “units of account” referred to here are the Special Drawing Rights (SDR) as defined by the IMF (Article IV(5)(d) of the Hague-Visby Rules), which are converted into national currency based on the rate of exchange set by the Hong Kong Monetary Authority (Section 7(1) of the CGSO). There are often contentious disputes as to what is “loss or damage” (see the English decision in “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) and (g) of the Hague-Visby Rules), but not to lower amounts. The cargo owner 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) of the Hague-Visby Rules).

Under Article III(5) of the 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 indemnify the carrier for all loss, damage and expense arising from or resulting from any inaccuracies in the particulars. If there is any misdeclaration of cargo, the carrier will be entitled to bring a claim against the shipper under 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 one year from the date of delivery of the cargo or from the date when the cargo should have been delivered. However, this time limit may be extended by the parties by mutual agreement (see Article III(6) of the 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 of the 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, 1952. Ship arrest is given effect in Hong Kong through Sections 12A and 12B of the HCO. These provisions set out which claims fall within the Admiralty jurisdiction of the CFI, and provide for the mode by which the court’s in rem jurisdiction may be invoked by a claimant.

The following maritime liens are recognised in Hong Kong:

• damage done by a ship;
• salvage;
• Master and crew wages and disbursements; and
• bottomry and respondentia (both outdated).

Maritime liens for indemnities for crew injuries are not recognised in Hong Kong.

Maritime liens should not be confused with maritime claims, which is a broad term referring to both maritime liens and statutory lien claims (the list of statutory liens is more fully set out in Section 12A of the HCO).

Maritime liens are a creature of common law, and will “attach” to the res (ie, the ship) from the time a cause of action accrues until such time as a writ is issued.

Statutory liens will “attach” when the ship is arrested in an action in rem arising out of a statutory claim. Claims arising out of ship chartering contracts that fall within the Admiralty jurisdiction of the CFI may give rise to statutory lien claims (Section 12A(2) of the HCO). For example, any claim for loss of or damage to goods carried in a ship or any claim arising out of an agreement for the carriage of goods or to the use or hire of a ship are in the nature of statutory lien claims.

Maritime liens will survive any change in vessel ownership (in other words, a writ may still be issued against a ship in respect of a maritime lien, notwithstanding any change in vessel ownership); see Section 12B(3) of the HCO. Statutory liens are different from maritime liens, in that they do not survive any change in vessel ownership. Where a plaintiff has a statutory lien claim against a ship but beneficial ownership of the ship had changed prior to the issuance of the writ, the plaintiff will no longer be entitled to arrest the ship as security (see Section 12B(4) of the HCO).

Furthermore, no sister-ship arrest is possible with maritime liens, as 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 for the owners or demise charterers to be liable in personam before any arrest can be effected. As mentioned in 4.2 Maritime Liens, maritime liens attach to a ship and will remain inchoate until such time as a writ has been issued; this is also applicable for those claims falling within Section 12A(2)(a), (b), (c) or (r) of the HCO.

For statutory liens falling within Section 12A(2)(e)–(q) of the HCO, 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) of the HCO).

A bunker supplier may only arrest the vessel to which bunkers were supplied if they can show that the beneficial owner or demise charterer of that vessel is personally liable on the claim (see Section 12B(4) of the HCO). 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 themselves may not be able to demonstrate that the owner or demise charterer was personally liable to them, and hence may not be entitled to seek the arrest of the vessel.

Time charterers who have contracted with suppliers would generally not have the authority to bind owners or demise charterers to such contracts. Accordingly, suppliers who have contracted with time charterers would not be entitled to seek an arrest of the vessel; see “The Yuta Bondarovskaya” [1998] 2 Lloyd's Rep 357 and “The J Faster” [1999] HKLRD (Yrbk) 26. Owners or demise charterers also often assert the “no lien” clause in their time charterparty to deny any liability for the supplier’s claim. However, it is to be noted that, in London Arbitration 28/22, the tribunal held that both time and bareboat charterers were jointly and severally liable to pay for bunkers stemmed by time charterers.

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) of the RHC), but a person who causes a ship to be arrested despite the existence of a caveat without good and sufficient reason may be ordered to pay damages (Order 75 rule 7 of the RHC).

Court documents may be submitted to the CFI in either English or Chinese. However, in practice, shipping matters in Hong Kong are usually conducted in English, given the international nature of the industry and the counsel and solicitors involved. Where the documents submitted are not in the same language as those of the proceedings, translations will be required.

An arresting party does not need to furnish any security, except for the undertaking to the bailiff for the arrest cost and expenses.

It is possible to arrest bunkers and freight in Hong Kong. Section 12B(2) and (3) of the HCO allow “property” other than a ship to be arrested as security, but the circumstances under which bunkers and freight can be arrested are 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 ship-owner 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 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 HCO. It is to be noted that sister-ship arrest is not the same as associated ship arrest, 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 have to prove that:

• there is a good arguable case against the defendant;
• the defendant has assets within the jurisdiction;
• there is a real risk that the defendant will dissipate or dispose of its assets unless restrained by a court order; and
• the balance of convenience lies in favour of granting the injunction.

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:

• cash payment into court;
• letters of guarantee or undertakings issued by reputable banks or P&I Clubs; and
• bail bonds in the form set out at Form No 11, Appendix B of the RHC issued by reputable banks or corporations.

Any party that has an interest in an arrested ship may apply for a judicial sale, either 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, except in exceptional circumstances (see “The Margo L” [1998] 1 HKC 217). Other common law jurisdictions, such as Singapore and the UK, have adopted a similar approach in generally not permitting the direct judicial sale of vessels; see “The Turtle Bay” [2013] SGHC 165 and “The Sea Urchin” [2014] SGHC 24 in Singapore, and the decision of Teare J in “The Union Gold” [2013] EWHC 1696 in England.

If the owners or demise charterers of the ship do not pay for the costs of maintaining the arrest during the course of 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 the 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 open all sealed bids and decide if any 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. Closing usually takes place within one week from the date on which any bid is accepted by the court.

Upon the 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 sale proceeds 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 is as follows:

• port dues;
• bailiff’s costs and expenses incurred in connection with the arrest, preservation and sale of the ship;
• costs of the producer of the fund – ie, the costs of the party that applied for the arrest and sale of the ship;
• maritime lien claims;
• possessory lien claims;
• mortgages;
• statutory lien claims; and
• all other claims.

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 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 of the 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.

• Where a Hong Kong company has been wound up by the CFI, the company’s ships are not susceptible to arrest and sale in Hong Kong (as there is an automatic stay of proceedings), unless the in rem writ was issued against the company’s ships prior to the grant of the winding-up order (Section 183 of the CWUMPO and the English Court of Appeal decision in Re Aro Co Ltd [1980] 1 Ch 196).
• There is no automatic stay of proceedings for foreign liquidations in Hong Kong – a foreign liquidator will have to apply to the Hong Kong courts for recognition and assistance. In Re Joint Official Liquidators of Centaur Litigation SPC (in liquidation) (unreported, HCMP 3389/2015, 10 March 2016), Harris J proposed a standard order that will normally be granted to foreign liquidators, in which it was proposed that no action or proceeding shall be commenced against the company in Hong Kong, including its assets, except with permission of the court, for as long as the company remains in liquidation in the foreign jurisdiction. This amounts to an effective stay of proceedings and execution against the foreign company’s assets in Hong Kong.
• Where an in rem writ was issued prior to the grant of a winding-up order but the arrest of the vessel has not yet been effected, the plaintiff will be required to obtain leave of the court to continue with the in rem proceedings as a secured creditor (see Re Aro Co Ltd [1980] 1 Ch 196).
• Where corporate rehabilitation proceedings are ongoing and no winding-up order has been made against a company, a creditor is not prevented from arresting and selling the ships that are owned by the company undergoing corporate rehabilitation (as mentioned, no automatic moratorium is granted in respect of schemes of arrangement). However, creditors will still need to be mindful of the potential impact of the Singapore decision in Re Taisoo Suk, which, while not binding on a Hong Kong court, could be persuasive insofar as a Hong Kong court may consider that it has inherent discretion to order a stay of proceedings in aid of foreign rehabilitation proceedings.

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, so the threshold for proving wrongful arrest is 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 MSLSLO. 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 LLMC is given effect in Hong Kong through the MSLSLO, and limits the liability of 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 of the LLMC) and in all other cases based on the tonnage of the ship (Article 6 of the LLMC).

The above applies to the international carriage of persons and not to the domestic carriage of persons. For the domestic carriage of passengers that results in death or personal injury due to negligence, the carrier is not entitled to limit liability (see Section 7 of the Control of Exemption Clauses Ordinance (Cap. 71)). Liability for the personal injury of passengers is a maritime claim in Hong Kong under Section 12A(2)(f) of the HCO, but is not otherwise a maritime lien.

Generally, the Hong Kong courts will recognise and give effect to valid choice of law and jurisdiction clauses stated in bills of lading. The Hong Kong courts will uphold exclusive jurisdiction clauses 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) of the Arbitration Ordinance (Cap. 609) (AO)).

The 1958 New York Convention is applicable in Hong Kong through Section 87 of the AO. 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 AO, 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 AO, 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, a Mainland Chinese award nor a Macau award can be enforced in Hong Kong through Section 84 of the AO. 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) of the HCO and Section 20 of the AO). A ship may also be arrested even after a foreign arbitral award has been issued but said award remains unsatisfied ([2014] 4 HKLRD 160), provided that the in rem action is commenced in respect of the original maritime claim and not the foreign arbitral award.

However, the position may be different where foreign court proceedings are concerned. There is considerable doubt as to whether it is possible to arrest a ship in Hong Kong as security in aid of a foreign judgment. Unlike the UK, Hong Kong does not have a provision equivalent to Section 26 of the Civil Jurisdiction and Judgments Act 1982, which allows security to be retained for the satisfaction of a foreign judgment.

In the context of a stay of proceedings jurisdiction, however, the Hong Kong courts may order that a plaintiff is entitled to retain any security obtained in the in rem action for the 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). If the terms of the foreign judgment are not 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.

The Hong Kong Maritime Arbitration Group (HKMAG), which was originally part of the Hong Kong International Arbitration Centre (HKIAC), became an independent organisation to hear maritime disputes as of March 2019. 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:

• HKIAC;
• the China Economic and Trade Arbitration Commission, Hong Kong (CIETAC Hong Kong); and
• the 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 RHC. Where proceedings are commenced in breach of an arbitration clause, the defendant may seek a stay of the proceedings under Section 20 of the AO.

Owners operating a Hong Kong registered ocean-going vessel are exempted from the payment of taxes in respect of their shipping income; see Section 23B of the Inland Revenue Ordinance (Cap. 112).

Whether the COVID-19 pandemic can relieve a party in breach of a contract as a 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 owing to the effects of the pandemic may be relieved of its obligations, but that would depend on:

• whether a party had inserted a force majeure provision into its contract, in the absence of which only the doctrine of frustration is available;
• whether the pandemic was foreseeable or known at the time the contract was entered into;
• the specific wording of any COVID-19 clause that has been incorporated into the contract, and the reliefs to which COVID-19 gives rise; and
• the extent to which the pandemic had impacted upon a party’s non-performance of the contract and the extent to which it had rendered the contract incapable of performance or materially changed performance under the contract.

The pandemic has currently affected the world for more than four years (as of January 2024), 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 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. The Hong Kong courts are generally slow to find that COVID-19 constitutes a force majeure event or a frustrating event, as 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; Vember Lord Ltd v Swatch Group (Hong Kong) Ltd [2023] HKCA 371; Sunbroad Holdings Ltd v A80 Paris HK Ltd [2022] 6 HKC 155; and Great Pacific Investments Ltd v 张华荣 [2023] HKEC 2240.

IMO 2020 has been implemented in Hong Kong through the Air Pollution (Fuel for Vessels) Regulation (Cap. 311AB). This legislation 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 commits a criminal offence and will be liable on conviction to a fine of HKD200,000 and to imprisonment for six months (Section 5 of the Air Pollution (Fuel for Vessels) Regulation (Cap. 311AB)). Defences 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 the United Nations Sanctions Ordinance (Cap. 537).

The ongoing trade war between China and the United States has resulted in both trade and political sanctions being 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, nor the politics of the Russia–Ukraine war and the sanctions imposed in relation to that. In October 2022, MARDEP issued a 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 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 is not in close geographical proximity to Ukraine or Russia, and has limited trade relations with Ukraine. Some maritime activities may be impacted by reason of blockades, disruption to trade routes, and ships being stranded in conflict areas. It follows that claims for frustration of shipping contracts, late or non-delivery, the deterioration of goods and the constructive total loss of goods, particularly for perishables, are expected.

In Linde GmbH v Ruschemalliance LLC [2023] HKEC 3716, disputes arose due to non-performance of work under a contract for the engineering, procurement and construction of a gas processing plant, following sanctions against Russia. The Hong Kong courts upheld an interim anti-suit injunction restraining the defendant from continuing proceedings in the Russian courts brought in breach of an agreement to arbitrate 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. Qualifying profits derived from ship-leasing management activities can also enjoy tax concessions.