In 2004, the ship Asian Atlas, then named American Cormorant, had collided with a launchway belonging to Northrop Grumman Ship Systems Inc (the plaintiff). Cormorant Shipholding Corp (Cormorant) and Osprey Ship Management Inc (Osprey) were, respectively, the owners and operators of the Asian Atlas at the time of the collision.

In 2005, the Asian Atlas was sold to Master View Co Ltd, which in turn sold the Asian Atlas to the present owners, Asian Atlas Ltd (the defendant).

In 2006, Cormorant and Osprey commenced proceedings in a US District Court against, among others, the plaintiff and the compulsory pilots who had been on board the Asian Atlas at the time of the collision. In these US proceedings, Cormorant and Osprey claimed damages for the repairs that were carried out to the Asian Atlas and also claimed for the loss of hire and earnings for the period that the Asian Atlas was under repair. The plaintiff subsequently filed an in rem claim in the US proceedings against the Asian Atlas, claiming an indemnity in the event that the plaintiff was held liable to Cormorant and Osprey in the main action. The plaintiff's position was that the damage was caused by the fault of the compulsory pilots, and that the Asian Atlas would therefore be responsible under US law. Service on the Asian Atlas was not possible in the US proceedings.

In 2007, the plaintiff arrested the Asian Atlas when it called at Hong Kong. The plaintiff's writ in rem pleaded a similar claim for indemnity (the indemnity claim) and a separate claim for damages for damage caused by the Asian Atlas to the plaintiff's launchway (the damage claim). The defendant then applied to set aside the warrant of arrest. The defendant argued that there was no jurisdiction to arrest the Asian Atlas for the indemnity claim because it did not give rise to a statutory right of action in rem under s 12A(2)(e) of the Hong Kong High Court Ordinance (HCO). As for the damage claim, the defendant argued that there was material non-disclosure of a relevant fact.

The High Court dismissed the defendant’s application. Waung J held that the indemnity claim fell within s 12A(2)(e) of the HCO and that there was no material non-disclosure. The defendant appealed.

Held: Appeal allowed. Warrant of arrest set aside.

In relation to the damage claim, the Court found that the admiralty jurisdiction of the Court should not have been engaged. First, the plaintiff did not provide full particulars of the damages sought and was unable to quantify any damage. There was insufficient evidence to support a bland statement of the alleged cost to repair the launchway. The plaintiff had years to gather evidence but did not explain why details were not provided. Second, the plaintiff failed to disclose that the launchway had not been in use for 36 years. Thus, there was material non-disclosure of the facts. The Court could have taken the view that the damage claim was not a real claim if there had been full disclosure of the facts.

In relation to the indemnity claim, the Court found that there was no jurisdiction to arrest the Asian Atlas as the indemnity claim did not fall within s 12A(2)(e) of the HCO. In doing so, the Court had to interpret the ambit of s 12A(2)(e) of the HCO, ie the phrase 'any claim for damage done by a ship'. The Court stated that assistance can be gained from the relevant case authorities and art 1.1.a of the Arrest Convention 1952, ie the phrase 'damage caused by a ship either in collision or otherwise'.  In The Eschersheim [1976] 1 WLR 430, 438 (HL), Lord Diplock said:

The figurative phrase 'damage done by a ship' is a term of art in maritime law whose meaning is well settled by authority. ... To fall within the phrase not only must the damage be the direct result or natural consequence of something done by those engaged in the navigation of the ship but the ship itself must be the actual instrument by which the damage was done. The commonest case is that of collision, which is specifically mentioned in the Convention: but physical contact between the ship and whatever object sustains the damage is not essential - a ship may negligently cause a wash by which some other vessel or some property on shore is damaged.

The Court held that, for s 12A(2)(e) of the HCO, the relevant damage must be caused by something done physically or directly by the ship itself in the course of its navigation or management, and that by definition, such damage must be caused to persons or objects external to the ship. The damage or loss that is caused need not be purely physical. Economic loss might come within s 12A(2)(e) of the HCO. Further, a claim for an indemnity to third parties or other consequential damage can be included for the purposes of s 12A(2)(e) of the HCO, but such a claim must be consequent upon some damage that has been actually caused by the relevant ship as the instrument of such damage.

The Court also analysed the indemnity claim with reference to the following three requirements set out in The Rama [1996] 2 Lloyd's Rep 281 for 'damage done by a ship': (1) the damage must be caused by something done by those engaged in the navigation or management of the ship in a physical sense; (2) the ship must be the actual or noxious instrument by which the damage is done; and (3) the damage must be sustained by a person or property external to the ship. The Court found that requirement (1) was satisfied because the damage could be said to have been caused by the pilots alone (for whose acts or omissions, according to the plaintiff, the Asian Atlas was responsible). However, the Court found that the indemnity claim did not satisfy requirements (2) and (3) as the damage was caused, not by the Asian Atlas, but by the fault of the pilots, and as the relevant damage was sustained by the Asian Atlas itself. The loss or damage suffered by the plaintiff would originate from the damage to the Asian Atlas itself.

Next, the Court disagreed with the plaintiff’s suggestion that the admiralty jurisdiction is engaged simply because there is a claim in connection with a ship. The Court stated that the admiralty jurisdiction is engaged when one of the specific situations set out in s 12A of the HCO applies, and not otherwise.

Separately, the Court rejected the plaintiff’s attempt to tie or piggyback the indemnity claim onto the damage claim so that, like the damage claim, the indemnity claim would be within s 12A(2)(e) of the HCO. The indemnity claim and the damage claim were quite separate on the facts.

Lastly, the plaintiff also argued that it was unfair that the 'innocent' plaintiff would potentially have to pay damages to the full extent in the US proceedings should the pilots be unable to satisfy the portion of damages for which they were liable. The Court rejected this argument, as fairness and sympathy are irrelevant to construing the meaning and ambit of a jurisdictional provision such as s 12A(2)(e) of the HCO.