The Federal Court has refused to allow legal action in Australia over two ships that collided in Chinese territorial waters.

Justice Sarah Derrington ordered a permanent stay of the proceedings, saying China is the obvious natural forum for the dispute.

Action is under way at Shanghai Maritime Court over the collision in December 2024 between the Yangze 22, carrying chemical fertiliser, and the Vega Dream, carrying iron ore, in the inbound lane to the Port of Shanghai.

The Vega Dream’s owner, Mitsui OSK Lines, and bareboat charterer, Protea Navigation, sued the Yangze 22 and its owner, Nebula, for damages in Australia.

Nebula is suing the other parties for damages in Shanghai.

Justice Derrington says the dispute arose because of the difference in limitation funds between Australia and China, but she rules Australia’s higher limit “is not an overwhelming factor”.

Australia’s Limitation of Liability for Maritime Claims Act, which caps a shipowner’s liability from a single incident, would set the limit at about $48.7 million.

China’s limit would be about $13.46 million.

Nebula began proceedings at Shanghai Maritime Court to establish a limitation fund and Justice Derrington says 14 parties, including environmental and clean-up agencies, have registered claims against the fund.

Nebula also successfully applied to the court in January last year to detain the Vega Dream. The ship was released when Ping An Property and Casualty Insurance provided security by a letter of undertaking.

Mitsui OSK and Protea applied to have the Yangze 22 detained at the Port of Newcastle in May last year. The ship was released the following month when conditional security was provided.

Chinese courts have rejected Mitsui and Protea’s applications that legal action should be heard in Australia.

In ordering a permanent stay of proceedings, Justice Derrington said: “The risk of inconsistent findings as to liability, apportionment and quantum should both this court and the Shanghai Maritime Court proceed to determine liability for the collision is obvious.”

Read the judgment here.