Recent developments on establishing a limitation fund in Singapore and the UAE

UK Club has reported on the establishment of limitation funds in Singapore. It noted that under the Convention on Limitation of Liability for Maritime Claims 1976 shipowners could limit their liability in maritime claims by establishing a limitation fund.

This could be achieved either by depositing the sum or by producing a guarantee acceptable under the legislation of the State Party where the fund was constituted, and considered to be adequate by the court or other competent authority.

In Atlantik Confidence [2014] EWCA Civ 217, the English Court of Appeal overturned the High Court’s decision that a limitation fund must be constituted by cash payment into Court, holding instead that English law allowed a limitation fund to be constituted by way of a guarantee, including a P&I Club Letter of Undertaking (“LOU”).

There had since been recent developments in Singapore and the UAE in relation to allowing limitation funds to be constituted by way of P&I Club LOUs.

With effect from February 1st this year Singapore’s Rules of Court were amended to allow a person seeking relief in a limitation action to constitute a limitation fund either by making payment into Court under an order of the Court, or by producing a LOU from a P&I Club acceptable to the Court.

In applying for a limitation decree, commentaries have suggested that, in addition to annexing a draft LOU wording to the summons application for review and confirmation by all parties, the P&I Club should file an affidavit demonstrating its financial capability to meet its obligations under the LOU.

In the UAE, prior to the judgement in Claim No. DWT-0001-2017 issued in January 2018, there had apparently been no reported limitation funds established. In the January 2018 case, the Dubai World Tribunal (a special tribunal established to deal with insolvency proceedings relating to Dubai World and its subsidiaries) was not satisfied that the Dubai Courts would reject a P&I Club guarantee and confirmed that a P&I Club LOU was sufficient to establish a limitation fund in the DWT.

Given that this was a judgement by the special tribunal, UK Club said that it remained to be seen how this decision would affect the practice of the onshore courts in the UAE, especially since there were suggestions that the onshore courts in the UAE had been unwilling to grant limitation decrees or permit limitation funds to be constituted, even in obvious cases.

The Club said that the increasing willingness by jurisdictions to accept P&I Clubs’ LOUs to constitute limitation funds was a welcome trend for shipowners and P&I Clubs. The practical advantages of using a P&I Club’s LOU as opposed to making a cash payment into Court were that it was a much quicker and considerably less expensive way to establish a limitation fund, without having to tie up cash reserves in court. (Wednesday 4th December 2013)