A recent case in the Singapore High Court has clarified the applicable interest rates to be provided for, where a limitation fund is constituted in Singapore by an LOU from a P&I Club, reports UK Club.
The Convention on Limitation of Liability for Maritime Claims 1976 set uniform rules relating to the limitation of liability for maritime claims. But the Convention is not a complete code. It is for example silent on:
- the interest rate to be applied in computing the interest from the date of the occurrence giving rise to the liability until the date of the constitution of the limitation fund and
- whether a limitation fund constituted by producing a guarantee (or a letter of undertaking from a P&I Club (LOU)) should provide for interest in respect of the period after the constitution of the limitation fund.
In the case of AS Fortuna Opco BV and another v Sea Consortium Pte Ltd and others  SGHC 72 the Plaintiffs (one of whom was the registered owner of the AS Fortuna) sought to limit their liability and constitute a limitation fund in respect of claims arising from the running aground of the vessel at Ecuador on or around September 13th 2018.
One of the issues in dispute was the applicable interest rate to be provided for in the LOU in respect of the period after the constitution of the limitation fund.
Besides accepting that a pre-constitution interest rate of 5.33% per annum was appropriate, the High Court also held that an appropriate post-constitution interest rate would be 2.5% per annum.
It observed that:
- Pursuant to Article 14 of the Convention, where the Convention is silent, rules relating to the constitution of a limitation fund are governed by the law of the State in which the fund is constituted.
- For an LOU to be adequate or acceptable, it should place the claimants in a position no worse than if the limitation fund had been constituted by payment into court.
- The LOU should therefore provide for post-constitution interest at a rate which approximates the interest which could be earned on a limitation fund paid into court during the period that the fund remains in court.
- Limitation funds paid into court had not earned any interest in the past as there was no direction in previous orders to deposit the moneys in an interest bearing bank account. There is no reason why such a direction should not be made in relation to limitation funds paid into court, so that claimants are not short-changed by the failure to earn interest while the limitation fund remains in court.
- Considering the amount of interest earned previously on moneys paid into court pursuant to other types of applications, 2.5% per annum is an appropriate post-constitution interest rate.
UK Club observed that this case was “a helpful reminder that under Singapore’s procedural rules, a person seeking relief in a limitation action may constitute a limitation fund either by making payment into Court under an order of the Court, or by producing an LOU from a P&I Club acceptable to the Court”.