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10 February 2021
Club letters from International Group of P&I Clubs accepted as security
Good fund administrators will facilitate a smooth process
On account payments reduce exposure to interest
Coordination between parallel funds may reduce costs
Beware rules on preclusion
In November 2020 the limitation fund established following the grounding of the Full City near Langesund in 2009 was finally distributed. The limitation fund proceedings, which ran parallel to the proceedings concerning the limitation fund established following the Server casualty in 2007, have helped to clarify several procedural aspects of limitation funds.
The Full City grounding caused a major oil spill, which led to:
This article examines the key takeaways from the limitation fund proceedings now that they have come to an end.
When the limitation fund was established in 2012, the limitation amount was deposited in cash with the district court and fund administrator; a club letter was issued by the vessel's English protection and indemnity (P&I) club as security for interest calculated from the time of the incident until the fund's establishment. The court's acceptance of the club letter as security confirms that such letters are considered adequate security when issued not only by Norwegian insurers (as referred to in the preparatory works to the Norwegian Maritime Code), but also by other reputable insurers, such as non-Norwegian members of the International Group of P&I Clubs. This precedent was followed in another subsequent limitation fund where both the parties and the court permitted a club letter issued by another English P&I club to constitute the limitation fund (the limitation amount and interest).
An experienced maritime lawyer was appointed as fund administrator in this case and his involvement helped to ensure that the proceedings progressed while also giving the parties adequate opportunity to reach an agreement on issues, where possible. In accordance with the procedural rules set out in the Maritime Code, parties can choose to accept the administrator's non-binding preliminary opinion on disputed issues or initiate limitation proceedings. In this case, several procedural issues were solved based on the fund administrator's preliminary opinions. As the fund administrator's final adjustment is used as the basis for the distribution of a fund (unless disputed by the parties), it is important to seek the appointment of a fund administrator who is knowledgeable and neutral and can gain the trust of the parties involved in the limitation proceedings.
Following the Full City and Server limitation fund proceedings, it is clear that interest will be calculated on the claimants' portion of the limitation amount (ie, the dividend) in accordance with the underlying rules on interest, such as interest on overdue payment, deprivation interest or agreed interest. Interest will continue to accrue until payment is made, regardless of whether the limitation amount has been deposited in cash. Since it may take several years for a limitation fund to be distributed, on account payments of undisputed claims will limit the owners' exposure to interest. However, such payments require agreement between the parties in the fund or a court decision.
The only claimants in the Full City limitation fund were the state, which filed a claim for clean-up costs, and the owners and insurers, which filed claims for reimbursement of expenses and costs relating to salvage and clean up and certain subrogated claims. Norway has made a reservation under the Limitation of Liability for Maritime Claims Convention and established separate, higher national limitation amounts for clean-up costs. The owners' own costs are also subject to this higher-limitation amount and they are thus entitled to file a claim for their own costs in a limitation fund. This was similar to the situation regarding the Server limitation fund, which was established six months before the Full City limitation fund, although with different owners and insurers.
Due to numerous similarities between the disputed issues in the two limitation proceedings, it was decided to stay the corresponding aspects of the Full City proceedings pending final and enforceable judgment in the Server proceedings, with the principles set out in the latter judgment being applied to the Full City claims. Meanwhile, issues that were particular to the Full City fund were considered by the fund administrator and proceeded in parallel. Overall, cooperation between the two funds led to a reduction in the state's claim in both funds and significant cost savings. In dealing with late submissions of new legal arguments by the state in the Server fund, the owners and insurers could in turn rely on the principles established in the Full City judgment to support their position.
The Full City and Server limitation proceedings show that those involved in a limitation fund must be prepared for new legal arguments being presented by the claimants up until the final distribution of the fund. This may prolong the proceedings. Unfortunately, there is little that the owners and insurers can do to speed up the process towards the final distribution of the fund if there is a dispute with the claimants. Fortunately, there are three rules on preclusion that apply to reduce delay and abuse of process in limitation proceedings:
In the Full City proceedings, the state sought to bring new and increased interest claims after it had confirmed that it agreed with the fund administrator's adjustment. Therefore, the court of appeal held that the claim was precluded. While the case was settled, it clearly shows that the courts are willing to apply the preclusion rules in order to ensure progress in fund proceedings.
The Full City limitation fund was finally distributed 11.5 years after the incident. Therefore, it is a reminder that the resolution of legal issues following major casualties can be a drawn-out process with several twists and turns, which requires patience from owners, insurers and legal advisers.
For further information on this topic please contact Nina M Hanevold-Sandvik, Gaute K Gjelsten or Morten Lund Mathisen at Wikborg Rein by telephone (+47 22 82 75 00) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Wikborg Rein website can be accessed at www.wr.no.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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