1.5 The effects of the shipowner’s limitation fund
1.5.1 An option for the shipowner
The provisions on limitation funds in the 1996 Convention Articles 11 to 14 are implemented in Norwegian law by MC §§ 176-178, 232-234 and 244-245 as supplemented by MC §§ 235-243. Notwithstanding the restructuring of the limitation regimes for maritime claims, the basis for all the new regimes is still the principle of aggregation of claims. Each of the new legal limits applies to the sum of all claims subject thereto, arising from damage caused by the ship in any one event. Hence, the vehicle for enforcing each limit by actual limitation of the various limitable claims continues to be a limitation fund established by or on behalf on the shipowner (infra 1.1), having the effect of barring separate legal actions from claimants (1996 Convention Article 13, MC §§ 178, 178a, 189 and 196). As a matter of substantive law, claimants may, subsequent to the establishment of the limitation fund by the shipowner, only enforce limitable claims by submission to the limitation fund and subject to the rather time-consuming fund procedure (infra 4.2). This follows from MC §§ 177 to 178a
If, after a casualty, a particular action brought against the shipowner relates to a limitable claim, the shipowner has the option to invoke limitation of liability in that action (1996 Convention Article 10, MC § 180) or to request that a limitation fund be established (1996 Convention Article 11, MC § 177, paragraph 1). This option is important in the context of limitation of liability. When deciding the particular action to be brought, the court shall ordinarily apply the rules on limitation of liability invoked only in relation to the claims actually included in that action. The resulting judgment, however, is of no consequence for the extent of limitation of any other claims arising out of the same casualty, and the shipowner still has a risk that enforcement of such other claims may entail that the total liability for all the claims from the casualty exceeds the applicable legal limit. The shipowner, however, may eliminate this risk if instead he reacts to the action brought, by invoking limitation with a request for establishment of a limitation fund. The fund covers all the claims arising out of the casualty (1996 Convention Articles 11 and 12, MC §§ 176 and 244), preventing all claimants from pursuing their claims by separate legal actions (1996 Convention Article 13, MC § 177, paragraphs 1 and 3).
For the claimants, however, the establishment of a limitation fund is, as a matter of law, not equivalent to actual payment of the limitable claims. The immediate effect is postponement of all payments of compensation to injured parties. The overall purpose of the limitation fund and the fund procedures is to safeguard the legal right of the shipowner to limitation of the total liability for all claims arising out a particular casualty. This limitation model requires that the claims subject to limitation only receive payments in the form of proportionate dividends from the limitation fund, subsequent to the completion of a comprehensive fund procedure to determine the distribution of the fund. Accordingly, there is also a need for statutory requirements ensuring that limitations funds be established and distributed in an orderly manner.
A key element of the statutory requirement is that the limitation fund be established by a decision of the court (MC § 234) which also determines, according to MC § 232, the actual amount in national currency to be paid into the limitation fund. Second, the amounts paid into the limitation fund must be exclusively applied to payment of compensation to the limitable claims (MC § 177, paragraph 2). Third, distribution of the amount of the limitation fund is the subject of a “limitation action” brought before the court by the shipowner against all claimants and determined as and when the court decides this action by the judgment(MC §§ 177, paragraph 3, and 240). The effect of this judgment is to terminate the fund procedure, to authorize the payment of dividends to established claims, and, ultimately, to relieve the shipowner of any further liability in respect of the casualty (MC §§ 244 and 245).
1.5.2 The legal effect of «global» limitation
The “global” limitation model means that actual legal effects of each of the limitation regimes are determined within the framework of rules generally applicable to all limitation funds set out in MC chapters 9 and 12 (MC § 231-232, cf. §§ 177, 185, 194-196 and 505). Ordinarily, the fund procedure set out in MC §§ 177 and 232 – 245 entails considerable, often yearlong delays in settlement and payment of compensation to limitable claims (infra 4.2). In most cases, the effects thereof are to the advantage of the shipowner and his liability insurer having the option of requesting the limitation fund be established (MC § 177). While the limit of liability is expressed in SDRs, the amount of the limitation fund in national currency is determined by the rate of exchange for SDR when established (MC § 232-234 and 505). Hence, the fund expressed in national currency usually proves to decline in real value during the lengthy delay caused by the fund procedure, particularly due to continuous inflation. Benefits may also follow from the mere postponement of payment of claims until the closing of the fund procedure, also including a possible decline in monetary value.
For the claimants, however, the delay resulting from the fund procedure is also likely to cause additional losses, particularly for parties having suffered damage not covered by their own direct insurance. Such claims are not subject to limitation (MC § 173, paragraph 3) as claims against the limitation funds. One part thereof – loss due to change of exchange rates or decline in monetary value during the period from the casualty to the establishment of the fund – is compensated by a specific addition to the amount of the limitation fund when established, calculated at a normal interest rate (1996 Convention Article 11, paragraph 1 and MC § 232). In addition, the court may, when establishing the limitationfund, also order the shipowner to provide a separate security to cover interest for delayed payment and other financial loss subsequent to the establishment of the fund and until final payment by the distribution of the limitation fund (MC § 234, paragraph 2).
The background is that claims for interest for late payment of dividends on claims, accrued from the establishment of the fund and to actual payment of dividends by the fund when closed, are not subject to limitation (MC § 173 no. 6) and, consequently, are not enforceable against the limitation fund. Generally, any calculation of interest on the amount of dividend payable from the limitation fund or of other financial loss is not possible prior to the judgment of the Court determining the distribution of the fund among the claimants. In any event, claimants awaiting payments, particularly uninsured parties, have to remedy the damage caused at own costs, which – whether financed by own means or by loans – also represents an additional financial loss. All this means that, in general, claims for interest for late payment of dividends to claimants is enforceable only as a separate claim against the shipowner itself subsequent to the closing of the fund procedures (MC § 234, paragraph 2 second sentence). Even when, according to MC § 234, paragraph 2, the Court has ordered the shipowner to provide specific security, claims for interest tend to be left out of any final settlement or determination of the liabilities of the shipowner made several years after the casualty and establishment of the limitation fund, cf. LB-2017-59152 and LB-2019-122748.
In any event, these decisions, and in particular HR-2018-1260-A (Full City), suggest that this pattern of interconnected provisions on the establishment of limitation funds and fund procedures contained in the 1996 Convention and MC Chapters 9 and 12, appears to be too complicated to be readily understood and applied by parties and by courts. (10)