This case concerned the scope and distribution of a limitation fund constituted under § 177 of the Maritime Code after an oil spill incident. The question was whether the dividends to creditors are only to be calculated from the amount allocated under § 232(1)(a) of the Maritime Code - the 'liability amount' - or whether the 'interest component' should be included in the distribution base.

The bulk carrier Full City ran aground off Langesund on 31 July 2009. The ship's proprietor was Roc Maritime Inc. The managing owner of the ship was Cosco (HK) Shipping Co Ltd. The liability insurer was the London Steam-Ship Owners Mutual Insurance Association Ltd. These parties will be collectively referred to as the 'owner'.

The accident resulted in a leak of bunker oil, polluting a shoreline of 57 kms from Stavern to Lillesand. The State's claim for approximately NOK 240 million for the clean-up operation that was immediately initiated is not disputed. The State also claimed interest of approximately NOK 21 million calculated based on the Court of Appeal's judgment, which gave a total claim of approximately NOK 261 million. The owner has filed a claim against the fund in excess of NOK 32 million. Thus, the total claim in the case is approximately NOK 293 million.

On 2 November 2012 the Oslo District Court constituted, upon the owner's request, a limitation fund under § 177 of the Maritime Code. As set out in the District Court's ruling, the parties agreed that the liability amount under § 232(1)(a) of the Maritime Code was 22,936,500 Special Drawing Rights (SDRs). On 20 November 2012, the appointed fund manager received an amount in excess of NOK 200 million, which corresponded to the SDRs with the exchange rate applicable at that date. The parties also agreed to allocate NOK 62 million for payment of interest, and security was given for this. The total amount is thus roughly NOK 259 million, which means that the coverage for the claims against the fund was inadequate. As agreed by the parties, the fund manager paid NOK 170 million on account to the State in December 2012.

The dispute revolves around the calculation of the dividends. The State contends that this amount must be calculated from the total amount allocated under s 232(1); that is, NOK 259 million. The owner contends that the dividends can only be calculated from the amount allocated under s 232(1)(a): that is, NOK 200 million. In the owner's view, the interest component of NOK 62 million is to cover interest only before any excess amount is reallocated.

The owner appealed to the Supreme Court against the distribution of the limitation fund, and against the State being awarded interest on loss-of-use damages. The appeal concerns the application of the law. The State submitted a derivative appeal in terms of the interest rate applied in terms of loss-of-use damages. On 5 January 2018, the Supreme Court's Appeal Selection Committee granted leave to appeal regarding the distribution of the limitation fund under §§ 232(1)(a) and (b) of the Maritime Code. All other aspects of the appeal, as well as the derivative appeal, were rejected. The State's right to interest on loss-of-use damages is thus final and enforceable.

Held: The owner's appeal is allowed. The creditors' claim for dividends in the limitation fund is limited to the amount allocated under § 232(1)(a) of the Maritime Code (ie, the liability amount, not including the interest component).

As a starting point, the State is entitled to be compensated in full for its outlays in connection with the oil spill operation following the shipwreck: see eg § 76 of the Pollution Act. However, the provisions on the right to limitation of liability in ch 9 of the Maritime Code change this starting point materially. Section 171 establishes that the shipowner 'can limit his or her liability according to the provisions of this chapter'. Further conditions for limitation of liability are presented in the subsequent provisions of the same chapter. Here, specific amounts to which the liability can be limited are mentioned.

It is undisputed that the owner is entitled to limitation of liability for the claims submitted. The invoked - and accepted - legal basis for this in the case at hand is § 172(a). The liability is limited according to § 175(a) and is some NOK 200 million. Section 173 lists which claims are excepted from limitation, including claims relating to 'interest and legal costs': see § 173(6). This is the only place where interest is mentioned in the substantial provisions. The Code contains no other exceptions from the right to limitation than those in § 173.

The right to limitation applies irrespective of whether a limitation fund is constituted under § 180(1). According to § 176, the limitation amount is to be 'distributed among the claims to which limitation applies in proportion to the amounts of the proven claims'. This provision, too, applies irrespective of whether a limitation fund has been constituted. What is distributable according to the provision is thus the limitation amount, nothing else.

The starting point of the Code is that the owner has an unconditional right to limitation of liability for the submitted claims if the conditions - as in this case - are met. The natural interpretation based on these provisions is that it is a question of maximum liability. The owner's liability must not exceed the fixed limitation amount of, in the case at hand, approximately NOK 200 million.

The question is whether the constitution of a limitation fund can change this starting point. According to the legal basis for the constitution of a limitation fund - § 177 of the Maritime Code - such a fund 'may be constituted' if an action is brought or arrest is applied for. According to the final subsection, '[m]ore detailed provisions relating to limitation funds and limitation actions are laid down in chapter 12'. Chapter 12 - § 231- starts by stating that the provisions apply to 'limitation funds constituted according to section 177 (global funds)', ie a fund like in the case at hand.

Section 232(1) and (2), headed 'Amounts of funds', reads:

The global fund shall correspond to
a) the total of the amounts which according to section 175 or section 175a are the limits of the liability for the claims for which limitation of liability is being invoked and which arose from one and the same event, and
b) interest on the amounts mentioned under letter a for the time from the event to the constitution of the fund ...

A fund constituted according to section 175a shall equal the full amount of liability there, unless the fund is constituted as a supplementary fund according to section 178a subsection 2.

Limitation of liability has a long history in maritime law, and has long been based on international and Nordic co-operation. The provisions adopted in 1982 - which have been continued in the current Code - implemented the LLMC 1976 into Norwegian legislation. Article 11 of the Convention is headed 'Constitution of the fund'. Article 11.1 reads:

Any person alleged to be liable may constitute a fund with the Court or other competent authority in any State Party in which legal proceedings are instituted in respect of claims subject to limitation. The fund shall be constituted in the sum of such of the amounts set out in Articles 6 and 7 as are applicable to claims for which that person may be liable, together with interest thereon from the date of the occurrence giving rise to the liability until the date of the constitution of the fund. Any fund thus constituted shall be available only for the payment of claims in respect of which limitation of liability can be invoked.

Section 232(1) of the Maritime Code is largely a reproduction of the second sentence in art 11.1. Articles 6 and 7 concern the limits of liability. These are found in §§ 175 and 175(a) of the Maritime Code. This part of art 11 throws no new light on how the fund is to be distributed, considered against the provisions on limitation of liability. On the other hand, the last sentence of art 11.1 stating that the fund 'shall be available only for the payment of claims for which the limitation of liability can be invoked', may indicate that the interest component was not meant for payment of ordinary claims subject to limitation. Article 12 is headed 'Distribution of the fund'. Article 12.1 reads: 'Subject to the provisions of paragraphs 1, 2 and 3 of Article 6 and of Article 7, the fund shall be distributed among the claimants in proportion to their established claims against the fund.'

The current § 244 absorbs this provision. The wording of the article does not contribute to clarifying the ambiguity in the Norwegian text. Here too, much suggests that the idea is to refer to the provisions on priority etc, not to clarify whether the entire, or just parts of, the fund is to be distributed. There is no Norwegian case law of relevance to this case. The parties have also not presented any foreign case law that may shed light on the interpretation of the Convention in the disputed matter.

Extensive preparatory works to the provisions in the Convention exist. However, they do not contribute to resolving the dispute in our case. Much indicates that the ambiguity that has emerged had been identified during the drafting of the Convention, but that the solution had to be governed by national legislation according to art 14: 'Subject to the provisions of this Chapter the rules relating to the constitution and distribution of a limitation fund, and all rules of procedure in connexion therewith, shall be governed by the law of the State Party in which the fund is constituted.'

It is primarily the report from the Maritime Law Committee - Norwegian Official Report 1980: 55 - that is interesting. The State has singled out one statement from the special motives to support its view. In the comments to the section that is now § 232, the Committee stated on p 50 that the provision 'corresponds to the 1976 Convention's Article 11 no. 1'. Then it is stated that subsection 1 'indicates the size of the global fund', and that the fund is primarily to consist of the sum of the amounts constituting the limitation. The following is stated on p 51:

Secondly, interest must be added to the abovementioned amount, accrued on the amount for the period from the accident to the fund's constitution and calculated based on an interest rate stipulated according to section 3 of the Interest Act. This provision is new and entails that the liable party will not obtain an interest advantage by delaying the fund's constitution. This interest amount is, as mentioned, a part of the fund, and the amount must be kept apart from the additional amount mentioned in section 353 subsection 2 [now section 234 subsection 2] of the Committee's proposed text. The additional amount under section 353 constitutes, among other things, security for the liability according to general legal provisions on interest accrued on each individual claim for the period from the fund's constitution to payment is made; this interest is calculated based on the amount paid to the individual creditor after the fund has been distributed on all claims.

The Code is vague as to whether the fund's two parts are to be merged when calculating the creditors' dividends. The consideration stressed - that the liable party otherwise will obtain an interest advantage by delaying the fund's constitution - is probably best taken if interest is added to the distributable amount. But to which extent the interest rule will be an incentive to constitute a fund rapidly will depend on a number of circumstances, including the linkage between market interest and default interest and the currency risk related to SDR rate fluctuations. In any case, the consideration stressed in the preparatory works cannot prevail over the statutory rules on the right to limitation.

There are also no clear answers to the question in other statements in the preparatory works.

The provisions on limitation funds in ch 12 of the Maritime Code must be interpreted to mean that when the fund is not sufficient to cover all claims, the creditors' dividends are only to be calculated from the amount allocated under § 232(1)(a) of the Maritime Code - the 'liability amount'. Amounts allocated for payment of interest under § 232(1)(b) are not included in the distribution base. This amount is exclusively allocated for payment of interest. The owner's view is hereby supported, and the appeal must succeed.