The plaintiffs sought to limit their liability and constitute a limitation fund in respect of claims arising from the running aground of the AS Fortuna off Ecuador in September 2018. The defendants did not contest the plaintiffs' entitlement to limit liability and constitute a limitation fund. They also did not oppose the plaintiffs' application to have the limitation fund constituted by way of an LOU from a P&I Club. The two issues in dispute were: (a) the applicable interest rate to be provided for in the LOU in respect of the period after the constitution of the limitation fund; and (b) the appropriate costs order to be made.

Held: (a) 2.5% per annum would be an appropriate post-constitution interest rate; and (b) the plaintiffs should pay the defendants' costs in relation to: (i) the establishment of the plaintiffs' prima facie right to limit liability pursuant to arts 1, 2 and 3 of the LLMC 1976; (ii) the calculation of the size of the limitation fund; and (iii) the consideration of the adequacy and acceptability of the draft LOU. Each party should bear its own costs in relation to investigative work done to allow the defendants to decide whether to invoke art 4 of the LLMC 1976.

Pursuant to s 136 of the Merchant Shipping Act (Cap 179, 1996 Rev Ed) (MSA), the LLMC 1976 is given the force of law in Singapore (with the exception of arts 2.1.d and 2.1.e). Article 11.1 of the LLMC 1976 provides for a limitation fund to be 'constituted in the sum of such of the amounts set out in Articles 6 and 7 as are applicable to claims for which [the person constituting the fund] 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'. The italicised text refers to pre-constitution interest on the limitation fund. As the LLMC 1976 is silent on the interest rate to be applied in computing this pre-constitution interest, the matter falls, by virtue of art 14 of the Convention, to be governed by the law of the State in which the fund is constituted. In this regard, s 139(1) of the MSA provides that the Maritime and Port Authority of Singapore (MPA) 'may, from time to time, by order prescribe the rate of interest to be applied for the purposes of paragraph 1 of Article 11 of the Convention'. To date, no such order has been made. The question therefore arises as to how the applicable interest rate may be determined in the absence of such an order. Section 139(1) of the MSA is drafted in a permissive rather than mandatory manner. The Court is therefore not precluded, in the absence of an order made pursuant to s 139(1) of the MSA, from determining the pre-constitution interest rate in accordance with the general law, including case law. In Singapore, s 12 of the Civil Law Act (Cap 43, 1999 Rev Ed) leaves the award of pre-judgment interest to the discretion of the Court. In practice, Singapore courts generally award pre-judgment interest at the same rate as the statutory interest rate on judgment debts, which currently stands at 5.33% per annum. In the light of the foregoing, a pre-constitution interest rate of 5.33% per annum is appropriate.

As for post-constitution interest, the issue has to be considered from first principles. As a starting point, the LLMC 1976 is silent on whether a limitation fund constituted by producing a guarantee (or LOU) should provide for post-constitution interest. The only guidance given in the Convention is that the guarantee (or LOU) should be 'acceptable under the legislation of the State Party where the fund is constituted and considered to be adequate by the Court or other competent authority' (art 11.2). In this regard, the relevant Singapore legislation is O 70 r 36A(1)(b) of the Rules of Court (ROC), which provides that the Court may allow a limitation fund to be constituted 'by producing a letter of undertaking from a Protection and Indemnity Club acceptable to the Court'. The question therefore was what provision ought to be made for post-constitution interest in order that an LOU may be 'considered to be adequate by the Court' and/or 'acceptable to the Court'. 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. An LOU ought to make provision 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. There is no need for the Court to go beyond this principle and take into account any higher returns that the shipowner could generate for itself by retaining the use of the moneys representing the limitation fund. The Court’s role in this regard should be focused on ensuring that the claimants are not made worse off by the shipowner’s decision to constitute the limitation fund by production of an LOU.

In future, parties seeking to constitute limitation funds by payment into Court should include a prayer for a direction under O 90 r 12(4) of the ROC in their applications, so that claimants are not shortchanged by the failure to earn interest while the limitation fund remains in Court. In the circumstances, 2.5% per annum is an appropriate post-constitution interest rate. It approximates the actual interest rate obtainable on money paid into Court, with a slight buffer built in so that claimants are not made to bear the risk of interest rate fluctuations while the LOU remains in force.

As to costs, the following principles should apply to costs of uncontested limitation decrees:

1. The shipowner should pay the claimants' costs in relation to those matters for which the burden of proof lies on the shipowner. These would include establishing the shipowner's prima facie right to limit liability pursuant to arts 1, 2 and 3 of the LLMC 1976 and determining the limitation amount pursuant to arts 6 and 7 of the Convention. Where an LOU is used to constitute the limitation fund, it will also include establishing the LOU’s adequacy and acceptability;
2. In respect of matters for which the burden of proof lies on the claimant (eg facts required to break limitation pursuant to art 4 of the Convention), while the claimant is entitled to seek and be given such information as to enable it to decide whether or not to dispute the shipowner’s right to limit its liability, each party should bear its own costs in this regard;
3. Where an application for discovery is made pursuant to O 70 r 37(6), the costs of such discovery application should follow the event;
4. The foregoing principles are subject always to costs being in the discretion of the Court.

The plaintiffs deposited the executed LOU in Court on 29 November 2019. On 4 December 2019, the plaintiffs filed an application for leave to replace the LOU. The need for such replacement arose from art 8 of the LLMC 1976, which requires the limitation amount to be converted from Special Drawing Rights (SDRs) into the national currency of the State in which limitation is sought, based on the conversion rate prevailing on the date of constitution of the limitation fund. In the case of an LOU, this would refer to the conversion rate prevailing on the day that the LOU is produced in Court. However, the conversion rate prevailing on any particular day is not published by the International Monetary Fund until after the close of business in Singapore for that day. This means that, at the time the LOU is produced, the shipowner would not know for certain the prevailing conversion rate for that day. The shipowner would only know what the applicable conversion rate is after it had produced the LOU. A practice has therefore arisen whereby the shipowner would first produce an initial LOU using an estimated conversion rate (usually, the conversion rate prevailing on the day before). If it turns out that the actual conversion rate differs from the estimated conversion rate used in the initial LOU, the shipowner will replace the initial LOU with another LOU using the correct conversion rate. By way of guidance for parties, future applications should include a prayer for leave to replace the initial LOU in the manner described above. This would obviate the costs and trouble of taking out a separate application after depositing the initial LOU in Court.