This is an appeal against the memorandum and order denying summary judgment made in People of Eauripik ex rel Sarongelfeg v F/V Teraka No 168 [2013] FMSC 6 (CMI127) (case below) wherein the court ruled that the amount of any limitation fund would be calculated using the LLMC 1976 and the Tonnage Convention 1969 and allowed the plaintiffs to challenge the calculation of limitation fund.

The appellants (plaintiffs in the case below) contended that costs of salvaging or rendering harmless the vessel (salvage costs) are specifically excluded from the limitation regime and USD 750,000 should be added to the fund to cover the estimated salvage costs of the Federated States of Micronesia (FSM). The plaintiffs also contended that the respondent's calculation of the limitation fund amount was too low because it failed to consider subsequent amendments to the LLMC 1976.

Held:

The limitation of liability fund amount will remain undisturbed until constitution of the limitation fund. Any damages for expenses incurred in salvage to be assessed separately.

Salvage Rewards or Rendering Stranded Vessel Harmless Damages

The FSM limitation statute exempts salvage costs from the limit of liability. Article 3.a of the LLMC 1976 specifically excludes salvage costs from its coverage. Article 5.3 of the Salvage Convention 1989 provides that salvage operations controlled by public authorities are governed by national law, not international Conventions. However, there is no evidence before the court on the salvage costs. That amount could be determined with accuracy only after the salvage operation has been completed. Salvage costs cannot be awarded when there has been no salvage operation and when no costs have been incurred. Neither Eauripik nor the FSM had attempted to salvage the vessel since it grounded. The FSM can make a claim for salvage damages, since its Secretary of Transportation is the Receiver of Wreck and is thus the person statutorily empowered to remove or destroy the wrecked vessel. But the right to payment for salvage operations presumes that salvage operations have been conducted to a beneficial result. 'Salvage operations undertaken within the Federated States of Micronesia which have had a useful result shall create the right to reward', and the criteria for fixing a salvage reward amount includes 'the measure of success obtained by the salvor": 19 FSMC 918(1); 19 FSMC 919(1)(c), based on arts 12.1 and 13.1.c of the Salvage Convention 1989. The FSM has not had any measure of success.

Limitation Amount

The LLMC provisions are adopted in the FSM by reference in a statute. Under the principles of statutory construction, when a statute adopts a provision by reference, it adopts that provision as at the time of adoption and any later changes to the referred provision will have no effect unless the statute so provides or strongly implies. The FSM statute specifically defines the ‘Limitation of Liability Convention’ as that adopted at London on 19 November 1976 ‘as modified by its protocols and as amended from time to time’. The statute thus specifically provides that later changes to the LLMC will be part of FSM law without further action by Congress.

The 1996 Protocol raised the limitation amount: LLMC 1996, art. 3.1.b.1. The F/V Teraka No 168 is claimed to be less than 2,000 gross tons. A unit of account is 'the Special Drawing Right as defined by the International Monetary Fund':  LLMC 1976, art 8.1. The value of a special drawing right fluctuates daily, but is currently worth a little over USD 1.50, the FSM national currency. This was the basis used by Marin Marawa Ltd for its limitation of liability fund calculation when it suggested, and the court below adopted, the USD 1,529,129.15 figure plus 9% interest from August 28, 2011, the date the F/V Teraka No 168 ran aground on Eauripik atoll, to whenever the liability fund was constituted. The plaintiff contends that the limitation fund amount ordered in the case below is still too low because the LLMC 1976 was further amended on 19 April 2012 where the limit for vessels under 2,000 gross tons was increased. However, these ‘new limits were expected to enter into force 36 months from the date of notification of the adoption ie 8 June 2015'. Since the provision had yet to enter into force, the court cannot use it to set the fund amount in this case. The 1996 Protocol remains the applicable calculation.