A collision occurred between the plaintiffs' vessel, the Zaglebie Dabrowskie, and the defendants' vessel, the Garden City. The plaintiffs commenced a limitation action. On 28 April 1978, they paid GBP 692,900.63 into Court, and the limitation figure was set at GBP 395,341.40. The remaining balance of GBP 297,559.23 represented interest on the limitation figure from the date of the collision until 30 April 1978 at a rate of 8.25%. The plaintiffs requested that the total amount be placed in a short-term investment account.

Subsequently, a judgment determined that the plaintiffs' liability would not exceed GBP 395,341.40, including interest. Furthermore, it was decided that since the plaintiffs had already paid that amount plus interest on all other actions resulting from the casualty into Court on 28 April 1978, proceedings would be stayed. On 18 November 1982, the Registrar ordered that the total sum paid into Court be distributed among the various defendants. However, no order was issued regarding the accumulated interest on the total amount during its time in the short-term investment account. By 30 November 1982, this interest had reached GBP 534,904.76. The defendants argued that they were entitled to the entire sum of compound interest. They contended that once the plaintiffs paid the money into Court, they relinquished any further interest in it, creating a limitation fund that should be handled by the Court following a decree.

The plaintiffs argued that, according to the limitation action decree, the defendants were only entitled to the limitation sum plus simple or compound interest from the date of the collision up to that date, and any additional amounts belonged to the plaintiffs. They further argued that the defendants' claim to the entire sum in Court was unjustified because the interest in the investment account was compound interest, and the Court lacked the jurisdiction to award compound interest.

Held: Appeal allowed.

The Court noted that the shipowner's right to limit liability was a creature of statute, with the latest enactment being the Merchant Shipping (Liability of Shipowners and Others) Act 1958 (the Act). The Act enacted the LLMC 1957 in the UK.

Regarding the main issue of who was entitled to the compound interest on the total sum paid into the court, the Court noted that in a limitation action, the limitation decree became effective when the ascertained limited sum plus interest from the date of the collision was paid into Court. After this point, the fund became available for the claimants and the interest earned on it. However, although the funds could be described as belonging to the claimants, the same could not be said for money paid into Court.

The defendants put forth an alternative argument, claiming that they were entitled to simple interest on the total sum. They argued that once the plaintiffs had paid the money into court, they had relinquished any further interest in it, and it had become a limitation fund that should be treated in the same manner as the total fund paid in after the decree. They further argued that once payment was made, there was no provision in the Act or the Rules of the Supreme Court for repayment to a plaintiff.

The Court disagreed with the defendants' argument, stating that it did not consider the amount paid in to immediately constitute a limitation fund to be treated in the same way as a fund brought into Court following a decree. The payment made into Court provided the funds from which such a fund could be established, if and when the limitation figure was determined. The Court, therefore, rejected the contention that s 1(4) of the Act provided a mechanism for payment into Court (prior to the limitation decree) of a limitation fund to be treated as if it were the fund constituted after the decree. Instead, this section provided a means for a person wishing to make a payment into Court to determine the amount they could effectively pay.

To confirm the correctness of its decision, the Court examined the provisions of the LLMC 1957, as s 1(4) of the Act was intended to give effect to it. Article 7 of the Convention stated that it applied when a party sought to limit liability before a Court of a contracting State or to secure the release of a ship or other property that had been arrested or provided bail or other security within the jurisdiction of a contracting State. Therefore, the Convention encompassed two aspects: limitation of liability, and the release of arrested property or security. Article 5 outlined the provisions relating to release and clarified the circumstances under which the provision applied. The Court observed that there could be multiple claimants in a single limitation action. Additionally, it was possible for a limitation action to commence in a particular country with a payment into Court, while the defendants (excluding the party that made the arrest) disputed the right to limit liability. In such cases, it could be argued that the money paid into Court was 'available' for the benefit of the arresting party. The Court held that the words 'entitled to limit his liability' in art 5 of the Convention must be interpreted as referring to cases where such entitlement had been established.

Article 2 of the Convention provides that the limit of liability shall apply to the aggregate of the claims arising from any distinct occasion, and a distinct limitation fund may be constituted for those claims. Once the fund has been constituted, art 2.4 specifies that claimants against the fund cannot exercise any rights against other assets of the shipowner in relation to their claim against the fund if the limitation is actually available for the benefit of the claimant. The Court emphasised that this provision further illustrates that the fund cannot be considered 'available' to a claimant, particularly when there is more than one claimant, until the right to limit liability has been established. Therefore, the Court held that these provisions indicate that the sum paid into Court should not be treated as a limitation fund belonging to the claimants.

Regarding the interpretation of art 3.6 of the Convention, the Court clarified that it pertains to the amounts to which the shipowner can limit its liability, and introduces the measure of the gold franc per ton. The Court stated that if s 1(4) of the Act faithfully reflected the Convention, then the date of payment into court signifies when the shipowner has 'constituted the limitation fund'. Although the fund may not be available to certain claimants until the decree, the availability is only a necessary attribute if certain consequences are to follow. Therefore, the Court held that by paying money into Court, a plaintiff constitutes a fund within the meaning of the Convention. The Convention does not specify that the fund must include interest, nor does it provide any advantages to the constitution of a fund until it is actually available to the claimant, apart from the conversion rate, if that can be considered an advantage.

The Court did not regard interest as an essential element of the fund, even though English law requires the eventual payment of interest. Additionally, interest is not universally treated as an essential part of the fund in other countries. Finally, the Court held that the fund mentioned in art 3.6 of the Convention performed a similar function to a guarantee. While English law may require interest in a guarantee, it is not necessary to include compound interest. Therefore, if the payment into court is treated as constituting a limitation fund, it does so only in relation to the limitation figure and can only be treated as 'belonging' to the claimants once the right to limit liability has been established.