Admiralty and Shipping Law

Citation(2020) 21 SAL Ann Rev 59
Date01 December 2020
AuthorTOH Kian Sing SC LLB (Hons) (National University of Singapore), BCL (Oxford); Advocate and Solicitor (Singapore).
Publication Date01 December 2020

2.1 The Singapore courts handed down four admiralty judgments in 2020, including two decisions concerning rather esoteric parts pertaining to limitation of liability. These four decisions are reviewed below.

I. AS Fortuna Opco BV v Sea Consortium Pte Ltd
A. Material facts

2.2 In AS Fortuna Opco BV v Sea Consortium Pte Ltd,1 after AS Fortuna ran aground at Ecuador, her owners commenced limitation proceedings in Singapore, proposing that the limitation fund be constituted by way of a letter of undertaking (“LOU”) issued by a Protection & Indemnity Club (“P&I Club”). The claimants sought discovery from the owners, who furnished the same. The claimants then decided not to contest the owners' application, and the parties agreed that the limitation fund should include interest calculated at the rate of 5.33% per annum from the date of the incident to the date of constitution of the limitation fund.

2.3 However, the parties disagreed on the applicable post-constitution interest rate. The owners proposed a post-constitution interest rate of 2% per annum on the basis that the aforesaid rate represented a “good approximation” of interest that would be earned by moneys paid into court to constitute a limitation fund. One of the claimants took the view that such a rate of 2% per annum was an “underestimation”, and since the owners would retain the use of the moneys and would “likely” generate a higher return for themselves compared to interest earned on moneys paid into court, the post-constitution interest rate should be higher — in the region of 5.33% per annum.

2.4 The claimants also argued that the owners ought to bear the claimants' legal costs, notwithstanding that they were not contesting the limitation proceedings, while the owners contended that they ought only

to be liable for costs incurred in establishing matters for which they bore the burden of proof.
B. Post-constitution interest

2.5 As regards the first issue, Pang Khang Chau J observed that the Convention on Limitation of Liability for Maritime Claims2 (“the 1976 Convention”) was silent as to whether or not a limitation fund constituted by producing a guarantee or letter of undertaking should provide for post-constitution interest. Article 11(2) of the 1976 Convention merely provides that the guarantee or letter of undertaking 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”. Order 70 r 36A(1)(b) of the Rules of Court3 is similarly silent on the issue, providing, inter alia, that the limitation fund may be constituted by a letter of undertaking “acceptable to the Court”.

2.6 Pang J held that in order for the 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.4 Pang J went on to find that 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.5

2.7 In that regard, Pang J rejected the claimants' contention that there was no need to go beyond the aforesaid principle, and take into account any higher returns which the shipowner could have been able to generate for itself by retaining the use of moneys representing the limitation fund.6 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 way of a letter of undertaking.7

2.8 Pang J also observed that previous limitations funds paid into court had not earned any interest.8 That was because such orders for payment into court did not contain any direction pursuant to O 90 r 12(4) of the Rules of Court to deposit moneys into an interest-bearing

bank account.9 Had such a deposit taken place, Pang J observed that the interest rate earned on moneys paid into court pursuant to other types of applications featuring a direction pursuant to O 90 r 12(4) of the Rules of Court had been as high as 2.27% per annum.10

2.9 In light of the foregoing, Pang J held that the rate of 2.5% per annum would be an appropriate post-constitution rate as it approximated the actual interest rate obtainable on moneys paid into court with a slight buffer built in so that the claimants were not made to bear the risk of interest rate fluctuations while the LOU remained in force.11

2.10 It is submitted that Pang J's approach to determining a postconstitution interest rate is both sound in principle, as well as pragmatic. In particular, there is no rational reason for owners to be unfairly prejudiced as regards a post-constitution interest rate merely because they find it more expedient to constitute the limitation fund by way of a P&I Club LOU, as opposed to payment of cash into court. Pang J's judgment also contains a salutary reminder for prospective applicants of any limitation action to include in their application a direction for any moneys paid into court for the purposes of constituting a limitation fund to be placed into an interest-bearing account pursuant to O 90 r 12(4) of the Rules of Court.

C. Owners' liability for claimants' costs in uncontested limitation action

2.11 As regards the second issue, Pang J held that the 1976 Convention does not place on the shipowner the burden of proof for liability and/or the amount of the likely claim; accordingly, there was no reason why a shipowner, in commencing a limitation action, should bear the claimant's costs for looking into such matters.12 Pang J further declined to make a claimant liable for a shipowner's costs in (voluntarily) responding to requests for information to enable a claimant to decide whether or not to contest limitation proceedings, as imposing such liability would hamper legitimate requests for such information.13

2.12 Pang J proceeded to lay down the following principles with respect to costs of uncontested limitation decrees, subject always to the discretion of the court:14

(a) A shipowner should pay the claimants' costs in relation to matters for which the burden of prooflies on the shipowner. This would include establishing the shipowner's prima facie right to limit liability pursuant to Arts 1, 2, and 3 of the 1976 Convention [as well as] determining the limitation amount pursuant to Arts 6 and 7 of the 1976 Convention. Where an LOU is used to constitute the limitation fund [such costs would] also include establishing the LOU's adequacy and acceptability.

(b) 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 1976 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 liability, each party should bear its own costs in this regard.

(c) Where an application for discovery is made pursuant to O 70 r 37(6), the costs of such an application should follow the event.

2.13 Applying the above-mentioned principles, Pang J ordered the owners to pay the claimants' costs in relation to:15

(a) The establishment of the Owners' prima facie right to limit liability pursuant to Arts 1, 2, and 3 of the 1976 Convention;

(b) The calculation of the size of the limitation fund; and

(c) The consideration of the adequacy and acceptability of the draft LOU.

2.14 Each party was ordered to bear its own costs in relation to investigative work done in connection with the claimants' decision whether or not to invoke Art 4 of the 1976 Convention, that is, whether or not to apply to break limitation.

D. Replacement of letter of undertaking as limitation fund

2.15 Following the deposit of the executed LOU into court, the owners filed an application for leave to replace the LOU. Pang J proceeded to consider the applicable conversion rate from special drawing rights into Singapore dollars under Art 8 of the 1976 Convention. In that regard, Pang J found “no objection” with the usual practice for the shipowner to first produce an initial LOU using an estimated conversion rate before

replacing the initial LOU with another LOU using the correct conversion rate.16

2.16 Having said that, Pang J advised future applicants of limitation decrees to include a prayer for leave to replace the initial LOU in the manner described above, in order to obviate the costs and trouble of depositing the initial LOU in court.17

E. Pre-constitution interest

2.17 In the interests of completeness, Pang J also considered whether or not the pre-constitution agreed interest rate of 5.33% per annum was appropriate. In that regard, Pang J observed that as Art 11(1) of the 1976 Convention was silent on the interest rate to be applied in computing pre-constitution interest, the latter rate would be determined by the law of the State in which the fund is constituted pursuant to Art 14 of the 1976 Convention.

2.18 Pang J went on to observe that while s 139(1) of the Merchant Shipping Act18 provides that the Maritime and Port Authority of Singapore may, from time to time, by order prescribe such a rate of interest, to date, no such order has been made. Pang J went on to find that Singapore courts, in the exercise of their discretion pursuant to s 12 of the Civil Law Act,19 generally award pre-judgment interest at the same rate as the statutory interest rate on judgment debts, that is, 5.33% per annum.20 In light of the foregoing, Pang J also found that the parties' agreed rate of 5.33% for pre-constitution interest was appropriate.

II. Thoresen Shipping Singapore Pte Ltd v Global Symphony SA

2.19 The second admiralty judgment handed down in 2020, Thoresen Shipping Singapore Pte Ltd v Global Symphony SA,21 regarding limitation decrees, arose out of a limitation fund constituted by depositing a...

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