AS Fortuna Opco BV and another v Sea Consortium Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Pang Khang Chau J
• Judgment Date: 14 April 2020
• Neutral Citation: [2020] SGHC 72
• Plaintiff Counsel: Chen Zhida and Huang Peide (Helmsman LLC)
• Date: 14 April 2020
• Docket Number: Admiralty in Personam No 60 of 2019 (Summons No 2432 of 2019)
• Hearing Date: 11 November 2019,26 November 2019,06 December 2019
• Subject Matter: Limitation of liabilities,Tonnage limitations,Admiralty and Shipping
• Published date: 22 April 2020
• Defendant Counsel: Ang Hui Ming Vivian and Douglas Lok Bao Guang (Allen & Gledhill LLP),Ganesh Bharath Ratnam (Gurbani & Co LLC),Loo Dip Seng (Ang & Partners),The fourth defendant not present and unrepresented,Yeo Wen Yi Brenna (Joseph Tan Jude Benny LLP)
• Court: High Court (Singapore)
• Citation: [2020] SGHC 72
• Year: 2020

Pang Khang Chau J: Introduction

By this limitation action, the Plaintiffs sought to limit their liability and constitute a limitation fund in respect of claims arising from the running aground of the vessel AS Fortuna (“the Vessel”) at or around Guayaquil, Ecuador on or around 13 September 2018 (“the Incident”).

The 1st Plaintiff is the registered owner of the Vessel. The 2nd Plaintiff is a limited partnership organised under the laws of the Netherlands, of which the 1st Plaintiff is the General Partner. The Defendants are potential claimants against the Plaintiffs and/or the Vessel in respect of the Incident.

None of the Defendants contested 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 a letter of undertaking from a Protection and Indemnity Club (“LOU”). The only issues in dispute before me were: the applicable interest rate to be provided for in the LOU in respect of the period after the constitution of the limitation fund (“the post-constitution interest rate”); and the appropriate costs order to be made. These are my grounds of decisions on the foregoing two issues.

Interest rate on limitation funds

The parties were in agreement that: the limitation fund should include interest from the date of the Incident to the date of constitution of the limitation fund (“the pre-constitution interest”), calculated at 5.33% per annum; this pre-constitution interest rate is applicable to both funds constituted by payment into court and funds constituted by production of LOUs; a shipowner constituting a limitation fund by payment into court need not concern itself with post-constitution interest, as it is expected that the fund would earn interest while remaining in court, and the interest so earned would be added to the fund for the benefit of persons claiming against the fund; and conversely, provision ought to be made for post-constitution interest where a limitation fund is constituted by way of a guarantee or LOU.

Regarding the appropriate post-constitution interest rate, the Plaintiffs proposed the rate of 2% per annum while the 2nd and 3rd Defendants proposed the rate of 5.33% per annum.

Parties’ submissions

The Plaintiffs brought to my attention the following local precedents concerning limitation funds constituted by production of LOUs: Pacific International Lines (Pte) Ltd and others v Govan Mani & Co Pty Ltd and others HC/ADM 17/2016 (28 March 2017) (“Pacific International Lines”) which fixed both the pre- and post-constitution interest rates at 5.33% per annum; Thoresen Shipping Singapore Pte Ltd and others v Global Symphony SA and others HC/ADM 46/2017 (25 July 2017) which fixed the pre-constitution interest rate at 5.33% per annum and the post-constitution interest rate at 2% per annum; and Falcon Grace Pte Ltd and others v Vopak Terminals Singapore Pte Ltd and others HC/ADM 116/2017 (19 April 2018) which fixed the pre-constitution interest rate at 5.33% per annum and the post-constitution interest rate at 2% per annum.

The Plaintiffs submitted that the guiding principle is that the claimants’ position should not differ depending on whether the limitation fund is constituted by payment into court or by production of an LOU. If the limitation fund were paid into court, it would earn interest while the moneys remained in court, but the interest so earned would not be as high as 5.33% per annum. Therefore, the post-constitution interest rate applicable to a limitation fund constituted by way of an LOU should not be 5.33% per annum. Instead, it should approximate the interest that would be earned by moneys paid into court. The Plaintiff suggested that 2% per annum would be a good approximation.

The 3rd Defendant made two submissions. First, 2% per annum was probably an underestimation of the interest that could be earned on moneys paid into court. Secondly, since the Plaintiffs were not paying the limitation fund into court, they would retain the use of the moneys and would likely generate a higher return for themselves compared to the interest that could be earned on moneys paid into court. The Plaintiffs should therefore pay more in post-constitution interest than the interest which could be earned on moneys paid into court.

The 2nd Defendant submitted that there was a clear difference between payment into court and production of an LOU. In the latter case, the shipowner retains continued use of the moneys after the limitation fund is constituted, in the same way that it had use of the same moneys prior to the constitution of the fund. Therefore, if 5.33% per annum was a fair interest rate to adopt for the period before the constitution of the fund, it should equally apply to the period after the constitution of the fund.

The Plaintiffs responded that fixing the post-constitution interest rate at 5.33% per annum would discourage the use of LOUs to constitute limitation funds. It would also remove the incentive to constitute limitation funds early in cases where the limitation fund is constituted by way of an LOU.

Analysis

Pursuant to s 136 of the Merchant Shipping Act (Cap 179, 1996 Rev Ed) (“MSA”), the Convention on Limitation of Liability for Maritime Claims (adopted on 19 November 1976) 1456 UNTS 221 (entered into force 1 December 1986) (“1976 Convention”) is given force of law in Singapore (with the exception of Arts 2(1)(d) and (e) thereof).

Pre-constitution interest rate

Art 11(1) of the 1976 Convention 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. [emphasis added]

The italicised text in the above quotation refers to pre-constitution interest on the limitation fund. As the 1976 Convention 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 1976 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, as opposed to mandatory, manner. It does not provide that the pre-constitution interest rate to be applied shall be as prescribed by the MPA. Instead, it merely empowers the MPA to prescribe the interest rate to be applied if it chooses to do so. The court is therefore not precluded, in the absence of orders 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.

As noted in The Funabashi [1972] 1 WLR 666 (“The Funabashi”) at 668C, the “Admiralty court has always awarded interest on a limitation fund”. Initially, English courts took reference from the statutory interest rate on judgment debts (see eg, The Theems [1938] P 197 at 201). In later years, they took reference instead from how pre-judgment interest on debts and damages were determined (see eg, The Funabashi and The Garden City (No 2) [1984] 2 Lloyd’s Rep 37 at 51). 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 (O 42 r 12(1) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“ROC”) read with para 77(5) of the Supreme Court Practice Directions).

In the light of the foregoing, I accepted the parties’ agreed position that a pre-constitution interest rate of 5.33% per annum was appropriate.

Post-constitution interest rate for limitation funds constituted by LOU

As for post-constitution interest, since no written grounds were issued in any of the three local cases cited at [6] above, I was not able to discern why the post-constitution interest rate was 5.33% per annum in one case and 2% per annum in the other two cases. I therefore had to consider the issue from first principles.

As a starting point, the 1976 Convention 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 1976 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 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...