“Full City” – 5 key takeaways from the limitation fund proceedings

The “Full City” grounding caused a major oil spill and, as a result, a state led clean-up operation, criminal proceedings against the master and third officer (the latter was eventually acquitted), and civil claims for damages against the owners. We have written about these aspects of the incident in previous articles.
Now that the limitation fund proceedings have come to an end, we set out below five key takeaways from those proceedings.

1. Club letters from IG Clubs are accepted as security

When the limitation fund was established in 2012, the limitation amount was deposited in cash with the district court/fund administrator, while a club letter was issued by the vessel’s English P&I club as security for interest calculated from the time of the incident until the establishment of the fund. The court’s acceptance of the club letter as security confirmed that such letters are considered adequate security not only when issued by Norwegian insurers (as referred to in the preparatory works to the Norwegian Maritime Code), but also by other reputable insurers, such as non-Norwegian members of the International Group of P&I Clubs. This precedent was followed in another subsequent limitation fund, where both the parties and the court permitted a club letter issued by another English P&I club to constitute the limitation fund (both the limitation amount and interest).

2. A good fund administrator will facilitate a smooth process

An experienced maritime lawyer was appointed as fund administrator for the limitation fund, and his involvement was helpful in ensuring progress in the proceedings, while also giving adequate opportunities for the parties to reach agreement on issues, where this was possible. In accordance with the procedural rules set out in the Maritime Code, the parties can choose to accept the administrator’s non-binding preliminary opinion on disputed issues or initiate limitation proceedings. In this case, several procedural issues were solved based on the fund administrator’s preliminary opinions. As the fund administrator’s final adjustment is used as the basis for the distribution of the fund (unless disputed by the parties), it is important to seek the appointment of a fund administrator who is knowledgeable, neutral and can gain the trust of the parties involved in the limitation proceedings.

3. On account payments reduce interest exposure

Following the “Full City” and “Server” limitation fund proceedings, it is now clear that interest will be calculated on the claimants’ portion of the limitation amount (i.e. the dividend) in accordance with the underlying rules on interest, such as interest on overdue payment, deprivation interest (Norw. “avsavnsrente”) or agreed interest. Interest will continue to accrue until payment is made, regardless of whether the limitation amount has been deposited in cash or not. Since it may take a number of years before a limitation fund is distributed, on account payments of undisputed claims will therefore limit the owners’ exposure to interest. Such payments will however require agreement between the parties interested in the fund or a decision by the court.

4. Coordination between parallel funds may be cost-saving

The only claimants in the “Full City” limitation fund were the Norwegian state, who filed their claim for clean-up costs, and the owners/insurers, who filed their claim for reimbursement of expenses and costs relating to SCOPIC, clean-up and certain subrogated claims. Norway has made a reservation under the Limitation of Liability for Maritime Claims Convention and has established separate, higher national limitation amounts for clean-up costs. The owners’ own costs are also subject to this higher limitation amount, and the owners are accordingly entitled to file a claim for their own costs in a limitation fund. This was similar to the set-up in the “Server” limitation fund, which was established half a year earlier, although with different owners and insurers.

Due to a number of similarities between the disputed issues in the two limitation proceedings, it was decided to stay the ­corresponding aspects of the “Full City” proceedings pending final and enforceable judgment in the “Server” proceedings, with the principles set out in that judgment then being applied to the “Full City” claims. Meanwhile, issues that were particular to the “Full City” fund were considered by the fund administrator and proceeded in parallel. Overall, cooperation between the two funds led to a reduction in the state’s claim in both funds, and significant cost-saving. In dealing with late submissions of new legal arguments by the state in the “Server” fund, the owners and insurers were in turn able to rely on the principles established in the “Full City” judgment to support their position.

5. Be aware of the particular rules on preclusion

The “Full City” and “Server” limitation proceedings have shown that those involved in a limitation fund must be prepared for new legal arguments being presented by the claimants up until the final distribution of the fund. This may prolong the proceedings. Unfortunately, there is little that the owners and insurers can do to speed up the process towards the final distribution of the fund if there is a dispute with the claimants. Fortunately, there are three particular rules on preclusion that apply to reduce delay and abuse of process in limitation proceedings. First, a party will be precluded from objecting to the fund administrator’s adjustment if this is not raised during a fund meeting. Second, a party will be precluded from objecting to the fund administrator’s adjustment before the courts if a deadline to file a writ of summons to object is missed. Third a party will be precluded from bringing a claim against the fund after distribution of the fund has been considered by the court of first instance (district court).

In the “Full City” fund, the state sought to bring new and increased interest claims after they had confirmed their agreement to the fund administrator’s adjustment. The court of appeal therefore held that the claim was precluded. While the case was settled, it clearly shows that the courts are willing to apply the preclusion rules in order to ensure progress in the fund proceedings.

The long tail of a major casualty

The “Full City” limitation fund was finally distributed 11 ½ years after the incident. It is therefore a reminder that the resolution of legal issues following major casualties can be a drawn out process with several twists and turns, all of which requires patience from the owners, insurers and legal advisors. We would like to express our gratitude to the owners and manager of the vessel and the London P&I Club for their trust and excellent cooperation in this matter.

Photo credit main image: Kystverket