This may be done, either by depositing the sum or by producing a guarantee 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. However, in 2014, the English Court of Appeal overturned the High Court’s decision that a limitation fund must be constituted by cash payment into Court, holding instead that English law allows a limitation fund to be constituted by way of a guarantee, including a P&I Club Letter of Undertaking (LOU). There have since been recent developments in Singapore and the UAE, in relation to allowing limitation funds to be constituted by way of P&I Club LOUs:
- From 1 February 2018, Singapore’s Rules of Court have been amended to allow a person seeking relief in a limitation action to constitute a limitation fund either by making payment into Court under an order of the Court, or by producing a LOU from a P&I Club acceptable to the Court.
- In applying for a limitation decree, commentaries have suggested that in addition to annexing a draft LOU wording to the summons application for review and confirmation by all parties, the P&I Club should file an affidavit demonstrating its financial capability to meet its obligations under the LOU.
- Prior to the judgement in Claim No. DWT-0001-2017 issued in January 2018, there had apparently been no reported limitation funds established in the UAE. In this case, the Dubai World Tribunal was not satisfied that the Dubai Courts would reject a P&I Club guarantee and confirmed that a P&I Club LOU was sufficient to establish a limitation fund in the DWT.
Given that this was a judgement by the special tribunal, it remains to be seen how this decision will affect the practice of the onshore courts in the UAE, especially since there are suggestions that the onshore courts in the UAE have been unwilling to grant limitation decrees or permit limitation funds to be constituted even in obvious cases.
The Club stressed that the increasing willingness by jurisdictions to accept P&I Clubs’ LOUs to constitute limitation funds is a welcome trend for shipowners and P&I Clubs:
The practical advantages of using a P&I Club’s LOU as opposed to making a cash payment into Court are that it is a much quicker and considerably less expensive way to establish a limitation fund, without having to tie up cash reserves in court.