Where legal proceedings have been initiated in a State party in respect of claims subject to limitation any person entitled to limit and alleged in these proceedings to be liable is entitled to constitute a limitation fund with one of the courts in which proceedings are pending.
A fund constituted by one of the persons entitled to limit is considered to be constituted by all persons entitled to limit liability.
Where there are no legal proceedings in any Contracting State there are strong arguments supporting the assertion that a shipowner may choose in which Contracting State it will constitute the limitation fund and when. This is supported by noting that the purpose of the limitation fund is to provide security up to the limit prescribed and to free the vessel and the shipowner from further inconvenience. Waiting for the initiation of legal proceedings before facilitating this process through the establishment of a limitation fund arguably defeats one of the advantages of limitation of liability. However, such an argument is not sufficient and one should look for support in the text of the 1996 LLMC. Article 11 establishes that where there are legal proceedings the limitation fund may be constituted in one of these courts. This is consistent with the purposive interpretation suggested above because the objective of providing security and releasing the vessel is served better when the limitation fund is established where a claim has been submitted than elsewhere. However, until such an action is established there is no reason to restrict the shipowner’s options.
It can also be argued that “legal proceedings” under Article 11 cover not only liability claims against the shipowner but also limitation proceedings and negative declaratory relief proceedings initiated by the shipowner. Thus, provided that negative declaratory relief is sought by the shipowner in a court of a Contracting State that has jurisdiction on the merits, it then becomes automatically entitled to constitute a limitation fund in that State in accordance with Article 11.
It is worth mentioning that Article 11(1) does not question the validity of such proceedings or whether such court has jurisdiction on the merits in respect of claims subject to limitation of liability but only requires the existence of such legal proceedings.
In conclusion, we submit that arguably the most efficient interpretation of the 1996 LLMC would recognise a right to establish a limitation fund in any Contracting State until proceedings against the shipowner are started. However, if proceedings against the owner have commenced, then the owner’s choice is between the jurisdictions in which proceedings have started, not in every Contracting State. This interpretation may mean that the shipowner can wait for suitable actions to begin in a forum convenient for it before establishing a fund. However, such choice may be non- existent if the ship is arrested, in which case a limitation fund would be most efficient at the place of arrest, as will become evident later.
The fund should be for the amounts determined by Articles 6 and 7, increased by interest from the day of the incident to the day of the constitution of the fund. The way the interest is calculated is not prescribed in the 1996 LLMC but is determined by the national rules. Thus, where there are proceedings in several jurisdictions the shipowner can find some variation in the amounts paid out.
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