UK: Court Of Appeal Rules a Limitation Fund Can Be a Guarantee as an Alternative to a Payment Into Court
In KAIROS SHIPPING LTD & STANDARD CLUB LTD V ENKA & CO LLC & ORS 2014 EWCA Civ 217, Karios sought a declaration that it was entitled to constitute a limitation fund
(a fund providing a maximum limit for its claims liability under the International Convention on Limitation of Liability for Maritime Claims 1976) by means of a guarantee in the form of a letter of undertaking provided by a protection and indemnity (P&I) club. At first instance, Mr Justice Simon refused to grant such a declaration. He concluded that without a specific statutory provision that a guarantee may be used, the rule under English law remains that a fund may only be constituted by making a payment into court. The case reached the Court of Appeal. After a purposive analysis of the authorities, Lady Justice Gloster, giving the leading judgment, allowed the appeal. She found that a guarantee did not contravene any relevant statutory provisions and she saw nothing in either the Civil Procedure Rules or the relevant Practice Direction to preclude the constitution of a limitation fund by means of the production of a guarantee. She also found that the court only needed to be satisfied as to the financial standing of guarantor, something the Admiralty and Commercial Courts were perfectly capable of considering on a daily basis.
This case will provide financial advantages to parties constituting a limitation fund.
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