The cargo ship MV Server ran aground on 12 January 2007 near Hellesøy lighthouse in Fedje Municipality. Both the State, represented by the Ministry of Fisheries and Coastal Affairs (the State), and Assuranceforeningen Gard (Gard) incurred costs related to subsequent salvage and clean-up work, for which they sought reimbursement.

It was clear that the total reimbursement claim would exceed the shipowner's and other parties' limited liability according to the rules in the Maritime Code §§ 172a, 175a. Gard therefore petitioned to establish a limitation fund under the Maritime Code §§ 177, 231 ff on behalf of the shipowner, Avena Shipping Co Ltd, and the ship manager, Dalnave Navigation Inc, for claims in connection with clean-up measures etc.

By an order of 23 May 2012, the Oslo District Court established a limitation fund. The limitation amount, according to § 175a of the Maritime Code, totalled NOK 226,380,814.76 and was paid in cash. Security was also provided for a further NOK 115 million to cover interest and costs, so that the total amount of the fund amounted to NOK 341,380,814.76.

In accordance with an agreement of 29 June 2012, the State received NOK 130 million to cover its claim against the limitation fund. Payment was received on the same day.

Only Gard and the State have submitted claims against the fund. Gard covered costs associated with the salvage of the ship, as well as individual claims from minor claimants. Gard was subrogated into the claims which it covered. Gard's costs for wreck removal and sediment surveys were incurred in the period after 2015, and mainly after 2017. The costs were paid in EUR, GBP, and NOK. On 25 March 2020, Gard reported its total claim in USD to the limitation fund.

The parties could not agree on the timing of currency conversion. Gard's position was that the wreck removal costs could be reported in USD, and that such a claim must be converted to NOK at the time of the distribution of the limitation fund. In the alternative, Gard argued that the NOK value at the individual time of payment in foreign currency must be used as the basis for which claim Gard can make to the fund. The State argued that Gard's claim must be converted to NOK at the time of the limitation fund creation back in 2012.

On 11 February 2022, the Oslo District Court held that Gard's wreck removal claim was to be calculated by the NOK exchange rate at the time the individual claims in foreign currency which were included in the wreck removal claim were paid. The State appealed to the Borgarting Court of Appeal.

The State argued that Ch 12 of the Maritime Code implements the LLMC 1996. According to art 12 on the distribution of the fund, it must be distributed between the creditors 'in proportion to their established claims against the fund'. It assumes that the liability amount and the total claims are calculated in the same currency. The Convention does not include rules on conversion, and art 14 stipulates that issues not regulated by the Convention must be regulated by national law.

It appears from the preparatory work, NOU 1980:55 p 50, that it was assumed that the courts must decide individual questions that have not been resolved, based on, among other things, 'general rules of procedural law and the rules that apply to bankruptcy proceedings'. In the event of bankruptcy, as a general rule, receivables in foreign currency are converted into NOK at the time of the commencement of the bankruptcy proceedings. The closest cut-off point, if the rules in the bankruptcy court are applied analogously to limitation funds, is the date of constitution of the limitation fund.

Gard argued that the conversion time must correspond to the 'disbursement time', so that conversion takes place on the day the claim that is required to be covered in the fund was paid. Gard's wreck removal claims must therefore be calculated according to the NOK exchange rate at the time the individual claim in foreign currency was paid. This is in accordance with s 7 of the Promissory Notes Act - claims are approved according to the 'value on the payment date'. That is the time when the creditor suffers its financial loss.

Gard's wreck removal claim was incurred in 2017-2019. The State's view means that the expenses must be recalculated according to the exchange rate which applied on 29 June 2012. If that is accepted, the State's dividend will increase from 83.7 to 87.5 per cent, which amounts to approximately NOK 7 million. The State's claim that it is 'atypical and extraordinary' that expenses are incurred several years before or after a limitation fund is constituted is incorrect. It has happened in all the limitation funds that have been constituted. Previous practice accords with Gard's view.

Held: The appeal is rejected. Gard can report a claim in foreign currency and demand that the claims be converted at the NOK exchange rate at the time of the fund manager's final recommendation on the claims.

The Court of Appeal essentially agrees with the District Court's assessment of this matter.

Chs 9 and 12 of the Maritime Code have rules on limitation of liability and limitation funds. The starting point is that the shipowner can limit its liability. The Convention rules on limitation of liability are mainly based on the fact that shipowners must be protected against catastrophic losses, and that a limitation makes it possible to establish insurance cover. The rules incorporate the LLMC 1976 as amended.

Section 171 of the Maritime Code states that shipowners can limit their liability according to the rules in Ch 9. Limitation of liability can take place in two ways: shipowners can declare limitation without establishing a fund: see the Maritime Code § 180 and § 171; or shipowners can request the constitution of a limitation fund: see § 177, as here.

More detailed rules on limitation funds are provided in Ch 12 of the Maritime Code. Where a fund manager has been appointed, as here, the fund manager prepares a recommendation to the parties about the issues to be dealt with in respect of the right to limit liability, the size of the liability amount, and the claims that have been notified. The limitation fund is distributed proportionately: Maritime Code §§ 176, 195, 244. According to § 176, it is distributed 'in proportion to amounts reimbursed'. When the limitation fund is insufficient to cover all claims, the dividend shall be calculated only in relation to the liability amount: see HR-2018-1260-A [63] (CMI946).

The limitation fund was constituted in NOK and is distributed in NOK. The distribution must take place according to 'established claims': see Norwegian Maritime Code § 176 and art 12.1 of the Convention, which requires that the claims are converted into NOK. The Code does not regulate the conversion time. The Convention does not regulate this either, so it is up to national law to resolve the issue: see also art 14 of the Convention.

In NOU 1980:55 p 23, it is stated that '[s]ome principles of bankruptcy law must also be able to be applied by analogy'. In the Court's view, the preparatory work does not indicate that the bankruptcy court's rules are to be applied where the Maritime Code does not provide a regulation, but that this must be assessed on a case by case basis. There are significant differences between bankruptcy proceedings and the distribution of a limitation fund which, in the Court's view, strongly militate against giving the bankruptcy court's rule on conversion time an analogous application for limitation funds.

There are several other weighty factors which justify that the exchange rate of NOK at the time when the individual claim in foreign currency was paid must be used as a basis. The Court takes its point of departure from s 7 of the Promissory Notes Act:

If the promissory note is denominated in a currency that does not apply where the promissory note is paid, it can be paid with such money as is valid in the place according to the value on the day of payment, unless otherwise agreed.

The principle expressed in s 7 of the Promissory Notes Act must be given considerable weight. Compensation law considerations also support that the time of payment should be used as a basis. The injured party must have its financial loss covered: see also s 4-1 of the Damages Compensation Act. The time the individual claim in foreign currency was paid is the time the loss has been suffered.

The time of payment provides a neutral and fair solution for disbursements made before and after the constitution of the limitation fund. Nothing has emerged to suggest that the time of fund constitution is preferable based on more technical legal assessments. A solution based on the time of payment is also applicable in the case of limitation without a fund: see § 180 of the Maritime Code, since there is then no time of fund constitution.

In summary, after an overall assessment, the Court's view is that the NOK exchange rate at the time of payment should be used as a basis. There is no basis for an analogy from the bankruptcy court for the question of which point in time should be used as the basis for conversion. The principle expressed in s 7 of the Promissory Notes Act provides considerable support for this understanding. It is also a practical rule, and real considerations clearly support that the time of payment should be decisive.

[For the unsuccessful appeal to the Supreme Court, see The State/Ministry of Industry and Fisheries v Assuranceforeningen Gard HR-2023-1157-A (CMI2256).]