New UAE Maritime Law – Limitation of Liability and Limitation Funds

Authored by Adam Gray, Senior Counsel – Transport & Insurance

We previously wrote about the limitations of limitation of liability in the UAE here and here.  The point we sought to make in both articles was that the UAE, whilst a signatory to the LLMC 1976 (“Convention”) and 1996 Protocol (“Protocol”), had not made provision for the constitution of a limitation fund in accordance with its Convention commitments.  Furthermore, we pointed out that the ratification of the 1996 Protocol in November 2020 was not expected to make any difference to the status quo.  Whilst limitation of liability under the Convention and Protocol was an available defence to owners, the constitution of a limitation fund was not possible.

However, the much-anticipated new UAE Maritime Law (Federal Decree No. 43 of 2023), which will come into force on 29^th March 2023 (“New Maritime Law”), is expected to pave the way for owners to avail themselves of the full benefits of the Convention and Protocol, including the establishment of limitation funds.  The New Maritime Law broadly mimics the provisions of the Convention in content and structure, including but not limited to;

• the categories of limitable claims (with the notable exception of claims arising from wrecks, stranded or abandoned vessels which are specifically excepted claims);
• claims excepted from limitation (with the omission of pollution claims);
• conduct barring limitation;
• general limits (including the same tonnage-linked parameters and SDR figures); and
• constitution of the fund.

Throughout the New Maritime Law provisions there are subtle but important differences with the Convention text, necessitating a deeper analysis for any party seeking to rely on or test the new provisions.

Of note is the provision for the constitution of a limitation fund in the New Maritime Law.  Specifically, Article 85 permits the person seeking to limit liability to establish a fund by the provision of a guarantee, having the effect of granting exclusive jurisdiction to the UAE court to adjudicate claims related to limitable debts and barring creditors from taking action against those funds or other assets.

Previously, the Federal Transport Authority (now the Ministry of Energy & Infrastructure) had confirmed that it was the “competent authority” vested with the power to constitute and manage a limitation fund, although it asserted that the legal framework for its constitution was not in place.  The New Maritime Law affirms a shift of authority to the UAE courts in this regard.

There are a few departures from the Convention wording, however. Firstly, the party seeking to constitute a fund will have to submit a request to the court.  Under the Convention, no such request is required, and the party may simply deposit cash into court or provide an acceptable guarantee.

Additionally, under the New Maritime Law, in response to the party’s request to constitute a fund, the court will determine the type of guarantee it will accept.  This aligns with the Convention which stipulates that a guarantee may be produced which is acceptable under the legislation of the State Party, however, under the New Maritime Law, the discretion appears to lie with the presiding judge.  What is an acceptable guarantee may vary between courts or judges, but in time we expect that cash or a UAE / first class bank guarantee will become the acceptable practice.  P&I Club LOUs may emerge as an acceptable form of guarantee since the New Maritime Law now recognises them as good security enabling the release of vessels under arrest.

How can we help?

Our team at Al Tamimi & Company is monitoring these developments. With a commitment to providing expert guidance and support, we are well-prepared to assist you in adapting to the changes brought about by the New Maritime Law. For in-depth analysis and legal advice, we encourage you to engage with our maritime and insurance law specialists.