M/v Pacific Pearl Company Ltd v Osios David Shipping Inc.
| Jurisdiction | England & Wales |
| Judge | Sir Nigel Teare |
| Judgment Date | 21 October 2021 |
| Neutral Citation | [2021] EWHC 2808 (Comm) |
| Docket Number | Case No: CL-2019-000823 |
| Year | 2021 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 2808 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Nigel Teare
sitting as a Judge of the High Court
Case No: CL-2019-000823
Robert Thomas QC (instructed by Ince Gordon Dadds LLP) for the Claimant
James M. Turner QC (instructed by Reed Smith LLP) for the Defendant
Hearing dates: 11 and 12 October 2021
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Sir Nigel Teare SITTING AS A JUDGE OF THE HIGH COURT
Introduction
An arrest of a ship in English law (and in the law of many other maritime nations, though the details may differ) is a means not only of establishing jurisdiction but also of obtaining security for a maritime claim. Where ships collide causing damage the owners of each ship will be concerned to recover that damage from the other ship. Of immediate concern will be the decision as to where to arrest in order to commence proceedings and to obtain security for the claim. However, an arrest may not be the ideal way of founding jurisdiction or of obtaining security. The ship to be arrested may be in a jurisdiction which, for one reason or another, is not regarded as suitable for determining the merits of the claim. The arrest will only provide adequate security if the market value of the ship, when sold, is sufficient to cover not only the claim for collision damage but also the claims of others such as a mortgagee whose claims may have priority to that of the damage claimant. Furthermore, an arrest is costly, not only for the arresting party but also for the owner of the arrested ship.
For these reasons the owners of ships involved in a collision will often agree upon a jurisdiction where the claims of each owner against the other will be heard and will also agree to an exchange of letters of undertaking from each owner's P&I Club (or Hull Underwriters) securing the claim of each owner against the other. A letter of undertaking (“LOU”) from an owner's P&I Club is preferable to an arrest. It avoids the costs and uncertainty of an arrest and provides a reliable and trustworthy form of security. A LOU is therefore often provided before an arrest takes place; see The Alkyon [2018] EWHC 2033 (Admlty) at paragraph 15.
Solicitors practising admiralty law in England, the Admiralty Solicitors Group (the “ASG”), have devised two concise forms of agreement to assist the owners of ships involved in a collision when dealing with the choice of jurisdiction and the provision of LOUs. The first, known as ASG 1, is a draft form of LOU. The second, known as ASG 2, is a draft Collision Jurisdiction Agreement, in which the parties agree to litigate or arbitrate their claims in England. Clause C of ASG 2 provides that “Each party will provide security in respect of the other's claim in a form reasonably satisfactory to the other.”
The advantage of these standard forms of agreement is their simplicity which enables parties to agree them without delay so that the costs and delays caused by an arrest can be avoided. The published notes to ASG 1 state that ASG 1 will generally be given by the P&I Club or hull underwriters of the vessels concerned and that ASG 1 has been designed to be used in conjunction with ASG 2. ASG 2 is stated to be a flexible document capable of easy adaptation whereas ASG 1 should not need adaptation.
Governments sometimes conduct foreign policy by the use of sanctions. The operation of such sanctions can render the performance of the obligations of P&I Clubs under LOUs unlawful. As the evidence in this case has made plain, even where performance is not unlawful the existence of sanctions can create difficulties in the performance of those obligations.
In consequence P&I Clubs have sought to introduce clauses into their LOUs, the aim of which is to make provision for the operation of sanctions.
The present case concerns collisions in the Suez Canal in July 2018 between three vessels, PANAMAX ALEXANDER, SAKIZAYA KALON and OSIOS DAVID. All three owners agreed to liability for the collisions being determined by the English Admiralty Court pursuant to Collision Jurisdiction Agreements in the form of ASG 2. The Admiralty Court decided in October 2020 that PANAMAX ALEXANDER was solely responsible for the collisions; see The Panamax Alexander [2020] EWHC 2604 (Admlty).
At the time of the collisions President Trump had announced the re-introduction of sanctions against Iran; see Mamancochet Mining Limited v Aegis Managing Agency and others [2018] EWHC 2643 (Comm) at paragraphs 10–29 for a summary of the relevant sanctions history.
In September 2018 the Owners of PANAMAX ALEXANDER and their P&I Club, the Britannia, offered to the Owners of OSIOS DAVID an LOU which contained a sanctions clause. That LOU was not accepted by the Owners of OSIOS DAVID who had arrested a vessel in South Africa, PANAMAX CHRISTINA, and obtained an LOU for their claim from The UK P&I Club which did not contain a sanctions clause. In consequence the Owners of PANAMAX CHRISTINA have incurred expense in South Africa in “fronting” the provision of security and the Owners of PANAMAX ALEXANDER have indemnified the Owners of PANAMAX CHRISTINA in respect of that expense. That expense is sought to be recovered by the Owners of PANAMAX ALEXANDER from the Owners of OSIOS DAVID in this action on the grounds that the expense was incurred as a result of a breach of clause C of the Collision Jurisdiction Agreement (the “ CJA”) agreed between those Owners, namely, the refusal to accept the LOU offered by the Britannia.
In the context of litigation in this court the amount claimed is very modest but it has been said that the arguments being advanced on behalf of the Owners of OSIOS DAVID have “profound implications …for P&I Clubs and major insurers.” The claim raises at least two matters of principle. The first is whether the LOU offered by the Owners of PANAMAX ALEXANDER was “in a form reasonably satisfactory” to the Owners of OSIOS DAVID notwithstanding that it contained a sanctions clause. The second is whether, if the LOU was in a reasonably satisfactory form to the Owners of OSIOS DAVID, the Owners of OSIOS DAVID were contractually obliged by the CJA to accept it. These two issues of principle are reflected in the declaratory relief sought by the Owners of PANAMAX ALEXANDER in addition to their damages claim; see the prayer of the Particulars of Claim.
A summary of the facts
There was no dispute as to the facts of the case but it is necessary, in the light of the arguments advanced by counsel, to summarise them.
The collisions occurred in the Suez Canal on 15 July 2018. At the time of the collisions OSIOS DAVID and SAKIZAYA KALON were at anchor.
Very shortly afterwards the Standard Club, OSIOS DAVID's P&I Club, was in contact with the Britannia Club, PANAMAX ALEXANDER's P&I Club, seeking security and an agreement to English law and jurisdiction. ASG 1 and ASG 2 were suggested.
On 18 July 2018 the Swedish Club, SAKIZAYA KALON's P&I Club, confirmed that its member agreed to English law and jurisdiction and an exchange of securities. There was discussion about a tripartite Collision Jurisdiction Agreement.
On 25 July 2018 the Britannia advised that it would recommend an exchange of securities between all three ships but that its member was not yet in a position to agree English law and jurisdiction.
On 26 July 2018 the Swedish Club suggested that the issue of liability which it had been seeking be “be parked for now”.
On 2 August 2018 the Standard said it was willing to forgo a waiver of liability in order to reach agreement on law and jurisdiction.
On 3 August 2018 the Owners of SAKIZAYA KALON and OSIOS DAVID signed a bipartite CJA on the terms of ASG 2.
On 8 August 2018 the Owners of PANAMAX ALEXANDER and OSIOS DAVID agreed in principle to a bipartite CJA on the terms of ASG 2. Such a CJA was signed on 16 August 2018. Clause A provided that each party's claim will be determined exclusively by the English Courts in accordance with English law and practice. Clause B provided that each party's solicitors (Ince and Co for the PANAMAX ALEXANDER and Reed Smith for OSIOS DAVID) will accept service of the other party's proceedings on behalf of their respective clients. 1 Clause C provided:
“Each party will provide security in respect of the other's claim in a form reasonably satisfactory to the other.”
Clauses D and E contained warranties by each party as to ownership and the absence of a demise charter. Clause F provided that the CJA was to be governed by English law and any dispute was to be subject to the exclusive jurisdiction of the English courts.
It is to be noted that the pro-forma ASG 2 contained a further sentence in clause C which read as follows:
“Each party agrees to waive its rights to apply to arrest or re-arrest to obtain further security under the Civil Procedure Rules 1998 Part 61.6.”.
It appears from the CJA agreed by the parties that that second sentence was struck out.
The Standard was concerned that PANAMAX ALEXANDER might be declared a constructive total loss which would mean that its P&I Club would not be obliged to provide an LOU. The Standard therefore looked into other ways of obtaining security, including the arrest of a ship in “associated ownership” in South Africa. They learned that PANAMAX...
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