M/v Pacific Pearl Company Ltd v Osios David Shipping Inc.
| Jurisdiction | England & Wales |
| Judge | Lord Justice Males,Lord Justice Snowden,Lord Justice Lewison |
| Judgment Date | 14 June 2022 |
| Neutral Citation | [2022] EWCA Civ 798 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2021-003203 |
[2022] EWCA Civ 798
Lord Justice Lewison
Lord Justice Males
and
Lord Justice Snowden
Case No: CA-2021-003203
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Sir Nigel Teare (sitting as a Judge of the High Court)
Royal Courts of Justice
Strand, London, WC2A 2LL
Robert Thomas QC (instructed by Ince Gordon Dadds LLP) for the Appellant
James M. Turner QC (instructed by Reed Smith LLP) for the Respondent
Hearing date: 26 May 2022
Approved Judgment
This judgment will be handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10.30 a.m. on Tuesday 14th June 2022.
This appeal is concerned with clause C of the Collision Jurisdiction Agreement devised by the London Admiralty Solicitors Group and known as “ASG 2”. The purpose of this agreement is to provide for claims arising from a collision to be determined in the English court in accordance with English law and for security for those claims to be given in order to avoid the costs and delays caused by an arrest. Clause C of the standard form provides:
“Each party will provide security in respect of the other's claim in a form reasonably satisfactory to the other. [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.]”
The second sentence of this clause is optional and, in the present case, the parties chose to delete it.
ASG 2 is intended to be used in conjunction with ASG 1, which is a draft Letter of Undertaking (or “LOU”) to be given by the parties' respective P&I Clubs. It provides, in short, that in consideration of the beneficiary of the LOU giving up the right to arrest in order to obtain security, the P&I Club agrees to pay whatever is agreed or determined to be due.
Following a collision in the Suez Canal the appellant (the owner of a ship called PANAMAX ALEXANDER) offered to provide security to the respondent (the owner of a ship called OSIOS DAVID) in the form of an LOU from its P&I Club, the Britannia. However, the respondent refused to accept the security offered, insisting that the inclusion of a sanctions clause meant that it was unsatisfactory. Instead it preferred to maintain the arrest of a ship in associated ownership which it had obtained in South Africa. The judge, Sir Nigel Teare, found that the security offered by the PANAMAX ALEXANDER was in a reasonably satisfactory form for the purpose of clause C. But he went on to hold that although the appellant was obliged to provide security in a reasonably satisfactory form, the respondent was free to reject that security and to take whatever steps it saw fit to obtain or maintain alternative security elsewhere.
The appellant challenges that conclusion. The respondent supports the judge's reasoning, and in addition takes issue by a Respondent's Notice with the judge's conclusion that the security offered was in a reasonably satisfactory form.
The facts
The circumstances in which these issues arise are set out in detail in the judgment below. For the purpose of this appeal, the following summary is sufficient.
On 15 th July 2018, three vessels, PANAMAX ALEXANDER, SAKIZAYA KALON and OSIOS DAVID collided in the Suez Canal. The parties' respective P&I Clubs, all members of the International Group of P&I Clubs, were in contact almost immediately to discuss jurisdiction and security. The International Group consists of the 13 largest P&I Clubs which between them cover more than 90% by tonnage of the world's oceangoing fleet.
On 8 th August 2018, the appellant and the respondent agreed in principle to a bipartite Collision Jurisdiction Agreement on the standard terms of ASG 2. They did so in consultation with their respective P&I Clubs, the Britannia for the appellant and the Standard for the respondent. The agreement was signed on 16 th August 2018. It provided, among other things, that each party's claim would be determined exclusively by the English court in accordance with English law and practice, and that each party would provide security in respect of the other's claim in a form reasonably satisfactory to the other.
Discussions followed as to the amount and terms of the respective security to be provided by each party. While those discussions were continuing, on 5 th September 2018, the respondent arrested in South Africa a ship called PANAMAX CHRISTINA, owned by a company associated with the appellant.
On 7 th September 2018, the appellant's P&I Club proposed a draft LOU which it was willing to provide to the respondent. This was based on the standard wording of ASG 1, but with the addition of a “sanctions clause” relieving the Club from its obligation to pay in certain circumstances. The clause was in the following terms:
“We shall not be obliged to make payment under, nor be deemed to be in default of, this Letter of Undertaking if (i) doing so would be unlawful, prohibited or sanctionable under the United Nations resolution or the sanctions, laws, or regulations of the European Union, United Kingdom, United States of America or [the place of incorporation or domicile of your member] or the ship's flag state (‘the Sanctions’), or (ii) if any bank in the payment chain is unable or unwilling to make, receive or process any payment for any reason whatsoever connected with the Sanctions (including but not limited to a bank's internal policies). If any such circumstance arises as described in (i) or (ii) herein, then we shall use reasonable endeavours to obtain whatever Governmental or other regulatory permissions, licences or permits as are reasonably available in order to enable the payment to be made.”
Thus the proposed clause relieved the Club from its obligation to pay not only if it would in fact be contrary to sanctions regulations imposed by the United Nations or the laws of any of the specified countries to do so, but also (in very wide terms) if any bank in the payment chain was (rightly or wrongly) unwilling to process a payment for any reason whatsoever connected with such regulations. The proposed currency of payment was the Euro, no doubt because of the difficulties of making US dollar payments through New York banks in the event of United States sanctions applying (cf. MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm) at [3] and [4]).
This clause was included because the PANAMAX ALEXANDER had been on a voyage to Iran and the United States had recently announced the re-introduction of sanctions against Iran (see Mamancochet Mining Ltd v Aegis Managing Agency Ltd [2018] EWHC 2643 (Comm), [2019] 1 All ER (Comm) 335 at [10] to [29]). The Club was concerned that it might be unable to pay under its LOU if called upon to do so without being in breach of sanctions regulations or, at any rate, that banks in the payment chain who were known to be sensitive to sanctions issues might be unable or unwilling to handle any payment.
The respondent and its P&I Club were not prepared to accept an LOU with this (or any) sanctions clause, expressing concern that security in this form might prove worthless. They maintained that position, notwithstanding that the wording proposed was approved by the International Group's Sanctions Committee on 10 th September 2018.
Accordingly the respondent refused to agree to the release of the PANAMAX CHRISTINA from arrest in South Africa unless security was provided which did not include a sanctions clause. Such security was provided on 10 th September 2018, in the form of an LOU from the United Kingdom Club with which that ship was entered. The UK Club LOU did not contain a sanctions clause. It provided for South African law and jurisdiction to govern the LOU.
Despite the release of PANAMAX CHRISTINA on provision of this LOU, the proceedings in South Africa have continued because the lawfulness of the arrest is being challenged. We were told that an appeal before the Full Bench of the KwaZulu Natal Local Division is due to be heard this month.
On 6 th May 2019 the appellant's P&I Club repeated its offer to provide an LOU in the same terms as before but this time backed by a guarantee from HSBC. The terms of the guarantee were that HSBC would irrevocably and unconditionally guarantee payment of any liability on the part of the appellant to the respondent. It did not include any form of sanctions clause. This offer was said to be made in order to mitigate the appellant's damages claim and was open for seven days. It was not accepted.
On 15 th July 2019 these proceedings were initiated seeking damages for breach of the Collision Jurisdiction Agreement, together with declaratory relief. The damages claimed consist of fees payable by the appellant to the owners of PANAMAX CHRISTINA for providing security in the form of the UK Club LOU, together with out-of-pocket expenses incurred by the owners of PANAMAX CHRISTINA in connection with the arrest in South Africa.
In the event the judge was to find that PANAMAX ALEXANDER was wholly responsible for the collision (see The Panamax Alexander [2020] EWHC 2604 (Admlty)), although we were told that the quantum of the claim has not yet been determined.
During the hearing before us Mr Robert Thomas QC for the appellant (but also on this point with instructions from the Britannia Club) confirmed that the offer by the appellant and the Club to provide an LOU on the terms proposed on 7 th September 2018 remains open, subject to the return of the LOU provided by the UK Club. We were informed after the hearing that the HSBC guarantee is also still...
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