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DMC/SandT/22/02
'''England'''
'''M/V Pacific Pearl Co. Limited v Osios David Shipping Inc.'''
'''High Court, Queen’s Bench Division, Commercial Court: Sir Nigel Teare: [2021] EWHC 2808 (Comm), 21 October 2021'''
Robert Thomas QC, instructed by Ince Gordon Dadds LLP for the Claimant
James M. Turner QC instructed by Reed Smith LLP for the Defendant
'''COLLISION BETWEEN SHIPS: SECURITY AND JURISDICTION: STANDARD FORM WORDINGS OF ADMIRALTY SOLICITORS GROUP: ASG 1 - LETTER OF UNDERTAKING: ASG 2 - COLLISION JURISDICTION AGREEMENT: FORMS DESIGNED TO BE USED TOGETHER: UNDER ASG 2, SECURITY TO BE PROVIDED “IN A REASONABLY SATISFACTORY FORM”: WHETHER PRESENCE OF SANCTIONS CLAUSE IN ASG 1 RENDERS IT NOT REASONABLY SATISFACTORY SECURITY UNDER ASG 2: RISK OF NON-PAYMENT: WHETHER A PARTY IS OBLIGED TO ACCEPT SECURITY THAT IS IN REASONABLY SATISFACTORY FORM'''
Case Note contributed by Sri Azali (BB in Human Resource Management and Business Law), Penningtons Manches Cooper
'''Summary'''
This case arose out of a collision in the Suez Canal in July 2018 between three vessels, PANAMAX ALEXANDER, OSIOS DAVID and SAKIZAYA KALON. The case concerns the refusal of the owners of the OSIOS DAVID to accept the terms of a Letter of Undertaking (“LOU”) on an ASG 1 form tendered to them by the P&I insurers of the PACIFIC ALEXANDER, in satisfaction of a Collision Jurisdiction Agreement (“CJA”) based on the wording of ASG 2, on the grounds that it contained a “sanctions clause” prompted by the Iranian “nexus” of the PACIFIC ALEXANDER. The present case held that (1) in the circumstances of this case, an LOU containing a sanctions clause was a reasonably acceptable security and (2) there was no implied term in the CJA that a party to whom such reasonable security was offered had to accept it.
'''Background'''
The owners of all three vessels agreed to liability for the collisions being determined by the English Admiralty Court pursuant to CJAs in the form of ASG 2. The Admiralty Court decided in October 2020 that PANAMAX ALEXANDER was solely responsible for the collisions.
The Claimants argued that the Owners of OD were in breach of the CJA for refusing to accept the security offered in September 2018 and commenced proceedings, seeking damages and declaratory relief.
'''Issues of Law'''
Sir Nigel Teare considered two questions in determining whether the owners of the OD were indeed in breach of the CJA.
(ii) If the LOU was in a reasonably satisfactory form to the Owners of the OD, were they obliged by the CJA to accept it?
'''Decision of the High Court'''
As to the first issue, the Court held that the LOU offered by the Claimants was indeed in a form reasonably satisfactory to the Owners of the OD. The Court first considered the meaning of “reasonably satisfactory” and found that Clause C gave rise to an objective test, but one that had to be assessed by reference to the proposed recipient, in this case the Owners of the OD. But the Court noted that one must also have regard to the legal and practical difficulties giving rise to the need for a Sanctions Clause. Based on the expert evidence of the Claimants, the Court accepted that where there was an Iranian nexus, the LOU with the Sanctions Clause was objectively considered to be reasonably satisfactory to the Owners of the OD. The Sanctions Clause recognized the risk of non-payment when an Iranian nexus was present – regardless of whether payment for losses was by means of a LOU or the proceeds of the sale of a vessel under arrest.
The claim brought by Claimants was therefore dismissed.
'''Comment'''
The judgment provides guidance and confirmation for P&I Clubs and other insurers, that even when it includes a Sanctions Clause, an LOU will still be in a “reasonably satisfactory form”. It also highlights that if the parties want to ensure that a “reasonably satisfactory” security is accepted, express wording to this effect should be included in the CJA, as there is no implied obligation to accept the security contained in the Agreement.