Changes

'''England'''

'''English Court of Appeal: Lewison, Males and Snowden LLJ: [2022] EWCA Civ 798: 14 June 2022'''

Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes

As a result of a collision between three vessels (“Panamax Alexander”, “Osios David” and “Sakizaya Kalon”) in the Suez Canal, the owners of the vessels, via their IG P&I Clubs, entered into ASG 2 form Collision Jurisdiction Agreements, for the purpose of English law and jurisdiction applying to the resolution of the possible disputes that would arise between the parties regarding the apportionment of liability for, and the quantum of damages due to each party resulting from, the collision. Clause C of the ASG 2 form provided “Each party will provide security in respect of the other’s claim in a form reasonably satisfactory to the other.” The ASG 1 form LOU wording of security was what was contemplated to be provided by the other party’s P&I Club.

Accordingly, Owners of “Panamax Alexander” appealed to the Court of Appeal on point (2), whilst Owners of “Osios David” appealed on point (1). In particular, Owners of “Osios David” submitted that the sanctions clause should have provided for Britannia to exercise “best endeavours”, instead of “reasonable endeavours”, to obtain permission to make payment under the LOU in circumstances where payment would otherwise be unlawful due to sanctions, and that the High Court judge placed too much weight in Britannia being an IG P&I Club.

The judgment of the Court of Appeal was handed down by Males LJ (with whom Snowden and Lewison LLJ agreed). The key grounds of appeal (concerning the reasonableness of the security offered and whether there was an obligation to accept reasonable security if offered) were each addressed in turn by Males LJ.

Males LJ, in reversing the decision of the High Court on this issue, did so for the following reasons:

(e) Alternatively, if necessary, the same conclusion should be reached by way of an implied term that a party offered security in a reasonably satisfactory form would accept that security within a reasonable time (which in practice would likely be of short duration). That was because such a term was necessary as a matter of business efficacy and was so obvious that it went without saying, for much the same reasons as already indicated in relation to construction since, without such a term, the objective of the parties to avoid the costs and delays caused by an arrest would not be achieved.

Males LJ, in reaffirming the decision of the High Court on this issue, did so for the following reasons:

As a result, Owners of “Osios David” were liable in damages for the consequences of breaching the ASG 2 Collision Jurisdiction Agreement entered into with Owners of “Panamax Alexander”, by the continued arrest in South Africa of the vessel related to “Panamax Alexander”, instead of accepting the reasonably satisfactory security offered on the (amended) ASG 1 LOU wording security in its place.

This judgment reaffirms that the use of ASG 1 form LOU wording with an IG approved sanctions clause is, when objectively assessed, reasonably satisfactory security for the purposes of clause C of the ASG 2 form Collision Jurisdiction Agreement wording. This confirmation brings much relief to those in IG P&I Clubs (and their members), who seek to support their mutual members in collision matters as far as is reasonably practicable, to enable them to keep trading their vessels with confidence, but must equally ensure the Club remains in compliance with its sanctions and other mandatory regulatory obligation. If these were to be breached, the financial viability and, indeed, the continued existence of the Club might be imperilled, with all the unpredictable consequences that might then ensue.