Difference between revisions of "Pacific Pearl Co v Osios David Shipping - The Panamax Alexander and Osios David)"

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'''England'''
 
'''England'''
  
Pacific Pearl Co Ltd v Osios David Shipping Ltd (The “Panamax Alexander” and “Osios David”)
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'''Pacific Pearl Co Ltd v Osios David Shipping Ltd (The “Panamax Alexander” and “Osios David”)'''
  
 
'''English Court of Appeal: Lewison, Males and Snowden LLJ: [2022] EWCA Civ 798: 14 June 2022'''
 
'''English Court of Appeal: Lewison, Males and Snowden LLJ: [2022] EWCA Civ 798: 14 June 2022'''
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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
 
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
  
'''Background''''
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'''Background'''
  
 
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.
 
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.
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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.
 
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.
  
Obligation to Accept Reasonably Satisfactory Security
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'''Obligation to Accept Reasonably Satisfactory Security'''
  
 
Males LJ, in reversing the decision of the High Court on this issue, did so for the following reasons:
 
Males LJ, in reversing the decision of the High Court on this issue, did so for the following reasons:
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(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.
 
(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.
  
Whether Security Offered Reasonably Satisfactory
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'''Whether Security Offered Reasonably Satisfactory'''
  
 
Males LJ, in reaffirming the decision of the High Court on this issue, did so for the following reasons:
 
Males LJ, in reaffirming the decision of the High Court on this issue, did so for the following reasons:

Latest revision as of 11:20, 6 July 2022

DMC/SandT/22/12

England

Pacific Pearl Co Ltd v Osios David Shipping Ltd (The “Panamax Alexander” and “Osios David”)

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

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWCA/Civ/2022/798.html

Robert Thomas QC (instructed by Ince Gordon Dadds LLP) for Pacific Pearl Co, Owners of “Panamax Alexander”

James Turner QC (instructed by Reed Smith LLP) for Osios David Shipping, Owners of “Osios David”

COLLISION BETWEEN SHIPS: SECURITY AND JURISDICTION: STANDARD FORM WORDINGS OF ADMIRALTY SOLICITORS’ GROUP: ASG 1 – LETTER OF UNDERTAKING (“LOU”): ASG 2 – COLLISION JURISDICTION AGREEMENT: FORMS DESIGNED TO BE USED TOGETHER: PER ASG 2, SECURITY TO BE PROVIDED “IN A REASONABLY SATISFACTORY FORM TO THE OTHER [PARTY]”: WHETHER ADDITION OF INTERNATIONAL GROUP OF P&I CLUBS’ APPROVED SANCTIONS CLAUSE TO ASG 1 LOU WORDING RENDERED IT UNSATISFACTORY: WHETHER A PARTY IS OBLIGED TO ACCEPT REASONABLY SATISFACTORY SECURITY

Summary

In reversing in part the decision of the High Court in this case, the Court of Appeal held that:

(1) whether considered as a matter of construction or implication of terms, on the offering of satisfactory security by Britannia P&I (pursuant to the obligation in the ASG 2) – Britannia being an International Group (“IG”) P&I Club, in which the “Panamax Alexander” was entered – Owners of “Osios David” were obliged to accept that security within a reasonable time and not to seek alternative security by other means; and

(2) the presence of the sanctions clause, in the wording approved by the IG, did not render the (thus amended) ASG 1 wording LOU security offered by Britannia to Owners of “Osios David” objectively unsatisfactory.


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

Background

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.

However, Owners of “Osios David”, who had since the collision arrested another vessel related to “Panamax Alexander” in South Africa, to seek to obtain security by alternative means, rejected the ASG 1 LOU wording offered by Britannia on behalf of Owners of “Panamax Alexander”, because the wording was amended to include an IG approved sanctions clause. Owners of “Osios David” said this rendered the security offered not “reasonably satisfactory”. Accordingly, they prolonged the arrest of the related vessel pending receipt of another form of security with which they were satisfied.

Owners of “Panamax Alexander” were obliged to compensate the owners of the related vessel for the losses they incurred by reason of the prolonged arrest. In consequence, Owners of “Panamax Alexander” commenced proceedings in the High Court against Owners of “Osios David” to claim damages for those losses.

The High Court determined that (1) the security offered by Britannia was in a reasonably satisfactory form, but (2) Owners of “Osios David” were not obliged, under the ASG 2 form, to accept that security, and so the claim for damages failed.

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 fuller facts of and background to the case can be founding in the case note of the High Court judgment, [[1]]

Judgment

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.

Obligation to Accept Reasonably Satisfactory Security

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

(a) Whilst construction of a contract and the implication of a term are different, the former concerning what the parties have said and the latter concerning what they have not said, in some cases, such as the present one, there would be little practical difference between them.

(b) It was clear in the present case that shipowners who entered into an agreement on the terms of the ASG 2 agreed that, if reasonable security was provided pursuant to clause C, it was not open to the receiving party to seek alternative or better security by means of an arrest; and that if a ship had been arrested, it had to be released once reasonable security was provided.

(c) As a matter of construction, clauses C and F (fn.1) of ASG 2 had the effect of transferring any dispute about the sufficiency of security from a foreign court where the ship had been arrested, to the English court. Further, once reasonable security had been provided, there was no justification for an arrest and, if the ship had already been arrested, it had to be released, because the true position was that there was no right to arrest where security had been provided.

(d) The High Court judge’s approach, to the contrary, left a party which had been provided with reasonable security free to seek alternative or better security by arresting the ship, or a related one, in any jurisdiction, however unreasonable that might be and whatever the disruption to the ship’s trading or the cost, delay and inconvenience of getting her released. That would turn well-established Admiralty practice on its head and was contrary to the clear purpose and language of ASG 2. This was because the whole scheme of the ASG 2 agreement was that its provisions operated instead of an arrest in order to found jurisdiction, to enable a claim to be served and to provide for security to be given.

(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.

Whether Security Offered Reasonably Satisfactory

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

(a) there was nothing in the points that the LOU should have provided for “best endeavours” in place of “reasonable endeavours” and the High Court judge placed too much weight in the fact that the LOU was to be provided by a reputable IG P&I Club.

(b) Evaluating whether the proposed LOU was in reasonably satisfactory form required an evaluation by the High Court judge of its terms and of the identity of the Club which was to provide it.

(c) The High Court judge had considered in detail the specific objections raised but had concluded that, whether considered individually or collectively, they did not entitle Owners of “Osios David” to say that the LOU was not reasonably satisfactory to them.

(d) That was a conclusion which the High Court judge was entitled to reach and was not one with which the Court of Appeal would be prepared to interfere.

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.

Comment

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.

The overturning of the High Court judgment on the construction and implication of terms issue also represents an enlightened step in the most sensible direction, giving real world intended effect to a Collision Jurisdiction Agreement. Whilst not spelt out in plain language in the wording of the ASG 2 form, the construction of the agreement taken as a whole against the material factual matrix clearly means, or otherwise implies, that the entire point of requiring reasonably satisfactory security to be offered to the other party (or parties) involved in the collision is for that security to be accepted instead of arresting or being substituted for the prior arrest of a ship, precisely to avoid the adverse consequences that can and do often arise from an arrest, particularly because freeing a ship from arrest can be a problematic and protracted process in some jurisdictions.


Footnote 1:

“F. This agreement shall be governed by English law and any dispute arising hereunder shall be submitted to the exclusive jurisdiction of the English Courts.”