Pacific Pearl Co Limited v Osios David Shipping Inc [2022] EWCA Civ 798

The Court of Appeal (“CA”) has overturned the decision of Justice Teare that security tendered under the Admiralty Solicitor Group form ASG 2 (Collision Jurisdiction Agreement) (“CJA”) needed to be subjectively acceptable to the offeree. Instead the CA has determined that it is sufficient that it be objectively acceptable.

The case

The decision followed the earlier ruling by Sir Nigel Teare (as reported in Lloyd’s Law Reports, [2022] 1 Lloyd’s Rep. 261) in an action brought by owners of the Panamax Alexander (“PA”) against the owners of Osios David (“OD”), with whom they collided, alleging breach of the CJA clause C. This clause provides that “Each party will provide security in respect of the other’s claim in a form reasonably satisfactory to the other.”

The owners of the PA proposed security which contained a sanctions clause (the scheme of the ASG 2 is that it is expected to be used with a plain security in the form of ASG 1). This was rejected by the owners of the OD on the basis that it was not reasonably satisfactory to them. In the first instance it was held that such security from a prominent International P&I Club must be objectively reasonable but that there was nothing in the CJA that compelled the recipient to accept it and that they were at liberty to seek better security elsewhere including by arrest.

The appeal

Owners of the PA appealed and in a ruling handed down on 14 June 2022 the Court of Appeal issued its judgement that as a matter of construction the “clear purpose” is that if the security is objectively satisfactory then it must be accepted. This follows from the view that the scheme of ASG 2 is to avoid arrest, and in circumstances where the parties had agreed to provide security and where the CJA was governed by English law, then the sufficiency of the security should be determined in the English Courts, not in the putative jurisdiction of any subsequent arrest.

In the alternative, a term was to be implied that a reasonably satisfactory security from the offeror would be accepted in a reasonably short time. Such a term should be implied as a matter of business efficacy and because such a term is so obvious that it goes without saying.

What this means for acceptable security

The effect of the ruling is to transfer the risk in the acceptability of security to the offeree from the offeror as it is now much harder to refuse it. To do so could leave the recipient open to a claim for damages.  Furthermore, if they are in doubt, they will be obliged to bring an action in England on an expedited basis to have the Court determine whether the security they have been offered is in fact reasonable or not. If not then, although they may win that action, they could also lose the opportunity to arrest.

It remains to be seen whether, in light of this ruling, the ASG will now need to reconsider the wording of ASG 2.

Permission for leave to appeal has been sought.