This was an appeal from the judgment of Sir Nigel Teare in M/V Pacific Pearl Co Ltd v Osios David Shipping Inc [2021] EWHC 2808 (Comm) (CMI1604). Teare J found that the security offered by the Panamax Alexander in the form of a Collision Jurisdiction Agreement (CJA) on the standard terms devised by the Admiralty Solicitors Group (ASG 2) was in a 'reasonably satisfactory form' as required by cl C of ASG 2, despite the fact that it contained a sanctions clause. But the Judge went on to hold that although the appellant was obliged to provide security in a reasonably satisfactory form, the respondent was nonetheless free to reject that security and take whatever steps it saw fit to obtain or maintain alternative security elsewhere. The appellant challenged this second conclusion.

Held: Appeal upheld.

In England and Wales, as in a number of other jurisdictions, an arrest can be made as of right, with no undertaking in damages required (The Alkyon [2018] EWCA Civ 2760, [2019] QB 969 (CMI228)), and damages for wrongful arrest can only be obtained if malice or gross negligence can be proved (The Alkyon [44]), although the position is different in some jurisdictions (The Alkyon [70]-[73]). In practice, however, the number of ship arrests is relatively low because a sophisticated system exists whereby, when an arrest is threatened, the P&I Club in which the ship is entered will provide an LOU.

Some other features of Admiralty jurisdiction are also worth mentioning. Thus, art 3.3 of the Arrest Convention 1952 (given effect in the UK by the Administration of Justice Act 1956 (UK) and subsequently by the Senior Courts Act 1981 (UK)) provides that a ship shall not be arrested more than once in respect of the same maritime claim by the same claimant, and that

if a ship has been arrested in any of such jurisdictions, or bail or other security has been given in such jurisdiction either to release the ship or to avoid a threatened arrest, any subsequent arrest of the ship or of any ship in the same ownership by the same claimant for the maritime claim shall be set aside, and the ship released by the Court or other appropriate judicial authority of that State, unless the claimant can satisfy the Court or other appropriate judicial authority that the bail or other security had been finally released before the subsequent arrest or that there is other good cause for maintaining that arrest.

Thus, if appropriate security has been given, a ship may not be arrested and, if it has been arrested, it must be released, with only limited exceptions.

In English law the assumption that a ship may not be arrested, or will be released where security has been given, is apparent from CPR 61.6, although that Rule will have no application unless the ship comes, or is likely to come, within the jurisdiction. The Rule applies 'if, in a claim in rem, security has been given to (a) obtain the release of property under arrest; or (b) prevent the arrest of property'. The Rule goes on to empower the Court to order that the amount of security be reduced or increased, unless the terms on which the security has been given provide otherwise. It is this provision which is referred to in the second sentence of cl C of ASG 2, which the parties deleted in the present case. Even when it applies, however, the claimant does not have a right to make a further arrest to obtain increased security, but must apply to the Court for permission to do so.

It is possible for a shipowner to avoid an arrest by filing a request for a caution against arrest. In doing so, the shipowner must undertake to file an acknowledgement of service and to give sufficient security to satisfy the claim with interest and costs (CPR 61.7). The entry of a caution, however, will only prevent an arrest in the jurisdiction in which the caution has been entered.

Disputes which may arise as to the security to be given in order to avoid an arrest or to obtain the release of an arrested ship may in theory concern three main topics. One is as to the way in which security should be given. In many jurisdictions, including the United Kingdom, an LOU from an International Group P&I Club will be accepted as reasonable security, with older forms of security (such as a bail bonds) having become obsolete or virtually so. In other jurisdictions, however, that may not be so. A second potential dispute concerns the amount of security to be provided, but it is now well established that a claimant is entitled to security for its reasonably arguable best case (The Moschanthy [1971] 1 Lloyd’s Rep 37). A third potential dispute, as in the present case, concerns the terms on which security is to be provided.

If there is a dispute whether the security offered is sufficient, or if the terms are reasonable, it will be for the Court in whose jurisdiction the ship has been arrested to determine that issue (The Kallang [2006] EWHC 2825 (Comm), [2007] 1 Lloyd’s Rep 160 [33]). However, once reasonable security has been provided, there will be no justification for an arrest and, if a vessel has already been arrested, it will be released.

It can be seen that the way in which the CJA is intended to work is as follows:

(1) Clause A of ASG 2 deals with the question of jurisdiction for the parties’ claims and the law to be applied; instead of arresting the ship in whatever jurisdiction it can be found, and applying whatever law would be applied in that jurisdiction, the parties agree on English jurisdiction and applicable law.

(2) Clauses D and E deal with the identity of the parties to be sued; they ensure that the registered owners of each vessel are the correct defendants to the claims.

(3) Instead of having to arrest a ship and serve proceedings in rem on the ship itself, the parties agree in cl B that proceedings may be commenced by service on their respective solicitors.

(4) Clause C deals with the provision of security. The security to be provided by each party will be the 'security in respect of the other’s claim'. There is no room for the seeking of alternative security. If a party were free to seek alternative or better security, there would be no need to stipulate that the security to be provided under cl C should be 'in a form reasonably satisfactory to the other'.

(5) Clause C also avoids the need to enter cautions in multiple jurisdictions in order to avoid an arrest. While cl B contains an undertaking to accept service, cl C contains the undertaking to provide security which must be given in order to obtain the entry of a caution.

(6) Finally, the combination of cll C and F means that if there is a dispute about whether the security provided is 'in a form reasonably satisfactory to the other', that dispute is to be determined not in the foreign Court where a ship has been arrested (as would be the position absent this agreement: see The Kallang), but exclusively in the English Court.

(7) This ensures that, contrary to what may be the position in some jurisdictions, security in the form of an LOU from a member of the International Group of P&I Clubs will be acceptable; and that any issue about the terms of the security are to be determined in the UK in accordance with English law and practice.

Thus the effect of cll C and F is to transfer any dispute about the sufficiency of security from a foreign Court where the ship has been arrested to the English Court. But the consequences when reasonable security has been provided are unchanged. That is to say, once reasonable security has been provided, there is no justification for an arrest and, if the ship has been arrested, it must be released. This provides an answer to the respondent's submission that the right to arrest is so fundamental that it should not be held to have been abandoned without clear words. The true position is that there is no right to arrest where security has been provided.

The Judge’s approach, however, leaves a party which has been provided with reasonable security free to seek alternative or better security by arresting the ship (or a ship in associated ownership) in any jurisdiction in which it can be found, however unreasonable that may be and whatever the disruption to the ship's trading or the cost, delay, and inconvenience of getting the ship released. This turns well-established admiralty practice on its head and is contrary to the clear purpose and language of ASG 2.

The Judge said that there was nothing in ASG 2 about giving up the right to arrest. However, the whole scheme of the agreement is that its provisions operate instead of an arrest in order to found jurisdiction, to enable a claim to be served and to provide for security to be given. Alternatively, the same result could 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 is likely to be a short time). Such a term is necessary as a matter of business efficacy and because such a term is so obvious that it goes without saying, for much the same reasons as already indicated in relation to construction. Without such a term, the objective of the parties to avoid the costs and delays caused by an arrest would not be achieved.

It is true that the appellant did not actually provide security in accordance with cl C. In theory, it could have done so unilaterally, for example by paying the amount of security into Court. However, it is clear that ASG 2 is intended to be used in conjunction with a Club LOU, typically in the form of ASG 1. The submission that the appellant did not actually provide security therefore leads nowhere. The appellant did tender performance of the cl C obligation by making an unconditional offer to provide security in the form of a Club LOU which the Judge found to be in reasonably satisfactory form, but the respondent refused to accept that performance. Further, a Club LOU is a contract between the Club and the beneficiary with consideration provided by both parties. The Club agrees to secure the claim, but the beneficiary (here the respondent) must agree to release and/or refrain from arresting any ship in the same or associated ownership as the name ship. Such a contract cannot be imposed unilaterally if the beneficiary is unwilling to agree this, as the respondent was. The correct analysis is that the respondent was under an obligation to accept the security offered, and that it was in breach of the CJA for refusing to do so.