On 29 August 2022, a collision took place at the western anchorage in Gibraltar between the OS35 and the Adam LNG, which led to the OS35 sinking and becoming a wreck. On 15 September 2022, one of the defendants, the Captain of the Port of Gibraltar, served a wreck removal notice requiring the plaintiff owner of the OS35, Oldstone Cargo Ltd, to remove the wreck and its contents. This resulted in the insurer of the OS35, QBE Europe SA/NV (QBE), trading as British Marine, taking on the salvage and then wreck removal operation, which it claimed cost GBP 26.12 m.

As the (now defunct) OS35 was the only asset that the plaintiff owned, and as a claim for wreck removal can be brought directly against an insurer under art 12(10) of the Nairobi International Convention on the Removal of Wrecks 2007 (the Nairobi Convention), claims were brought by the defendants against QBE. Under the Nairobi Convention, an insurer is entitled to limit its liability in accordance with the limits set out in the LLMC 1996. The first three defendants (His Majesty's Attorney-General for Gibraltar, the Gibraltar Port Authority, and the Captain of the Port of Gibraltar) provided QBE with a draft guarantee and indemnity which made no reference to the insurer's right to limit liability. The first three defendants claimed around GBP 7 m. Only a part of this amount was paid by QBE, and around half of this amount appeared to be disputed. As a result of QBE's failure to pay these expenses or provide the guarantee sought, the Captain of the Port detained the ship's cargo.

QBE sought to establish a limitation fund by way of an LOU. The first three defendants rejected the LOU. QBE therefore set up a limitation fund by depositing cash (GBP 14.2 million) without prejudice to its position that it was entitled to provide an acceptable LOU by way of security instead of cash paid into Court.

The plaintiff applied to constitute a limitation fund with an LOU from QBE. The first three defendants raised a preliminary objection, arguing that a payment into Court had already been made by the plaintiff and there was no precedent for substituting cash security with a LOU. Further, the defendants claimed that the LOU offered was neither 'acceptable' nor 'adequate'. They argued that the offered LOU was not acceptable for two main reasons. First, insurers did not deal with outstanding claims expeditiously and the Gibraltar Port Authority remained out of pocket for a considerable period of time. Given the time it took to settle the issues, the Authority was usually presented with considerably discounted settlement offers, which it had to accept given its limited commercial and bargaining power. Second, the first three defendants, as public authorities seeking payment of expenses incurred in the public interest of Gibraltar, should not have to chase a private insurer internationally for the enforcement of an order of the Gibraltar court where there is a more adequate alternative, namely the current cash deposit. Regarding adequacy, it was claimed that there was no evidence of QBE's financial standing and assets. The creditworthiness of QBE should be viewed with skepticism, since QBE was not a mutual assurance P& I Club. Further, QBE would have to be pursued in multiple jurisdictions. Registration and enforcement of a Gibraltar judgment in the UK was not clear, and enforcement in Belgium could be refused for the sole purpose of causing delay. The conduct of QBE in this case indicated that they would take whatever steps they considered necessary to hinder or delay enforcement.

The fourth defendant, the owner of the Adam LNG, agreed to the LOU, provided that the Court considered it acceptable and adequate. It argued that the Court should be satisfied that an insurer not regulated in Gibraltar was acting lawfully in providing an LOU in this case. It also proposed some textual amendments to the LOU.

The plaintiff claimed that the LOU was acceptable since there was no prohibition under Gibraltar law for the provision of an LOU. QBE was authorised and regulated in Belgium and the UK. There was no requirement for an LOU to be provided by Gibraltar-regulated insurers. The P&I clubs and large insurance companies are not registered in Gibraltar, and If it were necessary for cover to be provided by Gibraltar-regulated insurers, this would inevitably require a Gibraltar-regulated insurer to obtain an undertaking from a P&I Club or similar. This would impede, rather than promote the aims of the LLMC 1996. The LOU was adequate since QBE's credit rating indicated they were creditworthy. The plaintiff referred to the practice of leading shipping jurisdictions, including England, where LOUs issued by P&I Clubs, even with a rating lower than QBE, were deemed acceptable. The plaintiff added that the fact that the defendants might have to enforce the LOU in a foreign jurisdiction did not render it inadequate. Nevertheless, there was no material concern about the enforceability of a Gibraltar judgment in the UK where QBE had assets, or in Belgium. A blanket prohibition on all LOUs imposed by the Gibraltar Port Authority would put Gibraltar, through the UK, in breach of public international law. Regarding the text of the offered LOU, the plaintiff claimed that it was in a standard form and should not be altered unnecessarily.

Held: Application to establish a limitation fund by way of an LOU granted.

Payment into Court is governed by a consent order allowing the plaintiff to substitute the cash deposit with an LOU. This course of action is not prohibited under art 11.2 of the LLMC 1996 which deals with the constitution of a limitation fund: 'A fund may be constituted, either by depositing the sum, or by producing a guarantee acceptable under the legislation of the State Party where the fund is constituted and considered to be adequate by the Court or other competent authority.'

The Judge, adopting the reasoning in The Atlantik Confidence (CMI48) as a persuasive authority that should be accorded considerable weight, concluded that the LOU, subject to some amendment and observation, constituted adequate and acceptable security under the LLMC 1996.

The LOU is acceptable because providing an LOU is not unlawful in Gibraltar and QBE is appropriately regulated. The Court rejected the argument of the first defendant that, according to the Atlantik Confidence, an insurer offering an LOU had to be authorised by the Gibraltar Financial Services Commission. This construction was in contradiction with the aim and intention of the LLMC 1996, namely encouraging international trade by way of sea carriage by facilitating the limitation of liability by the provision of a deposit or a guarantee.

As to adequacy, the court held the LOU satisfies the three conditions set out in The Atlantik Confidence. First, the QBE was of sufficient financial standing. The fact that LOUs tend to be provided by mutual assurance P&I Clubs does not mean that the financial standing of other guarantors should be vied with skepticism, and the LLMC 1996 does not prescribe which guarantees might be regarded as acceptable. What matters is financial standing of the entity providing the guarantee. The Court needs to undertake an assessment based on the totality of the evidence before it on the financial standing of QBE. The plaintiff's evidence provided sufficient materials for the Court to be satisfied as to QBE's financial standing.

Second, there were no real practical enforcement issues. The mere fact that the respondent may have to enforce the LOU in a foreign jurisdiction is not sufficient to render it inadequate, and any concern about enforcement must be real and material. The Court cannot infer from the conduct of QBE that a well-established global insurer will try to avoid payment under an LOU following a final court judgment by raising frivolous arguments about enforcement.

Third, the offered LOU is in the well-known ASG12 form, which was devised by a group of leading maritime lawyers, the Admiralty Solicitors Group, and has been accepted internationally. The LOU is, therefore, in principle adequate, but certain necessary amendments need to be made to it in this case.