M/V Pacific Pearl Co Limited v Osios David Shipping Inc

Under a Collision Jurisdiction Agreement in the ASG 2 form, a party that tenders security in a reasonably satisfactory form must have that security accepted by the recipient. The recipient may not seek alternative or better security by arresting a ship, and an existing arrest must be released. This follows from the proper construction of clause C and, alternatively, from an implied term necessary for business efficacy and so obvious as to go without saying. The assessment of reasonable satisfaction considers both the terms of the security and the identity of its provider.

Following a collision in the Suez Canal, the parties agreed a Collision Jurisdiction Agreement on ASG 2 terms. The appellant offered security by way of a P&I Club letter of undertaking containing a sanctions clause. The respondent rejected it and maintained an arrest in South Africa.

Sir Nigel Teare held that the offered security was in a reasonably satisfactory form, but concluded that clause C did not oblige the respondent to accept it or prevent the pursuit of alternative security: [2021] EWHC 2808 (Comm). The appeal concerned the construction of clause C, the implication of a term requiring acceptance, and the respondent’s challenge to the form of the letter of undertaking.

1. Appeal allowed. Males LJ delivered the leading judgment, with Snowden and Lewison LJJ agreeing. The respondent was obliged to accept security offered under clause C once it was in a reasonably satisfactory form.
2. Clause C must be construed against the purpose and structure of ASG 2. Clauses A to C provide, respectively, for English jurisdiction, service through solicitors, and security instead of arrest. Clause F transfers disputes about the sufficiency of security to the English court. The phrase requiring security to be in a form reasonably satisfactory to the other party would serve little purpose if that party could reject reasonable security and seek better security elsewhere. Once reasonable security is provided, there is no justification for an arrest; an existing arrest must be released. The court’s reasoning was consistent with the background reflected in The Kallang [2006] EWHC 2825 (Comm) and distinguished the different issue considered in The Kallang (No. 2) [2008] EWHC 2761.
3. Alternatively, a term requiring acceptance within a reasonable time was implied. The term was necessary for business efficacy and so obvious that it went without saying. The guidance in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472, as explained through Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, concerned cases involving several possible contractual solutions. The respondent’s proposed reliance on ordinary commercial behaviour was not itself a contractual solution and would leave clause C effectively redundant.
4. The appellant had tendered performance by making an unconditional offer of a Club letter of undertaking in a form found to be reasonably satisfactory. A Club letter of undertaking could not be imposed unilaterally because the beneficiary had to agree to release or refrain from arresting ships in the same or associated ownership. The respondent’s refusal was therefore a breach of the agreement.
5. The Respondent’s Notice failed. The judge had been entitled to evaluate the terms of the letter and the identity of the P&I Club and to conclude that the proposed sanctions clause and other terms were reasonably satisfactory. The court expressed no general view on the acceptability of sanctions clauses in principle.
6. Judgment was entered for the appellant for €297,000 and US $201,275, together with recovery for further losses accruing until the conclusion of the South African proceedings.

• Court of Appeal (Civil Division) allowed the appeal and entered judgment for the appellant. The Respondent’s Notice was unsuccessful.
• High Court of Justice, Queen’s Bench Division, Commercial Court Sir Nigel Teare held that the offered letter of undertaking was in a reasonably satisfactory form but that the respondent was not obliged to accept it: [2021] EWHC 2808 (Comm).