Emerging issues in Admiralty

Updating ASG 2 Collision Jurisdiction Agreement wording

Recent developments in collision claims have exposed uncertainties, which may require the updating of the current Admiralty Solicitors Group (ASG) standard wordings. In particular, two challenges have emerged: (1) how to best address in personam liability issues in collisions involving bareboat‐chartered vessels; and (2) how to address the exchange of security following the Court of Appeal’s decision in Pacific Pearl Co Limited -v- Osios David Shipping Inc (Panamax Alexander c/w Osios David) [2022] EWCA Civ 798. The ASG is considering revisions to the ASG2 Collision Jurisdiction Agreement (CJA) to address both issues.

Collision claims and the bareboat charter challenge

Modern financing arrangements—particularly leaseback financing—have resulted in scenarios where lenders act as the registered owners while borrowers operate vessels under bareboat charters. Under a bareboat charter (and unlike time or voyage charters), the charterer is considered to have “possession” of the vessel. 

Under English law, liability for collision damages generally falls on the party in actual possession of the vessel at the time of the incident. This means that the bareboat charterer would be liable for collision losses, but this is not always the case and will depend on the terms of the bareboat charter, thus giving rise to potential confusion and mistakes when claiming against a bareboat-chartered vessel.  Under Admiralty law, there is the peculiarity in collision cases (as well as other in rem type cases) where the vessel or res itself can be sued, in which case whether or not there is a bareboat charter may become irrelevant.

Who should sign the CJA? 

It is common practice for parties involved in a collision to sign a CJA providing for both English law and jurisdiction. The current ASG CJA wording provides that English solicitors will sign the CJA on behalf of the “owners” of the vessel, and that the owners warrant that the vessel was not under bareboat charter at the time of the collision. 

The question therefore is what to do in circumstances where one of the vessels may have been under bareboat charter at the time of the collision. An emerging issue is that owners and their insurers have been hesitant to contract just with the alleged bareboat charterer (where there is one), presumably because they fear that in personam liability might still fall on the registered owner. Likewise, only suing the owners in personam might result in the wrong party being sued.

Some practitioners have attempted to resolve this concern by having both the registered owner and the bareboat charterer sign the CJA. However, this approach risks straining the lender–borrower relationship (particularly where the owner is a finance company with no interest in such issues), and is likely to be met with resistance from both the bareboat charterer and the registered owner. More importantly, this approach still leaves ambiguity over which party should be pursued in personam.

In rem service as the preferred approach

A more effective solution is to contract with the bareboat charterer but amend the ASG2 CJA wording to expressly allow service of in rem proceedings. This would enable claimants to serve proceedings directly on the vessel, (or the party undertaking to accept service of an in rem action) thereby bypassing the need to determine which party is liable in personam. Under English law, a maritime lien attaches to the vessel regardless of its registered ownership or bareboat charter status (see The Tasmania (1888) and The Father Thames (1979)).

The traditional hurdle of proceeding in rem is that of service. Traditionally, service had to be made on the defending vessel whilst in English waters. However, Practice Direction 61.3.6(5) of the Civil Procedure Rules permits English solicitors to accept service on behalf of the vessel, even if the vessel is not physically served within English waters. 

Once the in rem action is served, it is then incumbent on the correct party defending the claim to acknowledge the proceedings, whether bareboat charterers or actual owners.

Parties contemplating in rem proceedings are commonly concerned that there might be issues regarding enforcement. For example, how would the claim be enforced if no party enters an appearance to defend the claim or if an entity that was not originally in personam liable enters an appearance? Neither of these scenarios should be a cause for concern in circumstances where adequate security is in place. If no party enters an appearance to defend the in rem proceedings, the claimant should be entitled to obtain a default judgment which can then be enforced against the security. Conversely, if an incorrect party enters an appearance—such as the registered owner when liability rests with the bareboat charterer—that party may then be held liable in personam. These points further highlight the need for clear provisions on in rem service in any future revision of the ASG2 CJA.

Express references to the bareboat charterer? 

Another common concern for practitioners is whether to amend the ASG2 CJA wording to expressly refer to bareboat charterers. This is because the standard wording refers to both parties as the “owners”. The question is whether, in cases involving a bareboat charterer, this reference to “owners” should be changed to “bareboat charterer” to ensure there is no confusion regarding the party on behalf of whom the solicitor has signed. 

Although amending the CJA wording to expressly refer to the bareboat charterer should provide more certainty, this would require tweaking several sections of the ASG2 CJA and might give rise to further disputes or complications. Conversely, there is an argument that no amendments are necessary because the generic reference to “owners” should be read to mean whoever is liable in personam—whether that be a registered owner or a bareboat charterer. The actual entity would be determined by whoever is indicated as being liable in clauses D and E. This interpretation reflects how the courts have traditionally treated a generic reference to “owners” in in rem claim forms (see the Father Thames). 

The same considerations may also apply to the corresponding ASG1 security, which similarly makes only a generic reference to “owners.” 

Accordingly, the meaning of “owner” is another issue that the ASG could consider or provide clarification on in its forthcoming revisions.

Security wording challenges following the Pacific Pearl judgment 

The second emerging issue for owners and practitioners alike is how to deal with security following the Court of Appeal’s decision in Pacific Pearl Co Limited -v- Osios David Shipping Inc [2022] EWCA Civ 798. 

Briefly, in that case the parties had signed a standard ASG2 CJA wording which provided that the parties would,

"provide security in respect of the other's claim in a form reasonably satisfactory to the other.”

The defendant offered non-standard security wording with a sanctions clause, which was rejected by the claimant. The Court of Appeal held that the non-standard ASG security wording was “reasonably satisfactory” for the purposes of clause C of the ASG CJA wording and that there was an implied term that a party needs to accept reasonably satisfactory security if offered. Accordingly, it was held that the claimant had breached the CJA by refusing the accept the security offered. What this means going forward is that if the party demanding security unreasonably refuses such wording, they risk breaching the ASG2 CJA.

Best practice following the Pacific Pearl decision has been to only sign ASG2 CJA upon agreeing both the security amount and wording. This avoids the risk of having to consider accepting either non-standard security wording or a disputed security amount. 

In response to the Pacific Pearl decision, the ASG is considering an amendment that would require security to be provided strictly in the standard ASG1 form. This amendment should reduce the risk of a party offering non-standard security wording in circumstances where an ASG2 CJA is agreed before the exchange of security. However, this measure does not fully resolve potential disputes over the security amount. 

Conclusion

The evolving challenges in collision claims underscore the necessity to ensure that industry standard ASG forms are regularly updated. Amending the ASG2 CJA to allow for in rem service, together with standardising security wording provisions, will enhance legal certainty and streamline the resolution of collision claims. 

In the event of any query regarding the issues discussed in this article or any other related issues, please contact the authors or your usual contact at Hill Dickinson LLP.