UK Case law: Tecoil Shipping Ltd v Neptune EHF [2021] EWHC 1582 (Admlty)

Admiralty – Procedure – Collision – Default judgment in rem against vessel followed by proceedings in personam – Status and effect of in rem judgments – Enforcement of LOU issued by insurers

In July 2018, the MV Poseidon collided with the MT Tecoil Polaris, which was at berth in Hull. The owners of the Poseidon (Neptune) never disputed liability. In August 2018, Poseidon’s (non-IG) P&I insurers (the Insurers) issued a letter of undertaking (LOU) by way of security on standard  wording.

In June 2019, the owner of the MT Tecoil Polaris (Tecoil) issued in rem proceedings against the Poseidon seeking damages, interest and costs. No acknowledgment of service was filed and Tecoil applied for judgment in default. Judgment was granted and Tecoil were awarded damages and costs.

However, the insurers refused to make payment under the LOU on the basis that the LOU did not respond to an in rem judgment (ie against the vessel itself). Tecoil in turn commenced in personam proceedings against Neptune, while adding the insurers as defendant and claimed the sum due under the LOU plus interest and costs. Neptune had gone into liquidation two years earlier. In the absence of any acknowledgment of service, Tecoil sought and obtained a judgment in default. The insurers still refused to pay under the LOU, this time on the basis that:

1. The default judgment was not a "final unappealable judgment"; and
2. The LOU was not intended to protect Tecoil from the risk of Neptune’s insolvency, in the event that the Poseidon was not of sufficient value to satisfy Tecoil’s claims.

The insurers applied to set aside the default judgment. Tecoil applied for summary judgment against the insurers under the LOU.

While the parties settled before the draft judgment was circulated, the Admiralty Court nonetheless exercised its discretion to publish part of the judgment, perhaps as a sign of frustration with the arguments raised before the court.

Admiralty Court decision

The court held as follows and, in doing so, rejected the insurers’ arguments:

1. It is possible for a claimant to obtain a default judgment in an in personam collision claim, for example, where the defendant fails to acknowledge service (and thus take part in the proceedings);
2. It was not open to the insurers to make submissions in their defence on the substantive underlying issues as that would amount to re-litigating the issues already determined in the earlier in rem judgment.  Instead, the insurers were bound by the in rem default judgment, which they had refused to take part in. 

Comment

This decision demonstrates that determinations made in an in rem claim can bind an owner, or their insurers, in subsequent in personam proceedings. A party therefore needs to consider carefully whether or not to take part in proceedings - what may not be done is refuse to take part in the first (in rem) proceedings in the hope of re-litigating the same issue in any subsequent (in personam) action.

The question as to whether an LOU would respond to an in rem judgment remains to be answered.

1. Link to i-law can be found here
2. Link to commentary by Hill Dickinson can be found here
3. Link to commentary by Quadrant Chambers can be found here
4. Link to commentary by Ince can be found here

Category: Caselaw