Introduction

In the recent English case Tecoil Shipping Ltd v Neptune EHF & Ors [2021] EWHC 1582 (Admlty), the English Admiralty Court (the “Court”) considered whether it should set aside a judgment in default in an in rem claim. An in rem claim is an action against a piece of property itself instead of the owner of the piece of property, whereas an in personam claim is an action against the owner of the property.

Background

In July 2018, two ships, namely the POSEIDON (“Poseidon”) and the TECOIL POLARIS (“Tecoil”) collided. It was clear that Tecoil was at berth at the time the Poseidon crashed into her. As such, the owner of the Poseidon (the “Defendant”), which is now in liquidation, has never disputed its liability for the collision. Subsequent to the collision, the underlying insurer of the Poseidon (the “Insurer”) issued a letter of undertaking (the “Letter of Undertaking”) pursuant to which the Insurer agreed to pay to the owner of Tecoil (the “Claimant”) the sum due by the Defendant, provided that the totally liability did not exceed US$200,000.

In rem proceedings

In June 2019, the Claimant commenced in rem proceedings against the Defendant to seek damages and the Defendant failed to acknowledge service. The Claimant therefore applied for and obtained judgment in default with an award of around US$525,000. After the in rem proceedings, the Insurer stated that it would not make payment under the Letter of Undertaking on the basis that the Letter of Undertaking would not respond to an in rem judgment.

In personam proceedings

Given the Insurer’s reluctance to make payment, the Claimant brought an in personam claim against the Defendant in July 2020. The Claimant also served the claim form to the Insurers as parties and made a claim against the Insurers for the sum due under the Letter of Undertaking. Again, the Defendant failed to acknowledge service and the Claimant obtained a judgment in default against the Defendant. The Claimant demanded the Insurer to make payment pursuant to the Letter of Undertaking, which was rejected by the Insurer. The Insurer sought to set aside the default judgment obtained by the Claimant against the Defendant.

Arguments and ruling

In the application to set aside the default judgment, the Insurers made the following arguments:

1.            The default judgment was wrongly entered and should be set aside as a matter of right under Rule 13.2 of the English Civil Procedure Rules (the “CPR”) on the premise that pursuant to Rule 61.9(2) of the CPR, in a case concerning collision of ships, default judgment should not be granted unless the claimant has filed a collision statement, or obtained an order to dispense with such requirement; and

2.            The default judgment should be set aside as a matter of discretion under Rule 13.3 of the CPR given that there was a reasonable prospect of success in defending the claim.

Whether a collision statement is required

In respect of the first argument, the Court ruled that a collision statement is only required upon the filing of an acknowledgement of service by the Defendant. Since no acknowledgement of service was filed in the present case, Rule 61.9(2) of the CPR is not applicable and a collision statement is not required. Instead, Rule 61.9(3)(b) of the CPR applies, which provides that an application for default judgment is to be made in accordance with Part 12 with necessary modifications. The Court further stated that it is trite law that judgment in default of acknowledgement of service is available in cases concerning collision.

Whether the in rem judgment constituted conclusive evidence

In respect of the second argument, the Court ruled that a party is allowed to bring a subsequent in personam claim in respect of the same claim even if judgment has already been obtained in an in rem claim. The Insurers argued that the Defendant could, in the in personam proceedings, re-litigate its liability and/or the quantum under the in rem judgment, as the previous proceedings did not determine the status of the Poseidon. The Insurers were of the view that the previous judgment involved in rem decisions which did not provide conclusive evidence of the issues therein. This argument was rejected by the Court, which held that the in rem judgment provided conclusive evidence of the matters therein and the Defendant was bound by such conclusive evidence in the present proceedings.

In any event, the Court suggested that it would not exercise its discretion to set aside the default judgment as the Insurers could have taken part in the in rem proceedings previously if they intended to contest the quantum of the claim. However, the Insurers refused to do so and it is not appropriate for them to argue otherwise in the in personam proceedings.

The decision

In light of the above legal analysis, the Court rejected the Insurers’ application for setting aside the default judgment and suggested that it would be an abuse of process if the application was allowed.

Takeaways

This case reiterates that the matters decided in an in rem judgment concerning collision of ships can be used as conclusive evidence against the party at fault in subsequent in personam proceedings. The same principle applies even where the ship owners at fault or their insurers did not take part in the original in rem proceedings. Thus, this case serves as a reminder to ship owners and insurers that they would be bound by the results in an in rem claims in a subsequent action in personam.