It’s Good To Talk

Insurers may take an approach to larger claims where, because of the projected size and complexity of the case, lawyers are appointed immediately. It is not an unreasonable assumption that claims of, say, over USD1 million dollars are likely to “turn legal” and have to be vigorously prosecuted through the courts. After all, noone expects an opponent to happily hand over a seven-figure sum without first offering some robust resistance.

As a Recoveries firm, we have grounds for considering this practice as discriminatory as opposed to discerning.

One recent case involving our Asian offices in Hong Kong and Singapore is a salutary example of how “going legal” early can have some unsavory consequences…

Trench Warfare!

The case was obtained through our Singapore office and passed for handling in Hong Kong. As with many claims sporting seven figures, this was an ad-hoc appointment originally for the purpose of negotiating security with the P & I Club in Hong Kong on behalf of the vessel owner. And, as with all claims sporting seven figures, we were not the only firm on the scene offering our services.

We recommended a simple strategy to our client: File In Rem actions; Threaten arrest of fleet vessels; Obtain adequate security covering loss, interest and costs; Include an express agreement on the law and jurisdiction of the substantive claim AND the Law and Jurisdiction governing enforcement of the LOU itself ; and then, Negotiate with the Club without prosecuting the matter aggressively through the courts.

This is a tried-and-tested strategy our Hong Kong Office employs on a regular basis against owners. We strive to maintain the correct balance between professional robustness on one hand and commercial fairness on the other. When we threaten arrest, we do it. Yet, we remain pragmatic in our pursuit of realistic objectives.

We do not negotiate hard on a point of principle or an unsustainable belief that our argument is bound to succeed: we negotiate for the sole purpose of maximizing the NET return for the client. There is no point being proved right by a court only to be left with no means of enforcement and a bill for legal fees. Our opponents as well as our clients respect us for this.

So, In Rem actions were filed in Hong Kong and Singapore as both lay along the trading patterns of the majority of the vessels in the fleet. We did not have to wait for long before we could contact the P & I Club and threaten arrest of their member’s vessel.

Unfortunately, in the interim, a Singaporean Law Firm had persuaded those who appointed us that the correct forum for the claim was Singapore. The Singapore lawyers were then instructed to negotiate security and a Letter of Undertaking (LOU) wording directly with the P & I Club.

We had all but agreed a LOU wording which included an express agreement to have any continuing dispute concerning the substantive claim tried subject to Hong Kong Law and Jurisdiction. This agreement would have been binding on the parties.

Instead, the Singapore Lawyers agreed to a “competent court” wording for the LOU. It appeared to nominate Singapore law and jurisdiction only for the enforcement of the LOU itself. As for the substantive claim, it was silent.

However, the wording of the LOU (albeit not to our preferred standard of comprehensive detail and due diligence) was not the key element in threatening the ultimate prospects of the claim. The main problem arose later when the Singapore Law Firm missed a court date for filing. In response, the lawyers for the defendants made an application to have the case struck out.

By this point, the relationship between the parties rapidly deteriorated and matters were hardly assisted by the unintended sharing of an unredacted chain email where a partner at the Singapore law firm referred to a senior director at the P & I Club as a “colonial airhead”.

Legal costs were escalating as formal hearings were attended and technical arguments raised. None of these arguments had anything to do with the substantive claim. The process had been effectively stalled by procedural wrangling perpetuated by both sides in the argument perceiving a cynical and unprofessional intent in the other.

Art of Diplomacy

It is a fact that this case would have been settled with the P & I Club approximately two years ago had the insurer granted us exclusive authority to deal with the case. It was two years ago when we had an “off the record” discussion where figures – in the general ballpark of what was finally agreed – were discussed and a deal seemed entirely possible at that time.

Instead, the matter “turned legal”. Sandbags were laid and trenches dug. The early progress towards a settlement was all but halted by legal process.

Ultimately, what resolved this dispute was our Singapore Office’s relationship with the client and our Hong Kong office’s relationship with the P & I Club.

Our Singapore Office kept the door permanently open to the client. The client eventually responded and discussed with us whether any deal could be brokered with the P & I Club in order to extricate itself from a toxic situation.

We were in a position to advise the client that a deal could be brokered with the P & I Club by virtue of our Hong Kong office’s valued reputation and long-established lines of communication to the very highest level of seniority within all international Group Clubs based, as they are, in Hong Kong. We even enjoy a degree of leverage in our negotiations with Fixed Premium Clubs and those in the region who are not members of the International Group courtesy of our regular and consistent dealings with their members’ vessels in this part of the world.

The positive result was principally achieved due to the diplomatic capabilities and professionalism of our Singapore and Hong Kong offices individually and – most important of all – the teamwork between the Offices: two offices working hard, playing to their respective strengths and reaching agreement through dialogue.

It is evidence, if evidence was needed, that one should not immediately and instinctively look to rely on the Law in order to resolve a dispute. Technical expertise, regional experience and established professional relationships are invaluable. As is keeping lines of communication open and talking.

The importance of securities 19/02/2024
Read More →