In a recently published decision (RdTW 2020, p. 157), the District Court of Hamburg (court case no. 415 HKO 55/18) ruled that a letter of undertaking from a P&I Club based in the UK is not a suitable form of security.
Background:
The case decided by the District Court of Hamburg concerned proceedings of a non-EU entity against a German company for compensation of damages in an amount of EUR 7,760,000.00.
Sec. 110 of the German Civil Procedure Code provides that a non-EU entity has to provide security for the costs of the proceedings (unless another international convention such as the Hague Convention on Civil Procedure from 1954 applies). In this case, the security amount was fixed at EUR 250,000.
Claimant offered to provide security by way of a Club letter of undertaking issued by the North of England P&I Club. It can be taken from the published facts that the Club agreed on German jurisdiction and appointed a process agent for service of documents, thus, fully submitted to German jurisdiction.
According to sec. 108 German Civil Procedure Code, the default position is that security has to be provided by way of bank guarantee, issued by a bank admitted to do business in Germany or by way of cash deposit with the court. The court has discretion to allow other forms of security.
In this case, the court ruled that a club letter of undertaking, issued by a P&I club based in the UK is not a suitable form of security. It referred to an older decision of the Higher Regional Court of Hamburg, which allowed security by way of bank guarantee of a Swedish bank, because the Swedish Bank had agreed to German jurisdiction and appointed a process agent in Germany. According to the facts of the case, the P&I Club in this matter had agreed to similar terms.
The court however ruled that a UK-based P&I Club, being an insurance and not a bank, cannot be considered as equal security as a EU based bank. The court explicitly referred to “Brexit” and stated that enforcement of German decisions in the UK might become more difficult when the UK leaves the EU and thus, a P&I letter of undertaking cannot be considered suitable security.
Although this decision concerned the provision of security for costs, the same reasoning would apply in case of security for lifting of an arrest, where a Club letter of undertaking is usually the first choice of security, as all other forms of security are more costly and take more time to organise. So, unless the arrest creditor accepts a P&I LoU, in case of arrest, debtors or their underwriters must be prepared to provide a bank guarantee or cash deposit.