Following a dispute between owners and charterers, the charterers' insurers, a P&I Club, issued a letter of undertaking ("LOU") in favour of the owners. The LOU contained the following provision: "It is agreed that both Charterers and Owners shall have liberty to apply if and to the extent the Security sum is reasonably deemed to be excessive or insufficient to adequately secure Owners' reasonable claims" (emphasis added).
Arbitration was commenced in London between the owners and the charterers and the arbitrators had no power to order additional security. The owners therefore applied to the English courts, asking the court to order the P&I club to increase the security. The P&I Club argued that the court had no power to increase the security but the owners argued that "liberty to apply" gave the court that power. Blair J acknowledged that "liberty to apply" normally refers to liberty to apply to court. However, the phrase is usually used in a court order, whereas here it was used in a contract, in respect of which there were no proceedings at the time. He therefore interpreted "liberty to apply" as here meaning liberty to arrest a vessel. An application to adjust security must be directed to the other party – it cannot be directed to the P&I club directly in an application to the court.