Ship arrest remains a very powerful weapon: jurisdiction and security without risk

Ship arrest remains a very powerful weapon: jurisdiction and security without risk
Quadrant Chambers https://www.lexology.com/library/detail.aspx?g=de039c68-f066-4e64-9df2-6...

Natwest Markets PLC v Stallion Eight Shipping Co SA (THE "MV ALKYON") [2018] EWHC 2033 (Admlty)

In a decision which appears to have escaped the law reports until now, the often undervalued and neglected remedy of a ship arrest has been given new impetus by the judgment of Admiralty Judge in THE "MV ALKYON" [2018] EWHC 2033 (Admlty). Where it is available, an arrest is not subject to a duty of full and frank disclosure, or to a cross-undertaking and is available as of right.

In a strongly worded judgment the English Admiralty Judge Mr Justice Teare has confirmed that an arrest of a vessel within the Admiralty jurisdiction of the English High Court (in support of specified maritime claims) is not subject to the same rules and protections afforded to those faced with freezing injunctions at general law.

A Bank had lent US$15,700,000 to the Shipowner of the vessel ALKYON. The loan was secured by a mortgage on the vessel. The Bank notified the Shipowner of an alleged event of default issued an in rem claim form and applied for and obtained the issue of a warrant of arrest against the vessel.

The Shipowner denied the event of default and argued that the Bank did not exercise its powers in good faith or in pursuit of legitimate commercial aims. It argued that it would lose gross hire of US$11,350 per day and a profit of some US$3,500 to US$4,000 per day.

The Shipowner brought an application under CPR 61.8(4)(b) for an order releasing the vessel from arrest unless the Bank provided a cross-undertaking in damages in the form usually given in the context of freezing orders. It argued that the current practice of the Admiralty Court not to require a cross-undertaking in damages was anomalous and unjustifiable.

Mr Justice Teare refused the application as it

(i) ran counter to the principle that a claimant in rem might arrest of right;

(ii) would be inconsistent with the court’s long-standing practice that such a cross-undertaking was not required; and

(iii) would be contrary to authority.

A claim in respect of a mortgage on a ship is within the Admiralty jurisdiction and may be brought in rem against the ship in connection with which the claim arises; see section 20(2)(c) and section 21(2) of the Senior Courts Act 1981.

A claim in rem is started by the issue of an in rem claim form and a claimant in rem may apply for the issue of a warrant of arrest; see CPR 61.5. When the court receives an application for arrest that complies with the rules and the practice direction the court will issue an arrest warrant; see CPR Part 61 PD §5.2

The purpose of an arrest is to enforce an admiralty action in rem. The arrest establishes the jurisdiction of the English Admiralty court to hear and determine a claim. This is so even if the ship is registered in a foreign country and that the claim has no connection with England. By arresting the claimant can enforce his claim and the ship may be sold by the Admiralty Marshal upon the order of the court and the claimant may recover his claim from the proceeds of sale.

The issue of a warrant of arrest is of right and is not discretionary. There is no duty of full and frank disclosure as there is upon an application for an ex parte injunction: The Varna [1993] 2 Lloyd’s Rep 253. Since 1858 it has been established that only where an arresting party acted in bad faith or with such gross negligence as implies malice can it be made liable for damage caused by a wrongful arrest; see The Evangelismos (1858) 12 Moo PC 352.

The claimant in rem obtains the issue of a warrant of arrest as of right. If the court were to say that in exercise of its discretion to order release, the vessel must be released from arrest unless a cross-undertaking in damages is provided, the exercise of its discretion would negate the principle that a claimant may obtain the issue of a warrant of arrest without providing a cross-undertaking in damages.

Therefore, if a defendant has a vessel which is likely to visit English shores, it would be worth considering an arrest in England as the perfect weapon to secure a claim rather than the more usual freezing injunction.