The Existence of a Possessory Lien in respect of a Claim would Affect the Priority to be Given to the Costs Incurred in Enforcing that Claim in an Admiralty Action in Rem

It is well settled that in actions against the proceeds of sale of property arrested in rem, costs have the same priority as the claim in respect of which they have been incurred. However, it remains uncertain whether the proper application of this rule should result in costs being accorded the same priority as a possessory lien or a statutory lien where a claimant has a possessory lien over an arrested ship in respect of a claim which, but for the possessory lien, would have priority only as a statutory lien in admiralty. In the recent case of Keppel FELS Ltd v Owner of the vessel “SONGA VENUS” and Songa Offshore SE (The Songa Venus) [2020] SGHC 74, the Singapore High Court addressed this issue.

The claimants, Keppel FELS Ltd, provided various services to the vessel Songa Venus, including repairs, modifications, supply of materials, equipment and berthing. The owners of the vessel failed to pay for the said services, and so Keppel FELS Ltd commenced these proceedings, arrested the vessel, and obtained an order for the vessel to be appraised and sold without prejudice to their possessory lien over the vessel, if any. After the vessel was sold for US$3,749,463.14, Keppel FELS Ltd obtained final judgment for the sum of US$1,169,370 with interest. The court also held that Keppel FELS Ltd had a possessory lien over the vessel in respect of the portion of its claim relating to repairs, modifications, supply of various materials, equipment and services. The sums amounted to US$328,723 plus costs. The intervener, Songa Offshore SE, commenced a separate in rem action against the vessel for sums outstanding under a seller’s credit agreement which was secure by a second preferred mortgage over the vessel. Songa Offshore SE obtained a final judgment for the sum of US$34,200,000.

Against this backdrop, Keppel FELS Ltd filed an application to determine the priority of the relevant claims and payment out of the proceeds of sale. The parties were not in dispute as to the priority of the substantive claims. The dispute revolved around the costs of the claims. Keppel FELS Ltd argued that costs attributable to the portion of their claim for which they had a possessory lien should be accorded the same priority, ranking before the mortgage. However, Songa Offshore SE contended that all costs of Keppel FELS Ltd’s claim should be granted the priority of a statutory lien and rank below the mortgage.

The court found in favour of Keppel FELS. It explained that ‘considerations of justice and equity required the court to accord the disputed costs the same priority as the portion of Keppel FELS’ claim for which it had a possessory lien’. Particular emphasis was placed on the fact that, for the possessory lien holder to surrender the ship to the admiralty court, the admiralty court has to give an undertaking to put the possessory lien holder ‘exactly in the same position as if he/she had not surrendered the ship’. In principle, a possessory lien holder retains possession of the res until he/she has been paid in full, in return for its release. He/she does not have to initiate any legal proceedings to enforce the possessory lien and, thus, does not incur any legal costs. However, whenever the possessory lien holder has to surrender the ship to the admiralty court, he/she would have to initiate in rem proceedings to satisfy his/her claim through the judicial sale of the vessel. This implies that, for the admiralty court to fulfil its undertaking to put the possessory lien holder ‘exactly in the same position as if he/she had not surrendered the ship’, the admiralty court should protect the costs incurred by the possessory lien holder when bringing a claim in rem to the same extent as the possessory lien itself.

No maritime lien against demise chartered vessel for claim for disbursements made to vessel on time charterer’s orders.

 

The Irish Court of Appeal has recently decided in The Almirante Storni [2020] IECA 58 that a claim against the demise charterer by a ship’s agent in respect of  disbursements made to the vessel on the orders of the time charterer does not constitute a “maritime claim” within the meaning of article 1 of the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships done at Brussels on 10 May 1952 (The Arrest Convention). Insofar as the claim involved “disbursements” they were not disbursements made by the master but by the ship’s agents.

Article 1(n) of the Arrest Convention did not entitle an agent to maintain a claim against the owner of the vessel for disbursements made by such agent “on behalf of a ship”, in the absence of any personal liability on the part of the owner. The argument that the time charterer ordered services from the plaintiff as agent of the owners was not tenable. There was no evidence of any actual or ostensible authority to support a finding of agency.

 

Security clauses in charters — by hook or by crook they will be enforced

Behind Teare J’s decision today in Trafigura Maritime Logistics PTE Ltd v Clearlake Shipping PTE Ltd (Rev 1) [2020] EWHC 995 (Comm) lies a fairly standard series of shipping lawyer’s nightmares.

Trafigura time-chartered the Miracle Hope, a big (320,000 dwt) VLCC, from Ocean Light. They voyage-chartered her to Clearlake and Clearlake sub-voyage-chartered to Petrobras, both charters being back-to-back under Shellvoy 6. Petrobras demanded that the cargo be delivered without production of the bill of lading; the demand was passed up the chain and the cargo (worth, before the recent oil debacle, something over $70 million) released.

Thereupon Natixis, a Dutch bank which had financed Petrobras’s buyers, emerged brandishing a bill of lading apparently issued by Ocean Light, demanded the value of the cargo, and arrested the ship in Singapore. Ocean Light immediately demanded an indemnity from Trafigura: Trafigura, relying on a duty in the charterer in such cases to “provide an LOI as per Owners’ P&I Club wording”, demanded an LOI from Clearlake and Clearlake did the same from Petrobras. Following clear practice (e.g. The Laemthong Glory [2004] EWHC 2738 (Comm); [2005] 1 Lloyd’s Rep. 632), Henshaw J granted mandatory orders down the line requiring the charterers to provide such bail or other security required to secure the release of the vessel.

Unfortunately at this point problems arose. Clearlake and Petrobras negotiated with Natixis; the result was deadlock. Furthermore, owing to the worldwide contagion the Singapore courts could not break the deadlock for some weeks. And, of course, all the time the Miracle Hope was mewed up in Singapore: something which, with tanker hire rates now sky-high, would not do.

In other words, Henshaw J’s order was unworkable. As a result the matter came back to the Commercial Court. To order the provision of a guarantee satisfactory to Natixis would be unsatisfactory: furthermore, since the matter was likely eventually to reach the Singapore courts, it risked prejudging the issue in that forum.

The solution reached was workmanlike. The court had to do something. Security to obtain the release of a vessel could take the form of a payment into court; and, faute de mieux, Teare J ordered just that. Clearlake and Petrobras were ordered to arrange for payment into the Singapore court of $76 million within 8 days, no doubt with Petrobras bound to indemnify Clearlake, who in the circumstances were little more than piggy-in-the-middle. If this was necessary to secure the release of the vessel, this would be what was ordered.

And rightly so, in our view. As the title of this blogpost implies, an obligation to secure the release of a vessel has to be given effect. As with Coronavirus, so with the release of a ship: it is a case of doing all that it takes. Even if that takes a slightly unorthodox form.

THE FIRST ADMIRALTY CASE HEARD REMOTELY OWING TO COVID19 PANDEMIC

On 29 January 2020, the Admiralty Court made an order at the request of the claimant in Qatar National Bank QPSC v Owners of the Yacht Force India [2020] EWHC 103 (Admlty) that the yacht Force India be sold. The circumstances in which the order for the sale was granted were described in a previous post on this blog. See https://iistl.blog/2020/03/09/no-judgment-in-default-of-a-defence-in-in-rem-proceedings-against-an-arrested-ship-unless-the-court-is-satisfied-that-the-claim-has-been-proved/.

After twenty bids had been received by the Admiralty Marshal during the sale process, Qatar National Bank QPSC applied to the Court for an order to set aside the order for the sale. While the Admiralty Court declined to grant such order, it suspended the sale to enable a proper hearing to take place on notice to the interested parties. 

On 20 March 2020, the hearing took place by telephone as a result of the COVID19 pandemic, making Qatar National Bank QPSC v Owners of the Yacht Force India [2020] EWHC 719 (Admlty) the first case to be heard by the Admiralty Court remotely.

The Court decided to set aside the order for sale in the present case. That is because an independent third party paid the sums secured by the mortgage. As a result, the judicial sale of the yacht Force India was rendered unnecessary.

It may be worth noting here that the case at hand is exceptional in that the mortgage had been granted as additional security for a €27 million loan to finance the acquisition of a company which owned a property on an island off the coast of France. Thus, when the loan secured by the charge on the property was paid to Qatar National Bank QPSC, the smaller sum secured by the mortgage on the yacht was also discharged.

Indeed, the Admiralty Court emphasised the need for orders setting aside judicial sales of vessels to remain the exception rather than the norm, with a view to protecting its reputation and its ability in future cases to achieve a vessel’s market value when an order for sale is made.

Of ships and sea ROVers.

For most Admiralty lawyers most of the time, the question “what is a ship?” does not feature large on the radar. In the vast majority of cases there is no difficulty; the detailed working out of the question thus tends to be something left to law professors with time on their hands. Not always, however. An important recent battleground is ROVs. Although almost invariably controlled from ships, these can be pretty valuable pieces of kit in their own right, such that a right to arrest them and thus obtain security over them becomes worth having for a maritime claimant.

Yesterday the Australian Federal Court faced the issue in Guardian Offshore v Saab Seaeye 1702 [2020] FCA 273. The definition of a “ship” in the Admiralty Act 1988 (Cth) is very similar to that in s.313 of our own Merchant Shipping Act 1995: namely, a vessel of any kind used or constructed for use in navigation by water (though a few specifics are expressly incorporated). Colvin J had to deal with a purported arrest in Western Australia of a Saab Leopard, an electric underwater survey contraption looking a bit like an overgrown air-conditioning unit which could be made buoyant but only by the inflation through an umbilical cord of flotation bags attached to it.

His Honour, having gone through the English and Australian authorities going back to The Gas Float Whitton [1897] AC 337, decided it was not used for navigation and hence not a ship. It was very small, lived a lot of time on the sea bed, had very little power of directed motion, and had little in common with any other kind of vehicle used in navigation. He therefore vacated the arrest.

One suspects strongly that the result would be similar in England. But note three things.

  1. This case does not hold that a ROV is not a ship: merely that this ROV isn’t. A miniature submarine with substantial power of directional travel and natural neutral buoyancy we suspect would be likely to be potentially classed as a vessel used in navigation, and hence liable to arrest. There’s nothing odd in saying some ROVs are and some are not ships, just as (probably) some jetskis are and some aren’t: compare Steedman v Scofield [1992] 2 Lloyd’s Rep. 163 (simple jet-ski not a vessel with R v Goodwin [2005] EWCA Crim 3184; [2006] 1 W.L.R. 546 at [17] (more substantial jetski might be a vessel).
  2. An interesting issue remains unexplored. If the mother ship had been arrested, would a ROV operable only from and in connection with that vessel be regarded as part and parcel of it? (Compare Morlines Maritime Agency Ltd v The Skulptor Vuchetich [1996] FCA 41; (1996) 136 A.L.R. 206). What if one person arrests the ship and someone else the ROV?
  3. A ROV can be not only a ship but something supplied to a ship under s.20(2) of the SCA 1981: The Sarah [2010] CSOH 161, [2011] 1 Lloyd’s Rep. 546. This looks odd, but seems logically possible: compare the case of, say, a motor lifeboat.

One thing seems certain. We haven’t heard the last of this.

NO JUDGMENT IN DEFAULT OF A DEFENCE IN IN REM PROCEEDINGS AGAINST AN ARRESTED SHIP UNLESS THE COURT IS SATISFIED THAT THE CLAIM HAS BEEN PROVED

In Qatar National Bank QPSC v Owners of the Yacht Force India [2020] EWHC 103 (Admlty), the claim arose out of a mortgage granted by Qatar National Bank QPSC over the yacht Force India as additional security for a €27 million loan to finance the acquisition of a company which owned a property on an island off the coast of France. The mortgage was limited to a principal amount of €5 million. Due instalments were not paid and the claimant, Qatar National Bank QPSC, served a notice of default in June 2018.

Two months later, Qatar National Bank QPSC issued in rem proceedings and arrested the yacht Force India. The defendants, Force India Ltd, did not appear at the trial. It was, however, apparent from a letter from their former solicitors to the Court dated 14 January 2020 that Force India Ltd were aware of the trial. Against this backdrop, Qatar National Bank QPSC applied for an order to strike out the defence if Force India Ltd did not attend the trial. Mr Justice Teare granted this order pursuant to CPR Part 39.3 (1).

His Justice explained, however, that, in a case concerning in rem proceedings against an arrested ship, it is not appropriate to grant judgment in default of a defence pursuant to CPR Part 61.9(3)(a)(iii), unless the Court is satisfied that the claim has been proved. That is because other parties may have an action in rem against the arrested vessel. Thus, their interests might be damaged if judgment is given without the claim having been proved. Furthermore, the Practice Direction to CPR Part 39 provides that the claimant must prove his/her claim where the trial proceeds in the absence of the defendant.

Accordingly, Mr Justice Teare examined the documents which proved the claim and gave judgment for the sums claimed. These included €5 million for the value of the mortgage plus interests and the costs of collection. In addition, ancillary orders were given for the yacht to be appraised and sold.

Want to Arrest in Singapore? If you’re Not Actually Malicious, Feel Free

For more than 150 years, the test for wrongful arrest of a vessel has been that of ‘malice’ and ‘gross negligence’ on the part of the arresting party, as first described in The Evangelismos (1858) 12 Moo PC 352. While this test remains unchallenged in England and Wales, other common law jurisdictions including, but not limited to, Australia, South Africa, and Singapore have questioned its validity. More recently, the so-called Evangelismos test came under scrutiny in the judgment of the Singapore High Court in Hansa Safety Services GmbH v The Owner of the Vessel, the “King Darwin” (The King Darwin) [2019] SGHC.

On 13 November 2018, the claimant, Hansa Safety Services GmbH, brought an action in rem for services rendered to the vessel, the King Darwin. The total sum of the claim was 5,864.00 euros. On the same day, Hansa Safety Services GmbH arrested the King Darwin pursuant to a warrant of arrest. On 19 November 2018, the owners of the King Darwin provided security and the vessel was released.

On 21 January 2019, the Insolvency Administrator of the owners of the King Darwin, Hendrik Gittermann, was granted leave to intervene in the action. In his summons, Hendrik Gittermann sought to set aside the warrant of arrest and obtain damages for wrongful arrest of the vessel from Hansa Safety Services GmbH.

On 21 March 2019, Hansa Safety Services GmbH served a Notice of Discontinuance which it had filed on 7 February 2019, fourteen days after service of the defence to it. The purpose of the Notice of Discontinuance was to rescind the action as a whole including the counterclaim for damages for wrongful arrest of the vessel from Hansa Safety Services GmbH.

On 22 March 2019, Hendrik Gittermann applied to strike out the Notice of Discontinuance on the ground that it is necessary to prevent injustice or an abuse of process of the Court. The Senior Assistant Registrar granted the application. Hansa Safety Services GmbH appealed.

Vincent Hoong JC dismissed the appeal and upheld the order to strike out the Notice of Discontinuance. According to Vincent Hoong JC, this was an appropriate case for the Court to exercise its inherent powers to strike out a Notice of Discontinuance to prevent injustice to Hendrik Gittermann. The time and effort that Hendrik Gittermann would expend in recommencing a claim for the wrongful arrest of the King Darwin from Hansa Safety Services GmbH, taken in conjunction with the uncertainty of the test to be applied when bringing a claim for damages for wrongful arrest outside of in rem proceedings, were sufficient to set aside the Notice of Discontinuance.

Hendrik Gittermann argued that, by discontinuing the action, Hansa Safety Services GmbH would deprive him of his right to pursue a claim for wrongful arrest, which must be pursued in the context of an in rem action by the arresting party. Vincent Hoong JC rejected this argument. Hendrik Gittermann could bring a claim for damages for wrongful arrest independently of any in rem action by the arresting party. Vincent Hoong JC, reviewing the judgments in The Wallet D Wallet [1893] P 202, Best Soar Ltd v Praxis Energy Agents Pte Ltd [2018] 3 SLR 423 and Congentra AG v Sixtenn Thirteen Marine Sa (The Nicholas M) [2009] 1 All ER 479 (Comm), explained that such claim could be brought under the tort of wrongful arrest, which has long been recognised by the English Courts.

Furthermore, Hendrik Gittermann argued that, were he to pursue a claim for wrongful arrest independently of any in rem action by the arresting party, the test to be applied is unclear. Vincent Hoong JC recognised that the Court of Appeal’s observations in The Kiku Pacific [1999] 2 SLR (R) 91 and The Vasiliy Golovin [2008] 4 SLR (R) 994 have raised arguments that the applicable test for pursuing a claim for wrongful arrest when an in rem action is discontinued and an independent action is brought should be that of ‘without reasonable or probable cause’, rather than ‘malice’, as suggested in The Evangelismos (1858) 12 Moo PC 352. Nevertheless, Vincent Hoong JC took the view that these observations were not enough to lay down a less stringent test and ‘malice’ would almost certainly be the relevant threshold.

Ship arrest: no undertaking in damages exigible from arresting party

The Court of Appeal declined yesterday to upset the ship arrest apple-cart. In The Alkyon [2018] EWCA Civ 2760 it upheld the decision of the Admiralty Judge, Teare J, noted here on this blog, that a bank could hold an arrest over a mortgaged ship without having to give any undertaking to pay damages for loss of use should it turn out that its claim was ill-founded. The owners of the MV Alkyon, a 36,000 dwt bulker, had argued that there was no default justifying her arrest in Newcastle; that they could not afford to bail her; that her immobilisation by arrest would cause them big losses; and that it was only fair that if the bank was indeed wrong, it should carry the can for those losses.

Despite the fact that there is theoretically no restriction on the court’s discretion to release an arrested vessel (see CPR 61.8(4)(b)), Teare J disagreed; and the Court of Appeal agreed with him. Although there was much in common between ship arrest and freezing orders, where an undertaking in damages was emphatically the rule, for the court to demand such an undertaking in arrest cases would  cut across the idea that arrest was available as of right, and also the established principle that liability for wrongful arrest could not be imposed unless the claimant proved bad faith or possibly gross negligence. This was not something for the judiciary — barring possibly the Supreme Court — to do.

In the view of this blog, the Court of Appeal was quite right not to draw the analogy with freezing orders. For one thing not all arresters are plutocratic banks: think crewmen seeking wages or damages for injury on board, or for that matter suppliers of canned food and water for those crewmen to eat and drink. For another, the right to arrest is there for a purpose, namely to assure people that they will be paid by the owners of peripatetic pieces of maritime machinery: to allow a threat to arrest to be met with a threat to claim damages would not further this end. For a third, damages for arrest may well bear no proportion to the amount of the claim: the losses caused by the arrest of a large bulker or reefer would be likely to dwarf a straightforward $100,000 bunkers debt. And lastly, it’s all very well saying a single arrester ought to carry the can for immobilisation losses: but what if cautions against release then pile on? Which of the undeserving claimants should have to pay how much? Nice work for lawyers, maybe: less good news for shipping claimants who want to get on with their commercial lives.

Ship arrest: no provision for compensation for losses if claim turns out unjustified

You can always expect a scholarly judgment from Teare J. Today he dealt with a long-standing issue in the English law of arrest of ships: the lack of any jurisdiction to demand from the arrester security  for, or payment of compensation for, the losses suffered by the owner if the arrest turns out unjustified. His Lordship confirmed the traditional position, holding that it was for Parliament, or possibly the Rules Committee, to deal with this. If we limited damages for wrongful arrest to cases of malice or gross negligence, he said, it would be inconsistent to give a remedy for arrest not fulfilling these criteria.

In Natwest Markets Plc v Stallion Eight Shipping Co. SA, (the ship MV ALKYON) [2018] EWHC 2033 (Admlty) a bank mortgagee arrested alleging a LTV default; the owner denied default. Unable to secure release by putting up further security, it sought release unless the bank put up security for any losses it suffered in case the bank was wrong. The arrest was, consistently with the above, maintained.

US 2nd Circuit: bunker arrests clarified

Bunkers are supplied through a complex chain of suppliers. If you order a stem the outfit you order from will almost certainly not deliver them. Instead it will arrange directly or at one or more removes for a third party to do so, the bunkers being bought in down the line.

Arrest for bunkers is big business in the US, since there you can arrest the ship for the debts of the time-charterer who bunkers her (which you can’t in England unless the owner is also personally liable, which is unlikely). But who can arrest? The person the bunkers were ordered from or the person who pumped them on board? It turns on who “supplied” the bunkers under the relevant section of CIMLA, the maritime lien legislation. In a decision a couple of days ago arising from the OW debacle, ING Bank v The MV Temara 16-3923(L), the Second Circuit Court of Appeals has straightened out who this is: it’s the entity the charterer or shipowner contracted with, not the physical supplier.

And quite right too. The physical supplier here had voluntarily given credit to the uncreditworthy (OW) and supplied the bunkers to its order; it deserved no proprietary claim against the ship. Whereas the person who contracted with the ship had supplied the bunkers to the orders of the charterer. The fact that it had done so through a third party was beside the point.

Thanks to our friends at the Maritime Advocate for the heads-up.