Ship Arrest – The Institute of International Shipping & Trade Law (IISTL) Blog

In Rem Action- Demise Charterer or Not?

‘Statutory liens’ or ‘statutory rights in rem’ come into existence on commencement of in rem proceedings (The Monica S [1967] 2 Lloyd’s Rep 113). In practice, this means that, if a ship is sold to a third party before the jurisdiction has been invoked or if a charter by demise is terminated before such time, then the potential claimant may be unable to benefit from the in rem proceedings and the accompanying right of ship arrest. The most recent judgment of the Admiralty Court in Aspida Travel v The Owners and/or Demise Charterers of the Vessel ‘Columbus’ and The Owners and/or Demise Charterers of the Vessel ‘Vasco Da Gama’ [2021] EWHC 310 (Admlty) highlights that.

In this case, Aspida Travel claimed against the proceeds of sale of the vessels ‘Vasco De Gama’ and ‘Columbus’ in respect of travel agency services for the transport of crew to and from the vessels which took place between 1 January 2020 to 31 July 2020 when the vessels went to lay-up due to the pandemic. At that time the vessels ‘Vasco De Gama’ and ‘Columbus’ were demise chartered to Lyric Cruise Ltd and Mythic Cruise Ltd respectively to whom Aspida provided the relevant services and rendered the resulting invoices. The claim forms were issued on 13 November and 20 November 2020. The basis of the claims was Section 21 of the Senior Courts Act 1981, paragraph 4 of which provides that:

‘In the case of any such claim as is mentioned in section 20 (2) (e) to (r), where –

the claim arises in connection with a ship; and
the person who would be liable on the claim in an action in personam (‘the relevant person’) was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship, an action in rem may (whether or not the claim gives rise to a maritime lien on that ship) be brought in the High Court against –
- that ship, if at the time when the action is brought the relevant person is either the beneficial owner of that ship as respects all the shares in it or the charterer of it under a charter by demise; or
- any other ship of which, at the time when the action is brought, the relevant person is the beneficial owner as respects all the shares in it.’

The main objection to the claims was that they do not meet the requirements of Section 21 (4) of the Senior Courts Act 1981, in that Lyric Cruise Ltd and Mythic Cruise Ltd as the ‘relevant persons’ (i.e. the persons who would be liable in personam on the claims) were the charterers at the time when the cause of action arose, but not the demise charterers at the time when the action was brought. In fact, Mythic Cruise Ltd and Lyric Cruise Ltd terminated their charters on 7 October 2020 and 9 October 2020. As the claims were brought more than a month later, it was held that the third require of the Section 21 (4) of the Senior Courts Act 1981 was not fulfilled. By the time the claims were issued, Mythic Cruise Ltd and Lyric Cruise Ltd were no longer the demise charterers.

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.

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.

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.

Compensation for the unlawful arrest and detention of the Arctic Sunrise and its crew

Arbitral Tribunal orders the Russian Federation to pay a little under 5,4 million euros to the Netherlands

On 18 July 2017, almost two years after that an Arbitral Tribunal (Tribunal) found that the Russian Federation must compensate the Netherlands following the wrongful arrest of the Arctic Sunrise and its crew, the Tribunal handed down its Award on the issue of compensation.

Background

Before looking at this recent decision in more in depth, the history of the dispute will be laid out. Starting on 18 September 2013, when Greenpeace activists tried to enter the Russian offshore oil platform (the Prirazlomnaya) in order to protest against attempts to begin exploiting oil and gas resources in the Arctic. One day later, the Russian Federation boarded and arrested the Arctic Sunrise and detained its crew. Subsequently, the vessel was brought to the port of Murmansk and the crew was charged with having committed a range of administrative and criminal offences, including acts of terrorism and hooliganism.

The Netherlands initiates Proceedings before an Arbitral Tribunal

Some two weeks later, on 4 October 2013, The Netherlands, being the flag State of the Arctic Sunrise, started proceedings before an Arbitral Tribunal that was established pursuant to Annex VII of the 1982 Law of the Sea Convention. The Russian Federation refused to participate in the Arbitral proceedings that were initiated by the Netherlands. The position of the Russian Federation was, that this type of dispute was beyond the jurisdiction of an international court or tribunal, due to a declaration it had made at the time of becoming a party to the 1982 Law of the Sea Convention. However, the proceedings went ahead, despite the non-participation of the Russian Federation.

The Netherlands requests Interim Measures from the ITLOS

On 21 October 2013, the Netherlands requested interim measures from the International Tribunal for the Law of the Sea (ITLOS). According to the Netherlands, the Russian Federation had to immediately release the Arctic Sunrise and its crew, after the posting of a bond, upon which they would be free to leave Russian territory as well as any maritime areas under its jurisdiction. ITLOS gave an Order on interim measures on 22 November 2013. Initially, the Russian Federation did not comply with the Order of the ITLOS – eventually, however, the vessel and crew were released in late November 2013. The Russian release of vessel and crew was based on its national laws, the Order of the ITLOS played no decisive role in this, according to the Russian Federation – as it happened, the effect of the national laws and regulations on which the Russian Federation relied, coincided with what was set out by the ITLOS in its Order containing interim measures.

Arbitral Award on the Merits

One of the main substantive issues on which the Arbitral Tribunal was asked to rule during the merits phase, was the (un)lawfulness of the response of the Russian Federation to the presence of the Arctic Sunrise and its crew. The gist of the argument of the Netherlands was that, as the flag State, it had sole jurisdiction over the ship and the crew on-board during the entirety of this incident (Article 58 of the 1982 Law of the Sea Convention). On 14 August 2015, the Tribunal released its Award on the merits. The Arbitral Tribunal found that the Netherlands had exclusive jurisdiction over the Arctic Sunrise whilst it was operating in the exclusive economic zone of the Russian Federation. This means that the Russian Federation could have only lawfully initiated steps against the vessel that was flagged to the Netherlands and its crew with the latter’s consent. After coming to this conclusion, the Tribunal went on to state that the Netherlands had to be compensated.

Arbitral Award on Compensation

In its recent Award on compensation, the Tribunal set the total amount of compensation owed by the Russian Federation to the Netherlands at a little under 5,4 million euros. This sum was arrived at by adding up the damage that was done to the Arctic Sunrise (EUR 1,695,126.18); compensation related to the unlawful arrest, prosecution and detention of its crew (EUR 600,000); a variety of other damages incurred by the Netherlands, including the failure to release the vessel and crew in a timely manner (EUR 2,461,935.43); costs made by the Netherlands in issuing a bank guarantee (EUR 13,500); and lastly, the Netherlands had to be reimbursed for paying the full amount of deposits required by the Tribunal (EUR 625,000) – meaning that the Russian Federation had to pay the half it owed of the costs that were needed for the proceedings to be initiated. Although the Russian Federation is required under international law to abide by the ruling on compensation, whether it will actually do so remains to be seen.

13TH ANNUAL COLLOQUIUM OF THE IISTL — MARITIME LIABILITIES IN A GLOBAL AND REGIONAL CONTEXT

13th ANNUAL COLLOQUIUM OF THE IISTL

MARITIME LIABILITIES IN A GLOBAL AND REGIONAL CONTEXT

4-5 SEPTEMBER 2017

The annual gathering, organised by the Institute of International Shipping and Trade Law (IISTL), has now established itself as a regular fixture in the calendar of maritime lawyers. This year’s event will be devoted to Maritime Liabilities in A Regional and Global Context: The EU and Beyond.

Topics covered will include:

Liabilities for ship recycling
Wreck removal – Nairobi and beyond
National and international oil pollution regimes – an uneasy coexistence
Pollution from oil rigs and offshore installations: legal issues arising
The boundaries of shipping liability law: what is a ship and why does it matter?
Ship arrest – yesterday’s conventions and today’s problems
Cyber risks and liabilities for marine sector
Smart containers
Passenger Liabilities- Life after BREXIT
Limitation of liability – new problems
Cross-border insolvency and maritime arbitration
Direct action against insurers and P & I Clubs
Jurisdiction and Choice of law after BREXIT

Speakers and Chairpersons

Professor Lia Athanassiou, School of Law, Athens University, Greece
Professor Simon Baughen, IISTL, Swansea University, UK
Professor Olivier Cachard, University of Lorraine, France
Andrew Chamberlain, Partner and Mariner, Holman Fenwick Willan LLP, London, UK
Simon Cooper, Partner, Ince & Co LLP, London, UK
Professor Marc Huybrechts, University of Antwerp, Belgium
Dr Henning Jessen, World Maritime University, Sweden
Mr Måns Jacobsson, Former Director of International Oil Pollution Compensation Funds, Sweden
Dr Tabetha Kurtz-Shefford, IISTL, Swansea University, UK
Associate Professor George Leloudas, IISTL, Swansea University,UK
Mr Justice Males, Presiding Judge of the North East Circuit, High Court of England and Wales
Peter Macdonald-Eggers QC, 7 King’s Bench Walk, London, UK
Associate Professor Theodora Nikaki, IISTL, Swansea University, UK
Dr Frank Stevens, Erasmus University, The Netherlands
Professor Barış Soyer, Director, IISTL, Swansea University,UK
Dr. Jur. Bülent Sözer, Yeditepe University, Turkey
Professor Andrew Tettenborn, IISTL, Swansea University, UK
Emeritus Professor Rhidian D. Thomas, IISTL, Swansea University, UK

Registration, Fees & Accommodation

To register (and book university accommodation) please click the link here: Eventbrite

Fee, inc. materials, dinner & accommodation for 2 nights (3-4 Sept): £440
Fee, inc. materials and dinner: £350
Fee (for Research Students) inc. materials, dinner & accommodation for 2 nights (3-4 Sept): £265
Fee (for Research Students) inc. materials & dinner: £175

Should you not like to take advantage of our on-campus accommodation, please feel free to make your own arrangements. There are several good hotels in town, notably the Dragon Hotel, tel: 01792 657100, and the Marriott Hotel, tel: 01792 642020. Please note, however, that the organisers cannot take responsibility for booking accommodation off campus.

The closing date for registration is 28 August 2017

Questions & Further Information

Should you have any further queries, please direct your email to: Ms Stella Kounakou 806114@swansea.ac.uk

We looking forward to seeing you at Swansea.

Professor B. Soyer

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Ship arrest in Singapore

Cases of liability for wrongful arrest in Admiralty are rare: successful claims, which require a showing of malice or gross negligence, even more so. We now have an account of one at the end of last year in Singapore. Bunker suppliers sold bunkers to the (now-very-bankrupt) OW Group; they were passed on paper through other OW companies, one of which fuelled the vessel. It’s elementary law that if A sells to B and B to C, then A has no claim against C: it was also plain to any third-year law student that the suppliers hadn’t a cat in hell’s chance of showing agency in any of the OW companies. Nevertheless, having voluntarily given credit to the uncreditworthy, the suppliers blithely went and arrested the ship in Singapore. Not surprisingly they were held liable in damages. The case is The Xin Chang Shu [2015] SGHC 308. The judgment, worth a look, is here; a useful note on it can be found here.

With thanks to Prof E Macdonald for the tip-off.

Keep right on to the end (of the charter). No constructive redelivery under bareboat charter.

The termination of a demise charter pursuant to the shipowner’s right of withdrawal is a more complex process than with an ordinary time charter. The charterer still has its crew on board the vessel and some time may elapse before the shipowner is able to retake physical possession of the vessel. In the interim charterers may have entered into commitments with bunker suppliers and with cargo owners, pursuant to bills of lading.

In The Chem Orchid Lloyd’s Law Reports , [2014] 1 Lloyd’s Rep. 520, the High Court of Singapore had to decide whether the bareboat charterer, the “relevant person” who would be liable in personam, was the demise charterer when the cause of action arose, so as to found jurisdiction under s.4(4) of the Singapore High Court (Admiralty Jurisdiction) Act, which is in identical terms to s.21(4) of the UK Senior Courts Act 1981. The Assistant Registrar struck out the writs in rem on the grounds that the charter had been terminated prior to the issue of the writs. Accordingly, the vessel could not be arrested in relation to claims arising in the interim between the notice of termination being given and physical redelivery of the vessel to the shipowners.

The decision has now been reversed by Steven Chong J, [2015] 2 Lloyd’s Rep. 666, who held that the charter had not been validly terminated, but even it had, there was no concept of constructive delivery applicable to the termination of bareboat charters which continue until physical redelivery. Therefore, at the time the in rem writs were issued by the bunker suppliers and the cargo claimants, the vessel was still in the possession of the charterers.

On 20 January 2016 the Singapore Court of Appeal held that it had no jurisdiction to hear an appeal from this decision. [2016] SCGA 04.

Arrest of Ships

An interesting decision of the Federal Court of Australia in The Sam Hawk [2015] FCA 1005. For the purpose of determining if a claimant has a maritime lien for a contractual claim (here the supply of bunkers), the law of the contract under which the bunkers were supplied controls. The court refused to follow the Privy Council in The Halcyon Isle [1981] AC 221 .

More details at http://www.hfw.com/Arrest-of-the-SAM-HAWK-October-2015

Andrew Tettenborn