Shoosmiths LLP
  April 11, 2006 - England

Arrest of a Vessel Under English Jurisdiction

The legal concept that one can arrest a vessel and prevent it moving is unusual to say the least. An arrest in the UK (and other jurisdictions) is practically undertaken by serving upon the vessel a “Warrant of Arrest”, a very similar concept to criminal proceedings albeit this form of arrest is a civil law admiralty procedure and for very different reasons. Given the scope of this discussion brevity is all important and in consequence a broad approach to what is a complex subject is provided here such that the reader can gain an insight into ship arrest, its uses and the consequences if you should ever find yourself in need of this remedy or perhaps more concerning the recipient of such proceedings. The English standpoint is given when discussing procedure but under international agreement, the actual criteria required for a court to order arrest is similar in many jurisdictions. What is arrest? As the name implies the vessel in question can be legally prevented from moving or indeed trading pending the resolution of a court action (an action in rem) in which more often than not the vessel to be arrested (the Res) is the subject of the claim, the arrest being undertaken in conjunction with a claim rather than an arrest for its own sake. In practical terms HM Revenue & Customs actually affixes the Claim Form (historically “nailing a writ to the mast”) together with the Arrest Warrant to the ship under instruction from the Court. In the UK this is under the authority of an individual called the Admiralty Marshall who resides in the Admiralty Court in London. Why arrest? The primary reason for arrest is to obtain satisfaction of a court judgement in a claim in rem however a claimant, who has a claim against the vessel, may apply for an arrest warrant at any time after the Claim Form has been issued. There is no need for judgment to have been entered and a claimant may still arrest a vessel after judgment has been entered. Notably, an owner’s subsequent insolvency can not defeat this security, and the vessel will remain under the control of the Court. In simple terms a party wishing to take action against another on a claim wants to know that, should they be successful in court there will be something that can be sold such that they can recover what the judgment has determined plus costs. In the UK courts may decide who wins or loses but do not recover the successful party its money (damages). On the assumption there is a right to arrest, the vessel becomes that security and the ultimate sanction is that a court will order the vessel to be sold to satisfy the claim. In practice this rarely occurs as the owner’s bank or insurance company of the ship or yacht in question satisfies the requirement for security by providing a letter of undertaking (or historically bail) which effectively states that in the event the claimant is successful they will pay out on the claim therefore satisfying a claimant’s requirement for security. The ship can be released very quickly and is able to make money for the owner. In some instances the very possibility of an arrest will bring forth the required undertaking. How? Once the Claim Form has been issued, an application to arrest may be made; an affidavit must be sworn (usually by the claimant’s solicitor) and should contain the following particulars to satisfy the Admiralty Marshall: - the nature of the claim or counterclaim - that it has not been satisfied - if the claim arises in connection with the ship, her name - the nature of the property to be arrested, including the name and port of registry if a ship and confirmation of ownership of the Vessel. - the amount of security sought, if any that any relevant notices to the consul have been given In respect of oil pollution, confirmation as to why the Court is not prevented from entertaining the claim. Depending on the circumstances of the arrest, further information regarding ownership of the vessel may be required. Where the vessel is not of British flag, other criteria may need to be complied with. An undertaking to pay the fees of the Admiralty Marshall and all expenses incurred by him in respect of the arrest and subsequent care of the vessel whilst under arrest must also be given. Caution against arrest Perhaps more importantly, what action can be taken to prevent a vessel from being arrested where owners are aware of a claim or a potential claim against them or a vessel, particularly vital when the vessel is used commercially such as a charter yacht and income will be lost (and possibly damages claimed) for any period that it is unable to meet it commitments? Where an owner is aware that a vessel may be arrested, it is possible to enter a “caution” into the Admiralty Marshall’s register by providing an undertaking to file an acknowledgement of service to the claim and provide security to satisfy the claim with interest and costs. Crucially, the caution does not prevent the vessel from being arrested but the Court may order that the arrest be discharged and that the party procuring the arrest pay the owner damages even though the arresting party may not have been either malicious or grossly negligent. Caution against release Where a third party also claims to have a right against the arrested vessel he may enter a caution against the vessel’s release to prevent any dealings with the vessel or its release. The caution is valid for a period of 12 months and successive cautions may be entered. It is not possible to enter a caution purely because there is a disagreement as to the amount of security to be provided. Where the entry of a caution prevents the vessel from being released from arrest, the Court may order that the cautioner pay the owner of the vessel damages if any loss has been caused as a result of the delay unless the cautioner had good and sufficient reason for entering the caution. Finally, unless the cautioner holds a maritime lien it will be necessary to issue a Claim Form to protect against the possibility of the vessel being sold whilst under arrest in which case the right to claim against the vessel would be lost. Release A vessel may only be released upon consent of the arresting party, or where the Court orders it, in both cases usually where security is sufficient to cover the value of the claim. Where there is a dispute over the value of the claim, the Court may determine what amounts to adequate security. For the release to be effected, an undertaking must be provided to pay on demand any other fees and expenses in connection with the arrest, care and custody of the vessel whilst under arrest and the vessel’s release. International Agreement? It is only “legally” possible to arrest a ship for security for a claim made or to satisfy a judgment if certain criteria are met. A party wishing to arrest a ship in the UK must pass two tests. It has to satisfy the court that its claim falls within one or more of the categories set out in The Supreme Court Act 1881 (SCA) (section 20). These are claims which have something to do with ships (or aircraft), known as “maritime claims”. Secondly the claimant must satisfy the court that the ship to be arrested has a sufficient connection with the claim. This is defined in the SCA section 21. For certain types of claim, including maritime liens, the ship in connection with which the claim arose can be arrested irrespective of who owns the ship at the time of arrest. Whether or not you have the right to arrest is as all things legal not quite as straightforward as it may appear. Arrest of vessels has long been the subject of international debate with two international conventions being the outcome. Countries which accept (ratify) a convention agree the requirements and procedure to arrest making the process more standardised. The 1952 Brussels Convention is in force and has been adopted by 70 nations (including France, Italy and the UK). It stipulates a two stage process which in effect is very similar to the provisions of the SCA. The difference being that it entitles a ship to be arrested even, if, at the time of arrest, it was not owned by the party who would be liable for the claim, even in cases not involving a maritime lien. A sister ship can also be arrested. The second convention concerned with arrest in the 1999 Arrest Convention. This convention maintains the two stage process above but has effected a change which is likely to result in many nations moving away from the 1952 convention and is very similar to the provisions in the UK SCA, although to date the 1999 convention is not yet in force as not enough countries have ratified it. The main change is that the concept of personal liability of the ship owner whose vessel is arrested is introduced, leaving only a very limited category of claims (including maritime liens), where an arrest is possible, even if the ship owner is not personally liable. The categories of “maritime claim” have been clarified and for instance includes damage by a ship to the environment or coastline. Can you arrest? The claims for which an arrest can be made are numerous and cannot be detailed in the scope of this paper suffice it to say the SCA and the two conventions above have similarities in respect to many of the categories. If the claimant has a maritime lien a vessel can be arrested. In summary such liens include; damage done to a ship; salvage; seaman’s wages and one other which is practically obsolete. Outside such liens non exhaustive categories include a claim as to ownership, a claim for towage, claims for personal injury or death, collision, pollution and mortgage of any ship. Effectively if you are looking to arrest a ship the requirements for arrest to be allowed in that jurisdiction depend upon which convention (if any) that State applies. What is the bank’s position? Historically, a legal charge could only be taken over a yacht by way of ownership passing to the charge holder. Over the years though a form of legal charge has been developed that allows a bank to obtain valid security for its loan but at the same time allowing the borrower to retain ownership. This is known as a statutory mortgage which to be valid must be in the form specified by the Government and registered on the shipping register where the vessel is registered (Part I or Part 2 in the UK). An alternative is an equitable mortgage where the paperwork does not comply with statutory provisions but the intention is the same, but this will only bind people who have notice of it so there is less security and would rank behind any registered mortgage even if the mortgage pre dated one of the registered charges. Such a charge must be registered at Companies House or the High Court. One final complication arises from the ”SHIZELLE” case in 1992 where the court confirmed that there is no requirement for notice when there is an un-registered mortgage against an un-registered vessel and as a consequence the first common law mortgage is legal and binding on a bone fide purchaser. The Arrest Conventions do not cover the mortgagee taking possession of a vessel under the terms of a mortgage deed per se, although such claims will fall within the scope of the 1999 Convention where the ship is detained by a court to enable a mortgage action to proceed. In general terms a mortgagee may seize a vessel for default of mortgage when it gets actual physical possession by voluntary surrender by the owner. They may also appoint agents to seize the yacht or finally by court order. The validity of a mortgage on a foreign vessel is determined by the law of the state in which she is registered. Obviously in some jurisdictions a forced seizure maybe regarded as piracy despite the mortgagees legitimate interest and so “self help” remedies which may by acceptable in the UK (but subject to consumer legislation, especially on yachts) will not work. Where possession cannot be obtained voluntarily an action will need to be started to enforce the mortgage with an interim remedy to seek the arrest of the vessel. The above conventions can assist but in summary a vessel will only be arrested by an order of the court in the jurisdiction where the vessel lies. Banks who lend monies on vessels outside the UK commonly seek legal opinion from the country where the vessel is to confirm that the bank’s mortgage documentation and clauses therein allowing seizure upon default will be accepted by that States courts. Obviously registration of the charge on the relevant shipping register will assist this process. Summary The arrest or threat of an arrest is a powerful weapon which, if implemented can cause severe disruption to a vessel and her owners. Conversely the strict criteria for arrest in a particular jurisdiction must be satisfied otherwise an action for wrongful arrest may ensue. However if this legal weapon is used correctly those seeking redress have the comfort of having tangible security for a claim which otherwise they may have difficulty in enforcing.