Party autonomy and the arrest of ships

Table of Contents:

This chapter aims to demonstrate when the arrest of the ship frustrates the choice of forum or arbitration clauses of the parties in favour of a particular court or arbitral tribunal included in the charterparty or the B/L, by ‘fixing’ jurisdiction through the act of arrest. This is considered through a comparative study of the application of arrest conventions and the requirements for the arrest of vessels in the EU, as well as England and Spain, in particular. There is a lack of legal certainty due to the plethora of legal frameworks, and major efforts are required towards procedural unification to ensure the parties’ will is carried out.

This chapter sheds light on when an abuse of sovereignty thr ough the lex fori undermines the free will of the commercial parties in the case of arrest. The chapter considers why party autonomy is relevant, its limitations, the arguments in favour of and against protecting it and how national courts do not recognise party autonomy (jurisdiction and arbitration clauses specifically) in the case of arrest of ships. The application of specialised conventions may lead to a non-enforcement of the dispute resolution clauses and ‘forum shopping’ by cargo interests.

Ship arrest as an interim measure

Nature of actions in rem under civil law and common law

The clash between the party autonomy of the original parties and the dispute resolution terms of the B/L comes to a head in the arrest of ships, when the claimant charterer or third-party cargo interests sue the shipowner. The freedom of parties to start jurisdictional or arbitral proceedings demands at least that the seizure of the ship be fairly regulated from a procedural perspective in each EU or non-EU state. A legal analysis of judicial and the arbitral tribunal’s powers to arrest ships requires a uniform global response to protect a claimant’s adduced loss or damage in the claim. International judicial competence regarding arrest by different courts and arbitral tribunals varies, depending on the applicable rules. These include rules originating in the 1952 and 1999 Arrest Conventions, as well as national procedural rules. Special attention is drawn to the treatment of this issue under the SAMN.

The conditions for the arrest of a ship are contained in the lex fori. The 1952 Arrest Convention recognises two general principles: arrests should be permitted only for the purpose of obtaining security for a maritime claim, and the proper subject of an arrest

Hans-Chnstian Albrecht and others (eds), Maritime Law Handbook (Kluwer Law International 1998).

should be either the vessel regarding which the claim arose or a sister ship registered under the same ownership.^[1] As Theocharidis explains, the jurisdictional basis provided for in the relevant rule reflects a preference in favour of the forum arresti, albeit in an indirect manner, since the choice is left to the lex fori, which almost invariably accords jurisdiction to the national court.

In common law jurisdictions, actions in rem, coupled with the arrest of a ship, may merge the potential functions of an arrest including: (a) obtaining security for the claim; (b) establishing jurisdiction on the merits (from the mere arrest of the vessel in the jurisdiction (unless another court claims exclusive jurisdiction), under the Brussels I Regulation (recast) or a lack of choice of jurisdiction or arbitration agreement between the parties); and (c) securing the position of statutory maritime claimants as preferred creditors over unsecured ones. These underlying claims may be preceded by a writ for arrest, under which an interim or protective measure is sought to prevent non-payment of any award made in relation to the underlying substantive claim.

A distinction between maritime claims and maritime liens must be drawn, to narrow the scope of the current analysis. Maritime liens pass with a ship irrespective of ownership, while maritime claims in rem may only be enforced against the vessel if the in personam defendant is still the owner of the vessel at the time of issue. Maritime liens are true actions in rem and invisible: they are not subject to any scheme or registration and survive in the hands of a bona fide purchaser for value without notice, and are enforceable by an in rem claim. Besides being a charge on the ship, and thus enforceable against the owner or any subsequent purchaser, maritime liens differ from mortgages in not being required to be in a form prescribed by statute. Furthermore, maritime liens do not require registration to determine their priority over subsequent registered mortgages, as they have priority over all other maritime claims.

When advising the Privy Council in The Bold Buccleugh, Sir John lends pointed out that maritime liens have their origin in civil law and noted that Lord Tenterden and Story J had defined a maritime lien as:

A foundation of the proceeding in rem ... Where such a lien exists... [it] gives a claim or privilege upon a thing to be carried into effect by legal process. This claim or privilege travels with the thing, into whosoever’s possession it may come. It is inchoate from the moment the claim or privilege attaches, and when carried into effect by legal process, by a proceeding in rem, relates back to the period when it first attached.

An international ship arrest is still conditioned according to the jurisdiction in which the arrest takes place, and the success of the arrest is determined by the applicable substantive laws of the place where the arrest takes place. Even if the procedural law allows arrest in rem, the underlying claim may not be recognised as valid under the substantive law of the court. In addition, the order of priorities may rank the claim below others, even if it recognises the cause of action. After selling the vessel, the funds may not be enough to satisfy even a successful claim. But a state’s substantive shipping law does not change a maritime claim to a lien. In short, a claimant may be successful on the merits but unsuccessful in recovering compensation. The claimant may then find that the claimed maritime lien is extinguished.^[2]

Maritime liens receive a higher level of protection than other claims due to the right to attachment to the vessel itself, regardless of any change of ownership. The extent to which the holder of a ship mortgage or hypothecation faces the risk of being negatively affected by higher-ranking maritime liens depends on both the scope of the list of maritime liens under the relevant national law and the national law rules on the priority status of those maritime liens. Boger details the conflict of laws in the common law (private international law in civil law terms) concerning the governing law and the priority status of maritime liens. He provides three approaches leading to the application of the following: lex fori, since maritime liens are arguably primarily procedural; lex causae of the underlying maritime claim protected by the lien (the applicable law of its existence plus the lex fori determines its ranking among other security interests); and law of the flag.^s

With regard to the civil law approach, three rules are provided for in civil procedure codes: (a) rales for a provisional pre-trial remedy (a conservatory measure to obtain security for a claim); (b) rales relating to establishing jurisdiction on the merits when there is a substantive link between the claim and the particular jurisdiction; and (c) rales relating to the status of some claims as preferred claims over unsecured creditors’ claims.

Therefore, a ship arrest differs between Spain and the UK. Under English law, only claims for crew wages, salvage and collision are to be brought against the vessel irrespective of its ownership (maritime lien). In contrast, in Spain under the SAMN, these claims are contained in Article 1 of the 1999 Arrest Convention. The pre-emptive embargo in civil law (a type of provisional measure) is defined as a maritime lien in common law. The arrest as such is a particular institution recognised in English law based on a maritime claim. Maritime liens against the offending ship are executed through ’attachment' after a judgment on such lien or credit, and constitute a security under English law.

According to Mandaraka-Sheppard, an action in rem is deemed to enforce an existing maritime lien. The claimant becomes a secured creditor in relation to the vessel concerned. That interest will be enforceable against the purchasers of such property and is extinguished if the property is destroyed. The only security available is that property. The statutory extension to include liable property in most claims, enforced by an action in rem other than those attracting a maritime lien, reflects a proprietary interest in all appropriate assets of the defendant that could be seized as a security. Third parties should not be affected in their rights, so when the defendant appears the security shall be released.^[3]

The enforceability of these claims in England and Wales is provided by s 20 of the Senior Courts Act 1981, which states the admiralty jurisdiction of the High Court is ‘to hear and determine any of the questions and claims’. Under s 20(2), claims relating to the following subjects can be brought as in rem claims:

a) Possession or ownership (including claims between co-owners);
b) Claims between co-owners regarding the employment or earnings of the ship;
c) Mortgages or charges on a ship;
d) Damages received or done by a ship;
e) Loss of life or personal injury caused by any defect in a ship or through the fault or negligence of the owners, charterers or persons in possession or control of the ship. This category of claims includes the master or crew of a ship, as well as any third party falling within the category;
f) Loss of or damage to goods carried on a ship;
g) Arising out of any agreement relating to the carriage of goods on a ship or to the use or hire of a ship or towage and pilotage;
h) Salvage;
i) Goods or materials supplied for the ship’s operation or maintenance;
j) Construction, repair or equipment of the ship, dock charges or dues;
k) Wages of the master or crew;
l) Disbursements made on account of a ship by a master, shipper, charterer or agent;
m) General average act;
n) Bottomry; and
o) Any claims for the forfeiture or condemnation of a ship or goods which are being, have been, or were attempted to be carried on a ship for the restoration of a ship or any such goods after seizure, or for droits of Admiralty.

The arrest has to be differentiated from recognised causes of action or a maritime lien as an enforceable interest being protected through an action in rem (typical from the common law jurisdictions), and the subsequent enforcement constituting a judicial sale to satisfy the claimed amount. In civil law systems, the arrest of a ship is considered a kind of pretrial attachment, so the ship may be arrested either to enforce a maritime lien or a personal claim against the shipowner. In both situations, there is a personal action directed against the shipowner and not against the vessel.

In civil law jurisdictions, actions are addressed against a natural or legal person, combining in personam action with a saisie conservatoire or conservatory attachment to effect an arrest that allows the seizure of the debtor's property, such as the vessel, when there is a pending judgment.^[4] In contrast with attachment in common law jurisdictions, a saisie conservatoire can be applied to other property and not just ships, extending arrest to most civil claims.

In order to illustrate the relevance of the actions in rem in common law jurisdictions, let us consider an Australian case, Brisbane Slipways Operations Pty Ltd v. Pantalon. The case dealt with a ship repair. The plaintiff had a cause of action against a defendant who was the charterer, not the shipowner as required by the case law. The plaintiff acted in good faith when commencing proceedings because the defendant had acted as if it had a proprietorial interest and had taken steps to perfect its apparent interest in order to claim ownership of the vessel. An Australian court granted a freezing order for funds paid by the defendant shipowner to secure the release of a vessel arrested beyond the court’s jurisdiction as an action in rem. Improperly, this was brought together with an action in personam. The defendant joined proceedings and chose to plead to a contractual cause of action, as an original party to the agreement. The freezing order prevented the movement of funds and frustrated the jurisdictional process while the defendant’s solicitors held the released money in a trust account. The action in personam succeeded even though the in rem claim was dismissed.

Jurisdiction and security have become increasingly linked as issuing an action in rem carries with it an inbuilt remedy, that is, arrest. The procedural approach of an action in rem has focused on the shipowners rather than the vessel since The Indian Grace (No 2).The significance of establishing a substantive claim in personam, that is, against the shipowner, has been stressed since this case, with the action in rem being a method of enforcement. In contrast to the view taken in The Indian Grace (No 2), focusing on the action in rem, the Privy Council in The Halcyon Isle-⁶ held that a maritime lien is a procedural matter, ignoring its substantive characteristics. Moreover, the CJEU in The Tatry held that the substantive interests connected to an action in rem were disregarded, and concurrent actions in rem and in personam had no relevance at EU level, colliding with the subjective characterisation or personification concept.

The enforcement of a lien is the primary justification for an arrest and action in rem. Liens have to be justified as a matter of policy, while an action in rem is the method of enforcing specified proprietary interests related to an asset against others that have different interests in that asset, and it is as a separate cause of action to enforce particular interests.

An action in rem can even be persuasive or exhausted in order to induce a defendant to accept jurisdiction, continuing as an action in personam. Liability is attached to the property’s existence and limited to its value. The rights created against third parties by a maritime lien or in rem claim are different from the substantive interests arising from a maritime lien or an action in rem. A lien (maritime or statutory) is a substantive interest enforced or created by the issue of an in rem claim and, if necessary, arrest and judicial sale.

In English law, the claim may include a lien and a method of enforcement (in rem or in personam): interlocutory and final remedies must be distinguished. The arrest of a ship is considered a security under English law, providing that the maritime lien holder maintains a sufficient interest in the ship in order to defend it as security, anticipating that the court orders a sale of the vessel to satisfy any award. The key elements are legal certainty and procedural law. However, we always assume that party autonomy is allowed to proceed, in regard to the consequences of a lawsuit. In Spain, on the other hand, SAMN provides for a negative example that shows, with regard to attributive clauses of jurisdiction, how overregulation clashes with contractual freedom.^[5]

Requirements for an arrest

The elements of precautionary measures are the risk in waiting (pericuhim in mora) and the reasonable prospect of success (fumus boni iuris), that is, a prima facie case for the claim. Whether this can benefit a judge or arbitrator is subject to the interpretations under continental and English legislation. The arrest of ships is a ‘modern mixed legal institution’ and ‘several legal systems have departed from the universally recognised criteria such as in English law’. The reason is that the arrest of ships constitutes a component part of an action in rem under English law. It is viewed as a ‘legal entitlement rather than a discretionary remedy'.

In considering the requirements for the adoption of interim measures and whether their effectiveness is in accordance with conventional standards, this chapter will briefly compare the differences between the 1952 and the 1999 Arrest Conventions. It is common for P&I Clubs to provide security to avoid the arrest of a vessel, such as in LOUs. Jurisdiction is not determined by LOUs, but they often contain provisions on jurisdiction. There is a relationship between the 1952 Arrest Convention, the in rem jurisdiction of the court and Ar ticle 71 of the Brussels I Regulation (recast) which is in similar terms to Article 57 of the Brussels Convention and applies to claims under B/Ls.

Bold tactics used by claimants, as shown in The Kallang (No 2) or The Duden²¹reflect the importance of the different tactics used, leading to the wrongful arrest of ships for the purpose of gaining time and avoiding the forum chosen by the parties. The old

Evangelismos test developed by the Privy Council^[6] requires proof by the shipowner of bad faith or crassa negligentia, implying malice on the part of the arresting party.

An English court will not restrain a party to an English arbitration from arresting a vessel of the other party in another jurisdiction where the sole purpose of the arrest is to provide security for the English arbitration - as in The Kallang, where the cargo insurers tried to make the shipowner relinquish a London arbitration clause. The cargo insurers were liable for damages on the basis of the tort of procuring breach of contract. The defendant also ‘intended to procure a breach of contract’ in OBG Ltd v. Allan. In the latter case, there was a wrongful arrest by inducement to breach the contract by unlawful means, distinguished from the loss in tort. In The Duden, the loss had been suffered by the bareboat charterer, a subsidiary, but not by the shipowner.

[1] The term ‘sister ship’ is applied to vessels whose ownership is registered to the same legal entity. This is not always clear, because many ships have been separated into one-ship owning corporations to limit the liability' of a single shipowner; see William Tetley, Maritime Liens and Claims (2nd edn, Les Éditions Yvon Blais Inc 1998) 1032; see also Sydney T Harley, How to Secure a Maritime Lien: A Study (Lampert & Selway 1981) 50-51. 2 George D Theocharidis, ‘Jurisdiction for Provisional Relief under the Brussels Convention m the Mantime Context’ (2002) 55 RHDI453 et seq. 3 Aleka Mandaraka-Sheppard, Modern Maritime Law Volume 1: Jurisdiction and Risks (Informa 2013) 175. 4 Harmer v. Bell (The Bold Buccleugh) [1852] 7 Moo PC 267. 5 Discussed in Steven Rares, ‘The Far from Halcyon Isle: Maritime Liens, Renvoi and Conflicts of Law’ (2014) 28 MLAANZ Journal 1.
[2] Robert W Lynn, ‘A Comment on the New International Convention on Arrest of Ships, 1999’ (2001) 55 U Miami L Rev 453, 460-461. 2 Ole Boger, ‘The Case for a New Protocol to the Cape Town Convention Covering Security Over Ships’ (2016) 5(1) Cape Town Convention Journal 73, 91. 3 Mandaraka-Sheppard (n 4) 24. 4 ibid 24-27.
[3] DC Jackson, Enforcement of Maritime Claims (4th edn, Infoima 2013) 472. 2 William Tetley, ‘Arrest, Attachment, and Related Maritime Law Procedures’ (1998) 73 Tul L Rev 1895, 1898. 3 Caslav Pejovic, ‘Civil Law and Common Law: Two Different Paths Leadmg to the Same Goal’ (2001) 32(3) VUWLR 817.
[4] Tetley, ‘Arrest, Attachment, and Related Maritime Law Procedures’ (n 12). 2 Pejovic (n 13). 3 Brisbane Slipways Operations Pty Ltd v. Pantalon! [2010] FCA 654. 4 Kate Lewins and Ashwin Nair, ‘International Recent Developments: Atistralia’(2012) 37 TulMai L J 559. 5 Jackson (n 11) 2. 6 The Indian Grace (No 2) [1997] 1 Lloyd ’s Rep 1; Jackson (n 11) 472. 7 The Halcyon Isle [1981] AC 221. 8 Case C-406/92 Owners of the cargo lately laden on board the ship 'Tatry'v. Owners of the ship 'Maciej RatajfThe Tatty) [1994] ECR1-5439. 9 Jackson (n 11) ch 17.
[5] Its worth consulting Juan José Álvarez Rubio and Unai Belintxon Martin, ‘La Nueva Ley de Navegación Marítima desde la Perspectiva del Derecho Internacional’ in Alberto Emparanza Sobejano and José Manuel Martin Osante (eds), Comentarios Sobre la Ley de Navegación Marítima (Marcial Pons 2015). 2 However, tlie entena apply to freezing orders in relation to ships according to CJJA s 25; Verónica Ruiz Abou-Nigm, The Arrest of Ships in Private International Law (OUP 2011) 84. 3 Richard Aikens, Richard Lord and Michael Bools, Bills of Lading (2nd edn, Informa 2015) ch 14. 4 Kallang Shipping SA v. Axa Senegal (The Kallang) (No 2) [2008] EWHC 2761 (Comm), in which the defendant was not only seeking security but was using the arrest to frustrate the English arbitration and proceed in Senegal. 5 Sotrade Denizcilik Sanayi ve Ticaret AS v. Amadou Lo (The Duden) [2008] EWHC 2762 (Comm)
[6] The Evangelismos (1858) 12 Moo PC 352; Walter D Wallett (1893) P 202. 2 Mandaraka-Sheppard (n 4) 158. 3 ibid 256-257. 4 Hugh Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell 2012), ch 18-136,1466. 5 [2007] UKHL21, [8]/ 6 Mandaraka-Sheppard (n 4) 167-168. 7 Case 125/79 BernardDenilaulerv. SNC CouchetFrères EU:C:1980:130, [1980] ECR 1553. 8 The only precedent where the parties had such agreement was Mike Trading and Transport Ltd v. R Pag-nan Fratelli (The Lisboa) [1980] 2 Lloyd’s Rep 546. 9 See Francesco Berlingieri, Berlingieri on Arrest of Ships Volume I: A Commentary on the 1952 Arrest Convention (Informa 2017) 186.