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Hong Kong – Arresting Ships To Enforce A Maritime Arbitration Award: A Welcome Clarification

Published: Friday, October 31, 2014

The right to arrest a ship as security for a maritime claim is an extremely valuable right, which has a long history dating back to the time of King Edward III. It does not however extend to include the enforcement of maritime arbitration awards, even if the original claim giving rise to the Award is itself one that falls under the admiralty jurisdiction of the Court (The Bumbesti [2000] QB 559 and The Chong Bong [1997] 3 HKC 570). But does this mean that a plaintiff’s right to arrest a defendant’s ship will be extinguished once an Award is issued? Is a plaintiff’s right to arrest a defendant’s vessel only available pre-Award or pre-Judgment, but not post-Award or post-Judgment? These were questions that Justice Peter Ng, Judge of the Admiralty List in Hong Kong, had to answer in a recent Hong Kong decision of the The Alas [2014] 4 HKLRD 160.1


In The Alas, the plaintiff owners had time-chartered their vessel MT Beth to the defendant charterers for a period of 5 years on the terms of a Shelltime 4 Form. Following the notorious freight and commodities markets crash in 2008, the defendant charterers defaulted on their hire payments to the plaintiff owners. With no prospect of future payment from the defendant charterers, the plaintiff owners terminated the charter and withdrew the MT Beth from service. The plaintiff owners then promptly commenced LMAA arbitration against the defendant charterers, and caused in rem Writs to be issued against the defendant charterers’ vessels in Hong Kong (with a view of arresting, so as to obtain security on the plaintiff owner’s claims). The Writs were carefully drafted so as not to refer to any arbitration proceedings in respect of the underlying claim.


While proceedings in the LMAA arbitration had taken some 3 to 4 years before a Final

Award was eventually published by the tribunal in March 2013, there was in the meantime no reasonable opportunity for the plaintiff owners to arrest the defendant charterer’s vessels as security for its claims. It was not until about one year after the Final Award was published by the Tribunal that the defendant’s ship, MV Dewi Umayi, sailed into Hong Kong on 26 April 2014, where she was promptly arrested by the plaintiff owners.


In the affidavit leading arrest, lawyers for the plaintiff owners (mindful of the principles

stated in the decisions of The Bumbesti and The Chong Bong) made it clear that the plaintiff owners were not seeking to arrest so as to obtain security for and/or to enforce on the Final Award published by the Tribunal, but were arresting as security for the plaintiff owner’s original claims under the time charter (independent from the Award), in the in rem court proceedings.


The defendant charterers moved swiftly in applying to set aside the arrest, arguing that once an arbitration award was issued, the plaintiff owner’s original claims under the charterparty are extinguished, and the plaintiff owners were only entitled to sue on the arbitration award. It was further argued on behalf of the defendant charterers that the right of arrest (to obtain security) was only a right available pre-Award or pre-Judgment, but not after an award or judgment has been issued.


The Honourable Justice Peter Ng disagreed with the submissions of the defendant charterers. The Court held that the plaintiff owners were entitled to pursue their original claims in the in rem proceedings, even if an arbitration award was already published by the tribunal (so long as, and to the extent, that the arbitral award remains unsatisfied). On the defendant charterers’ argument that the right of arrest was only available pre-Award or pre-Judgment, the Court expressed the view that it would be “extremely odd that the right of security by the arrest of a vessel is available to a plaintiff who merely asserts a claim whereas it is lost when he finally obtains a judgment in the action”.


This decision given by the Honourable Justice Peter Ng is a sound decision in principle. It cannot be mere fortuity that a maritime plaintiff’s right to arrest a vessel is extinguished once a Tribunal publishes its’ Award, especially since a plaintiff has no control over (i) when a Tribunal publishes its’ Award; and (ii) when the defendant’s ship will sail into a jurisdiction where the plaintiff may arrest her.


This decision in the The Alas provides a welcome clarification, and facilitates the enforcement of maritime arbitration awards. Facts that have already been decided by the tribunal can give rise to issue estoppel in the in rem proceedings, such that “summary” judgment may be quickly obtained by the plaintiff in the in rem court proceedings (without having to go through a full trial).


A practical and useful reminder for a plaintiff who has successfully obtained a maritime arbitration award in his favour, is as follows: when drafting the Indorsement of Claim in a

Writ and in the affidavit leading arrest, a plaintiff ought to refer to the claim as being one based on the original underlying in rem cause of action (that falls under the Court’s Admiralty jurisdiction), and not to a claim that is based on the Award issued by the tribunal.


The defendant charterers have recently applied for leave to appeal to the Court of Appeal, but this was refused by the first instance Judge. A subsequent direct application to the Court of Appeal for leave to appeal was also declined. The Court of Appeal’s reasoned judgment for denying leave has not yet been handed down at the time of writing, though it should be available in the coming months.


End Notes:


1 Reported in Lloyds Law Reporter (11 August 2014), also available online at

http://www.hklii.hk/eng/hk/cases/hkcfi/2014/1281.html


Damien Laracy
Laracy & Co
Country:
Hong Kong
Practice Area:
Shipping & Maritime
Website:
www.laracyco.com
Phone Number:
+852 2525 7525
Email:
Fax:
+852 2525 7526
Damien specialises in commercial litigation and international arbitration. His day to day practice involves a wide variety of contractual claims, complex cross border debt recovery and damages claims, international trade and sale of goods disputes, shareholders and joint venture disputes, and enforcement of Judgments and Awards in the PRC and in Hong Kong. Damien also has significant experience with ship mortgage enforcement work, and with pursuing claims In Rem on behalf of unsecured parties. The firm is currently advising a venture capital fund in connection with recovery of its investment in corporate bonds by way of enforcement against shipping assets / vessels owned by a financially ailing issuer. Damien's team regularly advices in relation to in team relief applications and when necessary liaises with lawyers in other jurisdictions to achieve a coordinated outcome and to maximise client benefit. The firm's arbitration practice requires Damien to advise in relation to drafting and construction of arbitration references, and enforcement of Awards in the PRC and in Hong Kong. Damien is on the Hong Kong International Arbitration Centre Panel of Arbitrators and sits as an arbitrator. Laracy & Co. services a diverse range of institutional, corporate, and private clients, both in Hong Kong/ Greater China and globally. In addition to our recognised expertise in the areas of commercial litigation, international arbitration, contentious shipping and intellectual property, the firm also has strengths in the areas of general commercial practice and employment related disputes.
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