NatWest Markets plc v Stallion Eight Shipping Co. SA  EWHC 2033 (Admlty)
Every shipping lawyer loves an arrest. It’s bold, usually fast-paced and what’s more, it actually involves a boat! Arresting a vessel is about as racy as shipping law gets.
This case provides an excellent treatise on the law of arrest and some very interesting statistics suggesting we might love it a little less than we did previously (or perhaps we love it just as much but the provision of alternative security is becoming more seamless, and the pressure on insurers to provide it, greater).
Far from changing the law, this case is important for its reiteration of previous refusals to change the law.
The legal issues
In brief, a bank arrested a vessel over which it had a mortgage because, in the bank’s view, the vessel’s value had dropped to the extent that it fell below the minimum “loan to value” ratio in its loan agreement with the owners.
The value was supposed to be 125% of the bank’s outstanding loan, but after a valuation survey the bank calculated the vessel’s value was only 112% of the same. The bank treated it as an act of default and demanded immediate repayment. The claim was significant – approximately USD $13.5 million.
Owners disputed the valuation and submitted that they were unable to provide alternative security so were being unduly prejudiced by the arrest. As such they argued that the bank should release the vessel unless they provide a cross-undertaking in damages, similar to the requirements placed on an applicant for a freezing order or Mareva injunction.
There were three “headline” legal principles relevant to the judgement:
First, damages are only available for wrongful arrest (i.e. usually arrest undertaken in bad faith or with gross negligence), not just if the case is subsequently lost by the arresting party.
Second, arrest is available as of right where the required conditions are met. The court doesn’t have discretion.
Finally, the court does have discretion to release a vessel from arrest, but this must be exercised in a “principled” manner.
Given the fact that the initial arrest couldn’t be subject to a requirement to provide security, the court did not feel able to order that the vessel should be released unless such security was provided as the same would amount to an “unprincipled exercise of its discretion”:
“If the court were to say, following an arrest, that in exercise of its discretion to order release, the vessel must be released from arrest unless a cross-undertaking in damages were provided, that exercise of its discretion would, it seems to me, cut across and negate the principle that a claimant may obtain the issue of a warrant of arrest without providing a cross-undertaking in damages.”
It is worth noting though that while the focus in the case on the “counter-security” issue, owners actually appeared to be going beyond just requiring security for a potential wrongful arrest claim that might arise, and in fact appeared to be essentially seeking to introduce a new head of damages for arrest, whereby damages would be payable “without the [ship owner] being required to satisfy the established tests for the tort of wrongful arrest”.
Accordingly, given the case law (beautifully extrapolated in the judgement), while one may have sympathy with the ship owner’s position, it is perhaps unsurprising that the first instance judge was not prepared to make the order sought.
As well as giving a good outline of the law of arrest, the judgement also contains the following interesting statistics in relation to the number of arrests occurring each year, providing an indicative outline (albeit slightly patchy) of the historic prevalence of arrest and admiralty court proceedings:
In 2017 there were only 10 arrests in the Admiralty Court compared to 47 in 1964;
In 2017 only 3 of those arrested vessels were sold;
In terms of admiralty writs issued, there were 410 in 1881, 900 in 1920 (800 of which were in rem), 400 in 1926/7, 200 in 1935 and 100 by 1945/6. But numbers recovered by 1964/5 with 350 in rem writs being issued. In 2017 there were 165.
Given the stats, shipping firms with experience in arrest can feel safe in the knowledge that while it is a much publicised aspect of our work (see seafarerers cricketing on board the Malaviya Seven) and, in this festive season, there appears to be a maritime law event every other day packed with eager “arrest keen” shipping lawyers, firms with practical experience in ship arrest (*cough* Myton Law…) remain an relatively exclusive bunch.