Pin it to the Mast Part 2 – THE APPEAL –NatWest Markets plc v Stallion Eight Shipping Co. SA [2018] (The “ALKYON”)

For those only interested in the outcome and practical implications we have set out the key conclusions of the case in an executive summary. But in an attempt to do justice to the judgement this is followed by an outline of some of the key points considered in the judgement.

Conclusions - Executive Summary

Our first article (here) in relation to this case can be reviewed for the background. In essence, the vessel was arrested by a bank (and mortgagee) in respect of an alleged default by owners on a loan agreement. Owners applied for a cross-undertaking from the bank for damages for losses arising from the arrest. The question was whether the court should exercise its power to release the vessel from arrest unless the bank provided the cross-undertaking.

In its judgement the Court of Appeal began by reiterating the current legal position

1. As a matter of the CPR, provided only that the property is within the scope of an action in rem and there has been procedural compliance with the rules, arrest is as of right - para 43 and see also The Varna [1993] 2 Lloyd’s Rep 253.
2. No damages can be claimed for wrongful arrest absent mala fides or crassa neglentia (aka bad faith or gross negligence) - para 44 and see also The Evangelismos (1858) Moo PC 352.
3. Once the vessel is arrested, the settled usual practice of the Admiralty Court is that the vessel will not be released unless the shipowner provides security for the underlying claim or in cases of abuse of process.

In its judgement the Court of Appeal then neatly canvased the key domestic and international cases, provisions and academic commentaries before upholding the judgement of Teare J, which refused owner’s application for a cross-undertaking:

“…we conclude that the case against an “overnight” change… to the settled law and practice is overwhelming… In full agreement with the Judge’s conclusion we would dismiss the appeal”.

The debate

In its judgement the Court of Appeal reviewed numerous previous cases including the Tjaskemolen [1997] 2 Lloyd’s Rep 476 where the court had required security for the continued arrest of the vessel to ensure the position was the same as if the previous arrest had been maintained in Holland (where the vessel was previously arrested).

The court also outlined the ebb and flow of academic commentary on the merits of a cross-undertaking being a requirement of an arrest, focussing on contributions from Sir Bernard Eder (broadly for) and Prof. Martin Davies (broadly against).

Finally the Court delved into a comparative analysis, extracting key statistics from a CMI review of arrest requirements in other jurisdictions. That survey confirmed that 11 of the 38 jurisdictions in respect of which responses were received required an arrestor to provide cross-undertaking. 13 did not and 13 gave court’s discretion as to whether to require it or not.

In supporting its view the court referred inter alia to the following “formidable considerations which supported the status quo:

1. If owners succeeded, the requirements of a cross-undertaking would become routine, constituting a deterrent to arrest proceedings. This could cause issues particular for arrests undertaken by crew and “provisions” suppliers.
2. Ship arrest is asset specific and has a different background / history to the other “interim remedies” available, so the analogy with freezing / mareva orders is unjustified.
3. There is a “powerful inference” that there is no or no significant, pressure from the maritime industry for a change in the balance struck between ship owners and potential maritime claimants.
4. Under the CPR and maritime industry, arrangements and systems are in place, without any apparent significant discontent, premised on the settled existing state of the law and practice.

Door held open?

The only area where the Court of Appeal expressly differed from Teare J was in his view that a change to the law would require parliamentary or Rules Committee interference.

The Court of Appeal preferred the view that “it is open to the court itself to reconsider the position, but is should only do so if properly informed as to the views of the maritime community, including the practical ramifications of any proposed changes and the preferred route to be adopted if any such changes are decided upon,. Moreover the Court would wish to be informed of the likely consequences for this jurisdiction internationally if the status quo was altered.”

In its comments the court appeared to be holding the door open for courts in the future to exercise their discretion to require a cross-undertaking and it outlined a number of hurdles that any applicant would need, as a minimum, to overcome to persuade a court to depart from existing practice including the following:

1. Evidence to show significant support from the maritime community extending much wider than the views of (even eminent) legal commentators and in relation to the industry implications of a change (“whether by consultation or otherwise”).

2. Evidence in relation to the likely consequences “for this jurisdiction internationally if the status quo was to be altered”.

3. Evidence to support “an argument going to substance” in relation to the inability for the ship owning company and its shareholders to avail themselves of the remedy usually adopted to avoid loss caused by an arrest (namely, the provision of security).

   If a party is seeking to challenge the status quo in the future it might also consider whether such an application’s prospects of succeeding could be increased by formulating it in such a way as to only challenge either the cross-undertaking practice or the rule limiting damages to the current concept of “wrongful arrest”. With the benefit of hindsight, challenging both simultaneously appears somewhat ambitious.