Arresting a ship to enforce a maritime arbitration award: The Alas provides a welcome clarification

December 2014

Hong Kong

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.  There has however been doubt as to whether the right extends so far as to allow for an arrest to obtain security for a pre-existing maritime arbitration award, 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 His Lordship Mr Justice Peter Ng, Judge of the Admiralty List in Hong Kong, had to answer in a recent Hong Kong decision of The Alas [2014] 4 HKLRD 160.[1]

The facts

As to the facts, the plaintiff owners (Owners) had time-chartered their vessel “MT Beth” to the defendant charterers (Charterers) for a period of five years on the terms of a Shelltime 4 Form.  Following the notorious freight and commodities markets crash in 2008, Charterers defaulted on their hire payments to Owners.  With no prospect of future payment from Charterers, Owners terminated the charterparty and withdrew the “MT Beth” from service. Owners then (represented by Hill Dickinson) promptly commenced LMAA arbitration against Charterers, and caused an in rem writ to be issued against Charterers’ vessels in Hong Kong (with a view of arresting, so as to obtain security for Owner’s claims for unpaid hire).  The Hong Kong writ was carefully drafted so as not to refer to any arbitration proceedings in respect of the underlying claim.

Proceedings in the LMAA arbitration then took some three to four years before a final award was published by the tribunal in March 2013.  There had in the meantime (i.e. prior to the publication of this award) been no opportunity for Owners to arrest a vessel of Charterers in Hong Kong 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 Owners.[2]

In the affidavit leading arrest, lawyers for Owners (mindful of the principles stated in the decisions of The Bumbesti and The Chong Bong and mindful also of duties of full and frank disclosure in ex-parte applications) had made it clear that 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 Owner’s original claims under the time charter (independent of the award), in the in rem court proceedings.

Charterers moved swiftly in applying to set aside the arrest, arguing that once an arbitration award was issued, Owner’s original claims under the charterparty are extinguished due to the doctrine of merger, and that therefore Owners were only entitled to sue in personam on the arbitration award.  It was further argued on behalf of 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 and – in October of this year – the Court of Appeal disagreed with the submissions of the defendant charterers.

The judgment

The Court of First Instance held that 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 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 robust and sound one. 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.

In the latest development following His Lordship’s first instance decision in July 2014, Charterers applied successively to both Mr Justice Peter Ng and to the Court of Appeal for leave to appeal.  Both appeal applications were decisively dismissed by both His Lordship Mr Justice Peter Ng as well as by the Court of Appeal.

His Lordship Mr Justice Barma, sitting in the Court of Appeal on 22 October 2014, indicated that written grounds will be released for the Court of Appeal’s decision in due course.  This will be a decision which the international maritime community will be awaiting with much anticipation.

Comment

This decision in The Alas provides a welcome clarification of the right to arrest in Hong Kong when arbitration proceedings have been concluded in a foreign jurisdiction.  It also facilitates generally the enforcement of maritime arbitration awards; facts that have already been decided by the arbitration tribunal might be accepted by the Hong Kong Court in the later 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) after an arrest.

Out of an abundance of caution, a practical tip 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 a claim that is based on the award issued by the tribunal.

We now eagerly await the Court of Appeal’s written grounds for dismissing Charterers’ application for leave to appeal.

We are grateful to Damien Laracy  and Tang Choon Jun of Laracy & Co., in association with Hill Dickinson Hong Kong LLP, for this article. Laracy & Co., in association with Hill Dickinson Hong Kong LLP, acted for the successful Owners in this case.

 [1] Reported in Lloyds Law Reporter (11 August 2014), also available online.

 [2] Although the vessel arrested is the Dewi Umayi, the decision has become known as The Alas, because she was the first of several sister vessels named on the Writ.