Natwest Markets Plc (formerly known as the Royal Bank of Scotland Plc) v Stallion Eight Shipping Company SA
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 31 July 2018 |
| Neutral Citation | [2018] EWHC 2033 (Admlty) |
| Court | Queen's Bench Division (Admiralty) |
| Docket Number | Case No: AD-2018-000071 |
| Date | 31 July 2018 |
[2018] EWHC 2033 (Admlty)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMIRALTY COURT
Admiralty action in rem against the Ship MV ALKYON
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Justice Teare
Case No: AD-2018-000071
Robert Bright QC and Marcus Mander (instructed by Watson Farley & William LLP) for the Claimant
Tim Lord QC and Geoffrey Kuehne (instructed by Hill Dickinson) for the Defendant
Hearing dates: 23 July 2018
Judgment Approved
This is an application for the release of a vessel from arrest pursuant to CPR Part 61.8(4)(b).
The application was also brought under CPR Part 3.1(3)(a) and 3.1(7) and under the inherent jurisdiction of the court but the argument before me did not suggest that a claim under those parts of the CPR or under the inherent jurisdiction of the court could succeed in circumstances where the application under CPR Part 61.8(4)(b) failed. I can therefore deal solely with the application pursuant to CPR 61.8(4)(b).
The Claimant is a bank, formerly known as The Royal Bank of Scotland plc, which lent US$15,700,000 to the Defendant, the owner of the MV Alkyon, a 2015 built 36,056 dwt bulk carrier registered in the Marshall Islands, pursuant to the terms of a loan agreement dated 30 January 2015. The loan was secured by, inter alia, a First Preferred Mortgage on the vessel dated 2 February 2015.
On 22 March 2018 the Bank notified the Shipowner that the market value of the vessel was US$15,250,000 which was 112% of the aggregate amount of the loan then outstanding and so less than the required VTL ratio of 125%. The amount of additional security required was US$1,750,000. The Shipowner disputed that valuation and provided the Bank with higher valuations. The Bank warned the Shipowner that if the shortfall in security was not cured there would be an event of default. On 25 April 2018 the Bank notified the Shipowner of an alleged event of default, namely, the Shipowner's failure to cure the alleged shortfall in the VTL ratio. Further time was given to cure the shortfall. On 15 June 2018 The Royal Bank of Scotland plc sent the Shipowner a Notice of Acceleration which declared the loan immediately due and payable. On the same day the Bank issued an in rem claim form and applied for and obtained the issue of a warrant of arrest against the vessel. On 21 June 2018 the Bank informed the Shipowner of the issue of the warrant and that it had requested the Admiralty Marshal to effect an arrest when the vessel berthed at Newcastle on 26 June 2018. On that date the vessel was arrested by the Admiralty Marshal when she arrived at the port of Tyne.
The amount outstanding under the loan agreement is said to be some US$13,496,922.33. The Shipowner denies that there was an event of default and that the Bank was entitled to accelerate the loan. The director of the Shipowner, Yannis Triphyllis, has stated that the claim will be defended on the basis that the Bank's valuation was “very materially off-market” and not in compliance with the terms of the loan agreement. It is alleged that the Bank did not exercise its powers in good faith or in pursuit of legitimate commercial aims.
The Shipowner considers that whilst under arrest the vessel will lose gross hire of US$11,350 per day, a profit of some US$3,500 – US$4,000 per day. It fears “a potentially catastrophic loss as its only income producing asset is out of operation”. The Shipowner says that it cannot obtain a P&I Club letter of undertaking to secure the release of the vessel from arrest in the normal way because P&I cover does not extend to a disputed claim under a loan agreement. It is also said that security in the form of a guarantee or a bond cannot be provided because the Shipowner's only asset is the vessel and that is already mortgaged to the Bank. In addition it is said that the Shipowner does not have access to funds to effect a suitable security arrangement. Mr. Triphyllis believes that the Bank is only too aware of the position the Shipowner has been put in by the arrest and it appears clear to him that the Shipowner is being placed under commercial pressure to agree to sell the vessel in order to repay the loan which is precisely what the Bank intends to achieve.
Those are the circumstances in which the Shipowner has applied for an order releasing the vessel from arrest unless the Bank provides a cross-undertaking in damages in the form usually given in the context of freezing orders, namely, that if the court later finds that the warrant of arrest has caused loss to the Shipowner and decides that the Shipowner should be compensated for that loss, the Bank will comply with any order the Court may make.
The Bank says that it would be contrary to the court's practice to require such an undertaking in the context of an Admiralty arrest or to order the release of the vessel from such arrest save on terms that security is given in place of the arrest.
To those familiar with this area of the law (and there are some) it will be immediately apparent that the Shipowner's application raises for decision the issue which has concerned Sir Bernard Eder for over 20 years, namely, the question whether a claimant who arrests a vessel, like a claimant who seeks a freezing order, should provide a cross-undertaking in damages in respect of the damage which an arrest can cause a shipowner; see the lecture given by Sir Bernard Eder to the London Shipping Law Centre entitled Wrongful Arrest of Ships in December 1996 and Wrongful Arrest of Ships: A Time for Change by Sir Bernard Eder 38 Tulane Maritime Law Journal 115 (2013), and see also Shipping lawyers: land rats or water rats? by Stewart Boyd QC [1996] LMCLQ 317, Damages for the wrongful arrest of a vessel by Shane Nossal [1996] LMCLQ 368 and Wrongful Arrest of Ships: a case for reform by Aleka Mandraka Sheppard (2013) 19 JIML 41. Not everyone agrees with Sir Bernard Eder; see the reply to his article by Professor Davies at 38 Tulane Maritime Law Journal 137 (2013) to which Sir Bernard Eder replied at 38 Tulane Maritime Law Journal 143.
It is accepted by counsel for the Shipowner that English Admiralty law does not require a claimant who wishes to arrest a vessel to provide a cross-undertaking in damages in order to obtain a warrant for the arrest of a vessel. Therefore, the only way in which the Shipowner can advance its claim for such a cross-undertaking in damages is to seek a release of the vessel from arrest in the event that the Bank fails to provide the requested undertaking. This was the method proposed by Sir Bernard Eder in his 1996 lecture at paragraph 35 and in his Tulane article at p.133.
The Shipowner's application was issued on 3 July 2018 and was heard on 24 July 2018. The vessel has been under arrest for a month. There is a need for a swift decision before the end of this legal term and so this judgment may not be as full as it ought to be and may not do justice to all of the matters eloquently addressed by Sir Bernard Eder in what he himself has described as a campaign for a change in the law.
The Admiralty action in rem and the purpose of an arrest
A claim in respect of a mortgage on a ship is within the Admiralty jurisdiction and may be brought in rem against the ship in connection with which the claim arises; see section 20(2)(c) and section 21(2) of the Senior Courts Act 1981. A claim in rem is started by the issue of an in rem claim form; see CPR Part 61.3(2). A claimant in rem may apply for the issue of a warrant of arrest; see CPR Part 61.5. The Practice Direction to Part 61 at paragraph 5.2 provides that when the court receives an application for arrest that complies with the rules and the practice direction the court will issue an arrest warrant.
Whilst the SCA 1981 and CPR 61 are the current statutory and court rule source of the right in rem and hence of the right to arrest the right in rem is of course an ancient right which can be traced back to the Elizabethan era; see The Development of Admiralty Jurisdiction & Practice since 1800 by F.L.Wiswall Jr. (1970) at p.155. By 1802 it was recognised as the dominant Admiralty procedure by Arthur Browne LL.D in his Compendious View of the Civil law and the Law of the Admiralty, described by Wiswall as “a magnificent work”; see Wiswall pp.7–8 and 155.
It is necessary to bear in mind the purpose of an arrest. The purpose of an arrest is to enforce an admiralty action in rem. By arresting a ship the claimant establishes the jurisdiction of the Admiralty court to hear and determine the claim in the action notwithstanding that the ship is registered in a foreign country and that the claim has no connection with this country. By arresting the ship the claimant also obtains the means by which he can enforce his claim in the event that he establishes his claim. The ship may be sold by the Admiralty Marshal upon the order of the court and the claimant may recover his claim from the proceeds of sale. In that way an arrest provides security for the claim in rem. For other statements of the purpose of arrest see The Stolt Kestrel [2016] 1 Lloyd's Reports 125, [2015] EWCA 1035 per Tomlinson LJ at paragraph 12 and The Styliani Z [2016] 1 Lloyd's Reports 395, [2015] EWHC 3060 (Admlty) at paragraph 20. Thus the right to arrest is “the unique feature of a claim in rem”; see The Stolt Kestrel per Tomlinson LJ at paragraph 21.
But more often than not an arrest is unnecessary. In the typical claim for lost or damaged cargo the contract of carriage or charterparty will provide for English jurisdiction and the shipowner's P&I Club will provide a letter of undertaking in order...
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