Stallion Eight Shipping Company S.A. v Natwest Markets Plc (formerly known as the Royal Bank of Scotland Plc)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Flaux,Sir Terence Etherton,Lord Justice Gross |
| Judgment Date | 11 December 2018 |
| Neutral Citation | [2018] EWCA Civ 2760 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: 2018/2132 |
| Date | 11 December 2018 |
[2018] EWCA Civ 2760
Master of the Rolls
Sir Terence Etherton
Lord Justice Gross
and
Lord Justice Flaux
Case No: 2018/2132
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
ADMIRALTY COURT (QBD)
THE HONOURABLE MR JUSTICE TEARE
Royal Courts of Justice
Strand, London, WC2A 2LL
Tim Lord QC and Geoffrey Kuehne (instructed by Hill Dickinson LLP) for the Appellant
Robert Bright QC and Charles Holroyd (instructed by Watson, Farley & Williams LLP) for the Respondent
Hearing date : 6 November 2018
Approved Judgment
Sir Terence Etherton MR, Lord Justice Gross,
INTRODUCTION
This is the judgment of the Court, to which we have each substantially contributed.
The Appellant (“Owners”) appeals from the judgment and order of Teare J dated 31 July 2018 (“the judgment” and “the order” respectively) dismissing the application to release the ship, the M.V. Alkyon (“the vessel”) from arrest unless the Respondent (“the Bank”) provided a cross-undertaking in damages for the loss flowing from the arrest.
The central question on the appeal is whether the Judge erred in the exercise of his discretion under CPR r. 61.8(4)(b) in refusing to order the release of the vessel under arrest, thus maintaining the arrest, without requiring the Bank to provide a cross-undertaking in damages, akin to that provided by applicants for freezing injunctions (“the cross-undertaking”) – the cross-undertaking entailing in the present context that, if the Court later found the warrant of arrest had caused loss to Owners and decided that Owners should be compensated for such loss, the Bank would comply with any order the Court might make.
Although a number of grounds of appeal were advanced, the matter ultimately turns on that central question. Owners submit that the Judge erred in the exercise of his discretion; this Court should allow the appeal and vary the order by exercising the Court's power under CPR r. 61.8(4)(b) to release the vessel from arrest unless the Bank provides the cross-undertaking. The Bank contends that the reasoning of Teare J was “impeccable”, his conclusions were justified and the appeal should be dismissed.
As will at once be appreciated and though neither is directly in issue, still less challenged on this appeal, Owners' case necessarily impinges on: (1) the availability of a warrant of arrest as of right (rather than as a matter of discretion), under the CPR; (2) well-established authority, to the effect that no damages are recoverable for wrongful arrest, absent either (a) “ mala fides” (i.e., malice or bad faith in modern parlance) or (b) “that crassa negligentia which implies malice” (i.e., gross negligence in modern parlance): see, The Evangelismos (1858) 12 Moo PC 352; 14 ER 945, at pp. 359/948. If Owners' case is well-founded, there can be no doubt that both (1) and (2) would be undermined. By itself, that is not conclusive – but it is important to be clear as to the potential ramifications of success for Owners on this appeal, very likely extending beyond this jurisdiction given the international nature of the maritime industry and the interest there would be in the course adopted by English Law.
THE FACTS
The facts can be shortly summarised and are very largely and gratefully adopted from the judgment. The Bank, formerly known as The Royal Bank of Scotland plc, lent US$15,700,000 to Owners, pursuant to the terms of a loan agreement, dated 30 January 2015 (“the Loan Agreement”). The loan was secured by, among other things, a First Preferred Mortgage over the vessel, dated 2 February 2015 (“the Mortgage”).
The underlying dispute between the parties is whether an “event of default” occurred under the Loan Agreement. As set out by the Judge (at [4]):
“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 (i.e., 15 June 2018) 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 Owners 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.
To obtain the arrest, the Bank had, on 15 June 2018, duly completed Form ADM4 (as provided by Practice Direction 61, see further below), requesting the Admiralty Marshal to execute the warrant accompanying it by arresting the vessel. This Form included the requisite undertaking on the part of the Bank to pay on demand the fees of the Marshal and all expenses incurred, or to be incurred by him, in respect of (broadly) the arrest, the care and custody of the vessel while under arrest and the release of the vessel.
Furthermore, also on 15 June 2018, the Bank had duly made the Declaration on Form ADM5 (again as required by Practice Direction 61, see below), including the explanation that the Bank's claim was for “outstanding indebtedness being due and payable by …[Owners]…(as borrower)….” to the Bank as mortgagee, and giving outline particulars of the claim.
The Bank contends that the amount outstanding under the Loan Agreement is some US$13,496,922.33. Owners deny that there was an event of default and that the Bank was entitled to accelerate the loan. Owners' director, a Mr Triphyllis, has said 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.
Owners apprehend a “potentially catastrophic loss as its only income producing asset is out of operation”. It is said 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. As recorded by the Judge (at [6]):
“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….”
Interposing there, the ability of Owners to obtain funds is a matter to which the Judge returned later in the judgment and to which we shall come in due course. The Judge continued as follows:
“…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.”
It is against this background that Owners' application came before the Judge.
THE STATUTORY, CPR AND PRACTICE DIRECTION FRAMEWORK
The Admiralty jurisdiction of the High Court appears from the Senior Courts Act 1981 (“the SCA 1981”). S.20(1)(a) provides for jurisdiction to hear and determine “any of the questions and claims mentioned in subsection (2)”. Insofar as relevant for present purposes, those questions and claims include in s.20(2)(c) “any claim in respect of a mortgage of or charge on a ship or any share therein”.
S.21 of the SCA 1981 deals with the mode of exercise of Admiralty jurisdiction. S.21(2) provides, among other things, that in the case of any claim as is mentioned in s.20(2)(c) “an action in rem may be brought in the High Court against the ship or property in connection with which the claim or question arises”.
Practice Direction 61 (“PD 61”), para. 3.6, provides that a claim form in rem may be served in the following ways:
“(1) on the property against which the claim is brought by fixing a copy of the claim form –
(a) on the outside of the property in a position which may reasonably be expected to be seen….
(2) if the property to be served is in the custody of a person who will not permit access to it, by leaving a copy of the claim form with that person;
(3) where the property has been sold by the Marshal, by filing the claim form at the court;
(4) where there is a notice against arrest, on the person named in the notice as being authorised to accept service;
(5) on any solicitor authorised to accept service;
(6) in accordance with any agreement providing for service of proceedings;
or(7) in any other manner as the court may direct under rule 6.15 provided that the property against which the claim is brought or part of it is within the jurisdiction of the court.”
CPR r 61.5 deals with arrest and, insofar as here relevant, provides...
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