This was an appeal from the judgment and order of Teare J in NatWest Markets plc v Stallion Eight Shipping Co SA (The Alkyon) [2018] EWHC 2033 (Admlty) CMI188. His Honour dismissed the appellant owner’s application to release the ship MV Alkyon from arrest unless the respondent bank provided a cross-undertaking in damages for loss flowing from the arrest.

The bank lent USD 15,700,000 to the owner of the MV Alkyon pursuant to a long term loan agreement (January 2015). The loan was secured by a First Preferred Mortgage on the vessel (February 2015).

On 22 March 2018, the bank notified the owner that the market value of the vessel was USD 15,250,000 which was 112% of the aggregate value of the amount of the outstanding loan and less than the VTL ratio of 125%. The amount of additional security required was USD 1,750,000. The owner disputed the valuation and provided the bank higher valuations. The bank warned the owner that if the shortfall in security was not cured there would be an event of default.

On 25 April 2018, the bank notified the owner of an event of default and gave further time to cure. On 15 June 2018, the bank sent the owner 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 an obtained the issue of a warrant of arrest against the vessel. The vessel was arrested on 26 June 2018 upon arrival at the Port of Tyne.

The owner denied there was an event of default and denied that the bank was entitled to accelerate the loan (said to be USD 13,496,922.33). The owner claimed that while under arrest, the vessel would lose gross hire USD 11,350 per day and a profit of USD 3,500-4,000 per day. The owner stated that it could not 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. In addition, the owner stated that security in the form of a guarantee or a bond could not be provided because the owner’s only asset is the vessel and that is mortgaged to the bank. The owner believed the bank was aware of the position the owner was placed in by the arrest and the bank was putting the owner under commercial pressure to agree to sell the vessel to repay the loan.

In dismissing the application Teare J made three points as to why a cross-undertaking is not required. It would:

1. run counter to the principle that a claimant may arrest of right,
2. be inconsistent with the court’s long-standing practice that such a cross-undertaking is not required, and
3. be contrary to the decision of the Court of Appeal in Bazias 3 and Bazias 4, and to the dicta of Lord Clarke in Willers v Joyce which must be respected by the High Court.

The owners appealed, submitting that 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 without requiring the bank to provide a cross-undertaking in damages, akin to that provided by applicants in freezing injunctions.

Held: The appeal was dismissed. Two points have a bearing on the appellant’s case. First, the availability of a warrant of arrest as of right under the CPR rather than the exercise of discretion. Second, the well-established authority that no damages are recoverable for wrongful arrest unless there is mala fides (or bad faith) or gross negligence which implies malice (The Evangelismos (1858) 12 Moo PC 352, 14 ER 945).

The first point is disposed of easily. Provided 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. No judicial discretion is involved, therefore no question arises of cross-undertaking in damages from the arresting party.

It is recognised that the rule in The Evangelismos can be harsh on a shipowner in circumstances where it transpires that the arrest was unjustified but the shipowner is left without remedy for the loss (The Kommunar (No 3) [1997] 1 Lloyd’s Rep 22). However, the admiralty practice of not requiring a cross-undertaking in damages from the arresting party is a longstanding, settled practice dating back 150 years.

By coincidence of timing, the Comité Maritime International was due to meet on 9 November 2018 to discuss Liability for Wrongful Arrest. Dr Aleka Sheppard, Chairman of the International Working Group conducted a survey of the applicable laws and legal tests internationally for this meeting.

38 maritime law associations gave detailed answers to the following questions:

1. What is the applicable law by the various States in respect of ship arrest and liability for wrongful arrest at national level;
2. Whether counter-security is required to be provided by the arrestor when the application for the ship arrest is made, or thereafter, in the event of a potential wrongful arrest;
3. What is the legal test and the standard of proof for a defendant-arrestee to succeed in a wrongful ship arrest claim.

In answer to A, 17 out of the 38 countries applied the Arrest Convention 1952 (including the UK and Hong Kong), 2 applied the Arrest Convention 1999, 17 applied purely domestic legislation, including Australia, Canada, New Zealand, Nigeria, South Africa and the USA.

In answer to B, 11 countries required the applicant-arrestor to provide counter-security; 13 did not, including Australia, Canada, Hong Kong, New Zealand, the UK and the USA; 13 gave their courts discretionary power in respect of ordering counter-security.

In answer to C, 9 of the 38 countries (none of them common law jurisdictions) applied strict liability; 10 required proof of negligence as applied in tort rules; 14 required proof of other culpable behaviour, including Canada, Hong Kong, New Zealand, South Africa, the UK and the USA.

Dr Sheppard concluded the data showed a ‘sharp disparity’ between national laws both on the liability for wrongful arrest and the remedy. Further work is required from the International Working Group to make proposals as to the ‘(i) definition of a test, (ii) counter security provision, (iii) the type and extent of damages that may be claimed and (iv) the method of unification, if any, whether by a Protocol or soft law, such as Guidelines or Model provision(s).’

The relevant article in the Arrest Convention 1999 (ratified by 11 States, the UK is not one of them) is art 6.1. It provides:

‘The Court may as a condition of the arrest of a ship, or of permitting an arrest already effected to be maintained, impose upon the claimant who seeks to arrest or who has procured the arrest of the ship the obligation to provide security of a kind and for an amount, and upon such terms, as may be determined by that Court for any loss which may be incurred by the defendant as a result of the arrest, and for which the claimant may be found liable, including but not restricted to such loss or damage as may be incurred by that defendant in consequence of:

1. The arrest having been wrongful or unjustified; or
2. Excessive security having been demanded and provided

Acknowledging the concerns expressed as to the rule in The Evangelismos, the court nonetheless dismissed the appeal on eight grounds.

1. The availability of arrest provides the unique feature of the claim in rem. There is a need for caution before restricting or hindering access to an admiralty arrest.
2. Should the appellants succeed, it is overwhelmingly likely that a cross-undertaking requirement would become routine, as there is nothing unusual about the present case.
3. Resisting altering the status quo is not simply based on tradition. There is no real doubt as to the efficacy of arrest in compelling some other form of security, so much so that relatively few arrests are necessary.
4. A ship arrest is asset-specific. It does not freeze or paralyse the shipowner’s entire business in the way that a freezing order may (with the exception of one-ship companies).
5. The analogy between maritime arrests and interlocutory injunctions is neither exact nor compelling.
6. An arrest has not been a requirement for establishing Admiralty jurisdiction since 1883. There has been ample time to reconsider the law and practice relating to maritime arrests, yet none has taken place.
7. The powerful inference is that there is no significant pressure from the maritime industry for a change in the balance struck between shipowners and maritime claimants. There is no international consensus and it is noteworthy that the Arrest Convention 1999 has not been ratified by the UK or more widely internationally.
8. So far as the maritime industry and the CPR are concerned, arrangements and systems are in place premised on settled, existing state of the law and practice. These systems should not be disturbed lightly.

The case against an ‘overnight’ change to the settled law and practice is overwhelming. The appeal is dismissed without any view as to the merits of the underlying dispute between the parties.