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Status Quo Maintained – Arresting Vessels in England & Wales does not require a cross-undertaking in damages

August 1 2018

In Bernard Eder QC’s (as he was then) 1996 paper, “Wrongful Arrest of Ships” he wrote that the law concerning a shipowners’ right to claim compensation following arrest “needs to be changed; and the sooner the better”. This summer the Admiralty Court was given its first opportunity since the 1996 paper to consider the issue in the case of the The MV ALKYON. Mr Justice Teare’s judgment was released on 31 July 2018.

The claimant bank arrested The MV ALKYON in Newcastle in June 2018 as security for an amount that was said to be outstanding under a loan agreement. The shipowner’s P&I Club would not provide security by way of a Club letter of undertaking because P&I cover did not extend to a dispute under a loan agreement. The shipowner had no other assets against which it could borrow apart from the vessel, which was mortgaged to the claimant bank. As a result, the shipowner argued that it was faced with the prospect of “a potentially catastrophic loss as its only income producing asset is out of operation.”

Counsel for the shipowner accepted that the bank was entitled to obtain the issue of a warrant of arrest without providing a cross-undertaking in damages. However, running one of Sir Bernard Eder's 1996 arguments, the shipowner argued that the MV ALKYON should be released from arrest if the bank did not provide a cross-undertaking in damages. Cross-undertakings in damages, which are required for freezing applications, are a promise to compensate the respondent if it is later found that the applicant should not have been entitled to the relief granted by the Court.

The Admiralty Judge stated that there was nothing unusual about this case. Therefore any amendment to the current process would represent an overnight change in the circumstances in which an arrest could be obtained and maintained. He also stated that arrest proceedings and freezing injunctions had different origins and were not of the same character so, by implication, the Courts should not seek to equate the two.

After considering a number of previous decisions, including the 1993 case of The Bazias 3 and the Bazias 4 and the comments of Lord Clarke in the 2016 case of Willers v. Joyce , the Admiralty Judge dismissed the shipowner’s application. He said that to do otherwise may discourage applicants from exercising the right of arrest and may also mean that P&I and hull underwriters are less inclined to provide security. He added that to grant an order in the terms requested may lead to such far-reaching consequences that the decision to do so should be a matter for Parliament following consultation with the industry.

So where does that leave things? Well, Sir Bernard Eder QC’s 1996 arguments have now been considered and rejected, at least at first instance. As a matter of English law the situation remains that an arresting party is not required to provide any cross-undertaking in damages. Indeed, the position arguably remains as stated by Dr Lushington in 1862 when he said:

“To order security as for a wrongful arrest would be an innovation on the practice of the Court and would form a serious bar to foreigners suing in this Court.”
The DH Peri (1862) 543

If there was ever any doubt, this judgment re-affirms the fact that the English Court remains arrest-friendly and open for business.

For further information about the case, please contact Matthew Montgomery.

mmontgomery@m-f-b.co.uk

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