The power to arrest a vessel has been a remedy more often sought in recent years.1 As advantageous as the in rem remedy can be, it can be a disastrously expensive exercise if it does not result in net recovery against the ship. The decision whether or not to arrest is therefore fraught with difficulty. This paper examines some concerns that are vital to that decision.
Value of the vessel
The purpose of arresting a ship in an action in rem is to obtain security for the satisfaction of any judgment in which the arresting party is seeking on his claim. The first consideration will therefore be the value of the vessel, which determines the potential size of the pool available for all persons with an in rem claim against the vessel.
The overall condition of the shipping market in the particular region will determine the demand and value that the vessel can fetch. The type of vessel and capability of performing the type of work required in the market where it is competing is another consideration. If a vessel has been superseded by new designs and types of construction, its value will be diminished.2
All ships are built with an expected life of 20 to 25 years. After that point, their value declines substantially regardless of condition.3 A ship that is built to class and maintained in class by an internationally recognised classification society will have a greater value than one that is not.4
Against that value of the vessel, one must consider the cost of arrest.
Cost of arrest
The cost of arrest comprises:5
- the court deposit;
- the Sheriff’s costs and expenses;
- the Sheriff’s commission; and
- solicitors’ costs.
The larger part of the arrest expenses will be incurred in maintaining the vessel while under arrest. This cost is recoverable from the proceeds of sale of the vessel as part of the Sheriff’s expenses, in priority over all other claims.
The usual expenses incurred after an arrest include the ship manager’s fee, purchase of provisions, bunkers and repatriation and replacement of crew, where necessary. These considerations are closely related to the lay-up condition of the vessel.
Where the vessel is laden, the arresting party will incur cost in discharging and transhipping the cargo to its designated port of discharge. This cost cannot be ascertained until and after the arrest takes place.
Although in the more straightforward cases, a judicial sale can be concluded within six months, any delay will not only increase expenses in maintenance but a deterioration of vessel can overtake events — in which case, the time and expenses for restoring the vessel can wipe out a substantial portion of the proceeds of sale.
Consideration of these costs will require anticipation of contingencies particular to the circumstances of the case. For example, it can be a miscalculation if the costs of renewing the vessel’s class certificate or insurance policy have not been taken into account and if it lapses before the sale of the vessel is completed. It is obviously prudent to allow a margin for such contingencies but determining the size of that margin is always a gamble.
Even given that there is a potential net recovery from the proceeds of sale of the vessel, the next consideration will be the ranking of the arresting party’s claim in the order of priority against other possible maritime claims. A claim lower down in the order of priority will have a greater uncertainty of recovery, given the possible existence of higher-ranking claims.
Among others, a claim for crew wages is a red flag indicating that there are probably underlying financial issues with the shipowner or demise charterer. If the
vessel is in a shipyard, there is likely to be a possessory lien for unpaid repairs which will rank in priority over other maritime liens that accrue after the vessel came into the possession of the yard. It must also be borne in mind that mortgage claims, although ranking lower than maritime and possessory liens, take priority over claims for necessaries.
Given the nature of maritime liens which arise by operation of law and are impossible to detect, assessing potential competing claims is a speculative exercise and an educated guess is the most that one can aim for.
Arrest in Malaysia
Where it is sought to arrest within Malaysian territorial waters, locating a vessel will not be an exercise in precision. Given that there is no centralised system that records the exact movement of vessels within Malaysian waters, the arresting party will have to rely on available online portals provided by some major ports to ascertain the arrival of a vessel.
Otherwise, there is the Automatic Identification System or AIS, accessible to subscribers, which indicates a vessel’s position in real time but the data is often up to an hour behind, subject to the usual glitches where the vessel is out of range or where the tracking system is switched off.6 Such delay in return can have an adverse effect in the execution of an arrest.
As with most jurisdictions, the amount of security requested should not exceed the value of the arrested vessel7 and costs can be awarded if excessive quantum of security is demanded. Where the amount claimed is in excess of the statutory tonnage limitation,8 the shipowner can seek to provide bail up to the amount of the statutory limits to facilitate the release of his ship.9 If the arresting party disputes the facts entitling the shipowner to the statutory limit, bail for the full claim has to be given by the owner. However, if the claim turns out to be exorbitant subsequently, the costs of the excessive security may be ordered against the arresting party. Limitation of time is another consideration.
Where there is a caveat against arrest filed by the shipowner, the arresting party may call on the undertaking given by the shipowner.10 In such instances, the caveator (shipowner) will have to enter an appearance and will be directed by the court to provide reasonable bail or pay into court a sum not exceeding the amount specified by the arresting party.
As illogical and impossible it is to be precise, there are old hands within the industry who seem to have that intuition in making the right decision.