A recent decision by the Rotterdam Court considered an application in summary proceedings to obtain the release of an arrested vessel by providing alternative security – a common practice in the Netherlands.
The Court's rejection of the application, which involved a Norwegian guarantor, raises several significant questions for future ship arrest cases.
The dispute before the Rotterdam Court involved the vessel Grumant, a bulk carrier registered in Russia and operated by Murmansk Shipping. In an effort to recover an arbitration award for claims under a charterparty, the British Virgin Islands-registered Maxon Global Trading Limited (Maxon) arrested (attached) the Grumant in the port of Amsterdam.
In January 2022, the vessel's charterer, Moscow-based Reshenie, applied to lift the arrest in exchange for alternative security.
Reshenie offered Maxon a guarantee based on the Rotterdam Guarantee Form 2008, but with amended clauses. The guarantee was to be issued by Norwegian insurance intermediary, Hydor AS.
Maxon opposed the guarantee offered by Reshenie, arguing that it did not provide sufficient security to warrant the release of the vessel.
The question at hand was whether the guarantee proposed by Reshenie qualified as sufficient security to justify the lifting of the attachment. The Court found in favour of Maxon and rejected the application.
In its judgment, the Court said it would not address the question of whether amendments proposed by Reshenie to the Rotterdam Guarantee Form were justified. The Court stipulated that it was for the two sides to reach mutual agreement on the wording. Failure to do so would not be resolved by the Court.
The Court then considered the financial soundness of the surety. Unlike a typical guarantor, Hydor was neither a bank nor an insurer, but rather an insurance broker. Moreover, the equity of Hydor did not even reach three times the value of the security offered, nor was there any evidence that the exposure was reinsured.
The Court subsequently found that Maxon was correct in claiming Hydor did not have sufficient solvency to provide the guarantee, although the Court stopped short of issuing its rejection of the application on this basis alone.
Noting that Hydor was based in Norway, the Court also ruled that any judgment against the company would be too burdensome to enforce due to the fact Norway was not a member of the European Union and as a result was not bound by the Brussels Recast Regulation.
Instead, the Court continued, Maxon would be required to seek recognition under the Lugano Convention that Norway is a party to, which would be a more complicated and expensive procedure to follow.
The Kingdom of the Netherlands (including the Dutch Caribbean Islands of Aruba, Bonaire, Curacao, St Eustatius, St Maarten and Saba) has long been considered one of the more favourable jurisdictions to arrest ships. The arrest procedure is quick and creditor-friendly, while costs are moderate.
Releasing a ship from arrest is equally straightforward through the provision of alternative security issued by a first-class bank or insurer based on the Rotterdam Guarantee Form 2008. The Rotterdam Guarantee Form 2008 is a balanced form that does not prejudice the parties' rights and is therefore commonly used.
However, matters become more complicated when parties propose amendments to the standard text. The Rotterdam Court's decision illustrates that it is reluctant to endorse any such amendments unless there is a specific justification.
More surprising is the Rotterdam Court's implicit rejection of a non-EU guarantor. While it is not clear whether the Court intended to challenge the longstanding practice of accepting security provided by first-class Norwegian insurers, the decision could also affect other non-EU insurers, such as those in London.
In fact, the possible consequences for English insurers may be more severe as, unlike Norway, the United Kingdom is not a signatory of the Lugano Convention.
Insurers that regularly provide security against ship arrest should be aware of this development and keep an eye on any future rulings by the Rotterdam Court.
For further information on this topic please contact Haco van der Houven van Oordt or Pepijn Hamer at AKD by telephone (+31 88 253 50 00) or email ([email protected] or [email protected]). The AKD website can be accessed at www.akd.nl.