Introduction

In Mobil Producing Nigeria Unlimited v The Monarch (FHC/UY/CS/43/16), the Federal High Court was asked to vary an arrest order against an oil rig, in which the its release was conditional on the provision of a bank guarantee in the amount of the plaintiff's claim only. The court held that it had the discretion to fulfil the request and varied the arrest order to bring it into line with Order 10, Rule 5(1) of the Admiralty Jurisdiction Procedure Rules 2011, which provides as follows:

"Where a ship or other property is under arrest in a proceeding and the Court is satisfied that:

(a) an amount equal to –

(i) the amount claimed; or

(ii) the value of the ship or other property, whichever is less, has been paid into Court; or

(b) a bail bond for an amount equal to –

(i) the amount claimed; or

(ii) the value of the ship or other property, whichever is less has been filed in the proceedings, the Admiralty Marshal may, on written application by the relevant person obtain the authorization of a judge to release from arrest the ship or other property." (Emphasis added).

Facts

Mobil Producing Nigeria Unlimited procured an arrest order for the Monarch oil rig, pursuant to an action in rem. The condition for the Monarch's release was its owners' provision of a sufficient, unconditional and acceptable bank guarantee in the amount of Mobil's claim of $500 million.

Subsequent to the arrest order, the Monarch's owners applied to the court for a variation of the order. They argued that, by virtue of Order 10, Rule 5(1) of the Admiralty Jurisdiction Procedure Rules, they were entitled to provide alternative security in the amount of the plaintiff's claim or the rig's value, whichever was less.

Decision

In its July 8 2016 ruling, the court held that it has the discretion to vary an ex parte arrest regarding a vessel, and that – under Order 10, Rule 5(1) of the Admiralty Jurisdiction Procedure Rules – the Monarch's owners could secure its release by providing alternative security in the amount of Mobil's claim or the value of the Monarch, whichever was less. The court thus varied the arrest order to align it with Order 10, Rule 5(1). In order to ascertain the Monarch's value, the court ordered that the Monarch be valued by a renowned ship valuation expert.

The court noted that "the claimant in this action is entitled to security in an amount sufficient to cover the amount of his reasonable best case, together with interest and cost, but cannot demand security in an amount which exceeds the value of the property proceeded against".

Comment

This decision is commendable, as the Nigerian courts have previously restricted the security that shipowners can provide to the value of a claim, thereby depriving shipowners them of the alternative security benefit provided in the Admiralty Jurisdiction Procedure Rules. This is contrary to the principle established by the Supreme Court in Rhein Mass Und See GMBH v Rivway Lines Limited ((1998) 5 NWLR (Pt 549) 265 at 277, paragraph G) and The Owners of the Ship Eleni (1 NSC 42 at 43), to the effect that:

"An action in rem is one in which the subject matter is itself sought to be affected, and in which the claimant is enabled to arrest the ship or other property, and to have it detained, until his claim has been adjudicated upon, or until security by bail has been given for the amount, or for the value of the property proceeded against, where that is less than the amount of the claim." (Emphasis added).

Arrest orders are made pursuant to ex parte applications.(1) Thus, shipowners have no opportunity to oppose the application. Once the order has been made, the shipowner's only practical course of action is to provide the bank guarantee as ordered to secure the vessel's release so that it can continue trading. No problem arises for the shipowner where:

  • a claim's value is equal to that of the arrested vessel; or
  • the arrested vessel's value is higher than that of the claim.

However, where the claim's value is higher than that of the vessel, it would be against the basic principles of actions in rem to compel the shipowner to provide alternative security in excess of the vessel's value. In the present case, the value of the claim was $500 million, an amount that likely far exceeded the Monarch's value.

Further, if a shipowner does not provide a bank guarantee to secure its vessel's release and the vessel is sold, the proceeds of the sale (and nothing more) will be applied to satisfy the plaintiff's claim. Therefore, as rightly stated by the court, the plaintiff is not entitled to security in excess of the vessel's value. Further, the proceeds of a judicial vessel sale are always subject to the deduction of the admiralty marshall's expenses, including bank charges,(2) the implication being that the plaintiff will eventually obtain even less than the vessel's value. In any event, where the proceeds of the sale are insufficient to satisfy the plaintiff's claim, the plaintiff can bring a subsequent action in personam to recover the difference.

In light of this, it would be improper for a court to issue an order for the provision of alternative security in the amount of the claim without due regard for the vessel's value.

Although Mobil has appealed the decision, it is unlikely that the Court of Appeal will set it aside in light of the clear provisions of the Admiralty Jurisdiction Procedure Rules.

For further information on this topic please contact Kelechukwu Okwujiako at ACAS - LAW by telephone (+234 1 462 2094) or email (kokwujiako@acas-law.com). The ACAS - LAW website can be accessed at www.acas-law.com.

Endnotes

(1) Order 7, Rule 1, Admiralty Jurisdiction Procedure Rules.

(2) Order 16, Rule 4(2), Admiralty Jurisdiction Procedure Rules.

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