On 18 April 2014, the Court of Appeal of Douai in France rendered a decision which marks a change in French law that will give reassurance to commodity traders. The Court accepted that the security required in order to lift an arrest of bunkers could be limited to the value of the bunkers, as opposed to the position previously adopted by French courts requiring full security to the amount of the claim to be provided.
This case involved a cargo of 50,000 MT of wheat which was due to be carried from France (Rouen and Dunkirk) to Yemen. During loading at Dunkirk, six creditors of the ultimate time charterer arrested the bunkers of the vessel as security for their debts. The debts amounted to some USD 4 million and the value of the bunkers was around USD 365,000. The cargo was blocked for several weeks as a result of the arrest, giving rise to the risk of both deterioration in the quality of the wheat and late delivery.
The French courts confirmed the validity of the arrest, leaving no other solution than putting up security to obtain the release of the vessel and her cargo. The issue was the amount of the security required.
An intermediate time charterer offered to put up security in the amount of the value of the bunkers (USD 365,000) but the creditors refused and required full security to the value of their claims to be provided.
The dispute was brought before the French courts as a matter of urgency .
At first instance, the application filed by the intermediate time charterer to order the release of the arrest in exchange for a security amounting to the value of the bunkers (USD 365,000) was rejected.
This decision reflected the position previously adopted by French courts (in particular the Court of Appeal of Rouen in 1986), which was favourable to the interests of creditors but gave serious cause for concern to commodity traders who had no interest in the debts of the owner of the bunkers but who wanted the cargo to be delivered on time.
It was mainly based on the view that the arrest of an asset was not only designed to secure a claim but also to exercise pressure on the debtor to pay the full amount of the debt. Consequently, the debtor should not be allowed to obtain the lifting of the arrest in exchange for security amounting to the value of the asset attached where that was less than the full amount of the debt.
This view was open to criticism since if they enforced their claim against the attached bunkers, the creditors would recover not more than the amount resulting from the judicial sale of the bunkers, less the costs of arranging the judicial sale. It was even more questionable in circumstances where the pressure to pay was being exerted on parties other than the debtor (vessel and cargo interests).
An appeal was lodged and the Court of Appeal of Douai required the creditors to lift the arrest against the provision of security amounting to the value of the bunkers, such sum to be placed in escrow for the benefit of all creditors.
Even where a decision rendered by a French Court of Appeal is not a binding precedent, it is to be hoped that this decision will now act as a reference for any similar dispute. Commodity traders will be in a better position to avoid an arrest of bunkers delaying delivery of their cargo.