The law on wrongful arrest is the admiralty equivalent of the tort of malicious prosecution at common law.1 So long as an arresting party’s claim comes within the court’s admiralty jurisdiction2 and was properly brought pursuant to s 21(4) of the Senior Courts Act 1981, a warrant of arrest would follow.
Grounds to set aside a warrant of arrest
Out of jurisdiction
An arrest out of jurisdiction would not confer an in rem jurisdiction on the court. This is so even if the writ in rem and warrant of arrest are both validly issued by the court.
A case in point is The Trade Resolve, 3 in which it was held that the service of the writ and warrant on a ship outside territorial waters amounted to a nullity of the in rem action and not a mere irregularity. As a result, the warrant of arrest was set aside and damages for wrongful arrest awarded to the shipowner.
There are additional limitations that need to be considered when dealing with foreign ships as laid down under Article 28 of the United Nations Convention on the Law of the Sea (“UNCLOS”), which was ratified by Malaysia on 14 October 1996.
A foreign ship cannot be arrested if she was exercising innocent passage through the territorial waters of Malaysia, except in the following situations:
- if the foreign ship had assumed or incurred any obligations or liabilities when it was within the territorial waters of Malaysia; or
- if the foreign ship had stopped or anchored within the territorial waters of Malaysia which amounts to a break in the chain of its innocent passage. But where the stopping or anchoring was reasonably incidental to ordinary navigation, or was rendered necessary by force majeure or by distress, then the ship should not be arrested as that stopping or anchoring would be regarded as an integral part of the ship’s innocent passage through the territorial sea of Malaysia.
Abuse of court process
Abuse of the process of the court is another ground for setting-aside a warrant of arrest as seen in The Dilmun Fulmar. 4 The Singapore High Court concluded that the re-arrest of the ship based on an original claim that had been superseded by a settlement agreement was mala fide and an abuse of the court process. As a result, the judge set aside the warrant of arrest and awarded damages to the shipowners.
Unlawful interference with third party’s rights
This is particularly common in a mortgage scenario, where a shipowner enters into a contract with a third party (usually a charterer) for the employment of the ship.
In The Myrto, 5 it was held that where the security of the mortgage of a ship is not impaired6 and the shipowner is both willing and able to perform a contract with a third party, by arresting the ship under employment, the mortgagee runs the risk of committing the tort of interference. In such instances, the third party would be entitled to an order for the release of the ship, to set aside the arrest and seek damages for wrongful arrest.7
Material non-disclosure of facts
Material non-disclosure is one of the common grounds for setting aside a warrant of arrest and, consequently, for awarding damages for wrongful arrest if the non-disclosure is deliberate, calculated to mislead, or if it was caused by gross negligence or recklessness.8 Materiality of a particular fact must be assessed on a case-by-case basis.
In The Varma, 9 the court held that it was necessary to disclose any previous and concurrent proceedings relating to the same claim or where another ship has been arrested in the same action. On the flip side, in The Santorini I, 10 non-disclosure of the fact that there were ongoing negotiations and attempts to mitigate the damage were held to be immaterial to the issue of the warrant of arrest.11
In any event, even if the court finds the non-disclosure of a fact to be material and that it should have been disclosed, consideration would always be given to the impact of the arresting party’s default, and whether the court should nevertheless exercise its “overriding discretion” not to set aside the warrant of arrest.
Non-disclosure of plausible defences
The duty to disclose extends to cover plausible defences that were known to the arresting party at the time of the arrest.
The meaning and scope of “plausible defences” was considered in The Eagle Prestige. 12 In that case, the shipowner had applied to set aside the warrant of arrest (but not the writ in rem) on the grounds of material nondisclosure since the arresting party had failed to disclose the defences available to the shipowner when obtaining the warrant.
In discussing the scope of the duty to disclose “plausible defences”, Belinda Ang J held that “plausible defences” are matters that may result in the in rem action being struck out, i.e. related to the invocation of the admiralty jurisdiction of the court, and does not extend to defences that only affect the merits of the underlying claim.13
Non-disclosure of arbitration agreement
The other relevant point is the existence of an arbitration agreement.14 There is no definitive rule requiring the disclosure of an arbitration agreement for the purposes of obtaining a warrant of arrest. Once again, it depends on the relevance of the arbitration agreement to the decision to issue a warrant of arrest. If failure or omission to disclose the arbitration agreement would not per se constitute material non-disclosure, then the warrant of arrest would not be set aside.15
Setting aside of the warrant of arrest does not automatically mean that damages will be awarded to the shipowner. Similarly, failure to set aside the warrant does not bar the shipowner from pleading and contending during trial that there was malice in bringing the in rem action.
Damages for wrongful arrest
Damages for wrongful arrest are ultimately premised on a finding of mala fides or gross negligence implying “malice”16 which can be derived from:
- direct evidence of the arresting party’s state of mind at the time of the arrest;17 or
- inferred from the fact that a claim is so unmeritorious that the arresting party could not have honestly believed that he has an entitlement to arrest the ship (or at least recklessly disregarded whether he has grounds to do so).18
Malice can be in relation to the claim underlying the arrest or the procedure leading to the arrest itself.
Weakness of the arresting party’s case on the merits (short of a completely hopeless claim) or the presence of a good defence to a claim will not constitute “malice”. Neither would an arrest made under bona fide mistake of law or fact, or made after receiving competent legal advice condemn the arresting party to damages for wrongful arrest.19
Test to determine ‘malice’
The test for wrongful arrest of a ship dates back some 160 years to the well-known Privy Council decision of The “Evangelismos”, 20 where Rt Hon T Pemberton Leigh said in an oft-quoted passage:21
“Undoubtedly there may be cases in which there is either mala fides, or that crassa negligentia, which implies malice, which would justify a Court of Admiralty giving damages, as in an action brought at common law damages may be obtained. …
“The real question in this case, following the principles laid down with regard to actions of this description comes to this: is there or is there not, reason to say, that the action was so unwarrantably brought, or brought with so little colour, or so little foundation, that it rather implies malice on the part of the plaintiff, or that gross negligence which is equivalent to it?”
Over the years, the notion of “malice” has been closely linked to the “absence of reasonable or probable cause of action” in the arrest. But this test was later rejected and the test of mala fides or crassa negligentia implying malice was reaffirmed by the Singapore Court of Appeal in The Kiku Pacific.22
Something more than a lack of “reasonable or probable cause” is required before a warrant of arrest can be set aside and damages awarded. In evaluating the merits of a claim for wrongful arrest, the courts would generally pay special attention to what the arresting party knew or must have known at the time of the arrest.23
Ultimately, it must be shown that the claim was brought with “so little colour or foundation that it implies malice”. What that means in practice is inevitably a matter of judgment and can only be determined by the court on the facts of each case.24
In The “AA V”, 25 the court awarded damages for wrongful arrest since the arresting party brought an in rem action against a party without direct contractual connection or knowing that the shipowners were not the party liable in personam.
Out of jurisdiction
Where an arrest was deliberately effected outside port limits in bad faith, the court has held such action to constitute wrongful arrest, and damages were awarded against the arresting party.26
Wrongful continuation of arrest
Where there are no reasonable grounds to sustain an arrest, any prolonged detention of the ship would amount to wrongful arrest. Such cases include a refusal to accept reasonable P&I Club undertaking as security and, as a result of which, the act of continued detention was held to be malicious negligence and damages were awarded to the shipowner.27
Detention pending appeal
Similarly, when the arresting party continued to arrest the ship pending consideration of an appeal (after judgment had already been given in favour of the shipowner), the arrest was held to be wrongful, particularly since the appeal had manifestly no chance of success.28
Existing caveat and exaggerated claims
In other instances, arresting a ship despite there being a caveat against arrest without good and sufficient reason29 and for grossly exaggerated claims30 were held to be malicious negligence.
Initiating wrongful arrest
Wrongful arrest of a ship can be pursued in at least three ways:
- By filing an interlocutory application to strike out the writ and, if successful, the warrant of arrest would be set aside.31
The fact that an arrest is made on the basis of a plainly and obviously unsustainable claim may not always justify an award of damages. It remains for the court to examine whether the arrest was actuated by malice, express or inferred.32
- Next, there are instances where the shipowner is unable to strike out the in rem writ because the claim is brought within the admiralty jurisdiction. However, due to non-disclosure of material facts that led to the issuance of the warrant of arrest, the shipowner can apply to set aside the warrant of arrest and seek damages for wrongful arrest. This course of action was adopted in The Eagle Prestige. 33
Proceeding by this mode, the in rem writ remains alive and will be dealt with at trial. If the shipowner is successful in setting aside the warrant of arrest, the arresting party would be at liberty to proceed with the claim without any security. Depending on whether the malice threshold has been crossed, an award of damages may be made against the arresting party.
The courts are no longer slow to decide on cases of wrongful arrest and award damages in appropriate circumstances. The right to arrest a ship should be exercised cautiously as the courts are now ready to see an in rem action that has been brought with the intention of coercing a shipowner and to obtain security and early settlement for a potential claim.