UK: Hong Kong Ship Arrest: Enforcing A Maritime Award Via The Backdoor?

Last Updated: 11 November 2014
Article by Rory Macfarlane

Handytankers KS v. Owners and/or demise charterers of M/V Alas (subsequently renamed Kombos) [2014] KHCFI 1281

In a potentially very significant recent judgment, the Hong Kong High Court has upheld the arrest of a vessel despite the Plaintiff already having obtained an arbitration award. The Admiralty Court effectively ruled that a ship can still be arrested despite the existence of an arbitration award, provided that the claim out of which the award originates properly invokes the in rem jurisdiction of the Court. The arrest was allowed to stand because the cause of action in rem remains alive so long as the arbitration award in personam against the owners of the ship remains unsatisfied.

The background facts

The Kombos was chartered by the Plaintiff to PT Arpeni Pratama Ocean Line Tbk ("APOL") under a Shelltime 4 charterparty (the "Charterparty") for five years. The Charterparty contained an LMAA arbitration clause, pursuant to which the Plaintiff brought proceedings in London for damages for breach of the Charterparty and unpaid hire due under it. A final award in the region of US$9 million for damages and unpaid hire (the "Award") was made in favour of the Plaintiff in March 2013.

In April 2014, the Plaintiff invoked the Hong Kong Court's in rem jurisdiction by arresting the Dewi Umayi (the "Vessel") owned by APOL. The arrest papers made two important points clear to the Court. First, the arrest of the Vessel was sought for the purpose of providing security for the anticipated judgment in rem in the arrest action, not as a means of enforcing the Award. Second, the claim as pleaded in the endorsement to the writ was one falling under section 12A(2)(h) of the High Court Ordinance (the "Ordinance"), namely a claim arising out of any agreement relating to the use or hire of a ship.

The judgment

Counsel for the Defendant sought to argue that the arrest was fundamentally in the nature of an application to enforce the Award. He continued that this was an abuse of process as, in Hong Kong, there was no head of Admiralty jurisdiction that permitted an arrest to enforce an arbitration award in such circumstances. Counsel for the Defendant also submitted that the arrest procedure was not available once a plaintiff's claim had crystallised in the form of a judgment or arbitration award.

The Court agreed that there is no head of Admiralty jurisdiction in Hong Kong for the enforcement of arbitration awards. Section 12A(2) of the Ordinance does not cover a claim arising out of "an arbitration agreement". However, the Court went on to state that it was reasonably clear from a number of judgments of the English and Hong Kong courts that the Court would have in rem jurisdiction if the claim were based on the original cause of action under the charterparty. This is because the cause of action in rem, being different in character from a cause of action in personam, does not merge in the judgment in personam. Instead, it remains available to the person who has it as long as, and to the extent that, the in personam judgment remains unsatisfied.

Consequently, the Court ruled that as the Plaintiff's claim was pleaded as one for damages arising under a charterparty, it was in substance and in form a claim "arising out of any agreement relating to the use or hire of a ship". Section 12A(2)(h) of the Ordinance was thereby invoked. It was perfectly legitimate for the Plaintiff to arrest the vessel and keep her arrested as security in respect of any judgment that it may obtain after a hearing in the in rem proceedings.

Comment

This judgment does not go so far as to amend the law regarding the grounds for arrest in Hong Kong. A plaintiff cannot arrest a vessel to enforce a claim based on an unsatisfied arbitration award; this would require an expansion of the jurisdictional heads under section 12A of the Ordinance. In addition, any applicant in Hong Kong would need to ensure that it did not fall foul of provisions of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance.

However, provided that the underlying cause of action does fall within Section 12A of the Ordinance, and is correctly pleaded, then it may now be possible to arrest a ship in Hong Kong despite the existence of an arbitration award. Whilst not directly being an arrest to enforce the award, that may well in effect be the result of such an arrest.

It is unclear at the time of writing whether this case will be appealed. However, for now it remains the decision of the Admiralty Court and presents an opportunity for those holding unsecured arbitration awards of an appropriate maritime flavour to pursue enforcement, or enhance settlement leverage via a route previously considered to be unavailable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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