Stallion Eight Shipping Co. SA v Natwest Markets Plc

A warrant of arrest in an Admiralty action in rem is available as of right upon procedural compliance. The court nevertheless has a discretionary power to release an arrested vessel under CPR r 61.8(4)(b). The usual practice of requiring the shipowner to provide security is not invariable, and a court may depart from it in an appropriate case.

Requiring an arresting claimant to give a cross-undertaking in damages as the price of maintaining an arrest would, however, be a far-reaching change to settled Admiralty practice. It should not be made on standard facts without proper information about its practical and industry implications. A shipowner alleging hardship through inability to provide alternative security must give particulars of the resources available through its shareholders as well as its own resources.

The Bank, as mortgagee of the vessel, accelerated a loan after an alleged shortfall in the loan-to-value ratio and arrested the vessel in support of an in rem claim. The Owners disputed that an event of default had occurred. They said that the arrest deprived their one-ship company of its income-producing asset and that they could not provide conventional alternative security.

Teare J dismissed their application under CPR r 61.8(4)(b) to release the vessel unless the Bank gave a cross-undertaking in damages. The Owners appealed from [2018] EWHC 2033 (Admlty). The central issue was whether the judge erred in refusing to make release conditional upon that undertaking.

1. Appeal dismissed. The judge correctly exercised the discretionary power under CPR r 61.8(4)(b). He did not regard himself as legally bound to refuse the application. He considered the discretion and concluded, on principled grounds, that the usual practice should be maintained on these facts.

2. Neither The Evangelismos nor The Bazias 3 and Bazias 4 strictly prevented the court from ordering release without security from the shipowner, conditional upon a cross-undertaking by the arresting claimant. The Evangelismos concerned damages for wrongful arrest, whereas this appeal concerned the discretionary release power. The Bazias 3 and Bazias 4 stated the usual, rather than invariable, practice. Exceptional cases, including The Tjaskemolen, showed that a different order could be made where justice required it.

3. The court could itself reconsider whether a cross-undertaking should be required for the maintenance of an arrest; legislative or Rules Committee intervention was not a legal precondition. But an order of that kind would be a major alteration to a settled practice extending over many years. On ordinary facts it would be likely to become routine, deter maritime claimants from using arrest, and disrupt established arrangements for security. The analogy with a freezing injunction was informative but neither exact nor compelling.

4. The court accepted that the rule restricting damages for wrongful arrest to cases of bad faith or gross negligence can be harsh, and that arrest is no longer required to establish jurisdiction in rem. Those considerations did not justify an immediate change. Any future challenge should be supported by proper information about the maritime community’s views, the practical consequences for the industry and this jurisdiction, and the implications for the rule in The Evangelismos (1858) 12 Moo PC 352.

5. Independently, the Owners failed to establish the asserted hardship. A shipowner relying on inability to provide alternative security must give particulars of the resources available from its direct and indirect shareholders. An inquiry confined to the assets of a one-ship company whose ship is already arrested would be artificial and would create perverse incentives.

• Court of Appeal (Civil Division): dismissed the Owners’ appeal and upheld the refusal to release the vessel unless the Bank provided a cross-undertaking in damages: [2018] EWCA Civ 2760.
• High Court, Admiralty Court: Teare J dismissed the Owners’ application under CPR r 61.8(4)(b): [2018] EWHC 2033 (Admlty).