The law on ship arrest in England is well-entrenched. In essence, a party’s ability to arrest a ship in the UK occurs as of right. Accordingly, a shipowner will be unable to recover any compensation at all for wrongful arrest unless the arrest was obtained by mala fides (bad faith or malice) or crassa negligentia (gross negligence). This would also include whether a vessel owner is entitled to request that the arresting party provide a cross-undertaking in damages in the same form as that typically required in applications for freezing orders in the Commercial Court. The recent decision in Natwest Markets plc v. Stallion Eight Shipping Co. S.A.  EWHC 2033 (Admlty) confirms the Admiralty Court’s position that such undertakings are not applicable in vessel arrests.
The vessel was arrested by the claimant bank, as mortgagee, following an event of default and subsequent acceleration of the loan agreement. In these circumstances, the shipowner refused to rectify a deficit in the vessel’s applicable loan to value ratio and provide extra security to the mortgagee as per the terms of the loan agreement, alleging that the valuation in question was excessively low and that the demand for additional security had been made in bad faith.
The claimant bank arrested the vessel in order to enforce its rights under its mortgage. The shipowner then applied for an order that the vessel be released unless the bank provided a cross-undertaking to pay any damage found to have been suffered by the shipowner while the vessel remained under arrest. The shipowner argued that it was unable to provide security to obtain the release of the vessel as (i) its P&I cover did not extend to a dispute under the loan agreement; and (ii) it did not have any other assets to borrow against as its only asset was the vessel, which was already mortgaged to the shipowner. The shipowner further argued, that even if the bank’s claim failed, it would still have suffered serious losses due to the disruption to its business, unless it could make out the tort of wrongful arrest. In addition, the shipowner contended that, although it has not normally been the practice of the Admiralty Court, the court nonetheless had inherent jurisdiction to order that the bank provide a cross-undertaking in damages (akin to such undertakings given in freezing injunction applications). This is the first occasion such request has come before the courts (although many articles and legal journals have been written on the subject of ship arrests in the UK and the need for an equitable solution for owners of arrested vessels).
The court dismissed the shipowner’s application that the vessel be released in the event that the bank failed to provide a cross-undertaking in damages.
The court emphasised that to exercise its discretion to release in that way would (i) run counter to the principle that a claimant in rem may arrest of right; (ii) be inconsistent with the court’s long-standing stance that such a cross-undertaking is not required; and (iii) be contrary to the decision of the Court of Appeal in The Bazias 3 and The Bazias 4  1 Lloyd’s Rep 101 and to the dicta of Lord Clarke in Willers v. Joyce  3 WLR 477.
Importantly, the court also noted that, given that the present position has prevailed for so long, any change in admiralty law and practice is not a matter for the court to change overnight (even assuming it could do so) but for Parliament or the Rules Committee to consider after proper consultation.
Permission to appeal to the Court of Appeal was given by the Admiralty judge.