Addressing Ship Arrest and Multifaceted Maritime Claims

This essay discusses the maritime and admiralty law related to the problem scenario. The principal issues in this essay are related to arrest of Odyssefs B and the maritime claims against the owner of this ship with regard to different claims of Megabank, Elphinstone Ltd, Deutsche Bergung Gmbh, Dankula Ltd and the crew members of the Odyssefs B who are not paid their wages since the last 6 months.

The first issue in this problem is whether the arrest of the Odyssefs B can be done at the behest of Megabank, or Elphinstone Ltd, or Deutsche Bergung Gmbh. The applicable law is contained in International Convention Relating to the Arrest of Sea-Going Ships of 1952 (Arrest Convention 1952), and the International Convention on Arrest of Ships 1999, and other laws in the UK including Senior Courts Act 1981 and the Merchant Shipping Act 1995.

As per the Arrest Convention 1952, Article 1(1) a "maritime Claim" means a claim arising out of inter alia, the mortgage or hypothecation of any ship under Article 1(1)(q). Maritime claims also include salvage, wages unpaid, and damage to the other ships. All these claims are arising in this problem scenario. Odyssefs B is mortgaged to Megabank Plc for $8 million of which Megabank say $500,000 is in arrears. The ship has not paid the wages of the crew for six months. MV Franconia was damaged in a collision six months ago owing to the negligence of crew employed by Geisterlich GmbH, to whom the Odyssefs B had been bareboat chartered and the repairs cost of $2,000,000 is unrecovered by Elphinstone Ltd. Deutsche Bergung GmbH is owed $100,000 for salvage services rendered to the MV Persefs, also owned by Seatrader LTd. These are all maritime claims and the law on maritime and statutory lien is applicable to these different situations.

With respect to Megabank’s claim, the Arrest Convention 1952 is applicable because Odyssefs B is mortgaged to Megabank Plc for $8 million of which Megabank say $500,000 is in arrears. Odyssefs B is a Greek-registered vessel and is owned by Seatrader Ltd and is worth $10 million. Article 1(2) defines arrest as “detention of a ship by judicial process to secure a maritime claim, but does not include the seizure of a ship in execution or satisfaction of a judgment.” Article 2 allows the arrest of a ship flying the flag of one of the Contracting States in respect of a maritime claim. Greece is a signatory of the Arrest Convention 1952.

In this situation, as the cargo by this ship is about to discharge cargo at Liverpool, it is also important to understand how the Arrest Convention 1952 is applied in the UK law. In the UK, there is criteria that must be met for an application for arrest to be accepted in the UK courts. This is provided by the Senior Courts Act 1981. Section 20 of this Act provides that the underlying dispute must be a "maritime claim" and the vessel in respect of which arrest is sought should be connected with the claim. Claimant can apply for arrest in case of a claim in rem, which is provided under Section 21 of the Senior Courts Act 1981, there are three categories of maritime claims where an action in rem may be brought: in respect of claims to the possession or ownership of the ship; in respect of claims

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1. International Convention Relating to the Arrest of Sea-Going Ships adopted May 10, 1952 in Brussels.
2. International Convention on Arrest of Ships 1999 adopted 19 March 1999 in Geneva.
3. International Convention Relating to the Arrest of Sea-Going Ships adopted May 10, 1952 in Brussels, Article 1(1)(c).
4. Ibid, Article 1(1)(o).
5. Ibid, Article 1(1)(a).
6. Ibid, Article 1(2).
7. Senior Courts Act 1981, Section 21 (2).

secured by maritime liens; and for list of claims giving rise to a statutory action in rem. In this case, as mortgage is involved, this relates to a statutory lien. This is related to last point made earlier, and Section 20 (2) (e) to (r) of the Senior Courts Act 1981 provides that this allows arrest the ‘offending’ ship and also to arrest a sister ship of the ‘offending’ ship. Section 20(2)(c) relates to mortgage. While Section 20(2)(e) relates to damage done by the ship. Section 20(2)(o) relates to payment of wages. Section 20(2)(j) relates to salvage.

For the arrest of Odyssefs B, Section 21 (4) (a) and (b) (i) of the Senior Courts Act 1981 is applicable. This applies to claims arising under Section 20(2)(e) to (r) with respect to claim arising in connection with a ship. This relates to the reasonably direct connection with the particular ‘offending’ ship.

In this case, the damage done to MV Franconia in a collision six months ago owing to the negligence of crew employed by Geisterlich GmbH, to whom the Odyssefs B had been bareboat chartered. A bareboat charter means that the ship has been hired but the crew is of the charterer and the customer liability of the owner are shifted to the charterer. Under Section 17 of the Merchant Shipping Act 1995, applies to bareboat charter which is the hiring of the ship for the charter period. The owner of the ship is the registered owner, and the charterer is the time, demise, or voyage charterer. The charterer is liable for the damage caused to third parties and not the shipowner. Therefore, it can be argued that this particular claim of repairs cost of $2,000,000 unrecovered by Elphinstone Ltd is not a claim that arises in connection with a ship.

With respect to Deutsche Bergung GmbH claim of $100,000 for salvage services rendered to the MV Persefs, this is also not a claim that is arising in connection with the ship but another ship that is owned by Seatrader Ltd. Therefore, with respect to this claim as well, it can be argued that Section 21 (4) (a) and (b) (i) of the Senior Courts Act 1981 is not applicable for allowing arrest of Odyssefs B. However, claim can be made under sister ships, under Section 21 (4) (a) and (b) (ii) of the Senior Courts Act 1981 where the claim arises in connection with a ship; and the person who is liable on the claim in an action in personam is the owner of the ship when the cause of action arose then the action in rem may be raised against any other ship of which the owner is the beneficial owner. The concept of sister ships means that both the ships should be owned by the same owner. As Odyssefs B and Persefs are both owned by Seatrader Ltd, the claim can be made against Odyssefs B.

An arrest is only made on the order of the court, but the application for an arrest can be made at any time once proceedings have commenced. A vessel owner's subsequent insolvency does not override the security obtained by arrest, since an arrested vessel will stay under the control of the Admiralty Court. In this case, Seatrader Ltd are insolvent and a number of the crew of the MV Odyssefs B are unpaid, and her owners have not paid social security contributions in respect of the crew to the Greek government. Nevertheless, the arrested vessel does provide a tangible security for damages awarded because the arrested property can be sold in order to realise the damages ordered by the court.

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8. Ibid, Section 21 (3).
9. Ibid, section 21 (4) and section 20 (2) (e) to (r).
10. The Lloyd Pacifico [1995] 1 Lloyd’s Rep 54.
11. John W. Chitty, ‘Bareboat Charters: Can a Shipowner Limit Liability to Third Parties? Answers for Owners Attempting to Navigate the Unsettled Waters in the Eleventh Circuit’ (2012) 25 Ga. St. U. L. Rev. 477.
12. The Evpo Agnic [1988] 3 All ER 810.
13. The Tychy No 2 [1999] 2 Lloyd’s Rep 11.
14. Evi Plomaritou, ‘A Review of Shipowner’s & Charterer’s Obligations in Various Types of Charter’ (2014) 4 Journal of Shipping and Ocean Engineering 307.
15. The Maritime Trader [1981] 2 Lloyd’s Rep 153.

With respect to the claim of Dankula Ltd which supplied bunkers worth $200,000 to the vessel in Piraeus a year ago and have not been paid. This relates to the necessaries supplied to the ship. It is established that necessaries does not lead to a maritime claim that attaches itself to the ship. In Rio Tinto, the Privy Council had also stated that no maritime lien attaches to a ship in respect of coals or other necessaries supplied to it.

Under English law, a claim is deemed to be a maritime lien according to the law of the place of arrest and can arise in respect of claims for damage done by the vessel to property or persons and crew wages, salvage, and wages and disbursements. All these points are relevant in this case because, MV Franconia was damaged in a collision six months ago owing to the negligence of crew employed by Geisterlich GmbH, to whom the Odyssefs B had been bareboat chartered, and repairs cost $2,000,000, and remain unrecovered by Elphinstone Ltd. Deutsche Bergung GmbH, owed $100,000 for salvage services rendered to the MV Persefs, also owned by Seatrader LTd. Finally, there are also wages to the crew that have not been paid to MV Odyssefs B. These three cases provide grounds for maritime lien. While the mortgage is a statutory lien. The statutory lien would engender the right to arrest under the Supreme Court Act 1981. However, there is also maritime lien. Thus, even if the ship connected to the claim have changed ownership, and the claim is against the Owner but does not constitute a maritime lien, arrest of a sister ship is possible, provided that the sister ship was owned by the same entity which owned the ship connected to the claim at the time the cause of action arose. That entity must also be the beneficial owner of all the shares in the sister ship.

If a month ago Seatrader Ltd had sold the vessel to Trimtrader Ltd for $1 million, this may have an impact for the arrest of the ship. A mortgage is a statutory lien and not a maritime lien. If the claim is a maritime lien, arrest of the vessel can be done even if it has changed ownership. This is due to lien attaching to the property at the time the cause of action arises and remains so attached until satisfied or time barred. Maritime liens are prioritised over registered mortgages. A lien is a privileged claim on a ship with respect to service done to it or injury caused by it. The difference between maritime lien and statutory lien is that the former arise automatically by mere operation of law while statutory lien comes into effect when the proceedings in rem are initiated. The maritime lien for damage done by a ship requires personal liability, which is not seen in this case because the ship was bareboat chartered. The maritime lien for wages is independent of contract and personal liability of the shipowner.

The third issue in this problem is in what order any claims against the vessel will be paid. The first claim will be of the seamen wages because this has a lien against the ship for the wages and penalty wages. Next will come the salvage claim. Then the lien for any necessaries provided to the ship. Next will come the mortgage.

To conclude, what can be advised is that Megabank may have a claim for arrest of the ship for the purpose of mortgage arrears pending. In case of arrest, there may not be a need to provide security for Looking for further insights on Conflicts and Rights under UNCLOS 1982? Click here.



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16. Bailey Petroleum Company v. Owners and parties interested in the vessel M.V. Dignity, (1993) 2 CHN 208 .
17. Rio Tinto (1884) 9 APP Cas 356
18. The Maritime Trader [1981] 2 Lloyd’s Rep 153.
19. The Helen Roth [1980] 1 Lloyd’s Rep 477.
20. The Ripon City [1897] P 226.
21. The Utopia [1893] AC 492.
22. The Tacoma City [1991] 1 Lloyd’s Rep 330.
23. The Petone [1917] P 198.

an arrest although an undertaking may be given for arrest expenses of the Admiralty Marshal. Elphinstone Ltd may not take action for maritime claim against the shipowner because the ship was bareboat chartered to another firm whose crew was in negligence. Deutsche Bergung Gmbh can make a claim for salvage as a maritime claim against the shipowner and the Odyssefs B as a sister ship. The crew of the Odyssefs B has first claim for wages against the ship.

List of Cases

Bailey Petroleum Company v. Owners and parties interested in the vessel M.V. Dignity, (1993) 2 CHN 208 .

Evpo Agnic [1988] 3 All ER 810.

Helen Roth [1980] 1 Lloyd’s Rep 477.

Lloyd Pacifico [1995] 1 Lloyd’s Rep 54.

Maritime Trader [1981] 2 Lloyd’s Rep 153.

Petone [1917] P 198.

Ripon City [1897] P 226.

Rio Tinto (1884) 9 APP Cas 356.

Tacoma City [1991] 1 Lloyd’s Rep 330.

Tychy No 2 [1999] 2 Lloyd’s Rep 11.

Utopia [1893] AC 492.

Journals

Chitty JW, ‘Bareboat Charters: Can a Shipowner Limit Liability to Third Parties? Answers for Owners Attempting to Navigate the Unsettled Waters in the Eleventh Circuit’ (2012) 25 Ga. St. U. L. Rev. 477.

Plomaritou E, ‘A Review of Shipowner’s & Charterer’s Obligations in Various Types of Charter’ (2014) 4 Journal of Shipping and Ocean Engineering 307.