Admiralty Law Part 2

Pursuant to the earlier topic of Introduction to Maritime Law in Malaysia, published on 22 February 2021, in the coming series the basis and elements of Admiralty Law will be explored.

Enforceability of claims under the Admiralty jurisdiction of the High Court

1. Nature of in rem proceedings

   The advantages of the in rem claim over the claim in personam are several:

   1. It provides the claimant with security. The claimants in rem can have the ship arrested and either released when the shipowner provides security or, in some cases, the ship can be sold by the court in order to satisfy the in rem claims.
   2. It establishes jurisdiction on the merits for the claim.
   3. Once the in rem claim form is issued, its effect is to crystallise the statutory right in rem on the relevant ship, thus protecting the claimant even if the ship has been sold.

   A disadvantage of a claim in rem is that, unless a defendant turns up in court to release the ship and defend the claim, the claim is capped to the value of the ship.

   These special aspects of a claim in rem have been linked to the development of the personification theory. Thus, it was argued in the past that the ship was the defendant person. Of course the whole notion of arrest has the effect of forcing the shipowner to appear before the arresting court or lose its ship. Thus, it was also recognized that the in rem action was used as a procedural means against the shipowner (the procedural theory).

   The case of The Indian Grace shows that it is now settled that the procedural theory is the preferred one and the in rem proceedings are meant to be against the person interested in the ship.

   However, this decision was taken within the specific context of s.34 of the Civil Jurisdiction and Judgments Act 1982, and it concerned cargo claims which are supported by statutory rights in rem but not by maritime liens. Thus, questions remain on whether the decision extends to maritime liens or whether it is or should be restricted to its narrow context of s.34 (The Stolt Kestrel and The Niyazi S).

   Statutory rights in rem are divided for convenience into those which are ‘non-truly in rem’, and those which are ‘truly in rem’. ‘Truly in rem’ claims have proprietary characteristics. Such claims are:

   1. maritime liens (under s.20(2)(e), (j) and (o) of the SCA 1981)
   2. ownership rights (under s.20(2)(a) and (b))
   3. mortgages (under s.20(2)(c))
   4. rights of forfeiture of a ship (under s.20(2)(s)).

   All these proprietary rights attach automatically to the property from the moment of their creation. The issue of in rem proceedings is only the mechanism for their enforcement. The other statutory rights in rem are classified under s.20(2) from sub-paragraphs (e) up to and including (r).

2. Statutory requirements for bringing an action in rem against a ship

   The requirements for bringing an action in rem depend on whether the action in rem is prescribed under s.21(2), (3) or (4) of the 1981 SCA.
   Under s.21(2) an action in rem is available against ‘the ship or property’ in connection with a claim described under s.20(2)(a), (b), (c) or (s).The basic requirement is that there is an identifiable ship in relation to which the claim arises. The enforcement is restricted to this ship alone. The position is similar for s.21(3) which prescribes that an action in rem is available for claims supported by a maritime lien. Again the action in rem is restricted to the ship to which the maritime lien attaches.
   The wording of s.21(4) is significantly different to that of s.21(2) and (3) in several aspects.
   Similarly to s.21(2) and (3), s.21(4) also requires that the claim arises in relation to a ship (let’s call it the guilty ship). However, it also has two additional requirements:

   1. It requires the identification of the person liable in personam who must, at the time the claim arose, be linked with the ship and be either the owner or the charterer or in possession or in control of the ship.
   2. It also requires that at the time the claim form is issued there must be an ownership link between the ship to be arrested and the person who would be liable in personam under s.21(4) of the SCA 1981. This ownership link includes beneficial ownership of all the shares in the ship or demise chartering when the action in rem is launched against the guilty ship, and is restricted solely to beneficial ownership of all the shares in the ship when an action against a sister ship is sought.

   As noted earlier the claims that are supported by maritime liens also fall under s.21(4) because they are described as claims under s.20(2) (e), (j) and (o). The operation of s.21(4) thus enables claimants to start an action in rem against a sister ship and not only against the ship to which the maritime lien has attached under s.21(3).

   There are several important decisions concerning the correct interpretation of s.21(4). Note and learn the decisions which are referred to in the Essential reading (see above). These provisions are quite tricky.

   Starting with the requirements for an action in rem against the ‘guilty ship’, a number of examples can help you understand the issues:

   1. Consider a claim (falling under s.20(e)–(r)) arising against a person who was, at the time the claim arose, the owner of the guilty ship. To bring a claim in rem against the guilty ship it must still be under the exclusive ownership of the same legal or physical person or, if sold, must have the original owner as the demise charterer.
   2. Consider a claim (falling under s.20(e)–(r)) arising against a person who was, at the time the claim arose, the charterer (any type of charterer will do) of the guilty ship. To bring a claim in rem against the guilty ship the ship must be, at the time the claim form in rem is issued, under the exclusive ownership of the original charterer or the original charterer must be the demise charterer of the ship. Such situations are rather rare.

   Now consider the following two examples, concerning an action in rem against another ship:

   1. Consider a claim (falling under s.20(e)–(r)) arising against a person who was, at the time the claim arose, the owner of the guilty ship. To bring a claim in rem against another ship, this other ship must be, at the time the claim form is issued, under the ownership of the original shipowner.
   2. Consider a claim (falling under s.20(e)–(r)) arising against a person who was, at the time the claim arose, the charterer (any charterer will do) of the guilty ship. To bring a claim in rem against another ship, this other ship must be, at the time the claim form is issued, under the ownership of the original charterer. Thus, claims by the shipowner (but not only) against the charterer of the guilty ship can be brought against a ship that belongs to the charterer.

   The requirement under s.21(4) of beneficial ownership with respect to all the shares in the ship has posed questions on what exactly is beneficial ownership and when two ships can, on the basis of this requirement, be considered as sister ships – thus enabling a claimant to go against each for a claim (under s.(20(2)(e)–(r)) arising with respect to the other.

   Under English law a sister ship is one which is owned by the same company (or person) as the guilty ship. Ships owned by two separate companies and which may be owned by the same person (thus, being sister companies) are not sister ships (for example, see Evpo Agnic. It follows that organising a fleet in one-ship companies provides immunity from the operation of the sister ship arrest under s.21(4).

   For those claims that fall under s.21(4) and which are supported by maritime liens, the action in rem would enable arrest of the guilty ship irrespective of ownership at the time the claim form is issued. Whether in personam liability of the owner of the ship would be required or not would then depend on case-law as s.21(3) does not by itself impose such a requirement.

   The guilty ship could still be arrested even if its owner would not (strictly speaking) be personally liable for the claim (The Father Thames).

   i) Process of arresting a ship
   The seven steps below describe the process of arresting a ship:

   1. Identify the section of the SCA 1981 which is applicable to the claim.
      If the legal basis is not covered by any part of s.20(2) and there is no case-law supporting arrest for such a claim, then the claim would probably not be under the Admiralty jurisdiction of the High Court.
   2. Identify the ship or property connected with the claim.
   3. For the arrest of the ship in connection with which the claim arose, and provided the claim is not one of a proprietary character, such as maritime liens and those under s.20(2)(a), (b) and (c), you should consider:
      1. Who would be liable for such a claim in personam when the cause of action arose? In other words, look back to identify that person. That person may be the owner, the charterer or the person in possession or in control of that ship.
      2. Then look at whether that relevant person is either the beneficial owner of that ship in all shares, or the charterer by demise, at the time you issue the in rem proceedings.
   4. For the arrest of a sister ship or ‘other’ ship, the inquiry is as follows:
      1. Identify the relevant person who would be liable in personam when the cause of action arose.
      2. Investigate whether or not that person is the beneficial owner in all shares of that other ship at the time you issue the in rem proceedings.
   5. A sister ship arrest is only permitted for those claims under s.20(2)(e)–(r), which also include those claims that give rise to maritime liens, but not for claims related to mortgages or ownership rights of a particular ship.
   6. Remember, however, that when a sister ship is arrested for a claim attracting a maritime lien, there is no right to arrest the guilty ship too, which means that the maritime lien cannot be exercised.
      Thus, the claim will rank in the same category as that of the other statutory rights in rem (The Leoborg (No 2).
   7. Once the in rem proceeding is issued, the maritime claim crystallises on the ship against which it is issued, and the claimant acquires a status of a preferred creditor (in the sense that the claim will follow the ship even in the hands of an innocent purchaser). Protection for the purchaser can be obtained (before purchase) if a search is made in the court’s register of in rem proceedings

If you have any questions or require any additional information, please contact our lawyer that you usually deal with.

This article is written by our Principal Associate, Chakaravarthi