Understanding Ship Arrest Procedure

Hong Kong law is similar to English law, upon which it is closely modelled. All arrests of seagoing ships are subject to the Brussels Convention 1952, as enacted in English legislation.

Arrest Procedure

A ship - or one of its sister ships - may be arrested where:

  • a claimant's cause of action carries with it a right of arrest;
  • an in rem writ has been issued;
  • the ship is available in Hong Kong; and
  • no caveat against arrest has been entered.

The claimant's solicitor will apply to issue a warrant of arrest, supported by an affidavit to lead warrant.

The caveat book must be searched for caveats against arrest. A written application must be made to the registrar for leave to search; this can be done by letter.

The warrant, once issued, is filed with the bailiff, together with a request to execute the warrant and an undertaking to pay the costs of arrest.

The affidavit consists of a written statement of facts and belief, with the sources and grounds thereof, and is made under oath. It constitutes the only evidential requirement for arrest.

There are no specific requirements in the form of claim documents, apart from such minimum copy documents to be exhibited to the affidavit as are required to establish a prima facie right to arrest. The affidavit must state certain specified details, such as the nature of the claim, the parties' details and the name of the ship.

The court will not insist on hearing an entire action commenced by the issuance of a writ followed by an arrest. It remains open to the parties to agree an alternative jurisdiction, as frequently happens in cases involving collisions in international waters.

Normally, an agreed form of contractual security - usually a protection and indemnity club letter of undertaking - is provided without the need for an application to court. Alternatively, a bail bond can be provided to the court's satisfaction. The adequacy of security in support of a bail bond is subject to court discretion and the court will usually order bank or corporate sureties or require the defendant to pay cash into court in lieu.

Timing

Arrest documents can normally be issued within hours of a firm receiving the file. Subject to certain difficulties, such documents can be issued and executed on emergency application to a duty judge out of normal hours. This can usually be achieved by the claimant's solicitors undertaking to issue a writ and swear an affidavit in support of the warrant at the first available opportunity when the court re-opens.

The writ is issued at the same time as the arrest warrant, so there is no delay between the arrest and the action on the merits. The defendant has 14 days to acknowledge service and a further 14 days to file a defence if settlement is not reached immediately.

Expenses

Court fees typically amount to no more than HK$2,300. Solicitors' fees depend on numerous factors, such as the time spent, the complexity of the case and the documents to be perused. Solicitors can usually give estimates for specific cases. The bailiff's expenses for maintaining the vessel under arrest are likely to include watchmen's fees, launch hire, the provision of crew, victualling and bunkers, and are usually around HK$3,500 a day, depending on the circumstances, including the size of the vessel. They are recovered as a high-priority claim ahead of maritime lien and mortgage claims.

Release

In order to obtain a ship's release, the relevant party must file for release with praecipe (ie, the writ demanding an order of release), and with the solicitors' undertaking to pay the bailiff's fee. In addition, the agreement of the plaintiff and all caveators must be obtained. The bailiff then releases the vessel. A release can usually be obtained promptly, subject to the requirements being satisfied, particularly the provision of satisfactory security.

Claim documents must normally be in English or Chinese, the official languages of the court.

Types of Claim

The High Court Ordinance lists several kinds of maritime claim in the admiralty jurisdiction of the High Court for which a vessel may be arrested. These offences include claims in relation to:

  • possession or ownership of, or mortgage on, a ship;
  • loss of life or personal injury because of a defect in a ship;
  • damage done by or to a ship;
  • loss or damage to goods carried by ship and other claims relating to carriage of goods by ship;
  • use or hire of a ship;
  • salvage, towage and pilotage;
  • goods and materials supplied to a ship;
  • construction or repair of a ship;
  • wages owed to a ship's master or crew;
  • acts of general average;
  • bottomry; or
  • collisions.

However, arrest is impossible in some cases (eg, in relation to claims for insurance premiums).

The purpose of an action in rem is to obtain security in respect of a court judgment in that action. The court should not exercise its jurisdiction to arrest ships or keep them under arrest for other purposes. However, the court's jurisdiction can be invoked to secure claims in arbitration where the law of the place governing the arbitration permits this.

An arrest intended merely to force the party affected to agree to a foreign jurisdiction is outside the purpose of an action in rem. Where a plaintiff has already commenced an action for the claim in a foreign jurisdiction, a duplicate action in rem commenced in Hong Kong will be considered vexatious and is liable to be set aside.

Flag and Identity of Vessel

A vessel under any flag may be arrested in Hong Kong. However, if the vessel in question is a foreign ship which belongs to a port of a state having a consulate in Hong Kong and the arrest is for possession of the ship or in respect of outstanding crew wages, a notice of action must be sent to the consul and a copy of the notice must be annexed to the affidavit to lead warrant.

A plaintiff may proceed in rem against any of a number of ships under the same beneficial ownership. The writ should be issued against some or all of the ships against which the plaintiff is entitled to proceed. It must subsequently be amended by striking out all names except that of the ship on which the writ has been served or against which a warrant of arrest has been issued.

Bareboat-chartered vessels can be arrested, but not time-chartered vessels.

Appraisal and Sale Pending Litigation

The court will not order the appraisal and sale of a ship while the litigation is pending except for good reason, regardless of whether the action is defended. Where the action is defended and the defendants oppose the making of such an order, the court examines more critically the question of whether there is good reason to make the order.

The question of whether an order for the appraisal and sale of a ship under arrest in an action in rem should be made while litigation is pending normally arises only where there is a default of acknowledgment of service or defence, in which case such an order is commonly made on the plaintiff's application on the grounds that the security for the plaintiff's claim would otherwise be diminished by the continuing costs of maintaining the arrest, to the disadvantage of all interested parties (including the defendant, if it has a residual interest).

Where the defendant to an action in rem against a ship appears with the intention of defending the action, it almost invariably obtains the ship's release by providing bail or other security for the claim that is satisfactory to the plaintiffs. There appears to be no reported case in which the court has had to consider the circumstances in which it would be right to order appraisal and sale of a ship pending litigation in a defended case.

Other Issues

Counter-security

No counter-security is required from a plaintiff. Where the plaintiff is foreign, the defendant can apply to the court for an order to compel the plaintiff to give security for the defendant's litigation costs, subject to the court's discretion.

Maritime claims and maritime liens

Maritime claims depend on the ownership of the ship. A ship can be arrested only if the owner at the time of the cause of action is still the owner at the time of arrest. Maritime liens can be enforced regardless of ownership. An identical arrest procedure applies in both cases.

Hong Kong law, being based on substantive English law, recognizes maritime liens arising in connection with a limited number of specified claims. Claims that give rise to maritime liens include those for:

  • damage done by a ship;
  • salvage rendered to a ship;
  • wages owed to a master or seaman; and
  • masters' disbursements.

Jurisdiction over substantive claim

For most claims the court will usually accept jurisdiction over the substantive claim, depending on the circumstances. If a claim arises out of a contract that has an exclusive foreign jurisdiction clause, the proceedings may be stayed in favour of the relevant foreign jurisdiction.

Wrongful arrest

Regardless of whether a caveat has been entered, the court's test for ordering an inquiry into damages for wrongful arrest is whether the action was so unwarrantedly brought as to imply malice or gross negligence on the part of the plaintiff. The defendant must establish malice or gross negligence before the plaintiff can be held liable for damages. Damages can also be recovered where an arrest has been unduly continued.

Piercing and lifting the corporate veil

Hong Kong courts have accepted the practice of piercing and lifting the corporate veil. Although the principle of separate corporate personality is a cornerstone of Hong Kong company law, the court will lift the corporate veil where the protection given by incorporation under the law may be abused. The established grounds for lift the corporate veil are where incorporation is used to evade an existing legal obligation(1) or to practise deception, such as fraud.(2)

Endnotes

(1) China Ocean Shipping Co v Mitrans Shipping Co Ltd [1995] 3HKC 123.

(2) Barkri Bunker Trading Co Ltd v The Neptune [1986] HKLR 345.