Danemar Scheepsvaart Maatschappij BV (the claimant) chartered the Golden Trader from Commercial Ferries Ltd (the defendant) under a time charter party that included an arbitration clause. Under the charterparty, the defendant was obliged to keep the ship in seaworthy condition. The claimant initiated proceedings in rem against the ship and caused it to be arrested for failing to maintain its seaworthiness. The defendant applied for an order to stay the proceedings under s 4(2) of the Arbitration Act 1950 (UK) (the Act) and for an order to release the ship. The stay of proceedings was granted. The matter of releasing the ship was to be decided by Brandon J.

Held: The ship is to be released.

The question posed by Brandon J was whether, where a ship has been arrested in an action in rem and the defendant subsequently obtains an order for a stay under s 4(2) of the Act, it is also entitled to a further order releasing the ship from arrest. Although this case concerned s 4(2) of the Act, the issue that arose was part of a broader problem that occurs whenever the property is arrested or security is provided to release the property from arrest in an action in rem, but the proceedings are subsequently stayed on the grounds that the dispute should be properly decided by another tribunal.

The Judge described four categories of cases where this problem can arise:

1) where the parties have agreed to refer the dispute to arbitration and s 4(1) of the Act applies (non-protocol arbitration cases);

2) where the parties have agreed to refer the dispute to arbitration and s 4(2) of the Act applies (protocol cases, ie cases that are subject to the Protocol on Arbitration Clauses 1923);

3) where the parties have agreed to submit the dispute to the jurisdiction of a foreign court (foreign jurisdiction clause cases); and

4) where, because a foreign court is a much more appropriate forum, the bringing or continuation of an action in England is vexatious or oppressive (vexatious cases).

Brandon J found that there were three ways in which the problem could be dealt with:

1) the security can be retained to satisfy any judgment or award of the other tribunal (retention method);

2) the security can be released, but only on condition that the defendant provides other equivalent security outside the court to satisfy the judgment or award of the other tribunal (alternative security method); or

3) the security can be released unconditionally.

Brandon J decided that, under the Arrest Convention 1952, the retention method would be used. The relevant provision was art 7. It states that

1) the court that has arrested the ship should have jurisdiction to decide the merits of the dispute if the domestic law of that court grants it such jurisdiction and in certain specified cases (art 7.1);

2) where the court of arrest has no jurisdiction to decide the merits, the security given to release the ship should specifically provide that it is given to satisfy the judgment of any court that has such jurisdiction (art 7.2);

3) where the parties have agreed to submit the dispute to the jurisdiction of another court or to arbitration, the court of arrest may fix the time within which the claimant shall bring the proceedings in that court or an arbitration (art 7.3); and

4) where the claimant does not bring proceedings within the time fixed for submitting the claim, the defendant may apply to the court of arrest for release of security (art 7.4).

Brandon J concluded that it must be implied from these provisions that when the court of arrest has no jurisdiction on the merits, or when the parties agree to submit the dispute to a foreign court or arbitration, the ship will not be released, provided the claimant submits the claim to the appropriate tribunal within a specified timeframe. The arrest will remain in the court of arrest to satisfy any judgment in the other court, or any award in arbitration.

Domestic law implemented the Arrest Convention 1952 through the Administration of Justice Act 1956 (UK) (the 1956 Act: see The Banco (CMI2156)). Consequently, the High Court was granted jurisdiction on the merits over any claim recognised as a maritime claim under the Convention (art 1 of the Convention and s 1(1) of the 1956 Act). Therefore, a situation where a ship is arrested for a maritime claim without the court having jurisdiction on the merits cannot occur. As a result, there can never be a case to invoke the procedure outlined in art 7.2 of the Convention.

However, nothing in English law prevents the parties from agreeing to refer their dispute to another forum. Therefore, there can be cases where the procedures of arts 7.3 and 7.4 of the Convention are appropriate. This case is one of them. The question is, however, whether this procedure is available under English law.

To answer this question, Brandon J examined the authorities. The Judge summarised their effect:

1) The Athence [1922] 11 Lloyd’s Rep 6; Foresta Romana SA v Georges Mabro [1940] 66 Lloyd’s Rep 139; The Fehmarn [1957] 1 WLR 815; [1957] 1 Lloyd’s Rep 511; [1958] 1 WLR 815; [1957] 2 Lloyd’s Rep 551; while not deciding that the retention method was not available in English law, these nevertheless suggested strongly that it was not;

2) The Cap Bon [1967] 1 Lloyd’s Rep 543 found expressly that the retention method was not available;

3) The Eleftheria [1970] P 94; [1969] 1 Lloyd’s Rep 237; The Atlantic Star [1973] 2 WLR 795, [1973] 2 Lloyd’s Rep 197, which are vexatious cases, demonstrated that when the stay is discretionary, as it is in all cases except the protocol arbitration cases under review, the court may properly utilise the alternative security method if it considers it appropriate.

The defendant argued that the Court had no power to employ the retention method in any case where the state of proceedings was granted under ss 4(1) and 4(2) of the Act. It referred to The Cap Bon. The claimant did not argue that The Cap Bon was wrongly decided.

The claimant relied on the fact that

1) the stay was not final, and that the security should be maintained in case it would be later removed; and

2) once the claimant commenced an arbitration, it would be able to apply to the Court for an order securing the amount in dispute under s 12(6)(f) of the Act, and on such application, the Court would have the power to order the arrest of the ship to provide such security.

Regarding the first argument, Brandon J accepted that if the arbitration agreement or an arbitration initiated under it should become inoperative or unable to proceed, there might well be grounds for the Court to lift the stay and allow the case to go ahead. There was no evidence of any kind to show that this was likely to happen in this case, and in the absence of such evidence, the Judge considered the possibility to be fairly remote. Since it was remote, it would not be right to maintain the arrest solely to address it. As for the possibility of the defendant not paying under an award, this would not necessarily justify removal of the stay. Rather, the claimant will be left with two remedies: the first to enforce the award as a judgment; and the second to sue the defendant for breach of the agreement to arbitrate.

The second argument relies on the claimant's misconception of s 12(6)(f) of the Act. The Court's power mentioned there refers to the powers granted by specific Rules of Court, such as O 29, rr 2(3) and 6, and is unrelated to the arrest of ships in admiralty proceedings in rem.

As the authorities opposed retaining the security and two other claimant's arguments were rejected, the ship was to be released. However, the question remains whether this release should be unconditional or conditional, ie subject to an alternative security provided to satisfy an award.

Brandon J said that, in theory, he could not see why, if it might be appropriate to use the alternative security method in non-protocol arbitration cases, foreign jurisdiction clause cases, and vexatious cases where the granting of a stay is discretionary, it should not be so for protocol arbitration cases, where the granting of a stay is mandatory. However, on further examination of the point, the Judge held that protocol arbitration cases must be treated differently.

If The Cap Bon is correct, the starting point is that the Court can only retain the security to satisfy a judgment or compromise within the action itself. When the court stays the action, it is unlikely that there will be a judgment or compromise in the action to be satisfied. Therefore, the Court must release the ship. So, if there is a stay, there must be a release.

In cases where granting a stay is discretionary, the Court may refuse to grant a stay unless alternative security is provided. If the defendant complies with this requirement, it receives both a stay and a release. If it chooses not to provide security, it receives neither. Conversely, in protocol arbitration cases, where the grant of a stay is mandatory, the Court cannot refuse a stay unless alternative security is granted. It is required to grant a stay in any event, and as a release is a necessary consequence of a stay, it is also required to grant a release.

Based on this, Brandon J concluded that the defendant was entitled not only to an unconditional order for a stay but also to an unconditional order for the release of the ship.

The Judge added that the Arrest Convention 1952, to which the UK is a party, contemplates the use of the retention method in all cases where a dispute concerning a maritime claim should be referred to another tribunal. At the same time, English domestic law, as contained in the 1956 Act, does not effect what is contemplated by the Convention. If it is so, there exists a situation that cannot be regarded as satisfactory and which it would be desirable for Parliament to remedy. To address this, it would be necessary to empower the court to retain the security obtained through the arrest, not only in cases where the grant of a stay is discretionary but also where it is mandatory. Brandon J pointed out, however, that neither of the States to which the parties belonged, the Netherlands and Eire, had ratified the Convention, so there were no reasons why its provisions, as a matter of international treaty obligations, should have governed the relationship between them.