The claimant bank lent USD 15,700,000 to the defendant, the owner of the MV Alkyon, pursuant to a long term loan agreement (January 2015). The loan was secured by a First Preferred Mortgage on the vessel (February 2015).

On 22 March 2018, the bank notified the owner that the market value of the vessel was USD 15,250,000, which was 112% of the aggregate value of the amount of the outstanding loan and less than the VTL ratio of 125%. The amount of additional security required was USD 1,750,000. The owner disputed the valuation and provided the bank with higher valuations. The bank warned the owner that if the shortfall in security was not cured there would be an event of default.

On 25 April 2018, the bank notified the owner of an event of default and gave further time to cure. On 15 June 2018, the bank sent the owner a Notice of Acceleration which declared the loan immediately due and payable. On the same day the bank issued an in rem claim form and applied for and obtained the issue of a warrant of arrest against the vessel. The vessel was arrested on 26 June 2018 upon arrival at the Port of Tyne.

The owner denied there was an event of default and denied that the bank was entitled to accelerate the loan (said to be USD 13,496,922.33). The owner claimed that, while under arrest, the vessel would lose gross hire of USD 11,350 per day and a profit of USD 3,500-4,000 per day. The owner stated that it could not obtain a P&I club letter of undertaking to secure the release of the vessel from arrest in the normal way because P&I cover does not extend to a disputed claim under a loan agreement. In addition, the owner stated that security in the form of a guarantee or a bond could not be provided because the owner’s only asset was the vessel and that was mortgaged to the bank. The owner believed the bank was aware of the position the owner was placed in by the arrest and the bank was putting the owner under commercial pressure to agree to sell the vessel to repay the loan.

Therefore, the owner applied to the court for an order to release the vessel from arrest unless the bank provided a cross-undertaking in damages in the form usually given in the context of freezing orders, namely, that if the court later finds that the warrant for arrest has caused loss to the owner and decides that the owner should be compensated for that loss, the bank will comply with any order the court may make.

English admiralty law does not require a claimant who wishes to arrest a vessel to provide a cross-undertaking in damages in order to obtain a warrant for the arrest of a vessel. Therefore the only way the owner could advance its claim for such a cross-undertaking in damages was to seek a release of the vessel from arrest in the event that the bank failed to provide the requested undertaking.

Held: The application was refused. The court has a discretion to release a vessel from arrest. Usually a vessel will not be released unless security in the usual form is provided. The discretion is not restricted but must be exercised in a principled manner. One of the principles is that a claimant in rem may obtain the issue of a warrant of arrest as of right. This is not dependent on providing a cross-undertaking in damages. If the court were to exercise its discretion and order the vessel to be released from arrest unless a cross-undertaking in damages were provided, that exercise of discretion would cut across and negate the principle that a claimant may obtain the issue of a warrant of arrest without providing a cross-undertaking in damages. That would be an unprincipled exercise of the court’s discretion. If it were appropriate in this case to issue such an order, it would be equally appropriate in a great many cases to make such an order. Therefore, a very substantial change as to the circumstances in which an admiralty arrest can be obtained and maintained would occur overnight.

Teare J noted that, when the Arrest Convention 1952 (which is the foundation of the domestic statute conferring jurisdiction in rem) was under consideration, the UK delegate opposed the proposal that arresting courts be empowered to order security and that proposal was defeated. The Arrest Convention 1999 does contain such a provision, but the UK has not ratified that Convention and it has been commented by academics that this provision represents a ‘significant departure from the existing position in the law of the United Kingdom’.

His Honour held that the requested change in practice is so far-reaching in its consequences that it should be a matter for Parliament to consider or for the Rule Committee to consider having consulted with the Admiralty and Commercial Court Users’ Committee and the shipping and marine insurance industry.

To exercise the court’s discretion and release the vessel would,

1. run counter to the principle that a claimant may arrest of right;
2. be inconsistent with the court’s long-standing practice that such a cross-undertaking is not required; and
3. be contrary to the decision of the Court of Appeal in Bazias 3 and Bazias 4, and to the dicta of Lord Clarke in Willers v Joyce which must be respected by the High Court.