SECURITY IN ACTIONS IN REM

• Author: DAVID CHONG GEK SIAN
• Date: 01 December 1989
• Published date: 01 December 1989

At the turn of the 17th century, in a case1 where a vessel was arrested and an application made for release of the vessel against the provision of a bail bond, Sir William Scott had occasion to observe that “if this method [of providing bail in substitution of the arrested vessel] had not been pursued, the ship must have been left in the custody of the Marshal, at a heavy expence (sic), without any accruing profits, and at an increasing diminution of value.”2 It is evident from the above observation of Lord Stowell (as he later became)3 in “The Peggy”4 that from, at least, the 17th century both lawyers and commercial men alike appreciate that shipowners5 court financial disaster when they permit their ships to be arrested or remain under admiralty arrest for a prolonged period of time. Indeed, the law being fully cognisant that ships are vessels of commerce and are “made to plough the ocean, and not to rot by the wall”6 strikes a balance between the commercial interests of the shipowner and the legal protection of the maritime7 claimant. This balance is achieved by allowing the shipowner to put up a bail bond8 to secure the release of the arrested ship or to pay into court9 the amount of the plaintiff’s claim. Additionally, the law recognises that apart from the provision of a bail bond or the payment of money into court, the shipowner may obtain the release of the arrested ship or stave off an impending arrest by furnishing other forms of security, namely bank guarantees or guarantees from other acceptable institutions10 (hereafter referred to as ‘other security’). It was once thought11

that the maritime claimant could dictate the form that the security is to take. However, this view has been subject to judicial scrutiny in two recent cases.

The First Onslaught

The first onslaught on the traditional view that the claimant had the final say on the form of security came in “The Pacific Charger”,12 a decision of the High Court of New Zealand. The facts in this case may be shortly stated. Some 14 plaintiffs commenced an action in rem against the ‘Pacific Charger’ for inter alia damage to the cargo carried on board the vessel. After the ‘Pacific Charger’ was arrested, an application was made by the shipowners for the release of the vessel. Instead of providing a bail bond or paying into court the amount of the plaintiffs’ claims, the shipowners offered a club letter13 from the Britannia Steam Ship Insurance Association Ltd. of London as security for the release of the ‘Pacific Charger’. The proposed security was rejected by the plaintiffs on two counts - first, that the plaintiffs in New Zealand would face difficulties in collecting on such a security as the club was a London-based mutual uncapitalised association and secondly, that the plaintiffs were not bound to accept the proposed security as they suspected the lack of bona fides on the part of the shipowners. Given the nature of the plaintiffs’ objections to the application for release of the vessel, Savage J., the first instance judge, had to deal with the court’s power to release a vessel from admiralty arrest. His Lordship referred to the relevant provisions of the New Zealand Admiralty Rules 1975 and concluded that the first limb of rule 17(4)14 of the said Rules empowered the court to release a vessel under arrest without imposing any terms as to security at all or to release the vessel on condition that the shipowners furnish security. More importantly, his Lordship added that under the first limb of rule 17(4), the court has a discretion to decide on the form of security for it is “the duty of the court … to satisfy itself that the security ordered will be adequate to achieve the object for which it is required, namely,

to ensure that any judgment that is ultimately given will be satisfied.”15 It follows from his Lordship’s reasoning that the court may require security in the form of a bail bond or if the court is satisfied that some other form of security is sufficient to ensure that the judgment will be satisfied, the court may order the release of the vessel on the provision of that other form of security. In fact, Savage J. stated categorically that the first limb of rule 17(4) gives the court a complete discretion in the matter of release of a vessel under arrest and that there is no restriction on this power of the court in the rules. However, it must be pointed out that Savage J. relied in part on rule 17(5)16 of the Admiralty Rules 1975 to arrive at his conclusion that under the first limb of rule 17(4) the court has power to order the release of a vessel from arrest without imposing any terms as to security or to order such a release on the provision of security not taking the form of a bail bond. In his Lordship’s view, rule 17(5) lends support to the construction of the first limb of rule 17(4) as adopted by the court. It is apparent from a reading of rule 17(5) that that rule deals with the power of the Registrar to order a vessel to be released from arrest upon the provision of a bail bond17 or on payment into court of the amount of money claimed in the writ together with the costs of issue and execution of the warrant of arrest. That being the case, Savage J. ratiocinated that the discretion given to the court by the first limb of rule 17(4) must, in order to avoid superfluity and to give the sub-rule any sensible meaning, ex necessitate be a discretion not inhibited by rule 17(5) read with rule 20. Indeed, according to the learned judge, the juxtaposition of rules 17(4) and 17(5) demands the conclusion that the discretion given to the court by the former rule be not inhibited by the content of the latter rule. Gven the scheme of the New Zealand Admiralty Rules 1975, it is respectfully submitted that there is much force in the view of Savage J. in “The Pacific Charger”.

Having concluded that the first limb of rule 17(4) empowers the court to order the release of a vessel from arrest against the provision of security not taking the form of a bail bond, Savage J. went on to deal with the two objections raised by the plaintiffs to the ‘club letter’. As to the first objection, the gravamen of the plaintiffs’ case was that they would experience difficulties in collecting on the proposed ‘club letter’ in the sense that there may be insufficient funds to satisfy their claims should they prove successful in their action. To this objection, the learned judge, after hearing evidence on how a ‘club letter’

security is underwritten by the Britannia Steam Ship Insurance Association Ltd., said that he “[did] not regard this objection as being a good ground for rejecting a ‘club letter’ as security”. His Lordship observed that he did not consider the enforcing of a judgment against the Britannia Steam Ship Insurance Association Ltd. in London as likely to occasion particular difficulty to the plaintiffs.18 The second objection to the proposed security namely that the plaintiffs doubted the bona fides of the shipowners and their advisers was also given short shrift by the learned judge. His Lordship held that the objection failed on two counts - first, the plaintiffs had not adduced evidence to support their case of the shipowners’ lack of bona fides in meeting the plaintiffs’ claims and secondly and more importantly, in an application for release of a vessel from admiralty arrest where the defendants have offered alternative security, the proper consideration for the court is whether or not the security offered was in fact adequate. It followed that in such applications, the matter of the plaintiffs having or not having faith in the bona fides of those putting forward the proposed security was not particularly relevant. In his Lordship’s view, the ‘club letter’ proposed by the defendants was adequate security to ensure that any judgment obtained by the plaintiffs will be satisfied. More importantly, Savage J. held that the proposed ‘club letter’ was acceptable given the difficulties, expense and delay attendant to the provision of alternative security. It will be appreciated that this ruling on the acceptability of the proposed other security is a corollary of the proposition that under the first limb of rule 17(4) of the New Zealand Admiralty Rules 1975 the court is empowered to order the release of a vessel from arrest against the provision of security not taking the form of a bail bond. Thus in an application for release of a vessel from admiralty arrest where the defendants propose other security, the New Zealand High Court has the power19 to decide on the acceptability or otherwise of the proposed other security. It appears that the applicable test for deciding on the acceptability of the proposed other security is the same as the test for deciding on the adequacy of the proposed other security, to wit that the court be satisfied “that the security ordered will be adequate to achieve the object for which it is required, namely, to ensure that any judgment that is ultimately given will be satisfied.” It is noteworthy that the learned judge in his formal judgment gave directions as to the form that the ‘club letter’ was to take as the proposed ‘club letter’ exhibited to the court was inappropriate in view of the fact that it had been drafted on the basis that the parties to the action in rem had agreed on the provision of the ‘club letter’ in consideration for

the release of the ‘Pacific Charger’ from arrest. Thus the directions given by the learned judge took into account the fact that the ‘club letter’ had been ordered by the court as the security20 to be furnished by the defendants to obtain the release of the ‘Pacific Charger’ from arrest in the plaintiffs’ action in rem.

The decision of Savage J. in “The Pacific Charger” was affirmed21 by the New Zealand Court of Appeal. In fact, the New Zealand Court of Appeal acknowledged that Savage J. had delivered an “admirable judgment”.22

The Second Onslaught

The decision of Savage...