Arrest of Ship as Security in Arbitration Not As of Right?

In the case of Unicious Energy Pte Ltd v The Owners and/or Demise Charterers of The Ship or Vessel ‘Alpine Mathilde’ [2023] MLJU 2819 (“The Alpine Mathilde”) the High Court found that there was a distinction between the arrest of a vessel as security for arbitration and the arrest of a vessel as security for litigation in Malaysia as follows: 
  1. The arrest of a vessel as security for arbitration proceedings is not as of right and is subject to the discretion of the Court. Therefore, a plaintiff seeking the issuance of a Warrant of Arrest for the aforesaid purpose is subject to the duty of full and frank disclosure of all material facts and the Court will also consider the bona fide conduct of the plaintiff in exercising its discretion judicially. 

  2. On the other hand, the arrest of a vessel as security for litigation is as of right and a duty of full and frank disclosure will not be imposed on a plaintiff. 
The Alpine Mathilde is the first case in Malaysia to decide the existence of this distinction in an in rem action.
 
Brief Facts
 
The Plaintiff filed a Writ in Rem, invoking the admiralty jurisdiction of the Court pursuant to section 24(b) of the Courts of Judicature Act 1964 (“CJA 1964”) read together with sections 20 and 21 of the United Kingdom Senior Courts Act 1981 (“SCA 1981”) and proceeded to arrest the Defendant’s vessel, i.e. the Alphine Mathilde (“Vessel”), as security for arbitration in London which was initiated immediately prior to the filing of the Writ in Rem. The Plaintiff claimed that it entered into a voyage charterparty with the Defendant which the Defendant breached by refusing to deliver the cargo on board the Vessel, comprising about 33,000 +/- 10% MTs of Naphtha, as per the Plaintiff’s instructions.
 
Subsequently, the Defendant applied to set aside the Writ in Rem and Warrant of Arrest and sought damages from the Plaintiff on the basis that it had wrongfully arrested the Vessel. The Defendant also sought a declaration that the Plaintiff had wrongly commenced and invoked the admiralty jurisdiction and/or that the Court had no in rem jurisdiction over the Defendant in respect of the subject matter of the said suit.
 
In determining the Defendant’s application, the learned Judge, Ong Chee Kwan J, considered among others, the following legal issues: 
  1. whether the Plaintiff had wrongly invoked the admiralty jurisdiction of the Court; 

  2. whether the arrest was an application for interim measure under section 11(1)(c) of the Arbitration Act (“AA 2005”); and 

  3. if the Warrant of Arrest was treated as an arrest under section 11(1)(c) of the AA 2005, whether the arrest was subject to the Court’s discretion and not a matter of right. 
The High Court’s Decision
 
At the outset, section 24(b) of the CJA 1964 vests the Malaysian High Court with the same jurisdiction and authority in relation to matters of admiralty as the English High Court of Justice had in 1981 (but not beyond that) under the UK SCA 19811.
 
It is trite that the purpose of arresting a vessel in an action in rem is to obtain security for the satisfaction of any judgment which may be obtainable in such an action, or of any sum which may become payable under an agreement where the action is settled.
 
Ong Chee Kwan J held that in order to invoke the admiralty jurisdiction of the Court to arrest a vessel, a plaintiff must satisfy test propounded in The Bunga Melati 52, namely: 
  1. show that he has a claim under Section 20(2) of the UK SCA 1981; 

  2. show that the claim arises in connection with a ship; 

  3. identify the person who would be liable on the claim in an action in personam (i.e. the in personam liability requirement); 

  4. show that the relevant person was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship; and 

  5. show that the relevant person was, at the time when the action was brought: (i) the beneficial owner of the subject vessel in respect of all the shares in it or the charterer of that ship under a demise charter; or (ii) the beneficial owner of a sister ship in respect of all the shares in it. 
Once that test was satisfied, a plaintiff is entitled as a matter of right to arrest a vessel as security for the plaintiff’s claim in an action in rem3.
 
However, His Lordship found that the admiralty jurisdiction of the High Court could not be invoked as of right to arrest a vessel as security for a prospective arbitral award under section 24(b) of the CJA 1964 as sections 20 to 24 of the UK SCA 1981 does not cloak the High Court with powers to arrest a vessel in an action in rem solely as security for a prospective arbitral award. Instead, the power of the High Court to arrest a vessel solely as security for arbitration emanates from the AA 2005, specifically section 11(1)(c) or section 10 in the case of a stay application.
 
His Lordship held that neither sections 10 nor 11 of the AA 2005 widened the admiralty jurisdiction of the Malaysian High Courts to add a new category of “maritime claim” under sections 20 to 24 of the UK SCA 1981, to provide for a right to arrest vessels as security for arbitration claims.
 
His Lordship found that Section 10 of the AA 2005 merely confers a discretion on the Malaysian High Courts when granting a stay to retain a vessel under arrest as security for the purposes of satisfying an award that may be made in the arbitration proceedings. On the other hand, section 11(1)(c) of the AA 2005 confers a discretion on the Malaysian High Courts to order the arrest of a vessel as an interim measure to provide a means of preserving assets out of which a subsequent award may be satisfied under the arbitration proceedings.
 
His Lordship held that the reason why the powers exercisable under sections 10 and/or 11 of the AA 2005 are subject to the Court’s discretion and not as of right is to ensure that the arrest or retention of arrested vessel is only ordered in appropriate circumstances.  Hence, His Lordship reasoned that the issuance of the Warrant of Arrest warrants a full and frank disclosure of all material facts and the Court’s consideration of the bona fide conduct of the applicant as well as all matters relevant for the exercise of such discretion.
 
In The Alpine Mathilde, His Lordship held that the Plaintiff had wrongly invoked the admiralty jurisdiction of the Court and set aside the arrest inter alia as he found that the Plaintiff did not act bona fide and had not come to Court with candour, neither did it make full and frank disclosure in seeking the arrest of the Vessel.
 
Comments
 
Based on The Alpine Mathilde, the present position in Malaysia now seems to be that applicants seeking to arrest a vessel as security for an arbitration claim ought to: 
  1. specifically state in the relevant cause papers that the arrest is for purposes of security for arbitration; 

  2. ensure that it acts bona fide in arresting the vessel; and 

  3. comply with its duty of making full and frank disclosure of all material facts. 
This new position has not been tested in the appellate courts. It remains open as to whether the appellate courts will prefer to maintain the distinction as found in The Alpine Mathilde  or will opt for a singular test governing the arrest of vessels as security for both arbitration and litigation proceedings in Malaysia.
 
Case Note by Pavidren Sivananda Ratnam (Associate) of the Maritime & Shipping Practice of Skrine.
 
 

1 The Vinta, an unreported judgment vide Civil Suit No: D1-27-11-93. In this case, the Malaysian Supreme Court found that Section 26 of The Civil Jurisdiction and Judgment Act 1982 of England, which granted the UK Courts with an additional power in the event of stay of action to order the retention of security in admiralty in rem matters, did not apply in Malaysia as Section 24 of the CJA 1964 limited the applicable admiralty jurisdiction in Malaysia specifically to the provisions of the UK SCA 1981 alone, and did not extend to encompass all other relevant provisions of law in England that supplemented the English admiralty jurisdiction.
2 The Bunga Melati 5 [2012 4 SLR 546]; Vitol Asia Pte Ltd v Owners of the Ship or Vessel Malik Al Ashtar [2017] 1 CLJ 236.
3 Premium Vegetable Oils Sdn Bhd v The Owners and/or Demise Charterers of The Ship or Vessel ‘Ever Concord’ of The Port of Zanzibar, Tanzania [2021] 3 CLJ 803.

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