Stallion Eight Shipping Co SA v NatWest Markets plc (The “MV Alkyon”)  EWCA 2760
A mortgagee bank arrested the “MV Alkyon” in Newcastle on the basis of an alleged default under the loan agreement. The Bank notified the owner that the market value of the vessel was less than the VTL ratio of 125%, and required the owner to provide additional security to cure the shortfall. The owner disputed that valuation and failed to provide the additional security. The Bank issued an in rem claim form and obtained a warrant of arrest, after serving a Notice of Acceleration declaring the loan immediately due and payable. The shipowner sought an order from the Admiralty Court that the vessel should be released from arrest absent a cross-undertaking in damages from the Bank.
The court at first instance held that, the Bank, an in rem claimant, is not required to provide a cross-undertaking in damages for loss resulting from the arrest of a vessel, unlike a claimant seeking a freezing injunction. Owners appealed.
The Court of Appeal decision
The Court of Appeal stated that in an appropriate case, it was open to the Court, without the intervention of Parliament or the Rules Committee, to depart from the usual practice of not ordering release of a vessel from arrest absent provision of sufficient security, but a Court “would [have to] think long and hard before departing from the usual practice”.
The Court of Appeal has upheld the current position under English law, which is that no damage is recoverable for wrongful arrest unless the arresting party acts in bad faith or in gross negligence which implies malice (The Evangelismos (1858) 12 Moo PC 352, 14 ER 945). Acknowledging the concerns expressed as to the rule in The Evangelismos as being harsh on a shipowner in circumstances where it transpires that the arrest was unjustified but the shipowner is left without remedy for the loss (The Kommunar (No 3)  1 Lloyd’s Rep 22), the Court nonetheless dismissed the appeal, and upheld the judgment of the Admiralty Court Judge on the availability and utility of arrest in relation to obtaining security for subsequent claims on eight grounds.
The decision has also made it clear that shipowners seeking to argue impecuniosity will have to present extensive evidence of the resources available to them, including those of their direct and indirect shareholders.
As mentioned in our QCR Autumn 2018, the fairness of The Evangelismos rule has been called into question by commentators. Dr Aleka Sheppard, Chairman of the International Working Group conducted a survey of the applicable laws and legal tests internationally concerning Wrongful Arrest for the Comité Maritime International meeting on 9 November 2018. The question was whether counter-security is required to be provided by the arrestor when the application for the ship arrest is made, or thereafter, in the event of a potential wrongful arrest. 11 countries required the applicant-arrestor to provide counter-security; 13 did not, including Australia, Canada, Hong Kong, New Zealand, the UK and the USA; 13 gave their courts discretionary power in respect of ordering counter-security.
Although the civil justice system is in a time of change, certainty is of great importance in commercial law. English courts are seeking to strike the right balance between the certainty of long-standing, settled rules and the desirability of change and, in this regards, pay close attention to the views of the market and the position prevailing internationally, in aiming to do practical justice. The Alkyon decision is a good example of such practice. The Court of Appeal stated that the courts would need a clear understanding of the industry implication before reconsidering the position on cross-undertakings.