Not a day passes without reading about the financial woes of Hanjin Shipping Co. Ltd, (still) one of the largest shipping companies in the world. In the early days of the crisis, many of Hanjin’s vessels were arrested at various ports by their creditors. It became such a problem for Hanjin that some of their ships refused to enter ports due to the risk of being arrested.
The arrests resulted in substantial ramifications for the global economy, where the shipping industry accounts for easily over 90% of international shipments. Cargo worth millions of dollars, crucial to economies everywhere, were stranded just outside ports unable to be delivered while Hanjin and their creditors engaged in a Mexican standoff.
While much have been said about the arrest of Hanjin’s vessels, little else has been said about the legal principles and procedures underpinning a ship arrest. This article hopes to give a primer on this interesting and complex area of the law in Singapore.
Law and procedure
In Singapore, a claimant may only apply to arrest a vessel (or a “ship” as it is described in Singapore law) with the permission of the Singapore Court via its issue of a warrant of arrest. Strictly speaking, it is not the claimant who arrests a ship but the Sheriff of the Supreme Court of Singapore.
To obtain a warrant of arrest, a creditor or claimant needs to start a legal action against a “res” (or a “thing”). It is a tool to secure payment of their claims pending the resolution of litigation in Singapore or arbitration. This type of action is called an admiralty action “in rem” (“in rem action”) and the res is usually a ship. However, you may also take legal action against another res such as cargo or freight.
Before a warrant of arrest against the ship may be issued by the Singapore court, the claimant first needs to satisfy the court that its claim is legal in nature in which an in rem action could be brought. Such pre-conditions are contained in the High Court (Admiralty Jurisdiction) Act.
The application to the Singapore court is made on an “ex-parte” basis i.e. without informing the adverse party. In an in rem action, the adverse party to the claimant is usually the ship’s owners or the demise charterers. Demise charterers charter only the bare ship and operate it with a crew of their choice. This arrest application is made in such a way as to not alert the adverse party. I will discuss the significance of this later in this article.
The claimant should be more than certain of the facts supporting its arrest application. The claimant must give full and frank disclosure of all material facts. If the claimants fail to do so or the court finds that the arrest application was made with malicious intent, the court may order the ship to be released from arrest or for any alternative security provided to be discharged, and even award damages against the claimant for wrongful arrest.
Once the warrant of arrest has been issued, the claimant’s representative (as authorised by the court, called a “process server”) will serve it and other accompanying documents (“arrest papers”) on the ship itself. Practically speaking, the arrest papers are usually posted at or around the wheelhouse of the ship, where they are required to be conspicuous.
In Singapore, a ship can only be arrested if she is within the Singapore port limits. That’s why an arrest application needs to have an element of surprise. If the adverse party has sufficient notice of the imminent arrest, it may choose to leave port limits before the arrest could be executed or in the case of Hanjin’s vessels, not to come into port at all.
To arrest a ship, the process server may need to travel by small launch boats to board the ship if it’s located in anchorage or large shipyards. Boarding a ship in open sea has its hazards, and this may be distressing for some. As such, strict rules are governing such actions for safety purposes.
The process server may also face a hostile Master and crew. In arrests to secure claims for crew wages, the crew may not immediately know whether the process server is a friend or foe. It is not unexpected that a crew being denied their wages would prove to be an extremely frustrated bunch.
Further, some crew members might know that an arrest might delay the departure of the ship which could mean a delay of their return home. A process server might also face an uncooperative Master because of conflicting instructions from the ship’s owners. The port authorities may be called in to defuse any such issues.
To prevent an arrested ship from leaving, it is also necessary to install security officers on board. The ship’s Master is responsible for the well-being of these officers and is usually given meals and a place on the ship to stay.
So that’s the law and procedure of a ship arrest in Singapore in a nutshell. But what’s next for Hanjin?
Interestingly, with bankruptcy protection now, Hanjin’s vessels are now not allowed entry to many ports because port authorities and port service providers are worried that they are not going to be paid their dues. Generally, with bankruptcy protection, the company’s assets are frozen (including funds to pay off creditors) and legal action against Hanjin’s vessels may not be started or continued.
It remains an interesting next few months for Hanjin and the shipping industry in general.
How we can help
At I.R.B. Law, we have Singaporean Lawyers who are experienced in Shipping Law. We understand that going through such an event may be an anxious one. Rest assured that we will be able to guide you through and explain to you throughout each and every stage of your proceedings clearly. We believe that one should focus on the solution and not merely fixate on the problem.
So contact us to receive advice on how you can handle your Shipping related matters as we wish to help you “sail through troubled waters”. Our first consultation is usually free as we wish to focus on you and not on your wallet. So don’t hesitate and reach us at email@example.com or call us at 6298 2537 and schedule an appointment with one of our lawyers today.