Lloyd's Maritime and Commercial Law Quarterly
SHIP ARREST AND UNDERTAKINGS IN DAMAGES
AM Tettenborn*
The Alkyon
Ship mortgages have always been a risky business for banks. In March 2018 the ship finance arm of the NatWest took fright at its exposure when it seemed that the value of the Alkyon, a 36,000 dwt Sea Stallion bulk carrier mortgaged to it for $15 million-odd, seemed to be dropping uncomfortably close—within 12 per cent—to the amount of the mortgage debt. Invoking a term in the mortgage deed allowing it to intervene if it reasonably thought the loan-to-value ratio had dropped below 125 per cent, NatWest claimed immediate repayment of the full amount owing; when, unsurprisingly, this was not paid, it arrested the vessel at Newcastle. Unable to raise funds to release the vessel, the mortgagors protested loudly, challenging NatWest’s figures and denying any default; but to no effect.
Normally that would be an end of the matter. Absent further security (which, as we have seen, the mortgagors could not provide), the arrest would continue; the court would in due course decide who was right, and, if it was the bank, proceed to a judicial sale. But these mortgagors were made of sterner stuff. They applied to the Admiralty Court to vacate the arrest immediately unless the bank gave an undertaking in damages to make good any loss suffered owing to the arrest should they turn out to be right. Teare J in a scholarly and meticulous judgment rebuffed this somewhat surprising application;1 and, in its equally careful judgment in The MV Alkyon,2 the Court of Appeal upheld him. NatWest held its arrest, subject only to the usual threat of liability in costs should it lose the case.
Everyone accepted that traditional authority supported NatWest. True, the CPR gave the Admiralty Court an ostensibly unfettered power to order release of an arrested vessel at any time.3 But the inveterate practice was, absent very special circumstances, to decline to do so unless security was provided;4 and, furthermore, to vacate an arrest under that provision unless the arresting party guaranteed compensation without proof of fault would essentially emasculate the rule that, while there might be liability in tort if an arrester showed bad faith or crassa negligentia (alias gross negligence), nothing of short of that would do.5 There were also the additional points that in nineteenth-century Admiralty
* Professor of Commercial Law, Swansea University.
1. See NatWest Markets Plc v Stallion Eight Shipping Co SA (The MV Alkyon) [2018] EWHC 2033 (Admlty); [2018] 2 Lloyd’s Rep 601.
2. Stallion Eight Shipping Co SA v NatWest Markets Plc (The MV Alkyon) [2018] EWCA Civ 2760.
3. See CPR 61.8(4)(b).
4. The Bazias 3 and The Bazias 4
[1993] 1 Lloyd’s Rep 101, 105 (Lloyd LJ).
5. Eg The Evangelismos (1858) 12 Moo PC 352, 359; The Kommunar (No 3)
[1997] 1 Lloyd’s Rep 22, 29–30 (Colman J).
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