Tactical Thinking: Pre-Arrest Planning

Ship owners are typically well aware when their charterers are not paying for their bunkers, but they are quick to claim wrongful arrest whenever a trader or supplier attempts to recover payment for bunkers supplied. Because wrongful ship arrest claims are simple and inexpensive to make and carry no downside even if the threat itself is wrongful, ship owners often rely on these threats as leverage for a cheaper settlement, or to deter an arrest altogether. However, with the proper pre-arrest planning, responding to wrongful ship arrest claims can be much less expensive and time consuming. One of the most crucial steps in effecting a successful arrest is to know the wrongful ship arrest law of the potential place of arrest. In light of the 1999 International Convention on the Arrest of Ships and the requirements it imposes on the arresting plaintiff to post security against potential wrongful arrest damages, traders and suppliers should be wary of arresting ships in the countries which ratified the convention. Generally, the guideline is, the more northerly the arrest location the more strict the wrongful arrest standards, and traders and suppliers would be wise to avoid arresting a ship in those countries if they have other options. Alternatively, wrongful arrest threats in the United Kingdom (where successful wrongful arrest claims are almost non-existent) and the United States (where costs are seldom awarded) are significantly less worrisome for suppliers and traders.

In addition to selecting a favorable jurisdiction for arrest, traders and suppliers should incorporate protections in their sales terms and conditions to defend against wrongful arrest claims. For instance, U.S. maritime law should govern the provision of bunkers to the vessel, and English maritime law should never be incorporated, as it does not allow for in rem maritime liens. The sales terms and conditions should define “buyer” broadly to include the vessel’s owners and managers. They should also provide that the supplier or trader may arrest immediately and without notification to anyone if the supplier or trader believes that payment is insecure. The above advice is very general for protecting traders and suppliers against wrongful arrest threats, so it is imperative that competent arrest counsel reviews sales terms and conditions on a regular basis and before an arrest is underway.

For further information on specific steps your company should take to engage in pre-arrest planning and how to effectively respond to wrongful ship arrest claims, a PDF version of the full article is available here.