Does the arresting party need to put up counter-security as the price of an arrest? In what circumstances will the arrestor be liable for damages if the arrest is set aside?

Shipping

Australia Small Flag Australia

Counter-security is not required in order to arrest a vessel. However, the arresting party must provide an undertaking to the Court to pay to the Admiralty Marshal, on demand, any amount requested by the Admiralty Marshal in relation to the costs of maintaining the vessel under arrest which, if ongoing, can become significant.

Also, the party who commenced proceedings against the vessel may be liable for damages if the arrest is set aside in circumstances where the court finds that it does not have jurisdiction as the claim does not arise under the Admiralty Act (i.e. is a wrongful arrest). A person with an interest in the vessel or who has suffered loss or damage as a direct result, can claim damages for an unjustified arrest where:

(a) a party unreasonably and without good cause:
(i) demands excessive security in relation to the proceeding; or
(ii) obtains the arrest of a ship or other property; or

(b) a party or other person unreasonably and without good cause fails to give a consent required for the release from arrest of a ship or other property.

China Small Flag China

The arresting party is required to put up counter-security with the Chinese maritime court.
Arrestor would be held liable if the arrest is proven as wrongful. In China's judicial practice, wrongful ship detention/arrest may occur in the following circumstances:

(a) There is no maritime claim to account for ship detention/arrest; or
(b) The owner of the arrested ship is not liable for the maritime claim and the Arrestor is not acting in good faith at the time of arrest; or
(c) The security demand by the maritime claimant is unreasonably high.

Croatia Small Flag Croatia

The arresting party need not put up counter-security as the price of an arrest.

If the arrest is set aside by the appeal court as unlawful or if it is set aside due to the arrestor’s failing to commence the proceedings on the merits as set out in caption 6. above, the arrestor will be liable for damages.

Colombia Small Flag Colombia

As per Art. 50 of Decision 487 the Tribunal could request a guarantee to be provided as a condition to provide the arrest order. The type, amount and conditions of such warranty are to be determined by the Tribunal on a case-by-case basis to secure any damages/losses that could be suffered by the respondent as a consequence of the arrest being, among others, a) illegal or not justified; b) as a consequence of the situation in which an excessive guarantee is being requested.

Cyprus Small Flag Cyprus

In granting an application for the arrest of a vessel the Admiralty Judge exercises a discretion and imposes such terms and conditions as he/she deems fit. A condition that is invariably imposed is that the arresting party must put up a counter-security for damages that the owner of the vessel may sustain as a result of the arrest. This condition must be fulfilled before the arrest warrant may be drawn up by the Court, on the basis of which the vessel will be arrested.

If the arrest is subsequently set aside, the arrestor may be liable in damages arising by reason of the arrest, if the arrest is found to have been “wrongful”, i.e. if, in obtaining the order for the arrest, the arresting party acted in bad faith or with such gross negligence as to lead the Court to imply malice.

Israel Small Flag Israel

The arresting party is not required to put- any counter security when arresting the vessel. The Court is authorised to order the deposit of a counter-security when issuing the arrest order. However, in the matter of M/V Tara Kaptanoglu it was held that the Court will exercise its ability on rare occasions such as when the documents which constitute the arrest application are under dispute and their validity is questioned.

There is no leading authority relating to the matter of wrongful arrest. Under the general civil law a party seeking a temporary relief (such as a lien or restraining order) might be liable in tort or in a commitment emerging out of the Court's order to compensate the other party for its damages if the temporary relief is cancelled and if the seeking party acted unreasonably or in malice (Civil Appeal 732/80 Arens Vs. Bait-El). It seems that when deciding on an application or claim for damages for wrongful arrest the Haifa Maritime Court will follow the Evangelismos Tests of 1858 as interpreted By the Court of Appeal of Singapore in the matter of M/V Vasiliy Golovnin 2008.

Italy Small Flag Italy

In principle a counter-security (to secure the claim for damages deriving from a wrongful arrest) can be ordered by the Italian Courts, yet this is not common practice, as the discretion to grant counter-security belongs to the same judge deciding on the application for arrest. Therefore, whenever the Judge grants the arrest, he is normally convinced that such arrest will not be set aside and no liability of the arrestors will arise for damages.

In addition, liability for wrongful arrest can only be established if it turns out, not only that the claim in respect of which the arrest was granted is totally groundless, but also that the arrestor acted without due care and attention.

Japan Small Flag Japan

The arresting party only needs to provide counter security, such as cash or a bank guarantee, in case of arresting a vessel by way of a provisional attachment order. In this event, the court will determine the security amount at its discretion, and may be, for example, one-third of the vessel’s value. In the case of an arrest by maritime lien or ship mortgage, the arresting party does not need to put up counter security.

Japanese courts tend to recognise that the arresting party may be liable to pay damages under specific circumstances. In particular, a tort claim on the ground of wrongful arrest can be made if bad faith or negligence on the part of the arresting party is proved by the shipowner whose vessel has been arrested.

Norway Small Flag Norway

The arrestor must provide security for public harbour duties for at least 14 days c.f. NMC sec. 97. This does not apply if the vessel is arrested to secure the crew’s wages.

The court can pursuant to NDA sec. 33-3 decide that the arrestor must additional security. This is based on the court’s discretion. A main factor in the court’s assessment of whether additional security is needed is the prima facie probability of the existence of the claim for which the arrest is sought. Additional security is compulsory only in cases where arrest is given even though the arrestor has not substantiate the claim due to the urgency of the matter.

The arrestor is liable for damages without fault if the arrest is set aside or repealed due to the fact that the claim did not exist at the time of the arrest. The same applies if the request for arrest was unfounded as a result of the arrestor negligently or knowingly providing incorrect or misleading information regarding the basis for arrest c.f. NDA sec. 32-11.

Philippines Small Flag Philippines

Yes, a bond issued by a Philippine-accredited bonding company in an amount to be fixed by the Court and generally equivalent to the amount of the claim is required in effecting the arrest / attachment.

Said bond will pay all the costs which may be adjudged to the party whose property has been arrested and all damages which he may sustain by reason of the attachment, if the court shall finally adjudge that the arresting party was not entitled thereto.

Singapore Small Flag Singapore

Counter-security is not needed. However, the Sheriff may request that the arresting party to place a deposit to cover the Sheriff’s anticipated expenses in maintaining the vessel while under arrest, as the arresting party is obliged to maintain the vessel during the period of arrest.

The arresting party may be liable for damages when the arrest is a “wrongful arrest”. In such a case, the Defendant would have to show that the Plaintiff had carried out the arrest with mala fide or with gross negligence as to imply malice on the arresting party which results in losses to the Defendant. If the Defendant is successful, the arrest may be set aside and damages may be claimed against the arresting party.

South Korea Small Flag South Korea

For the first type of ship arrest, i.e. pre-judgment attachment for the purpose of obtaining security for claim, it is general practice that the court will require the creditor/claimant to post counter-security before delivering the decision. Such counter-security is required in order to be used for compensation of the debtor’s damages and losses arising from possible inappropriate/wrongful pre-judgment attachment because the pre-judgment attachment decision is usually delivered in an ex parte proceeding based on prima facie evidence only.

As for other two types of ship arrest, i.e. judicial auction sale for exercise of security rights such as mortgage and maritime liens and judicial auction sale for enforcement of judgment/arbitration award, such deposit of counter-security is not required.

Under Korean law, the arrestor may be held liable for damages in tort if it is found that the arrest has been groundless and inappropriate/wrongful and is therefore set aside, and that the arrestor made such groundless application for ship arrest with intention or negligence.

Taiwan Small Flag Taiwan

In the event of a ship arrest in Taiwan, the court would normally order the arresting party to provide the security in the amount decided by the judge (usually will be equivalent to one-third to 100% of the claim).

The arresting party (i.e., the creditor) should compensate the damage or loss suffered by the arrested party arising from the arrest in any of the following circumstances:

  • The application for the ship arrest is improper ab initio;
  • Upon the arrested party's motion, the creditor failed to pursue the claim on its merit within a specified period of time ordered by the court; or
  • The creditor itself moves for revocation of the application for the ship arrest.

United States Small Flag United States

The circumstances under which security or counter-security may be required are governed by Rule E of the Supplemental Rules and in the discretion of the Court. Unless otherwise ordered by the court, no security is required in connection with the issuance and execution of process to arrest a vessel. This includes the possibility of a counter-security award should a counterclaim be asserted in the arrest or attachment proceeding under Rule E(7). In all events, the expenses of the U.S. Marshals Service in connection with seizing and keeping property, or of any substitute custodian appointed, must also be covered and frequently are paid in advance at the time of the arrest.

A claim for wrongful arrest requires a showing of no bona fide claim and of bad faith, malice, or gross negligence on the part of the arresting party.

United Kingdom Small Flag United Kingdom

An arresting party is not required to post counter-security (although he will have to undertake to pay the Admiralty Marshal’s costs of arresting and maintaining the arrest).

An owner is not entitled to compensation for the detention of his ship simply because the arrest is subsequently set aside. In order to claim damages, he must show that the arrest was applied for in bad faith or maliciously.

Malta Small Flag Malta

No, an arresting party does not need to automatically deposit any counter-security when applying for the issuance of an arrest. That said, once a ship is arrested, the owner of the arrested vessel may file an application requesting the Court orders the creditor to put up counter-security in accordance to Article 838A of the COCP. Should the Court accede to this request, and should the creditor fail to comply, then the arrest would be lifted.

The Court will only order the arresting party to put up counter-security if the owner of the vessel can prove there is a ‘good cause’ to demand such security. The law does not define what constitutes ‘good cause’ but case-law in this regard would suggest that the owner would need to show it may have a legitimate claim for damages, penalties and interests as a result of the warrants.

The grounds upon which an arrested party can legitimately claim damages and penalties from an arresting party are provided for in Article 836(8) and are quite limited. Should the Court set aside an arrest, the owner of the vessel would generally only be entitled to claim damages in the following four circumstances, namely:

a. Where following the arrest, the arresting party without valid reason does not commence proceedings on the merits before the competent court or tribunal within the stipulated twenty-day time frame permitted at law;

b. Where the creditor failed to make a demand for payment from the debtor within the fifteen days preceding the arrest. This however does not apply when there is an urgent need for the issuance of the warrant. Thus, where there exists an imminent threat that the vessel would have otherwise left Maltese water, the owner would not be able to rely on this ground;

c. Where the arresting creditor was knowledgeable of the ship owner’s solvency and its clear financial ability to pay the claims. This ground however is hardly used given that most registered ship owners are special purpose vehicle companies. Furthermore, case law shows that the threshold of proof required in this regard is rather high; or

d. Where the arrest was filed maliciously, frivolously or vexatious.

The same four grounds also give rise to the owner’s right to claim statutory penalties from the arresting parties. The law dictates that such penalties that may be awarded by a Court would amount to a sum of no less than €1,164.69 and no more than €6,988.12. That said, if the arrest was filed maliciously, there is no capping on the amount of penalties which can be awarded, but such sum shall be no less that € 11,600.

Panama Small Flag Panama

As per Article 168 of Law 8 the arresting party must post a guarantee security of one thousand dollars ($1,000.00) in order to respond for the damages that the arrest may cause. However, in cases of an arrest petition that has been filed to keep the proceeding from having illusory effects and keep the defendant from transposing, dissipating, encumbering, alienating or impairing properties susceptible to said measure, the guarantee security shall be fixed by the judge, at his discretion, and shall not be less than twenty percent (20%) or more than thirty percent (30%) of the amount in the complaint.

Notwithstanding the guarantee security provided, the party requesting an arrest shall consign to the order of the Marshal a sum not to exceed two thousand five hundred dollars ($2,500.00), as an advance for the expenses brought about in the conservation and custody of the seized property, as well as the required expenses for its execution and release.

Furthermore, Article 187 of Law establishes that whoever, in fault, error, negligence or in bad faith arrests a property or properties not belonging to the defendant or in contravention of a prior and express agreement between the parties of not arrest, or whoever files for arrest for the execution of an extinguished or inexistent privileged or in rem maritime lien, shall be liable for the damages caused, as well as for the payment of the costs and expenses arising out of said action. The determination of the liability of the plaintiff as well as the damages caused to the offended party shall fall under the jurisdiction of the Court that decreed the arrest which will render a decision pursuant to what is proven in the corresponding proceeding.

In this sense, the subsequent Article 188 of Law 8 establishes the right for the owner of the property or properties that have been arrested or whoever has their administration or custody to file a petition for the Maritime Court to order the arrest (“Apremio”) of the arresting party to appear, in the due course of the proceedings, to justify that the arrest was justified at the time that it was ordered.

As per Article 190 of Law 8, once the Apremio is admitted, a notice thereof shall be personally delivered to the arresting party to appear before the Court for a hearing, where the Judge shall assess the evidences filed by the parties and the party defeated shall be ordered to pay, at the discretion of the Court, judicial costs which shall include any damages caused by their his actions.

Brazil Small Flag Brazil

The court can require a guarantee from the arresting party in order to grant the arrest. However, this will be at the judge’s discretion, usually depending on the evidence presented to the court concerning the credit and legal ground of the claim.

Usually the court will request the guarantee to be set forth in a judicial bank account or letter of credit issued by a first-line bank.

If an arrest is granted and, after the continuance of the proceedings the injunction is overturned or the claim is dismissed, the Civil Procedural Code allows the defendant to seek an indemnity for the losses suffered with the wrongful arrest. The indemnity can be asses in the same legal proceeding.

Updated: December 11, 2019