Trade and Transport Bulletin - Re-arrest strategy in New Zealand

In the sequel to our Bulletin of 21 February 2008, the Court of Appeal has provided further insight into procedural aspects of ship re-arrest in New Zealand (OOO DV Ryboprodukt v UAB Garant Court of Appeal, Wellington, CA52/08, 26 May 2008, Hammond, Chambers and Ellen France JJ).

As distinct from the initial arrest of a ship, re-arrest is a discretionary remedy exercised by the Court in its inherent jurisdiction, on balancing the parties' competing equities. While claimants only have to prove a reasonably arguable case when seeking an order to re-arrest, the position taken by the Court of Appeal in this recent case on a procedural aspect has the potential to erode the value of this relief.

Background

In this appeal the Court was asked to revisit the question of whether there was a proper basis for the exercise of jurisdiction to re-arrest the ship.

The owner had, by filing a notice of appearance in the action, submitted to admiralty jurisdiction for the original claim for repairs under section 4(1)(l) and (m) of the Admiralty Act 1973.  Counsel for the owner therefore concentrated the assault on an alleged lack of jurisdiction for the fourth and current arrest. 

Was the claim still within admiralty jurisdiction?

One of the issues considered by the High Court was whether the original claim for repairs was subsumed into an action in debt because of various settlement agreements entered into between the parties (for which there would be no admiralty jurisdiction), rather than remaining a claim for repairs.

The Court of Appeal said in an application for re-arrest, the claimant only needs to make out a reasonably arguable case that the claim falls within admiralty jurisdiction. The claimant is not put to proof on the balance of probabilities. The Court of Appeal was satisfied that the claimant, UAB fulfilled this test on the known facts and indeed found it had a strongly arguable case in this instance.

Did UAB follow the wrong procedure?

The owner then argued that UAB adopted the wrong procedure when it applied for the fourth arrest because UAB's application was made under High Court Rule 776, a rule which the owner asserted was applicable only for first time arrests.

The Court of Appeal agreed with the owner, affirming that Rule 776 is applicable only for a first time arrest because the procedure of issuing an arrest warrant and approval by the Registrar set out in Rule 776 was one that a party may take without leave of the court.  Once the 'hoops have been jumped' the Registrar is obliged to issue the warrant. 

However, while the Court has inherent jurisdiction to order re-arrest of a ship, the power to make that order is discretionary. That discretionary power can be exercised upon application to a High Court judge, not the Registrar under the first time arrest procedure set out in Rule 776.  Fortunately for UAB, although the application was incorrectly made, the Registrar had referred it to a judge who had made the order for arrest.

The Court of Appeal held that a plaintiff who wants to re-arrest a ship, should apply to a judge (rather than the Registrar) by a notice of interlocutory application. Somewhat surprisingly, the Court of Appeal also added that an application for re-arrest by way of interlocutory application, should be made on notice to the ship if the ship or its owners had entered an appearance or instructed New Zealand lawyers.

Implications

The good news for a party applying to a Court for a warrant for re arrest is that this decision confirms it will only need to show it has a reasonably arguable case that its claim falls within admiralty jurisdiction (subject to the Court's wider consideration of the parties competing equities). 

However, cases of re-arrest where the ship owner has appointed lawyers within the jurisdiction, or has previously entered an appearance in the action, might well play out quite differently following this decision. Now that the arresting party is required to give notice to the ship of any application for re-arrest, there is an added risk in relation to flight-prone vessels, given that they are now given a 'heads up' by the plaintiff in advance of an application to re-arrest. 

While the Court of Appeal did not say as much, conceivably a party might still make an application in the absence of the ship owner. However in our view evidence of a real flight risk might be required if a Court is to make an order without prior notice of the application to the ship owner. Gathering evidence of that is plainly an added burden on the re-arresting party.

The incentive is now arguably even greater to negotiate sufficient security on the first arrest, given this procedure.

For more information, please contact:

Neil Beadle, Special Counsel
Tel +64 9 300 3865
neil.beadle@dlaphillipsfox.com

Click here to view our 21 February Bulletin which also covers ship re-arrests in New Zealand.