Can a charterer procure the release of a laden vessel arrested by a mortgagee bank?

What if the vessel is laden with cargo?

It is open to the charterer (or cargo interest) to apply for a discharge of the cargo if the cargo is not under arrest. However, this is not always practical or economical; for example, transhipment of the type of cargo being carried may not be available at the arrest port (which is not the intended discharge port), or doing so may be costly and/or out of proportion to the price of the cargo. 

The Admiralty Court Guide published by the Supreme Court of Singapore recognises this practical issue, and urges an arresting party to consider whether there are potential issues with the discharge of the cargo since there may be potentially significant costs if the vessel is not released within a short period of time after arrest and the cargo needs to be discharged. However, since there is no prohibition per se against the arrest of a laden vessel, such circumstances may arise. 

If discharge of the cargo is out of the question, short of abandoning the cargo (and claiming against the carrier), what can a charterer do? Can the charterer and/or cargo interest procure the release of the arrested vessel? 

Interference with the charterer’s rights?

In The Myrto [1977] 2 Lloyd’s Law Reports 243, the claimant was a mortgagee bank who arrested a vessel which had been laden with cargo. The charterers intervened and applied to release the vessel or alternatively to set aside the warrant of arrest on the basis that the arrest was wrongful as against the charterer or that the mortgagee’s action was an interference with the charterer’s rights. The application was successfully resisted by the bank. 

As mentioned in the earlier update, the general rule is that where the shipowner makes a contract with a third party for the employment of the mortgaged vessel; and (i) the contract does not impair the mortgagee's security; and (ii) the shipowner is willing and able to perform the contract; then the mortgagee is not entitled, by exercising its rights under the mortgage (e.g. by taking possession, or by arresting the vessel in a mortgage action), to interfere with the performance of such contract. 

The English Court approached the question of whether a particular contract made by the owner with a third party for the employment of the vessel is of such a kind, and/or is made or performable in such circumstances, as to impair the security of the mortgagee, as a question of fact. A common situation in which the English court may regard a charterparty as impairing the mortgagee's security or where the shipowner is unable to perform the charterparty, is where the shipowner is impecunious.

We were recently faced with a similar situation in the course of a vessel arrest in which Ascendant Legal LLC (in alliance with Norton Rose Fulbright) acted for the arresting mortgagee bank. The charterers intervened in the action and sought to pursue the release of the arrested vessel under Order 70 rule 12 of the Rules of Court 2014 (in pari materia with Order 33 rule 13 of the current Rules of Court 2021). 

We successfully resisted the charterer’s application to release the arrested vessel. The application was heard in the first instance by an Assistant Registrar (the “AR”) in the Singapore High Court. While the charterers had also sought as an alternative the setting aside of the warrant of arrest, they did not pursue this ground / line of argument at the hearing. On the case at hand, the learned AR found no grounds to order the release of the vessel and dismissed the charterers’ application. The learned AR’s decision is unreported, but his observations are insightful and will serve as a useful guide in similar applications. 

As at the time of the charterers’ application, the proposition in The Myrto that a vessel may be released to prevent the arresting mortgagee bank’s interference with her employment, had not yet been followed in Singapore. The learned AR did not foreclose the possibility of a release of a vessel in circumstances where the arresting mortgagee bank interfered with the employment of the vessel. However, the learned AR clarified that such power would need to be exercised with the following principles in mind:-

1. First, even on the authority of The Myrto, an order releasing a vessel under arrest is equivalent to an injunction, and the Court has a discretion to either grant such relief or leave the charterers to their alternative remedy in damages in a claim in tort for inducing breach of contract.
2. Second, a mortgagee is under no obligation to defer the arrest of a laden vessel until she has reached the discharge port. This is so notwithstanding the fact that costs would be incurred in discharging the cargo from the arrested vessel for transshipment. The rights and duties to a vessel mortgage are determined by the contract between the mortgagor and mortgagee, and once there is an event of default, it is difficult to argue that arresting the vessel (and keeping the vessel under arrest until sold by an order of court) constitutes, of itself, a breach of contract or duty on the part of the mortgagee.
3. Third, it is difficult to foresee any circumstances in which it would be right to order the release of the vessel without security being given against the wishes of a creditor who has properly exercised his right to arrest the vessel.

We agree with the principles espoused by the learned AR. We set out below some observations.

Should an arrested vessel be released in Singapore if it is laden?

Fundamentally, the purpose of vessel arrests in actions in rem is for the arresting party to obtain security for the satisfaction of any judgment which he may obtain in such action. Such security ensures that the plaintiff’s prospects of recovery are not hampered. Especially in mortgagee arrests where the mortgagee has proprietary interest in a vessel, it would be impracticable and onerous for mortgagees to defer its right to enforce its security in circumstances when doing so would impair its security. 

The relief sought by the charterers, i.e., for a laden vessel to be released, is akin to an interlocutory mandatory injunction. In this regard, if one were to seek the release of an arrested vessel, the factors for a mandatory injunction should be met. The factors would include the following:

1. whether the Court can be satisfied with a high degree of assurance that it will appear at the trial that the injunctive order was rightly granted;
2. whether damages instead of an injunction will be an adequate remedy; and
3. the conduct of the parties. 

In assessing the factors above, the Court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong at trial in the sense of granting relief to a party who fails to establish his rights at the trial, or of failing to grant relief to a party who succeeds at the trial.

In any case, The Myrto should not stand for the proposition that there is a special maritime tort of interference with contractual relations. Under the general law on economic torts, acts of “interference with contractual relations” are only actionable in tort where the tortfeasor is shown not only to have the requisite knowledge of the existence of the contract, but intended to interfere with its performance. As a matter of policy, intention is required for liability so that ordinary business practices will not be stifled. To otherwise impose additional obligations on mortgagees to ensure cargo carried on board is discharged first, before mortgagees are entitled to enforce their mortgage security, would be impracticable and onerous. 

That being said, a balance must be struck. Vessel arrest is a powerful and draconian remedy which may be disruptive and inflict economic hardship on the shipowner’s trade and operations. 

An arresting bank should therefore exercise such right to arrest or enforce its security carefully, bearing in mind the hurdles and risks that may be involved. In particular, in addition to considering whether its security is impaired, the arresting bank should consider whether the factors for an interlocutory mandatory injunction can be established. If so, then the bank should think twice before arresting a vessel, to avoid being exposed to a tortious claim for interference.