Introduction
The ultimate purpose of initiating arbitration proceedings has always been to obtain a favourable award and to enforce it.  However, a favourable award in respect of a monetary claim is of little or no value if eventually the respondent is unable to pay. 

Therefore, the claimants would often wish to obtain security for their claims against the respondents by arresting the respondents’ vessel. In Hong Kong, under section 12A of the High Court Ordinance (Cap.4) (the “Ordinance”), upon the claimants’ application the Hong Kong Court has power to arrest the respondents’ ship as security in aid of the claimants’ maritime claims (i.e. claims in relation to a ship) against the respondents.  However, section 12A of the Ordinance does not provide that the Hong Kong Court has such power in relation to enforcing an arbitral award.

In the recent Hong Kong case Handytankers KS v The Owners and/or demise Charterers of M/V “ALAS” [1], the Hong Kong Court clarified its power in section 12A of the Ordinance and invoked its jurisdiction to arrest the Defendants’ vessel despite an arbitral award has already been obtained by the Plaintiff.

Background
In the ALAS case, the Plaintiff, Handytankers KS, as owner, chartered its motor tanker “BETH” to the Defendants, PT. Arpeni Pratama Ocean Line Tbk, under a Charterparty dated 9 January 2008 for 5 years (the “Charterparty”).  In breach of the Charterparty, the Defendants failed to pay the charter hire in full on time. Pursuant to the arbitration clause in the Charterparty, the Plaintiff referred the dispute to arbitration in London. On 1 March 2013, a final award of US$9,238,221.30 by way of damages and US$361,243 for unpaid charter hire (“Award”) was issued in favour of the Plaintiff.  

Despite the Award was made in favour of the Plaintiff, the Defendants failed to pay the Plaintiff in accordance with the Award. In the circumstances, the Plaintiff sought to arrest the Defendants’ vessel “Dewi Umayi” (“Vessel”) in Hong Kong pursuant to section 12A(2)(h) of the Ordinance, by stating that it was a claim “arising out of any agreement relating to … the use or hire of a ship”.  

The Plaintiff successfully obtained a Warrant of Arrest and arrested the Vessel on 26 April 2014. The Defendants then applied to set aside the arrest on the ground that the Court has no jurisdiction to arrest the Vessel in aid of an arbitral award. For reasons stated in the subsequent paragraphs, the Court dismissed the Defendants’ application.

Jurisdiction of the Court
The Defendants first argued that the arrest of the Vessel was fundamentally in the nature of an application to enforce the Award which the Hong Kong Court has no such jurisdiction. Therefore, the arrest was an abuse of process and ought to be set aside.

However, the Court upheld the English Court’s ruling in The Rena K[2] case, which held that a cause of action in rem (i.e. action against a vessel) did not merge in a judgment in personam (i.e. action against the ship owner), but remained available so long as, and to the extent that, the judgment remained unsatisfied.

The Court accepted that the Plaintiff’s claim was for damages for unpaid hire under the Charterparty.  It was in substance and in form a claim under Section 12A(2)(h) of the Ordinance and not a claim to enforce the Award.  Therefore, the Plaintiff was entitled to apply to the Hong Kong Court to arrest the Vessel and keep her under arrest as security in respect of any judgment which it may obtain after the hearing and determination of the claim.

Whether ship arrest was barred once the Plaintiff’s claim has crystallised
The Defendants’ counsel further submitted that the procedure of arrest was not available once the Plaintiff’s claim has crystallised in a judgment or arbitration award. This was because under the rules in the International Convention[3], ship arrest was a judicial process to secure a maritime claim, but it did not include the seizure of a ship in execution or satisfaction of a judgment.

The Court also rejected this submission and found that an unsatisfied arbitral award was no bar to a cause of action in rem. The Court again referred to the decision in The Rena K case and held that if a plaintiff was entitled to pursue its in rem claim notwithstanding the existence of an arbitral award, he must be entitled to invoke the admiralty jurisdiction of the Court to arrest a vessel as security for the in rem claim.

Implications
It is well established that the Hong Kong Court does not have admiralty jurisdiction to enforce an arbitration award, as it does not fall within one of the 18 classes of claim under section 12A of the Ordinance. This means a claimant cannot arrest a respondent’s vessel in Hong for the purpose of enforcing an arbitration award. 

By bringing a claim under section 12A(2)(h) of the Ordinance, the Plaintiff in the ALAS case has tactfully achieved its ultimate purpose to have the Vessel arrested as security for its claim against the Defendants.  In other words, as long as the claimants can formulate their claim within one of the 18 classes of claim under section 12A of the Ordinance, the claimants may invoke the Hong Kong Court’s admiralty jurisdiction and have the respondents’ vessel arrested despite their claim has already been crystallised in an arbitral award.

However, the situation in the ALAS case would be completely different if the Plaintiff has obtained a judgment in London instead of an arbitral award for its claim.  Section 5(1) of the Foreign Judgments (Restriction on Recognition and Enforcement) Ordinance, (Cap. 46) provides that “No proceedings may be brought by a person in Hong Kong on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court of an overseas country, unless that judgment is not enforceable or entitled to recognition in Hong Kong.”  This means the Plaintiff will be barred from invoking the Hong Kong Court’s admiralty jurisdiction and have the Vessel arrested if its claim has already been determined in a foreign court proceedings. The ALAS case again demonstrates why arbitration is always preferred for cross-border disputes.  
 

[1]     Unreported, HCAJ 241/2009 [2]     The Rena K [1979] QB 337 [3]     Article 1(2) of the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships 1952

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.