Arbitration And Ship Arrest In Hong Kong Post-Award Arrest In Handytankers KS v. Owners Of The Alas

Keywords: ship arrest, Hong Kong, arbitration awards

The maritime industry has traditionally favoured arbitration as a method of dispute resolution. Disputes under charterparties, shipbuilding contracts, ship management and sale & purchase agreements will typically be subject to arbitration. Given the international character of shipping, obtaining financial security for arbitration claims through the arrest of ships has always been of vital importance.

As would be expected of a leading maritime centre, Hong Kong is supportive of arbitration, with strong legal institutions and a favourable statutory framework. Arbitration awards made in countries that are parties to the New York Convention are readily enforceable, and any court proceedings brought in breach of an arbitration agreement are subject to a mandatory stay. In addition, section 20(6) of Hong Kong's Arbitration Ordinance provides that the court may order that the ship arrested, or the security given, be retained for the satisfaction of any award made in the arbitration. The court will so order if there is a risk that the award may not be satisfied due to the defendant shipowner's inability or refusal to pay.

Generally, a claimant will try to obtain security for its claim at the outset of a dispute, as there is little point incurring costs in proceeding to an 'empty' judgment or award which cannot be enforced. Circumstances may however arise where an award is obtained at an early stage, before security can be obtained, perhaps because the ship has not yet called in a favourable arrest jurisdiction such as Hong Kong. The availability of ship arrest post-award was the subject of the recent judgment in Handytankers KS v. Owners and/or Demise Charterers of Alas [2014] HKEC 1206.

In the Alas case the Plaintiff applied for a warrant of arrest of the vessel in Hong Kong after it had obtained a London arbitral award in relation to unpaid hire. In so doing, the Plaintiff commenced in rem proceedings (i.e., against the ship) in respect of the underlying charterparty claim under section 12A(2)(h) of the High Court Ordinance.

Modelled on English law, the High Court Ordinance governs the admiralty jurisdiction relating to arrest. Section 12A(2) of the Ordinance lists 18 classes of claims in respect of which the Hong Kong court can exercise its admiralty jurisdiction, encompassing maritime claims such as charterparty, crew wages, salvage, and necessaries, etc. However, a claim on an arbitration...