"Fearless" but extravagant costs

The recent case of Fearless I [2013] HKEC 1656 decides that a party who has no valid claim in rem against a vessel but has nonetheless arrested her cannot be reimbursed out of the proceeds of sale for its own costs and expenses paid to the Chief Bailiff for the arrest and maintenance of the vessel.

That might seem an obvious proposition but is somewhat disappointing for the original arresting party when subsequent arrests of the vessel by other parties are assisted by the original arrest.

In Fearless I, an intervener (the “intervener") was an assignee of rights and issued two admiralty writs in rem against two vessels (as opposed to in personam against the defendant shipowner). The manager of both vessels did likewise on the same day. The intervener also obtained warrants of arrest against both vessels. The manager also obtained a warrant of arrest against one of the vessels after the intervener's warrants.

The intervener's writs in rem and warrants of arrest were set aside by the Court of First Instance in related proceedings. In short, the court held that the intervener's rights as an assignee (in contrast to rights of subrogation) did not come within the High Court's admiralty jurisdiction, pursuant to Section 12A(2) of the High Court Ordinance (Cap. 4). The intervener should have proceeded with a writ in personam.

Accordingly, Fearless I was ordered to be released, only to be arrested by other interested parties and, ultimately, sold. On the other interested parties' costs and expenses being ordered to paid out of the proceeds of sale, the intervener (having done much of the early ground work for the arrest of the vessels) applied for its costs and expenses on the basis that:

"…it was the first arresting party and was a producer of the sale proceeds for the general benefit of all creditors".

That application was dismissed. In the apparent absence of authority, the court described as "extravagant" the proposition that a wrongful arrestor was entitled to its costs and expenses in arresting and maintaining a vessel, provided other creditors derived some de facto benefit from the arrest. The court observed:

"The most which could be said of (the intervener) was that it had held up the vessels within the jurisdiction, rendering them available for other legitimate in rem claimants to arrest them."

It will be interesting to see if the intervener appeals and, with some fearless advocacy, seeks to make law. The amount of the costs concerned suggests that discretion may be the better part of valour (re Nathan Ross (whaling ship) [1919-23] Sing. Reports).

- Gary Yin, Partner, Smyth & Co in association with RPC