One fundamental aspect of claims involving ships is the ability of the claimants to arrest the ships as prejudgement security for their claims. Order 1 Rule 5 of the Admiralty Jurisdiction Procedure Rules, 2011 defines arrest as “the detention of ship by judicial process to secure a maritime claim.” The arrest of ships through a court order as a pre-judgment security to satisfy any judgment the claimant may obtain after the trial of its claim is at the centre of admiralty actions and it is one of the features of admiralty actions, which distinguishes admiralty actions from other civil causes and matters. This legal regime for the arrest of ships as pre-judgement security is essential for the successful prosecution of maritime claims without the possibility of arresting ships as security for maritime claims, the owner of a ship may, on becoming aware that a law suit, remove the ship from the territorial waters of the country where the suit was filed, thereby rendering the enforcement of any judgment that may be given against the defendant or the ship very difficult, if not impossible.
While the law provides for the arrest of ships as security for maritime claims, the law also empowers the court to award damages in favour of the ship owner if the arrest of the ship by the claimant was unwarranted or needless. The arrest of a ship as pre-judgment security for a maritime claim would be wrongful if the claimant obtains the arrest order on insufficient grounds, or judgement is given in the suit against the claimant or the suit is dismissed.
In OAN OVERSEAS AGENCY NIGERIA LTD V. BRONWEN ENERGY TRADING LTD & ORS1 , the Supreme Court examines the appropriate party to claim damages for the wrongful arrest and detention of a ship to secure a maritime claim.
1 (2022) 11 NWLR (PT. 1842) 489 S.C
FACTS OF THE CASE:
The Appellant commenced this suit at the Federal High Court in Lagos against the Respondents claiming the sum of US$1,986,939.97 as outstanding debt against the 1st Respondent for port and cargo dues, ships charges and agency fees, and interest thereon. At the commencement of the suit, the Appellant also filed a Motion Ex-parte for an order of arrest of the vessel “MT Ocean Success” and the cargo of 15,300 MT of Premium Motor Spirit on board the said vessel being the only known assets of the 1st Respondent within jurisdiction. The Federal High Court granted the order for the arrest of the vessel and its cargo pending the provision of a bank guarantee from a reputable bank in Nigeria by the 1st Respondent to secure the claims of the Appellant. The 1st Respondent applied to the Court for the release of the vessel and its cargo and provided the requested bank guarantee from Ecobank Nigeria Plc. On this basis, the Federal High Court ordered the release of both the vessel and its cargo which had been in detention for 5 days before the Federal High Court’s order. The 1st Respondent subsequently filed its statement of defence and counterclaimed for the sum of US$400,000.00 being charter costs for the 5 days the ship was in detention at the rate of US$80,000.00 per day. The 1st Respondent’s counter-claim was based on the argument that the arrest of the ship was wrongful as the 1st Respondent was neither the owner nor the demise charterer2 of the ship at the time the order of arrest was made.
The Federal High Court, in its final judgement, granted the claims of the Appellant and dismissed the 1st Respondent’s counter-claim. Dissatisfied with the judgment, the 1st Respondent appealed to the Court of Appeal and the Court of Appeal affirmed the judgement of the Federal High Court and also awarded the sum of US$400,000.00 in favour of the 1st Respondent on the basis that the arrest of the vessel was wrongful. The Appellant appealed to the Supreme Court against the decision of the Court of Appeal awarding US$400.000.00 in favour of the 1st Respondent while the 1st Respondent cross-appealed against the part of the decision of the Court of Appeal sustaining the claim of the Appellant. One of the issues submitted for the determination of the Supreme Court was whether the Court of Appeal was right in awarding the sum of US$400,000.00 in favour of the 1st Respondent as charter cost when the evidence on record revealed that the 1st Respondent was neither demise charterer nor owner of the vessel.
The Appellant submitted that the Court of Appeal erred in awarding the sum of US$400,000.00 in favour of the 1st Respondent when it was found as a fact that the 1st Respondent was not the owner of the arrested vessel or its demise charterer. According to the Appellant, the correct legal position is that only owners of a ship or demise charterers can sue and be sued for loss or damages arising from the use of the ship or for wrongful arrest and detention of the ship. The 1st Respondent contended that the arrest and detention of the vessel was wrongful and baseless in law, and that the Appellant failed to establish the ownership of the vessel by the 1st respondent to justify the arrest and detention of the vessel and as such, Appellant became liable for the costs incurred by the 1st Respondent as a result of the detention and release of the vessel. The 1st Respondent further argued that other persons than the ship owner can sue for damages in respect of loss incurred for action of a third party on the ship. The Supreme Court set aside the award of US$400,000.00 made by the Court of Appeal in favour of the 1st Respondent on the basis that the appropriate person to claim for damages for wrongful arrest of a vessel is the ship owner or the demise charterer of the ship.
2 Demise charters are those by which, in return for payment of hire, possession of the chartered ship is given to the charterers, who provide crew and all supplies, pay all running costs and undertake the responsibility of shipowner to those whose goods are carried on the vessel.
BASIS OF THE COURT’S DECISION
In reaching its decision, the Supreme Court referred to section 13(1) of the Admiralty Jurisdiction Act which empowers the court to award damages against a maritime claimant who secures the arrest of a vessel without good cause. The statutory provision provides that where a party “unreasonably and without good cause obtains the arrest of a ship”, that party shall be liable in damages to the party who has suffered loss or damage as a direct result of such arrest. According to the Court, for a claim for damages for wrongful arrest to be successful, the maritime claimant must have secured the arrest of the ship in bad faith or gross negligence. According to the Court, “What seems glaring from the facts is that the 1st Respondent was in possession of the vessel at the relevant time; the 1st Respondent was also the owner of the cargo of Premium Motor Spirit on board the vessel which cargo was also arrested by Order of Court. Therefore, there were no facts upon which the Court of Appeal could infer unreasonableness and lack of good cause for the arrest of both the vessel and the cargo on board the vessel.… it is settled law that for any case of unjustified arrest of a ship to give rise to a successful action in damages there must be proof of either bad faith or gross negligence.”
The Supreme Court relied on EastwindTransport (Nig.) Ltd. v. Comet Merchant Bank Limited3 and held that the Court of Appeal erred in awarding US$400,000.00 in favour of the 1st Respondent when it was found as a fact that the 1 st Respondent was not the owner of the arrested vessel. The Court stated that “This is because if it is the case that the 1st Respondent was neither owner nor charterer of the arrested vessel, the question this court ought to ask is whether the 1st Respondent has the legal capacity in the circumstance to maintain an action for the alleged wrongful arrest. This is because it is the law that only a demise charterer or the owner of an arrested vessel that possesses the requisite legal capacity to maintain an action for wrongful arrest.” The Supreme Court concluded by stating that assuming that the 1st Respondent is the owner or demise charterer of the arrested vessel, and it has suffered damage in the circumstance, the law still requires proof by evidence of the claim for US$400,000.00 being the alleged daily charter cost, and that the Court of Appeal ought to have made an enquiry into how the 1st Respondent arrived at the cost of US$80,000.00 per day which made a total of US$400,000.00 for five days before making the award.
3 (1995-1997) Vol. 4 NSC (Nigerian Shipping Cases) pages 85.
The arrest of ship is very critical in maritime litigations as maritime claimants with legitimate claims may not be able to enforce any judgment unless they are able to arrest the ship belonging to the defendants a security for their claims. Maritime claimant, ship owners, charterers and other shipping interests must therefore endeavour to understand the challenges and legal complexities that usually arise in the course of arresting a ship. The party that secures the arrest of a vessel must be ready to justify the arrest, otherwise the ship owner or the demise charterer will be entitled to damages for wrongful arrest. From the decision under review, it is only the ship owner or the demise charterer of a ship that can successfully claim damages for wrongful arrest of the vessel under Nigerian law. The procedure for arresting a vessel to secure a maritime claim is very delicate, and it is essential that players in the maritime industry are well aware of the possible issues that may arise in pursuing or defending such actions.