Ship arrest is one of several measures available to creditors in Russia. In general, asset arrests may be of three types:
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A preliminary arrest is used to secure a claim which has not yet been filed in court - this is the meaning of the term 'arrest' in the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-going Ships 1952;
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A security arrest is used in connection with proceedings that have already gone to court in order to simplify the enforcement of a future court ruling; and
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An enforcement arrest is used to enforce a judgment, award or other court ruling.
Codes and Conventions
Russia signed the 1952 convention at the end of 1998; the convention came into force in Russia on October 29 1999. Article 15 of the Russian Constitution provides that, in the event of a conflict of law between the provisions of national legislation and international treaties, the latter will prevail.
The general rules on ship arrest are covered by the Merchant Shipping Code. Section 23 of the code is based on the rules of the International Convention on Arrest of Ships 1999, and in this respect differs fr om the rules of the 1952 convention. Ships flying the Russian flag may be arrested:
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within Russian territorial waters in accordance with the rules of the code;
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within the territorial waters of states which are signatories to the 1952 convention; and
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within the territorial waters of states which are not signatories to the 1952 convention if the national legislation of the arresting state so permits.
If a ship to be arrested is flying the Russian flag or the flag of a state which is a signatory to the 1952 convention, it will be arrested in accordance with the rules of the convention, which takes precedence over the national legislation. If it is flying the flag of a state which is not a signatory to the convention, it will be arrested in accordance with the rules of the code.
The procedural requirements for arrest are found in the Arbitration Procedure Code, which covers both preliminary and security arrest, and the Civil Procedure Code, which covers security arrest only. The main difference between the codes is that the former applies mainly to claims brought by or against legal entities, whereas the latter applies mainly to claims brought by and against individuals. However, case law has demonstrated that an individual may place a ship under preliminary arrest, although this will inevitably lead to further procedural complications.
The application of the codes is subject to the specific rules of the Merchant Shipping Code, as Russian law requires that regulations which cover a specific area of law take precedence over the basic regulations which cover its general principles.
Although court practice does not have the same absolute validity as a source of law, recommendations and instructions issued by the High Court of Arbitration and the Supreme Court regarding the application of legal regulations must be followed by the lower courts.
Claims
A claimant can arrest a ship if there are reasonable and demonstrable doubts about the enforcement of a future court decision - including enforcement applied for in foreign countries - or if the claimant risks incurring substantial damages. A claimant must support its reasons for arrest with evidence or risk the rejection of the application. For example, a claimant may show that the company which owns the ship to be arrested is a 'one-ship company' and has no other assets, or that there is a possibility that the defendant will sell its property, making it impossible to satisfy a future court decision. The High Court of Arbitration has confirmed that this principle applies to all property, including ships.
A claimant wishing to put a ship under preliminary arrest must have a maritime claim against the defendant. Under the rules of the Merchant Shipping Code, ships may be arrested in respect of maritime claims only, and case law confirms that security and preliminary arrests are valid only in respect of maritime claims. The list of maritime claims set out in Article 389 of the code is based on the list in the 1999 convention and includes claims arising from:
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loss or damage caused by the operation of the ship;
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loss of life or personal injury - whether occurring on land or at sea - in direct connection with the operation of the ship;
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salvage operations or salvage agreements;
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expenses relating to measures taken to prevent or minimize damage, including damage to the environment, if such a claim arises out of an international treaty, law or other agreement, as well as damage caused by such measures;
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costs or expenses relating to the raising, removal or destruction of a sunken ship or its cargo;
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an agreement relating to the carriage of goods or passengers;
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loss of or damage to goods (including luggage);
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general average;
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towage;
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pilotage;
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the supply of goods, materials, provisions, bunkers or equipment (including containers) for the operation or maintenance of the ship;
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construction, reconstruction, repair or conversion of the ship;
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port and canal dues and other waterway charges;
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wages and other remuneration due to the master or other crew members in respect of their employment on the ship, including the cost of repatriation and social insurance contributions payable on their behalf;
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insurance premiums (including mutual insurance calls) payable by or on behalf of the shipowner or demise charterer;
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commissions, brokerages or agency fees payable by or on behalf of the shipowner or demise charterer;
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other disbursements incurred in connection with the ship;
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a dispute regarding the ownership or possession of the ship;
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a dispute between co-owners of the ship regarding its use;
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a dispute arising out of a contract for the sale of the ship; and
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a registered mortgage or charge of the same nature on the ship.
Arrest may be applied for in respect of the ship in question or a sister ship. However, associated ship arrest is not permitted under Russian law.
Article 390 of the Merchant Shipping Code provides that a ship may be arrested if:
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the claim is secured by a maritime lien arising under Russian law - Russia is a signatory to the Maritime Liens and Mortgages Convention 1993;
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the claim is based on an hypotheque or duly registered charge of the same nature on the ship;
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the claim relates to the ownership or possession of the ship; or
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the claim is not covered by the above, but the owner or bareboat charterer of the ship at the time the claim arose is liable for the claim and is the owner or bareboat charterer of the ship when the arrest is effected.
Other ships can be arrested if the owner of the ship at the time of the arrest is liable for the maritime claim and, at the time the claim arose, was the owner, demise charterer, time charterer or voyage charterer of the ship. The only exception to this is an arrest in connection with a claim arising out of ownership or possession of a ship.
Courts
Article 388 of the Merchant Shipping Code provides that arrest may be placed on a ship by:
A party with a valid maritime claim must decide which court to apply to. The decision will depend on the type of claim. Civil courts deal with 'personal' claims (eg, claims arising out of the carriage of passengers or luggage, or relating to unpaid crew wages, loss of life or personal injury). A claim arising out of relations between legal entities is dealt with by an arbitration court. Claims arising out of matters related exclusively to shipping (eg, the carriage of goods and passengers, collisions, general average, towage and the sale and purchase of ships) may be referred to the Maritime Arbitration Commission if the parties so agree, in which case a party may apply to the chairman of the commission for the arrest of a ship. Although there are no explicit provisions on the point, it is assumed that this applies to preliminary agreements evidenced by contract (eg, a charterparty or towage agreement) as well as agreements reached after an accident (eg, in respect of a collision, salvage or cargo claim). The point remains untested, but it is thought that an application for arrest would be dismissed if an agreement to refer the subject claim to the commission could not be evidenced.
The Merchant Shipping Code does not include rules on territorial jurisdiction; the rules of the appropriate procedural codes apply. A specific rule governs security arrest. Article 90 of the Arbitration Procedure Code provides that applications for security measures can be made to an arbitration court at the claimant's domicile (ie, place of company registration) or the place where the defendant's assets are located. Alternatively, the parties may agree on an arbitral institution as a forum for the consideration of the claim.
The rules on preliminary arrest in Article 99 of the Arbitration Procedural Code are slightly different. An arrest may be applied for at an arbitration court in the place where:
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the claimant is domiciled (ie, the place of company registration);
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the defendant's assets or funds are located; or
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the infringement of rights took place.
Court practice has established that the court to which the claimant applies may reject the application if it considers that, subject to territorial jurisdiction, security measures would be more effective if an application were made to a different court. In assessing this possibility, the court will consider:
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the type of claim to be secured;
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the type of security measures demanded;
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the prospects of executing such measures within the jurisdiction of the court; and
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the time required for execution.
For the purposes of this assessment, 'the location of the ship' is taken to mean its location at the time of arrest, not its port of registration.
The most practical way to secure an arrest is to apply for the arrest of a ship at a court with territorial jurisdiction over the ship's location at the time of the arrest. This will simplify the execution of the arrest ruling and save time. In certain situations it may be more convenient to apply to the court at the claimant's principal place of business, (eg, if the ship's location is unknown), but such applications are more usually made in the case of assets other than ships.
As civil courts do not regulate preliminary arrest and deal with security arrest only, claimants will normally file a claim at a civil court: an application for arrest may be made at the same time or later. Article 28 of the Civil Procedure Code sets out the general rule that a claim must be filed with a court in the defendant's domicile. Article 29 gives the claimant the right to choose the jurisdiction. Therefore, claims arising out of personal injury or loss of life may be filed at the court of the claimant's domicile, while claims arising out of collision and salvage may be filed at a court which has jurisdiction over the place where a ship is located or registered.
However, the Merchant Shipping Code allows for the preliminary arrest of ships in respect of certain maritime claims which can be filed by an individual at a civil court, such as those arising out of personal injury, loss of life or unpaid wages. For the purposes of such a claim, the Merchant Shipping Code takes precedence over the Civil Procedure Code and the 1952 convention takes precedence over national legislation - it could therefore be argued that preliminary arrest is possible. However, some judges might reject such an application on the grounds that there are no procedural rules in the Civil Procedure Code which regulate preliminary arrest. Such a rejection might reasonably be appealed, as previous cases have shown that a ship may be arrested in respect of such claims in the country in which it is located.
The maritime arbitration institutions include the Maritime Arbitration Commission, which is based in Moscow. The regulations allow the commission's chairman to arrest a ship or cargo in a Russian port at the request of a claimant, but only if the parties have previously agreed to refer claims to the commission. It is not clear whether such an arrest may be made before the claim is filed or only after, as the rules of the Arbitration Procedure Code do not apply to the commission. However, there is reason to suppose that an arrest may be applied for once a claim has been filed, at which point the chairperson may make an arrest ruling.
The arrest application may also be filed at the arbitration court of the region where the arbitration institution is located. In light of the present law, it would seem more practical to apply to the appropriate arbitration court rather than to the commission itself. There is no special procedure for the execution of an arrest ruling by the arbitration institution. It is not even clear whether rulings other than awards are subject to the general execution procedure; the Arbitration Procedure Code contains rules regarding the execution of awards issued by arbitration institutions, but makes no mention of other acts that may be issued. If not executed voluntarily, an arbitration award may be enforced following an application to the arbitration court at the defendant's domicile or, if that is unknown, at the place where the defendant's assets are located. Such an application must be considered by a judge. If the application is successful, a so-called 'execution list' is issued, to which the general execution procedure then applies. This procedure takes far longer than an application to an arbitration court.
Formalities of Security and Preliminary Arrests
Security arrest is permissible under both the Arbitration Procedure Code and Civil Procedure Code (Sections 8 and 13 respectively); the rules are very similar on this point.
The Civil Procedure Code permits an arrest if the enforcement of a judgment would otherwise be difficult or impossible. The Arbitration Procedure Code adds that an arrest may also be made in order to prevent substantial damages to the claimant.
An application for the security arrest of a ship may be filed with the court at the same time as the claim or at any point thereafter until judgment is delivered. The application must include:
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the name of the court;
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the names and domiciles of the claimant and defendant;
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the subject and amount of the claim;
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the reasons for filing the arrest application;
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the security measure applied for (ie, ship arrest); and
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a list of documents attached to the application.
Information regarding counter-security may be submitted at the claimant's discretion. An arrest application may also form part of the points of claim.
The application should be signed by the claimant or its legal representative; in the latter case the document confirming the status and powers of the representative should be attached to the application. An individual may be represented by anyone acting with authority (eg, a party with power of attorney or a solicitor under contract).
A preliminary arrest may be applied for before the claim is filed at court. The arrest application must contain the same information and meet the same requirements as an application for security arrest. The applicant must confirm that it has a maritime claim against the ship and demonstrate either that (i) enforcement of judgement would become difficult or impossible without the preliminary arrest, or (ii) the arrest is required in order to prevent substantial damages to the claimant.
The application must be supported by documentary evidence. In the case of documents in a foreign language, the claimant may supply originals or certified translations. The official documents should bear an apostille, if applicable.
An arrest application is considered by the judge - ex parte - on the day of filing in a civil court and no later than the next day in an arbitration court. The arrest ruling should be sent to the parties no later than the day after issue; if the ruling rejects the application, it is sent to the applicant only.
Counter-security
An arbitration court may, at the defendant's request or its own discretion, require the applicant to provide counter-security to a value not less than 50% of the claim amount, but not exceeding the claim amount plus interest.
This rule is problematic. An applicant normally submits an arrest application directly to court without informing the defendant of its intention. Therefore, the defendant is normally unaware of the application and has no opportunity to apply for counter-security, especially as arrest applications are considered the day after filing and ex parte. If an arrest application is unsuccessful, the defendant may never know that an application was filed. In practice, therefore, the rule works only in cases where the judge asks for counter-security to be provided and specifies the period for provision, which may not exceed 15 days. The judge will not consider the arrest application until counter-security is provided and the appropriate documentation is presented. If counter-security is not provided, the application may be rejected. If security is provided by the defendant before or at the time of consideration of the arrest application, the arrest application will be rejected or security measures discharged.
Counter-security may be provided in the form of:
The Arbitration Procedure Code provides that a judge cannot reject an application for security arrest if counter-security is provided. In practice, however, an application may be rejected if no evidence is provided to justify doubts about the enforcement of a future court decision or the possibility of substantial damages to the claimant. An opinion on the question is awaited from the High Court of Arbitration.
The provision of counter-security to a value equal to the claim is obligatory for preliminary arrests. The document confirming the provision of counter-security should be attached to the application; otherwise, the court will set the application aside and request that the applicant provide such evidence within a prescribed period. The Civil Procedure Code is silent on the question of counter-security, mainly because claims considered under its provisions are usually personal. In addition, the Civil Procedure Code does not directly provide for preliminary arrest. Therefore, applications made to civil courts are not subject to payment of security, even at the judge's discretion.
Points of Claim and Execution
A preliminary arrest application should state the period within which the points of claim should be filed with the appropriate court (ie, the court with jurisdiction to consider such a claim). This period may not exceed 15 days. If the appropriate court is not the one which orders the arrest, information on filing the points of claim should be presented to the arresting court.
The arrest will be discharged unless points of claim are filed with the court within the prescribed period. The Arbitration Procedure Code states that the arrest is to be discharged by the court, but in practice the court will not act without an application from a party, which may be filed by either the defendant or the claimant. From the moment at which points of claim are filed, the preliminary arrest becomes a security arrest. Once considered, an arrest ruling is issued by the court together with the so-called 'execution list'. An arrest ruling may be appealed, but lodging an appeal does not suspend the arrest procedure.
The execution of an arrest ruling is carried out in the same manner as the enforcement of a court judgment. The execution list should be passed to the court bailiff. Although the procedural rules require that the court send such a ruling to the bailiff, applicant and defendant, the applicant often takes responsibility for delivering the ruling to the bailiff. The bailiff starts the procedure by issuing an enforcement ruling, in accordance with which the arrest is effected upon the ship. The bailiff draws up an act of arrest and a distraint act, which should be signed by the defendant's representative (usually the master of the ship) and two witnesses. The representative and witnesses should be present on board the ship during the arrest procedure. The bailiff's actions can be appealed within 10 days to the court which issued the arrest ruling.
Having effected the arrest, the bailiff advises the customs and port authorities. The ship may be asked to move to an idle berth so as not to hinder navigation at port. The question of which party is to bear port expenses while the ship is under arrest is unanswered in Russian law.
A foreign arrest ruling cannot be executed in Russia, as such a ruling is not regarded as a definitive court action.
Re-arrest, Multiple Arrest and Release
The rules of the Merchant Shipping Code in respect of re-arrest and multiple arrest echo those of the 1999 convention. Re-arrest and multiple arrest are possible wh ere the Merchant Shipping Code applies to the arrest of the ship.
Re-arrest and multiple arrest are permissible if:
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the nature or amount of the security is inadequate;
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the party which has provided the security is unable or is likely to be unable to fulfil some or all of the obligations; or
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the ship arrested or the security previously provided was released either (i) on the application or with the consent of the claimant acting on reasonable grounds, or (ii) because the claimant could not by reasonable means prevent the release.
The ship will be released from arrest upon presentation of security or, in the words of the procedural codes, "when one security measure is replaced by another".
Both codes require that payment of the claim amount be made to the court deposit in order to discharge an arrest. Strictly speaking, there are two options. A party may either (i) file an application to arrange for the arrest of a different asset (eg, funds in a bank account), or (ii) arrange for the deposit to be paid to the court. The document evidencing provision of security should be delivered to the court by the defendant, together with an application to lift the arrest.
Only payment of the deposit will secure release. Other forms of security (eg, bank guarantees and protection and indemnity clubs' undertakings) do not satisfy the procedural requirements for lifting arrest and may be provided for the purpose only if agreement is reached with the claimant to this effect; the claimant must then apply to the court to lift the arrest on the grounds of an agreement between the parties. Such a situation is not directly covered by the codes, but if the court considers the agreement to be an 'amicable agreement' in the legal sense, it should be checked and affirmed by the court before action is undertaken pursuant to it. If the amount of the security is not agreed by the parties, the court must rule on the point; the amount may not exceed the value of the ship.
The ship may also be released from arrest upon cancellation of the arrest ruling by a higher court, or following enforcement of a court judgment by means other than the judicial sale of the ship.
Once the security has been presented, the court may issue a release ruling, which is delivered to the bailiff. The bailiff in turn issues an act of release from arrest and advises the port authorities and customs that the ship is free to sail.
Wrongful Arrest
Both procedural codes provide for compensation in case of wrongful arrest. An arrest is considered wrongful if the court dismisses the claim on its merits. Damages may also be awarded to the defendant if points of claim are not filed with the court within the prescribed period following a preliminary arrest. This point is as yet untested in court; it is assumed that a claim for damages must be filed with the appropriate court in line with general procedural requirements.
Only proven damages may be recovered. For example, it may be very difficult to prove damages such as loss of hire if a ship is arrested between two voyages, but easier to make such a case if the ship is off hire for the period of arrest or the laytime is exceeded as a result of arrest; such grounds should be given in the appropriate statements.
Comment
Although the legal principles surrounding ship arrest have been tested in the Russian courts for over six years, procedural obstacles still make it a difficult exercise.
