Arresting Vessels for Security
Whilst Taiwan remains one of the most convenient places to perform a ship arrest, there are no laws in this country establishing an admiralty jurisdiction of the court, and for that matter, no case law and very little legislation relating specifically to ship arrest. It would therefore be interesting to see how the Taiwan courts deal with the arrest and subsequent release of a vessel. This article will point out the features of ship arrest/release that are distinctive to Taiwan as well as the major areas of problems that parties would face and should take particular note of.
There are very little laws in Taiwan specially governing ship arrest. All arrest applications concerning ocean-going vessels are dealt with by Articles 522 – 533 of the R.O.C. Civil Procedure Code and are viewed as a general application for a mareva injunction against assets belonging to a potential defendant for security.
Fundamentally, there must be the satisfaction of two requirements: (i) Proof of a prima facie case against the potential defendant; and (ii) Payment of a security bond into court as a refundable deposit pending the outcome of the dispute with that defendant.
The filing of the security and counter security is the most vital step in all applications concerning the arrest and release of vessels under Taiwan jurisdiction.
Arrest applicants should know that unlike most common law jurisdictions (e.g. the U.K., Singapore, or Hong Kong) where an application for ship arrest can proceed initially as an action in rem, all arrest applications before the Taiwan courts are made on the basis of an action in personam by the applicant against the owner of the vessel for interlocutory relief. There is no need to serve the writ on the shipowner at the time of the arrest until the commencement of separate proceedings for the adjudication of the dispute much later in time. Since the arrest is based on an in personam action, the arrest applicant would be able to make the arrest widely for various claims. This would include all contractual disputes between the applicant and the shipowner (e.g. bunker, repair, crew, carriage or charterparty disputes) or all claims in torts. Taiwan law does not impose any restrictions on the grounds of the arrest as long as the applicant is able to show prima facie proof of the existence of a debt.
Cash would be the recommended security for arrest applications simply because much is left to the court’s discretion on the issue of a “suitable security” whereas there can be no rejection if cash is used. Furthermore, most arrest applications are done under great constraints in time and non-predictable issues can hardly be tolerated. Cash is therefore widely used for almost all arrest applications in Taiwan for its certainty. The problem arising from the use of cash is that it may take considerable time (sometimes, days) for a foreign applicant to prepare and remit cash in a Taiwan account for use at the courts and this delay would result in the vessel sailing away. Arrest applicants must therefore be warned that advance preparations must be made for funds to be quickly remitted into Taiwan in order for an arrest to be successful here.
In deciding how much security is required for the arrest, a judge hearing the application will most of the time consider the one-third rule (this principle did not arise from any legislation or case law but through common practice). Under this principle, the courts will usually order the amount of the security filed for the arrest to be one-third of the claim amount pleaded.
However there is a trick to avoid paying substantial sums of money into court as security by claiming for a reduced amount of damages in the pleadings. This can be done because: (i) applications for the arrest and the main action to adjudicate the dispute are viewed as separate proceedings and are heard by different judges; and, (ii) the claim for damages can be altered at any time before the closing of the proceedings. By doing so, an applicant with a claim of US$3 million, for example, can therefore escape the one third rule by altering his claim to US$300,000 instead. The risk however would be that the applicant would be left with a reduced security in comparison to the actual original claim that he had intended.
Shipowners and their underwriters or P&I Club negotiating a claim with an opponent should take particular note that the Taiwan legal system does not permit the filing of a caveat against ship arrest as a precautionary measure. If a claimant makes the arrest in Taiwan, there is certainty that the vessel will be withheld in its port of call for a particular period of time depending on how long the entire procedure for release can be completed. There is completely no way to pre-empt any arrests expected to take place here.
Another important thing that ship interests should be aware would be the fact that there are no duty registrars available at any of the Taiwan courts during the weekends to hear urgent applications. This would mean that if a vessel is arrested on a Friday afternoon just before close of office hours, the ship would remain held in harbour at least for the entire duration of the weekend until the release application can be performed and completed the following week. On the other hand, the non-availability of judges to handle applications out of office hours would also result in the inconvenience for claimants seeking to perform arrests. At the end of the day if shipowners are able to plan their vessels to arrive into harbour after midnight following a Friday evening, and, leave harbour before midnight prior to a Monday morning, they would have a very high chance of avoiding a possible arrest in Taiwan.
Finally, shipowners, and their P&I Clubs in particular, should always keep in mind that the rules here prohibit the use of Club Letters of Undertaking as security for the release of a vessel (known as a “counter security” here). The Taiwan courts would not entertain any applications to argue on the sufficiency of any certain Club LOU as good and adequate counter security for the release of the ship. The law simply does not allow this. What the law allows as counter security would, according to Article 114(1) of the R.O.C. Compulsory Enforcement Act be (i) cash; (ii) government bonds; (iii) bank guarantees; (iv) bank certificates of deposit; and (v) guarantees issued by insurers.
IF YOU CONSIDERING ARRESTING a vessel in Taiwan to obtain a security for your claim and would like to know more details or in the event you simply just have certain questions in mind before proceeding further, please contact the writer of this Article who in all circumstances would be happy to assist.