The Law of Ship Arrest In Malaysia
INTRODUCTION
Background on Malaysian Ports
Malaysia is located in the lower region of Southeast Asia, sharing maritime borders with Thailand, Singapore and Indonesia. Since the first millennium A.D., important commercial trading centres have existed along the coast of the Straits of Malacca, contributing to the development of Malaysia as a maritime trading nation.
Out of seven major container ports, two ports, Port Klang and Port of Tanjung Pelepas are listed as top fifty world container ports in terms of trading volume by the World Shipping Council.
Statistics on Vessel Arrests in Malaysia
In recent years, Malaysia is becoming an increasingly popular location for ship arrests. In a short span of two years, the number of warrants of arrest issued more than doubled from 12 in year 2011 to 31 in year 2013.
An upward trend in the number of ship arrests in Malaysia is evident. It is against this context, that it becomes imperative to understand Malaysian admiralty law and the current legal issues relating to ship arrests in Malaysia.
Overview of Admiralty Law in Malaysia
Common Law System
With the advent of English colonial rule in the 19th century, Malaysia adopted the common law system and its admiralty law took root from English law, commencing from the Second Charter of Justice of 1826.
Today, the maritime law in Malaysia is still derived mainly from English law. The main statute which prescribes the admiralty jurisdiction of the Malaysian High Court is the Courts of Judicature Act 1964 (“CJA 1964”). Under section 24(b) of the CJA 1964, Malaysian High Court has the same jurisdiction and authority in relation to matters of admiralty as is had by the High Court of Justice in England under the Supreme Court Act of 1981, which is now referred to as the Senior Courts Act 1981.
The Admiralty Court
For a nation like Malaysia which is strategically located along the world’s busiest shipping lanes and in waters hosting many economic activities, one of the ingredients to become a competitive maritime nation would be to have a specialist court to hear admiralty disputes.
In 2010, the Malaysian Admiralty Court was set up within the Commercial Division of the High Court of Malaya in Kuala Lumpur as the centralised forum for adjudicating maritime disputes. Assisted by lawyers specialized in admiralty and maritime matters, the Admiralty Court has displayed efficiency in its disposal of maritime disputes and hearings of ship arrest applications.
The Admiralty Court in Kuala Lumpur operates as a one-stop centre to provide easy access to information on the arrest, release and sale of the vessels. The Admiralty Court maintain the Registers of Central Admiralty Cause Book, Central Admiralty Caveat Against Arrest Book and Central Admiralty Caveat Against Release Book.
The procedure for admiralty matters to be decided by the Admiralty Court is governed by Order 70 of the Rule of Court 2012 and Practice Directions on admiralty actions.
It is not mandatory to file all admiralty matters in the Admiralty Court as the provisions of the CJA 1964 allow litigants the option of filing at any one of the branches of the High Court of Malaya other than Kuala Lumpur.
THE LAW OF SHIP ARREST
In Malaysia, a vessel may be arrested should the arresting party’s claims fall under any one of the provisions under sections 20(2) of the United Kingdom Supreme Court Act 1981. The list of claims is exhaustive as follows:
a. Claim in respect of possession or ownership of a ship or to the ownership of any share therein;
b. Question arising between co-owners of a ship as to possession, employment or earnings of that ship;
c. Claim in respect of a mortgage of or charge on a ship or any share therein;
d. Claim for damage done and damage received by a ship;
e. Claim for damage done by a ship;
f. Any claim for loss of life or persona injury sustained in consequence of any defect in a ship or in her apparel or equipment, or in consequence of the wrongful act, neglect or default of the owners, charterers or persons in possession or control of a ship or the master or crew of a ship, or any other persons for whose wrongful acts, neglects or defaults the owners, charterers or persons in possession or control of the ship are responsible, being an act, neglect or default in the navigation or management of the ship, in the loading, carriage or discharge of goods on, in or from the ship or in the embarkation, carriage or disembarkation of persons on, in or from the ship;
g. Claim for loss of or damage to goods carried in a ship;
h. Claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship;
i. Claim in the nature of salvage;
j. Claim in the nature of towage of a ship;
k. Claim in the nature of pilotage of a ship;
l. Claim in respect of goods or materials supplied to a ship for her operation or maintenance;
m. Claim in respect of the construction, repair or equipment of a ship or dock charges or dues;
n. Claim by a master or member of the crew of a ship for wages;
o. Claim by a master, ship, charterer or agent in respect of disbursements made on account of a ship;
p. Claim arising out of an act which is or is claimed to be a general average act;
q. Claim arising out of bottomry;
r. Claim for the forfeiture or condemnation of a ship or of goods which are being or have been carried, or have been attempted to be carried, in a ship, or for the restoration of a ship or any such goods after seizure, or for droits of Admiralty.
If the claim is one that falls within section 20(2)(e) to (r) of the UK Supreme Court Act 1981, the arresting party must also satisfy the following requirements in order to arrest the offending ship:
(a) The claim arises in connection with a ship
(b) The person who would be liable on the claim in an action in personam (“the relevant person”) was when the cause of the action arose, the owner or charterer of, or in possession or control of the ship; and
(c) At the time when the action is brought, the relevant person is the beneficial owner of the ship in respect of all the shares in it or the charterer of it under a charter by demise.
Can a Sister Ship or Associated Ship be Arrested?
A ship is an associated ship, where the respective companies which own the “guilty” ship and the “associated” ship, are controlled directly or indirectly by the same person or persons. A sister ship is a more specific concept than association, where the owner of the “guilty” ship, is also the owner of that other ship, known as the “sister ship”.
In Malaysia, a sister ship can be arrested but an associated ship cannot.
Timeframe for Ship Arrest Application
Under usual circumstances, a warrant of arrest can be obtained within 24 to 48 hours.
Following are the procedures required to obtain a warrant of arrest:
a. To commence an ex parte application for a warrant of arrest, an in rem writ must be filed together with the arrest papers.
b. The arresting party needs to carry out a search in the caveat book to ascertain whether there is a caveat against arrest. The presence of a caveat does not prevent the issuance of the warrant but if the Court subsequently finds that the ship has been wrongfully arrested (i.e. without good and sufficient cause), the party who lodged the caveat will be entitled to damages in respect of the losses suffered as a result of the arrest.
c. The court will set a hearing date for the arresting party’s solicitors to obtain the warrant of arrest.
d. Upon being satisfied that the claim is valid and all the documents are in order, the court will grant an Order for Warrant of Arrest.
e. To extract the Warrant of Arrest, the arresting party must pay a deposit of RM15,000.00 to the Court as Sheriff’s Deposit.
The Requirement of Full and Frank Disclosure
To make an ex parte application for ship arrest in Malaysia, there must be full and frank disclosure to the court of all material facts known to the applicant. Failure to make such disclosure may result in the discharge of any order made upon the ex parte application.
Provision of Counter-Security
In Malaysia, there is no requirement for the arresting party to provide counter security to the Court in Malaysia to carry out a ship arrest.
However as mentioned above, the arresting party is required to furnish a sum of RM15,000.00 to the Court as the Sheriff’s deposit. This sum will serve as an initial deposit but all fees, costs and expenses which may be incurred by the Sheriff or on his behalf in respect of the arrest of the vessel and care and custody of it while under arrest shall be borne solely by the arresting party. Upon release of the arrested ship, the remaining amount will be refunded to the arresting party.
Should the expenses incurred during the arrest of vessel exceed the Sheriff’s deposit, the court may request that the arresting party put forward a further deposit.
Provision of Security for Release of Vessel
(a) Procedure
Prolonged detention of a vessel under arrest is likely to incur losses. As such in practice, shipowners will seek to have the vessel released as soon as possible, usually by providing security into court or by settling the arresting party’s claim amicably.
The arresting party will have to file the release papers to the Court to release the arrested ship in the event their claims are settled. The vessel can be released usually within 24 hours upon filing of the release papers. The physical release of the ship is executed by the sheriff.
However, if a caveat against release has been entered against the ship by other party, the ship will not be released. The arresting party will have to file an application to lift the caveat against release.
(b) Forms of Security
Security may take various forms, such as (but not restricted to) bail bonds, letters of undertaking from a profit and indemnity club (“P&I club”) and bank guarantees.
(c) Courts’ Jurisdiction to intervene on provision of security
The position in Malaysia is that when the parties have entered into a consensual private arrangement between themselves, the court cannot invoke express admiralty jurisdiction to intervene and declare invalid or inadequate the security afforded. Even when the security is found to be inadequate, this fact in itself does not warrant judicial interference as the courts abstain from re-writing agreements for parties.
In contrast, when the security is embodied in an order of court, which usually takes the form of a bail bond, the court would have jurisdiction to intervene, pursuant to Rules of the high Court Order 70, rule 15. This is because the power of the court to control and thereby vary or modify security arises from its inherent jurisdiction to prevent any abuse of the process of the court or the use of the court procedure in an oppressive way.
Arresting of Vessels Outside Port Limits
Under Malaysian law, a vessel may be arrested whether within port limits or off port limits so long as she is in Malaysia territorial waters.
According to the Territorial Sea Act 2012, the breath of Malaysia territorial waters is 12 nautical miles from baseline.
It is common for ship to drop anchor in area where the Master believes to be international waters when the ship is in fact in Malaysia territorial waters. This is a very common occurrence in the case of ships anchoring outside the port limits (OPL) in the area around Singapore. Ships usually anchor at OPL Singapore for bunkering, ship to ship transfer operations, tank cleaning exercise etc. It is therefore important to note that as soon as the ship leaves Singapore ports limits, she is entering into either Malaysia territorial waters or Indonesian waters. Shipowners should remind their seamen to be cautious when dropping anchor at OPL Singapore given that the Malaysian authorities have certain requirements with respect to vessels anchoring in Malaysia territorial waters.
Unlike Singapore where ship arrests can only be carried out within port limits, Malaysia courts allow ship arrest to be conducted within their territorial waters which extend beyond port limits.
AMENDMENT TO THE ARBITRATION ACT 2005
The Arbitration Act 2005 (“Arbitration Act”) in Malaysia was amended in 2011 to empower the Court to grant certain interim orders which are related to admiralty proceedings:
Section 10 of the Arbitration Act
Section 10 contains provisions which permit the Court to order that any property arrested, or bail or other security given, be retained as security for the satisfaction of any award that may be given in the arbitration proceedings or to order that a stay of court proceedings be conditional upon equivalent security being provided for the satisfaction of any award that may be given in the arbitration proceedings. This provision applies to an international arbitration even where the seat of arbitration is not in Malaysia.
Section 11 of the Arbitration Act
Section 11 enables the High Court to make interim orders to secure the amount in dispute whether by way of arrest of property or bail or other security pursuant to the admiralty jurisdiction of the High Court. This is in addition to other interim orders which the High Court can grant such as an order to prevent the dissipation of assets pending the outcome of the arbitration proceedings. This provision applies to an international arbitration even where the seat of arbitration is not in Malaysia.
CONCLUSION
Practical Points to Consider Before Ship Arrest
One of the main advantages of ship arrest is that it can serve as a powerful tool to exert pressure on the shipowner to either settle the arresting party’s claim or provide security for the shipowner. A ship under arrest is effectively taken out of operation and cannot generate revenue for the shipowner. Such losses can be considerable depending on how long the ship remains under arrest. Given the sums of money that could be at risk, most shipowners (and, particularly, their Insurers) are unlikely to sit idly as a ship is arrested.
Care should be taken when considering a ship arrest. For maritime claims that do not give rise to maritime liens, it is important to ascertain on the date the in rem action is filed, the ship targeted for arrest belongs to the same owner who is liable for the claim. A change in ownership of the vessel prior to commencement of the in rem action will defeat the claimant’s right to claim.
The majority of maritime claims do not give rise to maritime liens. Claims that give rise to maritime liens are salvage, collision, bottomry and seamen wages claim. For such claims, a claimant can proceed to commence in rem action and arrest the offending vessel even though there was a change of ownership prior to commencement of the action.
If there is a caveat against arrest lodged in the Malaysia Court registry against a particular vessel, the claimant who proceed to arrest the ship despite the caveat has to show good and sufficient reason for doing so. The claimant has to decide if he would accept the undertaking to provide security in lieu of arrest. Quantum of the bail in relation to the claim as well as the financial reliability of the caveator would be relevant factors to take into account. If he rejects an undertaking to provide bail which turns out to be justified, he may be condemned in damages.
For ship arrest at off port limits, there is always a risk that the ship can jump arrest. In such a case, court order will have to be obtained to tow the ship into the limits of the nearest Malaysia Port where the movement of the ship can be easily monitored and security guards can be placed on board to guard the ship.
Wrongful Arrest
Malaysia Court has jurisdiction to order damages against an arresting party if the arrest was subsequently proven to be wrongful. Whether a shipowner in such circumstances may recover its losses from the arresting party who wrongfully arrested its ship will depend on the arresting party’s intention in having proceeded with the arrest. If the arresting party was found guilty of mala fides, the shipowner would be entitled to recover its losses.
Claimants are therefore advised to seek legal advice on whether a particular ship may be arrested to enforce their claim before arresting a ship.
For ship arrests in Malaysia, M/s T S Oon & Partners is experienced in all aspect of ship arrest works, having conducted numerous ship arrests both within port limits and outside port limits.
Number of Warren of Arrest Issued in Malaysia
- Year 2011: 12
- Year 2012: 19
- Year 2013: 31
- Year 2014: 35
The above content is for general information purposes only. It is not and does not constitute nor is it intended to provide or replace legal advice, a legal opinion or any information intended to address specific matters relevant to you or concerning individual situations. Should you require specific legal advice, please do not hesitate to contact the Partner listed above or your regular contact at the Firm. Copyright of TS Oon & Partners.