Compensation Claim Against a «Wrongful» Arresting Party

A ship financing company (the claimant) made an arrest application against our client (the Ship owner) vessel pertaining to contact

APRIL 6, 2020
A ship financing company (the 'claimant') made an arrest application against our client's (the 'Ship Owner') vessel pertaining to a contractual dispute between the claimant and the ship managers (the "Defendant"). Subsequent to the arrest, the claimant filed main claim proceedings against the Defendant in the Dubai Court.

Background:

In February 2015 a ship financing company (the 'claimant') made an arrest application against our client's (the 'Ship Owner') vessel pertaining to a contractual dispute between the claimant and the ship managers (the "Defendant"). Subsequent to the arrest, the claimant filed main claim proceedings against the Defendant in the Dubai Court.

As is standard practice, the Dubai Court required the claimant to provide an undertaking to indemnify the Ship Owner for any loss or damage, within the claim amount, and to pay the compensation to the Ship Owner if a final court judgment determined that there was a wrongful arrest.

Our firm was instructed to interfere in the claim at the first stage of the proceedings after the Ship Owner's vessel had been arrested and once the main claim had been filed. We pleaded that the ship had been unlawfully arrested on two main grounds:

  1. The claimant arrested the Ship Owner's vessel in a claim wholly unconnected to the dispute with the defendant. The Ship Owner was not privy to, nor party to, the contractual relationship between the Claimant and the Defendant upon which the arrest claim was founded. The arrest injured the Ship Owner in attempt to secure a claim against a third party. In essence, the claimant was wrong to arrest the Ship Owner's vessel to secure against a party other than the vessel owner.
  2. The claimant had made a series of procedural errors in bringing their arrest application, namely, they did not proceed the arrest minutes which the arresting bailiff is required to record in accordance with Article 119 of the Commercial Maritime Code, UAE Federal Law no. 26 of 1981 (the 'CML'). These Minutes were to be sent to the Master of the vessel containing a summons to appear before court (Article 120 CML), but they were never sent. Furthermore, the Claimant produce documentation to support their claim which failed to demonstrate that the defendant had ownership of the arrested vessel.
  3. As a result of the wrongful arrest, the Ship Owner suffered significant losses, mainly due to loss of use of the vessel. It was felt that a strong message had to be sent, namely, that ships cannot be arrested with impunity and without due consideration by arresting parties of the implications for Ship Owners before filing an application. It was envisioned that only a court judgment in favor of a Ship Owner would make a claimant think twice before filing. To achieve this, the provision of the CTL for compensation where a court finds that there was a wrongful arrest had to be tested.

Decision:

The Dubai Court of First Instance made an order in favour of the Ship Owner for AED 10 Million in compensation for wrongful arrest. The judge ruled that the Claimant had been unlawful in arresting the Ship Owner's vessel to secure his claims against the Defendant.

A civil arrest order was issued under Article 252 of UAE Federal Law No. 11 of 1992 (the 'Civil Procedure Code') against the claimants bank accounts, cars and other assets to secure the claim.

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