ASSET SEQUESTRATION: Ship Arrest: Securing shipping assets pending claims on the merits

Ship arrest is a civil law admiralty procedure that involves imposing a warrant of arrest on a ship under debt enforcement proceedings. It is a useful way to secure moveable assets for creditors, ensuring they remain in Italy pending dispute on the merits.

Applicable law

Italy is a signatory to the 1952 Brussels Convention on ship’s conservative arrest. According to art. 2 of the Convention a vessel flying the flag of a Contracting State can be arrested only in connection with maritime claims, as listed at art. 1.1 of the same Convention. Under Italian law and pursuant to article 6 of the Code of Navigation, the security rights on a vessel are governed by the law of the ship’s flag. Where the Italian law applies, article 552 of the Code of Navigation provides for a list of claims giving rise to a maritime lien in the vessel, and the freight for the voyage, during which the claim arose.

Arrest of sister/associated ships

Sister/associated ships can be arrested only if they are owned by the same debtor. Italian Courts are very reluctant to pierce the corporate veil, as it is a settled rule that each company has its separate and autonomous business capability, liable therefore for its own debts only and with its own assets. It has been held by the Italian courts that, under article 3(1)(2) of the 1952 Brussels Convention, it is possible to arrest a ship when the shares of the owning company are owned by the same companies or person(s) owning the ship in respect of which the maritime claim arose. The burden of proof on ownership is on the arrestor.

Claims from memorandums of agreement/ ship repair/construction contracts

Since Italy is a signatory to the 1952 Brussels Convention, ships flying the flag of contracting states can be arrested for the maritime claims enumerated in article 1.1. of the Convention only. Ships flying the flag of non-contracting states can be arrested for any claim whatsoever, including those listed in article 1 of the Convention.

The ship arrest procedure

Any domestic or foreign ship may be arrested in the jurisdiction of the authority of a Court, or an appropriate judicial authority in respect of any maritime claim only, as listed at art. 1.1 of the 1952 Brussels Convention, and essentially no other claim. A ship within the same jurisdiction cannot be arrested more than once by the same claimant.

One claimant may apply for a ship arrest after ensuring that the claim form has been issued. The application and an affidavit that must follow should contain the nature of the claim or counterclaim, the amount of security sought, and proof that the claim has not been gratified or fulfilled. It should also contain the name of the ship, and the nature of the property to be arrested, which must include the name and port of registry and the ownership of the ship.

If the authority finds it is right to arrest, the ship becomes a security for the determined compensating costs and an object to be sold to satisfy the claim. However, this hardly ever takes place as the owner usually manages to satisfy the requirement for security by offering a letter of undertaking.

Lodging security to anticipate/prevent arrest

The Italian Rules of Civil Procedure do not contemplate the possibility of applying to the competent court in order to anticipate/prevent a ship’s arrest by lodging security.

Securing the claim

The arresting party can insist on a cash deposit or bail bond, which are the normal forms of security under Italian law. However, the court may authorise the release of the ship against other forms of security such as a bank guarantee.

Letter of guarantee

A protection and indemnity (P&I) letter of undertaking is not, strictly speaking, within the category of suitable securities as accepted by Italian Courts, but if the parties agree for the release of the vessel against this form of security, the Court will have no objection. If a guarantee is required, it must be provided by a domestic primary bank or another acceptable guarantor.

Further security options

The Italian Rules of Civil Procedure also provide for the possibility to apply to the competent Court for the conservative arrest, even beside third parties, for any money, property or assets owned by the debtor. The claimant must prove the so called fumus boni iuris, namely prima facie evidence of the claim; and the so-called periculum in mora, namely the actual risk of the claim remaining unsatisfied if the arrest is not granted.