Naias Marine S.A. v Trans Pacific Carriers Co. Ltd. United States District Court – Southern District of New York [07 Civ. 10640]
In a recent decision the New York Southern District Court has confirmed that a Rule B attachment cannot be used to obtain security for costs in the absence of an underlying maritime claim. Although many readers will be familiar with Rule B attachments, for those who are not, it suffices to know that they are primarily used by parties to obtain security in respect of a maritime claim.
Facts
Naias Marine S.A. (“Owners”) chartered the vessel STENTOR to Trans Pacific Carriers Co. Ltd. (“Charterers”) under a time charter. The charter was governed by English law and all disputes were to be referred to arbitration in London under the LMAA procedure.
Charterers commenced arbitration in London claiming that Owners had wrongfully withdrawn STENTOR from their services in breach of the charterparty. Charterers then obtained a Rule B attachment order in New York covering their principal claim, interest and costs (“the First Order”). Owners did not seek counter-security from Charterers and the First Order was dismissed by consent upon the provision by Owners of a bank Letter of Guarantee as alternative security. Owners also confirmed in open correspondence that they had no counterclaim in the underlying arbitration.
Two weeks after the First Order was dismissed Owners obtained their own Rule B attachment Order (“the Second Order”). Owners claim in the Second Order was limited solely to the estimated costs of defending the London arbitration. It was, in effect, no more than a claim for security for costs.
The main issues before the Court
Charterers applied to have the Second Order dismissed on the basis that Owners did not have the valid “maritime claim” needed to trigger the Court’s Rule B jurisdiction. The two main issues before the Court were:
(a) What law was to be applied in determining whether Owners claim was a “maritime claim”; and
(b) whether the costs of defending a claim that arose under a charterparty fall within the definition of a maritime claim.
(a) The governing Law
Owners argued that the law to be applied in determining whether their claim was properly a maritime claim was American federal law. They asserted that Rule B is a procedural remedy and federal law applies to procedural issues even if a foreign law governs the underlying contract.
Charterers maintained that English law, the law governing the charter, was to be applied to this question although they also submitted that the same result is reached under American law. The Court considered decisions by other Courts in the district where it had been held that the law governing the contract applied to questions of whether a claim had accrued, whereas federal law applied to whether the making of an attachment order was reasonable.
The Court held that as English law governed the underlying charterparty, it was English law which must be applied to determine whether Owners claim was a maritime claim.
(b) Security for costs – a maritime claim?
Although a maritime claim is not a term of art under English law (the equivalent English term being “admiralty claim”), Charterers argued that legal costs arising in an arbitration do not fall within the definition of an admiralty claim. Whilst a claim under the charterparty would be a maritime claim, the legal costs and fees arise under an arbitration award and are distinct from the charterparty. An arbitration award is not an agreement in relation to the use or hire of a ship. If Owners succeed in the reference they may have a claim for legal fees and costs, but such a claim would not be an admiralty claim under English law.
The Court agreed, holding that although the arbitration arose out of an alleged breach of a maritime contract, this did not make a claim for arbitration defence costs, with nothing more, a maritime claim. The Court also commented that the position would be the same under American federal law.
Accordingly, the Second Order was dismissed.
Comment
However, the Court expressly declined to comment on whether Owners would have been successful if they had applied for an order under Rule E(7), which allows a defendant to seek counter-security when the counterclaim “arises from the same transaction or occurrence that is the subject of the original action”. Moreover, the question of whether Owners could have obtained counter-security for their legal costs had they requested it in response to the First Order was not addressed.