Clifford Chance

Arrest of naval ships as security for foreign arbitral proceedings - An update

18 March 2016

Now is an opportune time to review the efficacy of surrogate ship arrests.  The Commonwealth has recently released its Defence White Paper, billed as the most comprehensive regeneration of the Australian naval forces since WWII.  Australia proposes investing 25% of its Defence capital expenditure to 2025/26 in its maritime capabilities.  The expanded capabilities include the commissioning a fleet of 12 new offshore patrol vessels to replace the existing 13 Armidale Class patrol boats.  Will these new builds provide renewed scope for surrogate ship arrests under the Admiralty Act 1988 (Cth) (AA)?

Surrogate ship arrests was examined by the Federal Court of Australia in Virtu Fast Ferries Ltd v The Ship "Cape Leveque" [2015] FCA 324 and [2015] FCAFC 58.  The case considered: (a) whether a partly constructed hull is a "ship" under AA, (b) who "owns" a partly constructed hull for purposes of surrogate ship arrests, and (c) the immunity of government ships from in rem proceedings under s 8(2) AA.

Austal Shipyards allegedly defectively designed and constructed a ferry for a disgruntled owner, who commenced arbitral proceedings in London against Austal  (as the "Relevant Person" under AA) seeking damages under the shipbuilding contract.  As security for the London arbitral proceedings, the ferry owner also issued in rem proceedings against a patrol vessel that was being constructed in WA by Austal for the Australian government.  The patrol boat was arrested as a surrogate of the ferry under s19 AA. The only nexus between the ferry and the partially constructed patrol boat was the relevant person, Austal.  Both at first instance and on appeal, the in rem proceedings were set aside, albeit for different reasons.

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