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29 May 2013
The recent decision in Chuang's China Treasury Ltd v Euronavi srl addressed the application of the 1952 Arrest Convention to circumstances where the credit for which security is sought is that of a subcontractor towards a shipyard for works performed when building a vessel. The judgment is of practical application and is relevant to most cases of shipyard insolvency.
The claimant was the subcontractor of a shipyard which, in order to protect its credit towards the shipyard, sought to arrest the leisure craft on which the work had been carried out.
The motor yacht had already been delivered to the shipowner and thus could no longer be considered the property of the shipyard. Nonetheless, the claimant applied for arrest of the yacht and obtained its seizure through urgent proceedings on an ex parte basis.
At the hearing that followed, all parties involved (ie, the claimant subcontractor, the defendant shipyard and the owner of the arrested motor yacht) had the chance to put forward their arguments.
The shipowner requested that the motor yacht be released from arrest, arguing that the subcontractor's credit towards the shipyard could not be considered to be a maritime claim in accordance with the 1952 Arrest Convention, and therefore the seizure of the motor yacht should be withdrawn.
The Tribunal of Lucca withdrew the arrest of the leisure craft and granted its release on the basis that the credit for which protection was sought (ie, that of the subcontractor towards the shipyard) was not a maritime claim pursuant to the convention. In fact, the tribunal stated that such credit could not fall under Article 1L of the convention, according to which the list of maritime claims includes claims arising out of the "construction, repair or equipment of any ship".
The judge stated that such provision applies only to claims arising from circumstances where the construction, repair or equipment of the ship was directly arranged with the shipowner, rather than agreed with a shipyard.
Therefore, cases such as this regarding credits of subcontractors against shipyards for works carried out in the construction of a ship should not be protected by the arrest of the ship.
The tribunal's decision was well grounded and the arguments on which it based its decision to withdraw the arrest order were valid.
Two issues can be highlighted. On the one hand, the convention system mainly deals with credits against the shipowner, while ship arrest, as a means of protecting other parties' interests, is allowed in limited circumstances according to the strict interpretation and application of Article 3 of the convention.
On the other hand, the court stressed that were the arrest of the ship to be made available to all subcontractors of shipyards involved in building the ship, the consequence would be the proliferation of possible claims against the vessel. This would jeopardise the need for certainty, which is crucial in such circumstances.
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