What do Caveats have to do with Ships?

What do Caveats have to do with Ships?

Introduction

A caveat registered in the courts serves to prevent a ship’s arrest by committing to pay a bond for any sum claimed against the ship which is equal to or less than the amount stated in the caveat. This is understandable as ships are highly valuable and must trade daily or run huge losses. It is better to pay a bond into the court and remain in business than find the ship at the mercy of the admiralty marshal and creditors. This is particularly relevant when the payment bond does not amount to the admittance of the claim or submission to the court’s jurisdiction. In short, the vessel remains in business and the bond payment remains with the ship owner.

Caveat against release

A caveat can be entered against an arrest or the release of an already arrested vessel. This applies where a person has a claim against the vessel or other property already under arrest with the caveat being in lieu of having to obtain a further arrest of the ship or other property.(1) It is essentially a ‘do not release’ stamp.

A caveat against release ensures that the caveator is notified of applications for the release of arrested properties.(2) There are no detailed requirements to enter a caveat against release; however, the court may not recognise or grant such orders without an existing claim against the ship. It is also prudent to ensure that the caveat against release is notified to the parties in the original suit against the arrested ship. The caveator must ensure that notice is served. Where the caveator fails to do so, the courts have held that the caveator cannot expect the parties to the relevant suit to provide a copy of the application for release.(3)

Facts

In MT Delmar v MT Ane (Ex MT Leste)(4) Zenon Petroleum and Gas Ltd (the third respondent) originally secured the arrest of the first respondent, which remained under the custody of the admiralty marshal pending the provision of security.

While the arrest was pending, the first appellant collided with the first respondent, causing significant damage. The first and second respondent secured the first appellant’s arrest. The third respondent filed a caveat against the first appellant’s release but did not serve any of the parties. The first appellant posted bail and was released without reference to the third respondent.

The third respondent then brought an application as an interested party for the first appellant to provide security for the third respondent’s suit against the first and second respondent or, alternatively, an order setting aside or varying the order for the first appellant’s release and for the security provided to be applied in securing the third respondent’s claims in the suit against the first respondent. The trial court granted the order. The first appellant appealed to the Court of Appeal.

Court of Appeal decision

Justice Iyizoba of the Court of Appeal held that the court had no jurisdiction to grant relief in favour of a party with no claim before it, and the mere filing of the caveat against the ship’s release had not been enough to confer jurisdiction to the court:

The actual purpose of a caveat is to enable the caveator be put on notice before the arrest or release of a vessel. In the event of the need for a follow-up action in the matter of the caveat requiring the court to grant a relief or make an order in favour of the caveator, the caveator must take steps to make himself a party to the suit and also claim against the adverse party. It is the claim that would enable the court determine whether or not it has jurisdiction and whether the claimant is entitled to the relief sought.

The court rejected the argument that the appellants’ failure to serve notice of the application to release the first appellant on the third respondent had created a special circumstance that gave the court jurisdiction to hear and grant the third respondent’s application, even though it was not party to the suit:

This argument is clearly misconceived. If indeed the 1st appellant was released without any notice being served on the 3rd respondent… the most that can happen is that it would render the defaulting parties liable in contempt of court. It does not create any special circumstance giving the 3rd respondent the right to proceed against the appellants on the security in the absence of a pending suit.

Comment

Entering a caveat against release does not automatically entitle the caveator to the security flowing from the ship in respect of which the caveat has been entered. A request for security can be made only when there is a subsisting claim against the ship in respect of which the caveat has been entered. This is because the provision of Order 8, Rule 6 of the Admiralty Jurisdiction Procedure Rules on a caveat against release is available in lieu of obtaining a further arrest of that ship or other property. Given that an arrest warrant may be applied for only by “a party to proceedings commenced as an action in rem“,(5) an action in rem precedes an application for a ship’s arrest.(6)

Victor Onyegbado and Enare Erim 

Endnotes

(1) Order 8, Rule 6 of the Admiralty Jurisdiction Procedure Rules.

(2) Order 10, Rule 6 of the Admiralty Jurisdiction Procedure Rules.

(3) MT “Delmar” V MT “Ane (Ex MT Leste)” [2016] 13 NWLR (Pt 1530) 482.

(4) Order 7 Rule 1 of the Admiralty Jurisdiction Procedure Rules.

(5) Supra, Mt “Delmar” v MT “Ane (Ex MT Leste)”.

(6) [2016] 13 NWLR (Pt 1530) 482.

Sharing is caring!

Leave a Reply

Close Menu