Web alert: The Sanko Mineral – an 'in rem' claim still available after the court has ordered the sale of the vessel

In the Sanko Mineral[1], the English High Court was asked to consider whether a cargo interest had a valid in rem claim against the carrying vessel and, if it did, whether that claim survived the court sale of the vessel. 
 
Background

A cargo of silicon manganese was carried from Bourgas, Bulgaria to New Orleans, USA, during early 2012.  However, the voyage was substantially delayed en route.  As a result of the cargo interest filing a claim in Baltimore, it secured a maritime lien against the vessel as a matter of US law, for the alleged fall in price of the cargo due to the delays.
 
At around the same time, the vessel’s Japanese owners, who faced severe financial difficulties, successfully applied for reorganisation proceedings under Japanese law.   These were duly recognised by the English High Court under the Cross-Border Insolvency Regulations 2006 shortly thereafter.  The effect of this order was to prevent any claim being commenced against the owner of the vessel without the permission of the trustee, or the English court.  The cargo interest subsequently lodged a claim in the Tokyo reorganisation proceedings, in line with their above-mentioned cargo claim, which was rejected by the trustees and is still under appeal in the Tokyo courts.
 
The bill of lading, under which the cargo was carried, provided for a period of 12 months within which to commence arbitration proceedings. However, no such arbitration was commenced, given the insolvency of the vessel’s owner. The cargo interest instead lodged its claim in the Japanese reorganisation proceedings.
 
Meanwhile, the bank which had provided the mortgage for the vessel, arrested the vessel in the UK and issued a claim for the outstanding monies owing under the mortgage. The bank obtained judgment on its claim and the English court ordered the sale of the vessel, and that any other party with a claim in rem should apply to the court to commence the claim within 60 days.  Before the deadline had passed, but after the vessel had been sold, the cargo interest issued an application to commence a claim in rem against the vessel and issued a caution against the release of the proceeds of sale. 
 
There was thereafter a dispute as to priorities between: i) the bank; and ii) the cargo interest. In particular, the English courts were asked to consider whether the cargo interest still had an available claim.

Proceedings

It was held that the cargo interest’s in rem claim was time-barred, because they had not commenced arbitration within 12 months of the delivery of the cargo (notwithstanding that the claim in the Japanese reorganisation had been made within this timeframe).
 
However, the court also held that, if the cargo interest’s in rem claim had not been time barred, their claim would not have been lost simply because  the claim had been issued after the sale of the vessel had taken place.  The Judge in the High Court held that it is an established principle that, when a vessel is sold by the English Admiralty Court, rights in rem are transferred to the proceeds of sale.  Thus, a claim could be enforced against these sale proceeds, provided the person liable in personam on the claim (e.g. in this case, the owner of the vessel as the contractual carrier) was the beneficial owner of those proceeds[2].

The judge noted that, given that there were ongoing insolvency proceedings in Japan, it was for the Japanese courts to determine the effect of the contractual timebar on a claim lodged in insolvency proceedings.  The English judge therefore decided that if the proceeds of the sale were to be paid out of court this could only be on the basis that the trustee of the owner gave a strict undertaking that the proceeds of sale would be kept in a separate account, pending decision on the validity of the cargo interest’s claim by the Japanese courts. 

Comment

Members should be aware that: 

• In some jurisdictions it may still be possible to obtain security for a claim, by arresting a vessel or issuing a caution against release from arrest (if the vessel has already been arrested by a third party), despite the debtor being in protective insolvency arrangements elsewhere. This can be done in some jurisdictions even if the member has already issued a claim in the foreign insolvency proceedings.
• Even if a claim has been made out in foreign insolvency proceedings, it may still be necessary to commence an action in line with the law and jurisdiction clause of the applicable contract between the parties, in order to protect time and, therefore, any future rights of the member. 

If in doubt, members would be advised to contact the club, or their preferred legal advisers, for further advice.
 

This article intends to provide only general guidance on the above issues, arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. ​In case of any doubt, the member should not hesitate to contact the authors, or their usual club contact. The law is not static and if in any doubt The Standard Club is always on hand to assist.
 
Neil Henderson of 4 Pump Court acted for the defendant former owners of the vessel while Andrew Stevens of the same Chambers acted for the claimant cargo interest in the application by the bank. 
 

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[1] Bank of Tokyo-Mitsuibishi UFJ Ltd v Sanko Mineral (The MV Sanko Mineral) [2014] EWHC 3927 (Admlty)
[2] s21(4) Senior Courts Act 1981