Arrest of vessels in Norway

By Tor Aasberg, Partner, Advokatfirmaet Grette DA, Oslo, Norway

1. Introduction

According to the Norwegian Enforcement Code (NEC) and the Norwegian Maritime Code (NMC) a creditor with a maritime claim against a debtor may demand security by way of arrest of a vessel.

The essence of arrest under the NEC and NMC may be summarized as follows:

• The creditor demanding an arrest decree may be a natural person or a company or other legal entity.
• Similarly, the debtor may be anyone, however, with the exception of the state and the municipality; these bodies are given immunity.
• The claim must be a “maritime claim”. Whether the claim is due or not is in principle irrelevant.
• The basic requirement for an arrest decree is that a so-called arrest ground exists. However, as regards vessels, an arrest decree may be given without an arrest ground provided that the creditor has an overdue claim in respect of the vessel.
• The creditor has to present sufficient evidence to demonstrate that the claim exists and that there are grounds for an arrest.
• The Court that hands down an arrest decree is the Court of Enforcement (CE). This is the ordinary court of first instance, applying special rules given in NEC.
• There are three possibilities for the CE: it may reject the application, decide the case after an oral hearing, or decide the case directly on the basis of the application in favour of the claimant, without the other party being heard.
• The actual implementation of an arrest shall make the decree effective as against the debtor as well as against third parties.
• The effects of an arrest may be summarized as follows: (1) the debtor is thereafter not entitled to dispose of the arrested vessel to the detriment of the creditor (2) the arrest does not prevent other creditors from enforcing their claims, (3) an arrest does not in itself create a right to have the object sold, and (4) venue is obtained for the underlying claim.
• The creditor may apply for an execution lien to require the vessel to be sold.
• An arrest decree may be subject to security posted by one of the parties, and to the instigation of suit regarding the claim for which arrest is sought.
• The unsuccessful creditor may become liable towards the debtor.

2. Maritime claim

According to Section 14-2 of the NEC, the basis for the arrest has to be a monetary claim. This is, however, not sufficient as regards arrest of vessels. The Norwegian Maritime Code (NMC) contains supplementary regulations as regards arrest of vessels. According to NMC Section 92(1) an arrest only be carried out to secure “[…] a maritime claim.” The provision contains the following list of what type of claims constitute “maritime claim”:

• damage caused by a vessel in a collision or otherwise,
• loss of life or personal injury caused by a vessel or occurring in connection with the operation of a vessel,
• salvage and the removal of wrecks,
• a charterparty or other agreement for the use or hire of a vessel,
• a charterparty or other agreement for the carriage of goods by a vessel,
• loss of or damage to goods, including luggage, carried by a vessel,
• general average,
• bottomry,
• towage,
• pilotage,
• goods or materials delivered anywhere to a vessel for use in its operation and maintenance
• the building, repair or fitting out of a vessel and costs and fees payable for docking,
• wages and other remuneration due to the master and other employees on board in respect of their service on the vessel,
• a master’s disbursements, including disbursements by shippers, charterers or agents on behalf of the vessel or its owner,
• a dispute as to the ownership of the vessel,
• a dispute between co-owners of a vessel concerning its ownership, possession or use or the revenues from it, and
• any mortgage on or security in a vessel, except for a maritime lien.

3. Arrest grounds

The basic requirement for an arrest decree is that grounds for arrest exist.

The grounds are defined in Section 14-2 (1):

“Arrest of assets of economic value can be decreed when the behaviour of the debtor gives reason to fear that the enforcement of the claim otherwise will either be made impossible or made substantially more difficult, or has to take place outside the Kingdom.”

Normally, it would not be possible to obtain an arrest on grounds of the debtor’s poor state of finances, or on grounds that the debtor is subject to massive influx of other creditors. Equally, a claim cannot be secured if the debtor’s finances are deteriorating because of circumstances over which he has no control, such as force majeure or fire.

The “behaviour of the debtor” is the crucial element, also in respect of enforcement abroad. Behaviour under and after conclusion of contract would be relevant. Also consecutive circumstances may be relevant, e.g. transfer of assets etc.

The first sentence of Section 14-2 of the NEC extends the opportunity to obtain an arrest for an “ […] overdue claim in the vessel […]”. In these situations it is not necessary to prove that there is a need for the claim to be secured. It is sufficient to demonstrate that, on the balance of probabilities, an overdue claim exists, which is secured by a maritime lien. The request in these cases can be directed to the owner of the vessel.

4. Evidence to make probable that the claim exists and that there is an arrest ground

The claimant has to present sufficient evidence to make probable that the claim exists and that there is an arrest ground. This requirement is explained in the travaux preparatoires in this way:

“Making the claims probable refers both to its factual and legal basis. The judge must from an evaluation of the factual and legal aspects find it more probable that the claimant will succeed than not in a subsequent litigation. Of course, the judge will in some instances have to base his decision upon thinner evidentiary material than in ordinary litigation. Time pressure may in some instances make it difficult for the judge to go to the bottom of the legal issues. In principle, however, the situation is not different from the evaluation of the claim in an ordinary court litigation.”

It is then stated that these guidelines are applicable also to the evaluation of whether grounds for arrest exist.

The uncertainties connected with the procedure in arrest cases are to some extent balanced by the rules on posting security: The more uncertain the position of the creditor, the more likely it is that he will be required to put up security for the loss suffered by the other party if it is eventually established that the arrest was unwarranted.

Where there is “danger of delay” arrest may be granted. However, in these situations posting security is an absolute pre-requirement.

5. The authority to give an arrest decree, the procedure and the court’s decision

The authority to give an arrest decree is the Court of Enforcement (CE). This is the ordinary court of first instance in Norway, applying special rules in the NEC.

The CE is competent in two instances:

• when the debtor has his home venue (e.g. main office) within the geographical district of the court. The nationality or domicile of the creditor is irrelevant, and so is the question of whether the claim is of a national character.
• The second instance of competency is where the debtor has assets of any type in the court’s geographical district, or - as regards chattels - such assets belonging to the debtor can be expected to come hereto “in the near future” (e.g. with a consignment of goods).

The procedure before the CE is relatively simple. An arrest application is in most instances submitted in writing by a lawyer on behalf of the creditor. The application should include a specified maximum as regards the size of the claim.

The arrest application must, as a rule, be directed against a specific vessel, and there must be a maritime claim relating to the vessel in question. According to NMC Section 93(1) of the NMC arrest can only be effected against:

• the vessel to which the maritime claim relates, or
• if the owner of the vessel to which the maritime claim relates is personally liable for the claim: other vessels owned by that person at the time when the claim arose, or
• if someone other than the owner of the vessel to which the maritime claim relates is personally liable for the claim: other vessels owned by the person personally liable for the claim.

Vessels are regarded as having the same owner when the same person or persons own all parts or shares.

For claims regarding a dispute as to the ownership of a vessel or a dispute between co-owners of a vessel concerning its ownership, arrest may only be affected against the vessel to which the claim relates.

If a vessel has already been arrested in Norway or abroad, subsequent applications for arrest based on the same claim shall be refused. This applies correspondingly if an earlier application for arrest was denied or if an arrest was lifted because the debtor provided security for arrest. This regulation, however, do not apply if the creditor shows that the security provided in the earlier arrest case has lapsed with final effect or there are other good reasons for granting the later application for arrest.

The CE shall state the maximum amount to be secured in the vessel.

The ruling by the court on the merits of the application is not a formal judgment but takes the form of a decree, which is less formal than a judgment. The decree may be subject to an appeal to the Court of Appeal.

According to NMC Section 93(1) the CE must decide that the creditor must provide security for cost related to port fees incurring during the period of the court hearings, within a week. The security must be able to cover port fees for at least 14 days ahead. As security any deposits in a Norwegian bank or a guarantee from a Norwegian bank will be sufficient. In some cases the CE also accept a bank guarantee from a foreign bank or insurance company. When the case is settled and incurred port fees are paid, the security can be withdrawn.

The debtor can request the lifting of the arrest at any time, if new evidence is presented or new circumstances prove that the claim or the need to secure the claim is no longer is present. The same applies if the creditor is deliberately delaying the proceedings after the petition is delivered to the court or if legal enforcement is demanded.

The debtor may also request the withdrawal of the arrest by presenting sufficient security equivalent to the amount of the arrest.

If the court accepts security offered by the debtor, it may decide that the security shall apply to any judgment concerning the claim given by a competent court in Norway or abroad, irrespective of whether or not Norway has entered into any treaty with the State concerned relating to the recognition and enforcement of judgements.

6. The actual implementation of an arrest

The actual implementation of an arrest has two components:

• deciding which object shall serve as security for the claim accepted by the CE.
• making the decree effective as against the debtor as well as against third parties.

A vessel arrested according to the second paragraph of Section 14-2 in the NEC must not leave its berth until a forced sale has been completed or the vessel commences operation under order of the court. If an arrested vessel is not in this country when the arrest is granted, then the defendant, as part of the decision, shall be ordered to bring the vessel to a designated place. After its arrival, the vessel is prohibited to leave its berth.

This arrest must be brought to the attention of the vessel’s master.

7. Effects of an arrest under Norwegian law

The effects of an arrest may be summarized as follows:

• the debtor is thereafter not entitled to dispose of the arrest object to the detriment of the creditor.
• the arrest does not prevent other creditors from enforcing their claims.
• arrest does not create a right to have the object sold.
• venue is obtained for the underlying claim.

An arrest decree may be subject to security posted by one of the parties, and to the instigation of suit regarding the claim for which arrest is sought.

The unsuccessful creditor may become liable towards the debtor. NEC Section 3-5 stipulates that when an arrest is

“[...] reversed or has become ineffective and it appears that the claimant’s claim did not exists when the [arrest] was decided, the claimant is obliged to compensate the defendant for the loss he has suffered as a consequence of the [arrest] or to have it reserved.”

This is a strict liability, i.e. liability is not dependent upon any kind of negligence, blameworthiness etc. on the part of the creditor.

According to Section 15-15 of the NEC the arrest will lapse without cancellation if:

• a disbursement is given in the arrested assets, or
• the creditor fails to meet a deadline to give security or to start legal proceeding or to start legal enforcement of the claim
• the creditor has not started legal enforcement of the claim, within one year after the arrest is given,

or

• the defendant pays out the claim, or the claim lapses for other reasons or the debtor is legally acquitted of the claim, or
• the creditor give up his rights given by the arrest, or
• the creditor is given an enforcement judgement for his claim and disbursement is not filed within one month after the ruling has legal force.