Partner, Max Law Office
5F Izumi Garden Wing 6-3
Roppongi 1-chome Minato-ku
The aim of this article is to describe arrest of a ship in Japan. Especially, I would like to focus on the key “practical” points when arresting a ship in Japan.
As I will explain in this article, there are three types of a ship’s arrest in Japan.
1) Provisional Arrest
2) Arrest to enforce a maritime lien, possessory lien or mortgage
3) Execution of judgement, arbitration award etc.
1) is called “Kari-Sashiosae”. 2) & 3) is called “Hon-Sashiosae”.
I would like to explain the Provisional Arrest and Arrest to enforce maritime lien mainly in this article.
II PROVISIONAL ARREST (“KARI-SASHIOSAE”)
Provisional arrest (“Kari-Sashiosae”) is an arrest to secure in advance the arrester’s probable monetary claim against a shipowner. This is based on an action in personam. It shall be well noted that the “monetary claim” may not be limited to a maritime claim. In Japan a creditor of the registered owner of a ship can arrest the ship to secure non-marine claim.
The ship, as a security for the probable claim, is frozen by this arrest temporarily until the arrestor can obtain an enforceable judgment. The merit of the case is decided later in Japan or another jurisdiction (judgment in which is enforceable in Japan). If no merit is eventually found by the court, the arrested ship must be released.
Recently the courts have taken the view that a judgment in England or Hong Kong is enforceable in Japan basically. Therefore, it is possible to arrest a ship in Japan for the purpose only of obtaining security for the claim subject to jurisdiction in the U.K. or Hong Kong.
As the purpose of this arrest is to secure the probable claim, an actual sale by auction will not automatically follow after the arrest.
(2) Sister ship Arrest and Corporate Veil
Provisional arrest is an arrest to secure the arrestor’s probable claim against a shipowner. In other words, this arrest is in-personam in nature and the obligor of the claim must be the owners of the vessel to be arrested.
Therefore provisional arrest can be made on one of the sister ships in the same ownership as the ship against or in respect of which the claim lies.
In principle, it is impossible to arrest a sister ship in the different ownership of the vessel concerned. Exceptionally, the Tokyo District Court recently admitted the arrest of a ship by lifting the corporate veil. However, generally speaking, it is not so easy to pierce the corporate veil in Japan.
The following documents are worth mentioning amongst all the documents required when arresting a ship. You need to have in your mind the following documents especially when considering arrest in Japan.
Original Power of Attorney: The power of attorney must be executed by an individual claimant or a representative director of a company and be notarized by a notary public. No authorization of the authority of the notary public is required. Original one is required (but faxed copy or telex is sometimes accepted at the discretion of the court).
Copy of Company Register: Company register of the arrestor and debtor are required. If there is no company register system, substitute documents (e.g. notarized affidavit describing the existence of a body corporate and its representative director, goodstanding) are required.
Valuation of the Vessel: The value of the vessel is taken into account when the amount of the counter security is determined. This is made by London broker, the Nippon Kaiji Kentei Kyokai or the Japan Shipping Exchange, etc.
The claimant is also required to produce documentary prima facie evidences before the court to prove that a claim exists at a specific amount.
Unlike real arrest, a claimant seeking provisional arrest is required to lodge counter-security with the court when arresting. This counter security is security to cover any possible damage sustained by the shipowners in cases where the arrest turns out to be wrongful. The amount is determined at the discretion of the court (normally, around 30% of the amount of the claim or the value of the ship).
The following types of counter-security are acceptable by the court:
2) Negotiable instrument (i.e. Government Bond)
3) Letter of guarantee issued by a bank or an insurance company (not P&I Club) recognized in Japan
3. Special Feature
Under Japanese laws it is illegal to arrest the ship once she has completed her preparation for her voyage from the port. This rule is applied to not only provisional arrest but also real arrest. This rule is criticized by scholars and lawyers but still good law. The position is not so clear in relation to a vessel completing its voyage and creates several practical problems.
4. Arrest Process
On examining the application for arrest, the court renders a decision as to whether to commence the arrest proceedings.
The decision of the court, if positive, prevents the shipowners from navigating the vessel. In addition, the order instructs the bailiff to arrest the vessel by removing from the vessel the Certificate of Nationality of the vessel, etc, without which the vessel can not navigate. The Japanese lawyer for the arrestor is usually requested to go on board the vessel as an interpreter with the bailiff when he removes the documents. The documents are kept in the court until the arrest is released.
5. Release of Arrest
There are several ways to release the arrest ship.
Most straight way is to put cash (or negotiable instrument) as security in the amount as designated in the arrest order. The amount is usually equal to the claim amount of the arrestor. The shipowners can release the ship
Another important measure to release the arrested ship is (i) to contest the validity of the arrest by filing an objection with the court and (ii) to put up the security with the court. The amount of the security is determined by the court at its discretion (and the amount shall be the estimated amount of the arrestor’s damage if the objection by the shipowners is wrong and the release of the ship was wrong). Under our law only cash or LOU (by bank or insurer licensed in Japan) is acceptable as security for these procedures.
Third important measure to release the arrested ship is to request the arrestor to file a lawsuit or commence arbitration within limited period by some special procedures.
III ARREST TO ENFORCE MARITIME LIEN
A mortgage, maritime lien or possessory lien enables a claimant to arrest a concerned ship and sell her at a public auction. These arrests are called Hon-Sashiosae.
In this article I would like to focus on enforcement of maritime lien.
(2) Recognized Maritime Liens
This is one of important areas which have developed recently.
Until recently, it is considered that a Japanese court will enforce a maritime lien if (i) the governing law recognizes the maritime lien and (ii) the law of the flag of the ship to be arrested also recognizes the same maritime lien. However recently several district courts took a view that only Japanese law should be applied when deciding the underlying claim has a maritime lien. According to this view it is enough for the claimant to research only Japanese law in order to arrest a foreign flagged vessel in Japan. It is still unsettled on the governing law of the maritime lien on the ship in Japan.
Maritime liens recognized under Japanese law are as follows:
i) Expenses relating to the sale of the vessel and its appurtenances by official auction and expenses of preservation after commencement of the proceedings for the sale by official auction.
ii) Expenses of preservation of vessel and its appurtenances at the last port.
iii) All public dues levied on the vessel in respect of the voyage.
iv) Pilotage dues and towage dues.
v) Salvage remuneration and ship’s contribution to general average.
vi) Claims which have arisen from necessity to continue the voyage. (Supreme Court 24.3.1981, Supreme Court 27.3.1984)
vii) Claims of the Master and other crew which have arisen from their contracts of employment.
viii) Claims which have arisen from the sale or construction of the vessel or the equipment of the vessel, but only if the vessel has not yet made any voyage after her sale or construction; claims in respect of the equipment, food and bunkers for the vessel’s last voyage.
ix) Claims generating a maritime lien under the Law relating to International Carriage of Goods by Sea, the Law relating to Shipowners’ right to limit of liability and the Oil Compensation Law.
Unlike provisional arrest, the claimant seeking this type of arrest does not need to lodge any counter-security with the court when arresting. This is a great advantage to a claimant.
3. Arrest Process
It is the same as provisional arrest.
I must here add mention on a special system which helps this type of arrest. As I have explained, it is illegal to arrest a ship once she has completed her preparation for her voyage from the port. Therefore, if the call of the vessel in the port is very brief, it may be too late to make the application to the court after she enters into the port. To alleviate this problem, Japanese laws allows the claimant, even prior to the vessel’s arrival at the port, to obtain the special pre-emptive court order which instructs a bailiff to take up the Certificate of Ship’s Nationality, etc as soon as she enters into the port. The documents can be removed immediately upon the vessel’s arrival at the port by the bailiff. It is very useful when arresting a ship in Japan but applicable only to this “Hon Sashiosae”.
(4) Release of the Arrest
This is very important when considering merit of the real arrest in Japan.
The shipowners can obtain the release of the arrested ship. The following security is accepted by the court to release the arrested ship:
ii) Negotiable instrument (e.g. Government Bond)
iii) Letter of Guarantee issued by a bank, insurance company or P&I Club recognized in Japan.
The amount of the security is the aggregate of all the claims plus the court execution costs.
The above iii) is very important. Unlike provisional arrest, letter of guarantee is admissible as a security to release the arrested ship. In addition you will note that P&I Club’s guarantee is acceptable. The guarantee required by the court is a standard one but does not include any jurisdiction clause.
All documents submitted to the court should be translated into Japanese language. The translation is normally made by the Japanese lawyer. Strict formalities and lots of paper work are also required by the court. Therefore it usually takes some time to prepare arrest of a vessel in Japan. Once again, time is the essence for ship’s arrest in Japan.