Introduction

Are the onerous requirements which are necessary for a Mareva injunction also required in an application for an arrest warrant of a ship?  In Hansen v Trinity (The)  the British Columbia Supreme Court seemed to think so.  Both are actions that can be taken ex parte, but traditionally an application for a Mareva injunction  has required full and frank disclosure and was based on a Court’s discretion whereas an application for an arrest warrant required only an affidavit setting out the claim and the warrant must be issued if the preconditions are satisfied; there is no discretion.

 

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The Facts

 

The case concerns an application to set aside a warrant to arrest the sailboat “Trinity”.  The warrant was issued by Shibbits J “without notice” to the defendants.  The defendants claim that the warrant should be set side on the basis of a material non-disclosure in the application.

The plaintiffs had previously contracted with several parties (owners) to build a steel hulled sailboat in return for which they would pay $600,000.  Upon delivery the plaintiffs had paid $316,000 to the owners, but discovered that the hull weld plates were sufficiently inferior to amount to a fundamental breach by the owners.  The plaintiff claims that the owners had failed to make delivery and therefore repudiated the contract.  They claimed for the return of the $316,000 paid under the contract on grounds of unjust enrichment, negligence, breach of contractual duty of good faith and promissory estoppel.

Previously, on 9 August 2005 the plaintiffs had made an application for a Mareva injunction on the same matter and for the same amount.  That application was dismissed by Macaulay J on the basis that there was no evidence that the defendants were contractually bound to build to ABS standard or that there was any failure to meet that standard which rendered the vessels un-seaworthy.  Thus the plaintiffs had failed to establish a strong prima facie case of fundamental breach such as was required for the granting of a Mareva injunction.

Subsequently, the plaintiffs made the application for the arrest warrant.  The defendants claim that there was a failure to make full and frank disclosure in the application because the plaintiffs did not disclose that there had been an application for Mareva injunction which had been denied and the reasons for that denial.  The defendants claimed that full disclosure was required because the arrest application was without notice to the defendants.

In response, the plaintiffs argued that the application was an action in rem, under Canadian maritime law.  In such an action, they say, a warrant for arrest is something to which plaintiffs are entitled, almost as a matter of right.  The defendants, they claim, are applying the wrong principles; the full disclosure requirement is derived from ex parte and without notice applications for discretionary injunctive relief such as Mareva orders, whereas a remedy in maritime law is virtually a matter of right.

 

 

 

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The Decision

 

In arriving at a decision, the British Columbia Supreme Court referred to the requirements to obtain an arrest warrant under the Rules for Regulating the Practice and Procedure in the Federal Court of Appeal and the Federal Court SOR/98-106 (Federal Court Rules) and the Rules of Court of British Columbia.

Both sets of rules provide that whether or not a warrant is issued is a matter of discretion.  The Rules state that an affidavit in support of an application for arrest must set out: the name, address and occupation of the applicant; the nature of the claim; that the claim has not been satisfied; and the nature of the property to be arrested.

In Elesgurb Inc v Ssangyong Shipping Co Ltd,[i] the Court examined the guidelines for Mareva injunctions, including full and frank disclosure.  Mr Justice Collier stated the view that the guidelines for Mareva injunctions were consistent with Rule 1003.  The judge in Trinity took this as an endorsement of the application of Mareva requirements to arrest applications.  Therefore, he reasoned, full and frank disclosure was required for an application for a warrant to arrest.

This conclusion was reached because of “the similarly of purpose and effect between Mareva injunctions and arrest, coupled with the obligations that should properly be fulfilled by a party who seeks a remedy without notice to an opposing party”.[ii]  Thus because the opposing party does not have the opportunity to respond or explain, there must be an obligation on the applicant to make full and frank disclosure.  The plaintiffs in the present case had failed to meet this standard of disclosure and accordingly the warrant was set aside.

 

 

 

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Comparison

(a) The United Kingdom:

In the United Kingdom in order to obtain the issue of an arrest warrant, the party making the application must file a declaration in the prescribed form, which is Admiralty Form No. ADM 5.  This declaration must contain the particulars required by the Practice Direction for Admiralty claims, under Part 61 of the Civil Procedure Rules.[i]  This direction requires that the declaration must be verified by a statement of truth and must state: the nature of the claim or counterclaim and that it has not been satisfied; the nature of the property to be arrested and, if the property is a ship, the name of the ship and her port of registry; and the amount of security sought, if any.  Additionally, if the claim is brought by virtue of s21(4) of the Supreme Court Act 1981, then it must also state: the name of the person who would be liable if the claim were not commenced in rem; that that person was, when the right to bring the claim arose the owner or charterer or in possession or control of the ship in connection with which the claim arose; and that at the time the claim form was issued that that person was either the beneficial owner of all the shares in the ship in respect of which the warrant is required, or the demise charterer of the same.

Although an application for arrest warrant under the Civil Procedure Rules is an ex parte application, the affidavit need only comply with PD61 and need not make full and frank disclosure of all the material facts.[ii] Meeson[iii] explains that this is because if the requirements of PD61 are complied with, a complainant is entitled to the issue of a warrant of arrest; the function of the Court office in stamping the warrant is simply to ensure that the requirements have been complied with.[iv]  This makes clear that the issuing of a warrant is as a right as opposed to a discretion as is the case with Mareva injunctions.[v]  Arrests can be further contrasted from freezing injunctions as the former obtain security for the claim whereas the latter is an in personam procedure which merely preserves a fund against which execution may be later taken.[vi]  A Mareva injunction can be defeated by the insolvency process whereas an arrest warrant cannot.

The major difference between an application for an arrest warrant and a Mareva injunction is that whereas the former is a process akin to ticking the boxes, the latter is a matter of discretion for the Court.  In order to grant a Mareva injunction, the Court requires to be satisfied that: the claimant has a good arguable case based on a pre-existing cause of action;[vii] the claim is one over which the Court has jurisdiction;[viii] the defendant appears to have assets in the jurisdiction;[ix] there is a real risk that the assets will be removed from the jurisdiction or dissipated;[x] and there is a balance of convenience in favour of granting the injunction.[xi]  Thus the granting of a Mareva injunction is discretionary depending on whether it is just and convenient.[xii]  Further the applicant must give an undertaking as to damages, which is not required in arrest warrant applications.

(b) New Zealand                                                                                           

In New Zealand (NZ), applications for a warrant of arrest are governed by Rule 776 of the High Court Rules.  In Rule 776(4) the requirements for the documents in support of an application are set out.  Under this Rule an affidavit must contain:   the name and description of the party at whose instance the warrant is to issue; the nature of the claim;  the name or nature of the property to be arrested; the extent to which the claim has been satisfied; the amount claimed paid into Court, or security for payment of the claim which has been given to the Registrar; whether any caveat against the issue of a warrant of arrest has been filed and, if so, whether a copy of the notice of proceeding or a notice requiring payment or security has been served on the caveator; and any other relevant information known to the applicant at the time the application is made.

Once the requirements have been complied with, the Registrar must grant the warrant for arrest.  There is no discretion.[xiii]  Thus it seems that in NZ, as in the UK, an application for arrest warrant is not subject to the same full and frank disclosure requirement that is characteristic of a Mareva injunction application.  However, the introduction of 776(4)(a)(vi) requiring “any other relevant information” may signal a need for a higher level of disclosure.  McGechan[xiv] notes that “the arrest of a ship has an effect that is not unlike that of a Mareva injunction.”  He goes on to note that in most cases there will be nothing further to be disclosed beyond the matters set out in subsections (i)-(v), and that the “relevant information” does not require an applicant to provide any justification for the arrest, such as fear that the ship will be removed from the jurisdiction or sold.[xv]  As noted above this justification requirement is fundamental to an application for Mareva injunction.[xvi]

Another writer[xvii] notes that an issue of an arrest warrant differs fundamentally from a grant of a Mareva injunction in that the former must be granted if the affidavit covers the relevant matters whereas the latter is a matter of discretion.  A warrant to arrest does not require an undertaking in damages and there is no broad discretion as to the terms of the relief.[xviii]  There has been no judicial consideration of what subsection 776(4)(a)(vi) encompasses as yet, but David submits that it is likely to include information which is available to the applicant which shows that the jurisdiction to arrest is not available or that the arrest is an abuse.  It will not, he adds, include material that goes to the merits of the claim or any defences.  Thus, despite more onerous disclosure requirements than in the UK, an application for an arrest warrant in NZ remains fundamentally separate from that for a Mareva injunction. Thus the higher burden of “full and frank” disclosure is not required.

Despite a similar statutory framework to both the UK and NZ, Canada now has very different requirements for an application for arrest.  The British Columbia Supreme Court in Hansen v Trinity[i] applied the onerous requirement of full and frank disclosure associated with Mareva injunctions, to an application for issue of an arrest warrant.

It is submitted that this case will be of very limited effect in other Common Law countries such as the UK and NZ.  It is well entrenched that an application for an arrest warrant is an in rem action under the admiralty jurisdiction.  As long as the party making the application fulfils all the formal requirements, they are entitled to the warrant, and the Registrar has no discretion.  An application for Mareva injunction, by contrast, is an in personam action which is very much a matter of discretion for a Court based on what is just and fit in a particular case.

Based on the contrasting natures of the two types of application, the requirements for them are also distinct.  It is worth keeping these actions distinct in order to maintain easily obtainable security for claims in rem.  This is to ensure that any judgment (prior or subsequent) can be satisfied.  A Mareva injunction, in contrast, is a remedy available for a wide range of actions under the Court’s general jurisdiction.  These two types of application ought to keep distinct and in particular the onerous requirements for Mareva injunctions ought not to be applied to applications for issue of arrest warrants.  This is because an arrest warrant secures the very thing (ship) against which the claim arises.  A Mareva injunction, on the other hand, ought to require more disclosure because it allows the claimant to freeze all of a person’s assets in the jurisdiction in a personal claim.  The only real similarity between the actions is their ex parte nature.

It is hoped that the New Zealand Courts will decline to follow their Canadian counterparts by refusing to apply the full and frank disclosure requirements to applications for arrest warrant.

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