Arrest of ships and insolvency: the “affaire Hanjin”

The Hanjin debacle, like the previous Pan Ocean collapse, looks set fair to occupy marine lawyers for some time to come. Hanjin, one of the top ten container lines of the world, finally filed for bankruptcy protection in its home jurisdiction of Seoul 9 days ago, on 31 August. This has immediately led to a scramble to issue arrest proceedings against its ships (reportedly carrying over $14 bn worth of other people’s goods): in turn, the story is that a number of Hanjin vessels have been told to circle the seven seas, rather like the Flying Dutchman, rather than put into a port where they might be seized.

All this raises one of the currently sexy issues in ship arrest: how far can foreign bankruptcy proceedings stymie the right a creditor otherwise has to pay himself from the proceeds of the vessel arrested ahead of the owner’s other creditors? The point is particularly important in the Korean context, since Korean law is notoriously unwelcoming towards maritime claims in rem.

In many jurisdictions, including Australia, New Zealand, the US and the UK, this depends on the interpretation of the UNCITRAL Model Law on cross-border insolvency, and in particular how each jurisdiction has taken advantage of Art.20.2 of that provision. It has been decided in Australia (Yu v Pan Ocean (2013) 223 FCR 189, see too Kim v SW Shipping Co Ltd [2016] FCA 428) that maritime lien claimants continue to be able to thumb their noses at general creditors. In New Zealand the courts have gone further and said the same about in rem claimants generally (eg irate cargo claimants or bunker suppliers), provided they issue proceedings before the foreign bankruptcy is recognised (see Kim v STX Pan Ocean [2014] NZHC 845). One suspects the same would follow in England. But the US may well be different: Evridiki Navigation, Inc v Sanko SS Co, 880 F.Supp.2d 666 (2012).

An unanswered question in Australia and New Zealand is what happens to in rem claimants relying on claims — notably by repairers or bunker suppliers — which by local law do not create a maritime lien, but which give rise to such a lien under the law governing the original supply (see The Sam Hawk [2015] FCA 1005).

One place one suspects Hanjin masters may have been told to avoid like the plague is Hong Kong, which applies the old common law rules and which is not in the UNCITRAL system. There the authority seems to say that no account at all is taken of bankruptcy elsewhere as regards priorities: see The Convenience Container [2007] 3 HKLRD 575. Singapore, doubtless, which applies similar principles, will also be given a wide berth.

One is tempted to say that this is a ship’s dog’s dinner. Is it too much to hope that the IMO or some similar body could sponsor a convention to deal with the priorities arising from rights of arrest?

 

One thought on “Arrest of ships and insolvency: the “affaire Hanjin”

  1. Dariusz Gozdzik

    Thank you for an informative article. Apropos priorities, let us hope that any new convention does not follow the example of Portugal (Madeira Registry) by relegating crews’ lien for wages towards the back of the queue, some way behind mortgagees as I understand it.

    Like

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