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Aug 3, 2016

Security when facing an arrest


The Rotterdam Guarantee Form 2008 is not required in all circumstances. In case of English litigation an English Escrow Agreement containing a choice for English law and English jurisdiction and monies held in trust by solicitors in London constitutes adequate security in order to lift an arrest in Rotterdam.

Judgment from the President of the Court of Rotterdam dated 2nd August 2016.

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The Netherlands are regarded as a haven for attaching property such as vessels in order to obtain security for a claim. In order to attach property, a lawyer must submit an application to the president of the court, explaining the situation and applying for leave to make the arrest. The applicant will need to substantiate that, prima facie, he has a claim. This is an ex-party application, which means that the party against whom the attachment will be made, will not be notified by the court. Once the leave has been given, the bailiff will effectuate the arrest. In case of a ship’s arrest, the bailiff will serve an official report of arrest on board the vessel and he will notify the port authorities that the vessel is under arrest. As a result of the notification, pilot and towing services are not rendered to the vessel involved. Long ago, measures were taken on board to prevent a vessel from leaving, such as placing a lock on the steering wheel or blocking the rudder. But these days this is no longer practice.

The other side of the coin is that it is fairly easy for the party confronted with an arrest to have the court decide on the validity of the arrest and whether security can be raised in order to have the arrest lifted (in case it concerns a monetary claim). Dutch procedural law does not prescribe what kind of security should be accepted. It just provides for “sufficient security”. In the past, a working group of lawyers and bankers in Rotterdam agreed on the wording of a guarantee text, known as the Rotterdam Guarantee Form. This text became standard in all arrests in The Netherlands for bank guarantees and letters of undertaking issued by insurers or P&I Clubs. At one stage, the banks introduced another wording, which became the standard for (national) attachments of property. The Rotterdam Guarantee Form (presently the 2008 version) has remained standard in shipping matters. Maritime lawyers in Rotterdam are generally in favour of accepting a letter of undertaking of a P&I Club as adequate security. Courts, however, may prefer to prescribe a bank guarantee by a first class bank in The Netherlands. One should resort to a bank guarantee when no P&I Club will issue a letter of undertaking. This may cause problems for the party confronted with an arrest. Arranging bank guarantees takes time and foreign parties, not having a bank account in The Netherlands, will have a problem opening one and instructing a bank to issue a bank guarantee. One cannot open an account anymore just like that. Moreover, foreign banks are not inclined to issue a bank guarantee on the basis of the Rotterdam Guarantee Form 2008, which really is a Dutch thing.

On 2nd August 2016, the president of the court of Rotterdam rendered an interesting judgment in summary proceedings. On 28th July 2016, bunkers of a vessel had been arrested. Main proceedings were to take place in London. As common practice in the United Kingdom, security was discussed between the solicitors involved on the basis of an English escrow agreement, where funds would be held in trust by a solicitor’s firm. On 1st August 2016, the solicitor representing the vessel advised his counterpart that funds had been received by his firm and requested that the draft escrow agreement be signed. This was refused, as, on second thought, the arrestor preferred security in the form of a bank guarantee on the basis of the Rotterdam Guarantee Form. On 2nd August 2016 summary proceedings where held, as arranging a bank guarantee would be time consuming, costly and as it was stated that the escrow arrangement was adequate security in order to lift the arrest. The president held in his judgment on 2nd August 2016 that the escrow arrangement, where the funds would be held in trust by the solicitors representing the arrestor was adequate security to lift the arrest and that the claim for a bank guarantee was denied. The president advised orally that in situations where the underlying claim would be judged in The Netherlands, security on the basis of the Rotterdam Guarantee Form 2008 would be proper. However, since the claim was governed by English law and main proceedings would be held in England, it was reasonable to arrange security in a manner which was standard in England, which he also considered adequate. The president waived complaints about a jurisdiction and choice of law clause in the draft escrow agreement. The judgment should be regarded as a step ahead in facilitating international business.

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