Rule B: The New Plan A

1
Rule B The New Plan A

• An Overview of the Rule and
• Recent Developments Concerning Maritime
  Attachment in New York
• Larry Kahn
• Freehill Hogan Mahar

Stephenson Harwood One St. Pauls
Churchyard London EC4M 8SH July 16, 2008
2
Outline

• I Maritime Attachment Generally
• II Fighting the Attachment Remedy Can an
  attachment be vacated?
• III Avoiding Attachment
• IV Counter-security Is the Best Defense a
  Strong Offense?
• V Q A

3
Maritime Attachment

• What is it and where did it come from?
• How do I use Rule B?
• When is an attachment appropriate?
• Why is New York the focus of maritime attachment?

4
Origin of the Rule
5
Common Problems Affect the Bottom Line

• Unpaid or Partially Paid Freight
• Unpaid or Partially Paid Charter Hire
• Unpaid Damage to Ships or Cargo
• Unpaid Judgments and Awards
• Damages from Bill of Lading Fraud
• Difficulties in collection often result in loss,
• even when the claim is meritorious.

6
Needs of Commerce

• For commerce to move, a credit facility was
  needed that would encourage loans to visiting
  ships
• Creditors need security, or at least a means of
  obtaining security for claims

7
Maritime Arrest and Attachment

• Maritime Arrest and Attachment Answered the Need
  by Allowing Creditors to Restrain Mobile Property
  to Enforce Maritime Claims

8
How is a Creditor to Evaluate Which Claims to
Attempt to Collect?

• Agreement in advance to a contractual dispute
  resolution clause that specifies the forum and
  law to be applied is helpful, but in the end
  provides only part of the answer.
• This is because the creditor will be able to take
  advice from counsel as to whether its claim is
  likely to see a successful result on the law in
  the chosen forum, but ordinarily counsel will not
  be in a position to predict whether the creditor
  will actually be able to collect on a resulting
  award or judgment.
• When it comes to the bottom line, a successful
  award or judgment is not worth the paper it is
  printed on if it is uncollectible.

9
How is a Creditor to Evaluate Which Claims to
Attempt to Collect?

• Pursuit of claims only against large,
  well-established companies can be impractical
  often, more is owed (collectively) by smaller
  companies
• Pursuit of claims only against small companies
  can be difficult, because available assets are
  sometimes hard to trace, and can be even harder
  to collect

10
How is a Creditor to Evaluate Which Claims to
Attempt to Collect?

• Ultimately, the best claims to pursue are those
  that can be secured (or at least partially
  secured) in advance.
• Optimally, the method used to obtain security
  needs to be quick, inexpensive, and dependable.

11
Vessel Arrest

• Vessel arrest permits a creditor to cause an
  alleged debtors ship to be restrained in order
  to secure a maritime claim that gives rise to a
  lien.

12
Problems with Vessel Arrest

• The debtor needs to have ownership interest in a
  vessel
• The vessel needs to be in the district in which
  the arrest is sought
• The vessel needs to be involved in the claim
  sister ship arrests are not permitted in the U.S.
• Only certain types of maritime claims give rise
  to maritime liens which permit vessel arrest
• Vessel arrest requires an advance sum (which
  varies from district to district), paid to the
  Marshal in order to actually arrest the vessel

13
Problems with Vessel Arrest (contd)

• If substitute security is not provided, sale of
  the ship at auction may yield unsatisfactory
  results
• All creditors (including higher-ranking
  creditors) must be notified of the sale, and they
  will take from the proceeds ahead of the claimant
• Auction costs, which include advertising, can be
  high, and are deducted from the sale price
• A fire sale result not fair market value is
  often the best case
• Auction and post-auction court proceedings
  (confirming the sale) take time and add to
  essentially unrecoverable legal costs

14
Maritime Attachment Rule B

• Rule B can be used against almost any debtor not
  found in the district
• The debtor need only have an identifiable
  interest in property in the district
• The property to be attached need not have any
  connection to the claim
• Rule B can be used with respect to almost any
  maritime claim
• Other creditors need not be notified
• The procedure is quick, inexpensive, and reliable

15
What Does Rule B Provide?

• Rule B(1)(a) In an in personam action If a
  defendant is not found within the district when a
  verified complaint praying for attachment and the
  affidavit required by Rule B(1)(b) are filed, a
  verified complaint may contain a prayer for
  process to attach the defendants tangible or
  intangible personal property up to the amount
  sued for in the hands of garnishees named in
  the process.

16
Analysis of the Rule

• Rule B(1)(a) In an in personam action If a
  defendant is not found within the district when a
  verified complaint praying for attachment and the
  affidavit required by Rule B(1)(b) are filed, a
  verified complaint may contain a prayer for
  process to attach the defendants tangible or
  intangible personal property up to the amount
  sued for in the hands of garnishees named in
  the process.

• In an in personam action
• This requirement mandates that the action must be
  one that is directly against the person (or
  business)

17
Analysis of the Rule (contd)

• Rule B(1)(a) In an in personam action If a
  defendant is not found within the district when a
  verified complaint praying for attachment and the
  affidavit required by Rule B(1)(b) are filed, a
  verified complaint may contain a prayer for
  process to attach the defendants tangible or
  intangible personal property up to the amount
  sued for in the hands of garnishees named in
  the process.

• If a defendant is not found within the district
• To be found for purposes of Rule B requires a
  2-step analysis
• Can the defendant be personally served with
  process in the district?
• Is the defendant doing business within the
  district in terms of minimum contacts?
• Both answers must yes for the defendant to be
  found

18
Analysis of the Rule (contd)

• Rule B(1)(a) In an in personam action If a
  defendant is not found within the district when a
  verified complaint praying for attachment and the
  affidavit required by Rule B(1)(b) are filed, a
  verified complaint may contain a prayer for
  process to attach the defendants tangible or
  intangible personal property up to the amount
  sued for in the hands of garnishees named in
  the process.

• when a verified complaint praying for attachment
  and the affidavit required by Rule B(1)(b) are
  filed
• Timing for a determination of when the defendant
  may be found is based on the commencement of
  the action, not some earlier (or later) point.

19
Analysis of the Rule (contd)

• Rule B(1)(a) In an in personam action If a
  defendant is not found within the district when a
  verified complaint praying for attachment and the
  affidavit required by Rule B(1)(b) are filed, a
  verified complaint may contain a prayer for
  process to attach the defendants tangible or
  intangible personal property up to the amount
  sued for in the hands of garnishees named in
  the process.

• a verified complaint may contain a prayer for
  process to attach the defendants tangible or
  intangible personal property
• Essentially, all property is restrainable under
  this formulation. In the words of the Second
  Circuit Court of Appeals, the formulation is like
  the Makers Creed all things seen and unseen.
• For historic reasons, though, real property is
  not restrainable.

20
Analysis of the Rule (contd)

• Rule B(1)(a) In an in personam action If a
  defendant is not found within the district when a
  verified complaint praying for attachment and the
  affidavit required by Rule B(1)(b) are filed, a
  verified complaint may contain a prayer for
  process to attach the defendants tangible or
  intangible personal property up to the amount
  sued for in the hands of garnishees named in
  the process.

• - up to the amount sued for -
• This explains the quantum that may be sought in
  an attachment, which most judges in the Southern
  District of New York take literally (though some
  judges interpret this phrase as meaning only the
  principal claim amount sought without any
  interest or costs component).

21
Analysis of the Rule (contd)

• Rule B(1)(a) In an in personam action If a
  defendant is not found within the district when a
  verified complaint praying for attachment and the
  affidavit required by Rule B(1)(b) are filed, a
  verified complaint may contain a prayer for
  process to attach the defendants tangible or
  intangible personal property up to the amount
  sued for in the hands of garnishees named in
  the process.

• in the hands of garnishees named in the process.
• For property to be restrained, it must actually
  be in the hands of a garnishee who is named in
  the process (writ).

22
When is an attachment appropriate?

• The remedy may be used in aid of either domestic
  or foreign cases (litigation or arbitration), but
  may only be used in conjunction with ripe
  maritime claims.

23
What Types of Claims are Maritime?

• The term is, surprisingly perhaps, not
  well-defined. Essentially, the question lies
  with the Court as to whether the claim seems
  salty enough. This policy has led to some
  peculiar results.

24
Maritime v. Non-Maritime Claims

• Contract to repair a vessel
• Demurrage claims in charter parties
• Torts occurring at sea and affecting ships in
  navigation
• A claim that is maritime in the place where the
  merits are to be heard, even if not in America

• Contract to build a vessel
• Demurrage claims in (certain) sales contracts
• Torts occurring on land regardless of impact on
  ships at sea
• A claim that is maritime in America, even if not
  in the place where the merits are to be heard

25
Possible Effect of Kirby

• The Courts had long held that the boundaries of
  maritime tort jurisdiction were well-defined, but
  that the boundaries of maritime contract
  jurisdiction were less clear.
• In 2004, however, in Norfolk Southern Ry. v.
  James N. Kirby Pty. Ltd., the U.S. Supreme Court
  significantly expanded the concept of maritime
  jurisdiction. Even though the loss in that case,
  under a multimodal b/l was land based and the
  carriage involved significant inland rail
  carriage in addition to the ocean voyage, the
  court nonetheless found maritime jurisdiction to
  be present. The key, the Supreme Court found,
  was whether the principal objective of the
  contract was maritime commerce.

26
Kirbys Development

• Following the Supreme Courts lead in Kirby, the
  11th Circuit Court of Appeals held that a sexual
  assault on land by an off-duty crewmember against
  a cruise ship passenger gave rise to admiralty
  tort jurisdiction. Doe v. Celebrity Cruises,
  Inc.
• Legal scholars now agree that courts have
  continued to expand admiralty jurisdiction where
  changes in the industry merit those expansions
  and where broadened definitions will provide
  greater recourse to justice for individuals who
  participate in the industry.

27
Ripeness and Timing

• Only a ripe maritime claim is securable under
  Rule B
• A claim is ripe if it is direct and in personam
  against the defendant.
• Contingent indemnity claims are generally found
  unripe.
• Subject to the Courts discretion, a Contingent
  indemnity claim may be ripe enough for an
  attachment, however if
• The plaintiff itself has already been sued and/or
• The plaintiff itself has already provided
  security to another party in the chain

28
Timing

• Under the Arbitration Act (9 U.S.C. 8), in a
  case otherwise justiciable in admiralty, then
  notwithstanding anything herein to the contrary,
  the party claiming to be aggrieved may begin his
  proceeding hereunder by libel and seizure of the
  vessel or other property of the other party
  according to the usual course of admiralty
  proceedings.

29
Timing

• No similar provision of the U.S. Code exists to
  allow an attachment in aid of a foreign or
  domestic litigation, but the Courts have (thus
  far) found no reason to give litigants fewer
  rights than those who have chosen to arbitrate.

30
The time to seek an attachment is at or before
the commencement of proceedings
31
Not the time to be sporting!

• In a recent case in which London arbitration
  proceedings had already begun, the claimant
  became concerned that the respondent would be
  unable to pay the award and asked for security.
• Over the period of about two months, the parties
  negotiated over security, including quantum,
  terms and conditions of an escrow, and other
  matters.

32
In the meanwhile
33
Back in New York, the respondent created a bona
fide business presence in New York, thereby
rendering itself found within the district.
34
Negotiations thereafter (predictably, perhaps)
broke off without any posting of security.
35
By the time New York counsel were asked to seek
security pursuant to Rule B, the defendant was
already found in New York and an attachment was
precluded.
36
The Geographical Focus

• Maritime attachment practice in the United States
  is pursuant to Supplemental Rule B, which is
  applicable in every district court nationwide.
• New York, however, is the undeniable epicenter of
  maritime attachment practice. Why is this?

37
(No Transcript)
38
International wire transfers of U.S. dollars pass
through New York

• C Transport Panamax Ltd. v. Pacific Ocean
  Resources Ltd., 06 CIV 11413 (RJH) (unreported).
• In C Transport, plaintiff commenced a Rule B
  action against defendant and a wire transfer was
  restrained while en route from a non-partys
  Chinese Bank to the defendants Swiss Bank. The
  wire instructions specified that the funds were
  to be wired through the Swiss Banks US dollar
  account in Connecticut.

39
C Transport

• In the motion to vacate the attachment on the
  basis that the funds were restrained outside of
  the district (in Connecticut), the court
  undertook an analysis of the banking system,
  which included testimony from UBS Bank.

40
C Transport Findings

• The Court found that the subject wire, like all
  US dollar wire transfers, passed through CHIPS
  (Clearing House Interbank Payment System), which
  is physically located at the Federal Reserve Bank
  in New York.
• While those funds were temporarily at the Fed en
  route to Connecticut, they became subject to the
  jurisdiction of the New York Court Order
  Authorizing the attachment.
• Since UBS Bank maintained an office in New York,
  and had been served with the writ at its New York
  location, it was subject to the New York Court
  Order Authorizing the attachment.

41
C Transport Conclusion

• As a result, the plaintiffs attachment was
  maintained and no court has since questioned the
  correctness of the C Transport decision.
• And the parties counsel each withdrew the
  protective suits they had filed in Connecticut.

42
Fighting Attachment - Vacature
43
Bases for Opposing an Attachment

• A party whose property has been restrained may
  seek a prompt post-attachment hearing pursuant to
  Rule E(4)(f) at which the validity of the
  attachment may be tested.
• Local Rules in New York provide that prompt
  means within three court days, unless the court
  directs otherwise.

44
The E(4)(f) Hearing

• Rule E(4)(f) makes clear that the burden is on
  the plaintiff to demonstrate why the attachment
  should be maintained, otherwise the attachment is
  to be vacated.
• There are otherwise no set guidelines concerning
  how a Rule E(4)(f) hearing is to be presented,
  leaving such issues to the creativity of the
  parties in presenting their positions.

45
Rule E(4)(f) Hearings

• Decisions on whether to submit documents, hear
  witnesses, and even to hold oral argument, are
  made on a case-by-case basis pursuant to the
  requests of the parties and the discretion of the
  district judge.

46
Rule E(4)(f) Hearings

• The primary guidance given to judges is not found
  in any rule or code section, but rather in the
  official commentary to the Rule, which states
• Rule E(4)(f) is designed toguarantee a prompt
  post-seizure hearing at which the defendant can
  attack the complaint, the arrest, the security
  demanded, or any other alleged deficiency in the
  proceedings.

47
Rule E(4)(f) Hearings

• To this we add the bases for vacature set forth
  in Aqua Stoli Shipping Ltd. v. Gardner Smith Pty
  Ltd., 460 F.3d 434 (2d Cir. 2006) a district
  court must vacate an attachment if the plaintiff
  fails to sustain his burden of showing that he
  has satisfied the requirements of Rules B and
  E.a district court may vacate the attachment if
  the defendant shows at the Rule E hearing that 1)
  the defendant is subject to suit in a convenient
  adjacent jurisdiction 2) the plaintiff could
  obtain in personam jurisdiction over the
  defendant in the district where the plaintiff is
  located or 3) the plaintiff has already obtained
  sufficient security for the potential judgment,
  by attachment or otherwise.

48
The only rule may be that there are no rules

• Ultimately, in determining the rules to be
  applied to a Rule E(4)(f) hearing, it has been
  consistently held that the inherent power to
  adapt an admiralty rule to the equities of a
  particular situation is entrusted to the sound
  discretion of the district judge sitting as an
  admiralty judge.
• Greenwich Marine Inc. v. S.S. ALEXANDRA, 339 F.2d
  901, 905 (2d Cir. 1965).

49
Avoiding Attachment How to Dodge a Bullet
50
Strategy 1 Avoid restraint of your payment

• One strategy employed by those concerned about a
  possible attachment is to attempt to avoid having
  a payment caught.
• Generally, this involves making and receiving
  payments through a paying agent.

51
Paying Agents

• There are problems with using paying agents,
  though
• 1. While you can control how payments are made
  by you, you cannot control how payments are made
  to you. Sometimes, your debtor will
  (deliberately or inadvertently) reference the
  Rule B defendants name in the wire instructions,
  which will lead to restraint by the banks
  interdiction software.

52
Paying Agents

• 2. There may be commercial pressure to explain
  why all payments are routed through a third
  party, or word may get out on the street that
  payments to ABC Corp. are routinely routed
  through BCD Corp. If word gets out, plaintiffs
  counsel will ask the Court to permit restraints
  of BCD Corp. funds as funds being transferred
  for or on behalf of the defendant.

53
Paying Agents

• 3. Ultimately, a companys trading pattern
  becomes known and funds of the paying agent will
  be captured. The defendant can engage in an
  endless circle of creating new paying agencies,
  but this inevitably will have commercial impact
  as it will become plain that the defendant is
  attempting to avoid a creditor.

54
Alter egos

• Many companies are part of a group of companies.
  To avoid attachment of the debtor group members
  property, the organization will act as a unified
  whole, disregarding the debtor members
  independence and conducting the debtors business
  as its own or through other arms of the
  organization.

55
Alter egos

• Under these circumstances, U.S. law permits
  restraint of an alter egos property as property
  of the main defendant. The plaintiff need only
  make a prima facie showing of either fraud or
  domination and control.
• Ulisses Shipping Corp. v. FAL Shipping Co. Ltd.,
  415 F.Supp.2d 318 (S.D.N.Y. 2006).

56
Alter egos

• Ultimately, alter egos become subject to
  attachment in the same way as paying agents. The
  fact that the alter ego may be a viable separate
  entity is generally of no assistance,
  particularly when the merits of the underlying
  dispute are being addressed in a foreign forum.

57
Alter egos

• One theory, though, that remains to be fully
  explored is the extent of the application of
  foreign law i.e., why should a foreign company
  be subject to U.S. federal law on alter ego
  liability? What if the foreign entity is
  behaving in a manner consistent with its own law
  but which would give rise to corporate
  veil-piercing in the U.S.?
• Under the right circumstances, it may be
  possible to vacate an alter ego restraint.

58
Strategy 2 Undermine the Rule

• The second strategy typically employed is to
  undermine Rule B by disrupting the plaintiffs
  ability to apply for an attachment in the first
  place.
• Clearly, the potential defendant cannot make its
  activities giving rise to the claim
  non-maritime and cannot prevent the claim from
  lying in personam against it.

59
Found within the District

• A potential defendant can, however, attempt to
  render itself found within the district for
  purposes of Rule B.
• As seen above, this requires the defendants
  presence in terms where it would need to be both
  (a) capable of being served in the district and
  (b) doing business in the district.

60
Found within the District

• Many companies fearing Rule B attachment have
  obtained a license to conduct business in New
  York, which under well-established New York state
  law means that the entity is actually conducting
  business throughout the state, regardless of the
  level of actual activity. Such companies
  typically appoint their New York counsel as
  agents for service of process, thereby
  theoretically rendering themselves found.

61
Found

• In the past two months, there have been six
  separate decisions all finding that such
  incorporation tactics will successfully preclude
  attachment under Rule B.
• These decisions find fault with a Magistrate
  Judge decision from approximately 18 months ago
  which found that a company that had done the same
  thing plus had actual business contacts in the
  district and was actively seeking office space in
  New York was still not sufficiently found,
  maintaining the Rule B attachment.

62
Sidebar / Related Topic Convenient Adjacent
District
63
Are the decisions correct?

• Older case law, which recalls the original
  purpose of maritime attachment to allow
  restraint of a foreign entitys assets within the
  district so as to be able to secure a potential
  judgment holds that the appointment of counsel
  for the purpose of avoiding attachment is a
  nullity.
• Under older case law too, the business contacts
  with the district must be substantial,
  continuous, and likely to continue in the
  future.
• These requirements are not met by the paper
  companies that are now routinely being
  established.

64
Will New York incorporation / licensure kill Rule
B?

• Likely not. As indicated, it wont be long
  before a challenge arises based on the older case
  law. If the older case law prevails, then the
  current fad of New York incorporation / licensure
  will likely fade.
• Even if incorporation / licensure does preclude
  Rule B attachment, actions can still be brought
  in other U.S. jurisdictions where property
  (likely debts) of the defendant can be found.

65
Counter-security fighting back
66
Counter-security

• Rules E(2) and E(7) concern counter-security.
  Rule E(2) provides counter-security for certain
  statutory costs (under the American Rule,
  costs do not include legal fees). More
  important for our purposes is Rule E(7).

67
Rule E(7)

• When a person who has given security for damages
  in the original action asserts a counterclaim
  that arises from the transaction or occurrence
  that is the subject of the original action, a
  plaintiff for whose benefit the security has been
  given must give security for damages demanded in
  the counterclaim unless the court for cause
  shown, directs otherwise. Proceedings on the
  original claim must be stayed until this security
  is given unless the court directs otherwise.

68
Rule E(7)

• When a person who has given security for damages
  in the original action asserts a counterclaim
  that arises from the transaction or occurrence
  that is the subject of the original action, a
  plaintiff for whose benefit the security has been
  given must give security for damages demanded in
  the counterclaim unless the court for cause
  shown, directs otherwise. Proceedings on the
  original claim must be stayed until this security
  is given unless the court directs otherwise.

• When a person who has given security for damages
  in the original action
• It is established that the requirement to give
  security is not taken to require any degree of
  voluntary giving. Restraint of property is
  giving security.

69
Rule E(7)

• When a person who has given security for damages
  in the original action asserts a counterclaim
  that arises from the transaction or occurrence
  that is the subject of the original action, a
  plaintiff for whose benefit the security has been
  given must give security for damages demanded in
  the counterclaim unless the court for cause
  shown, directs otherwise. Proceedings on the
  original claim must be stayed until this security
  is given unless the court directs otherwise.

• asserts a counterclaim that arises from the
  transaction or occurrence that is the subject of
  the original action
• The counterclaim must (a) be asserted and (b)
  arise from the transaction or occurrence that is
  the subject of the original action.
• The counterclaim need not be maritime in nature,
  however, to earn counter-security.
• A counterclaim that seeks damages for wrongful
  restraint under Rule B does not arise from the
  transaction or occurrence that is the subject of
  the original action.

70
Rule E(7)

• When a person who has given security for damages
  in the original action asserts a counterclaim
  that arises from the transaction or occurrence
  that is the subject of the original action, a
  plaintiff for whose benefit the security has been
  given must give security for damages demanded in
  the counterclaim unless the court for cause
  shown, directs otherwise. Proceedings on the
  original claim must be stayed until this security
  is given unless the court directs otherwise.

• a plaintiff for whose benefit the security has
  been given must give security for damages
  demanded in the counterclaim
• Counter-security only secures damages. Whether
  damages includes recoverable interest,
  disbursements, costs (including fees) is a
  divided issue.

71
Rule E(7)

• When a person who has given security for damages
  in the original action asserts a counterclaim
  that arises from the transaction or occurrence
  that is the subject of the original action, a
  plaintiff for whose benefit the security has been
  given must give security for damages demanded in
  the counterclaim unless the court for cause
  shown, directs otherwise. Proceedings on the
  original claim must be stayed until this security
  is given unless the court directs otherwise.

• unless the court for cause shown, directs
  otherwise.
• Counter-security is nearly automatic and usually
  can only be avoided in cases where
  counter-security would be inequitable, often
  based on the impecuniosity of the plaintiff (such
  as an injured seaman).
• For a corporation to succeed on this basis, it
  must show that the counter-security demanded
  would act as a bar to seeking Rule B relief in
  the first instance. Though there have been
  attempts, no current case has allowed such
  avoidance.

72
Rule E(7)

• When a person who has given security for damages
  in the original action asserts a counterclaim
  that arises from the transaction or occurrence
  that is the subject of the original action, a
  plaintiff for whose benefit the security has been
  given must give security for damages demanded in
  the counterclaim unless the court for cause
  shown, directs otherwise. Proceedings on the
  original claim must be stayed until this security
  is given unless the court directs otherwise.

• Proceedings on the original claim must be stayed
  until this security is given unless the court
  directs otherwise.
• Courts have held that even where the merits are
  being decided in a foreign forum, the Court is
  still within its power to enjoin the plaintiff
  from proceeding until counter-security is posted.
  Advancing the claim under such circumstances is
  treated as contempt of court.

73
Recent Decisions - Countersecurity

• Chiquita Intl Ltd. v. M/V BOSSE, 518 F.Supp.2d
  589 (S.D.N.Y. 2007).
• In Chiquita, plaintiff secured a Rule B against
  defendant. Defendant, having a counter-claim
  related to the same action, but wishing to be
  able to secure interest, costs and other damages,
  sought its own Rule B against plaintiff.

74
Chiquita

• The Chiquita Court held that the defendant was
  required to raise its request for
  counter-security within the context of the
  already filed action and therefore vacated the
  defendants Rule B as procedurally invalid,
  denying the defendant any counter-security.

75
Recent Decisions - Countersecurity

• Naias Marine S.A. v. Trans Pacific Carriers Co.
  Ltd., 2008 U.S. Dist. LEXIS 2438 (S.D.N.Y. Jan.
  10, 2008).
• In Naias, the defendant had initially commenced a
  Rule B against the plaintiff. That action was
  terminated when plaintiff provided full security
  to Trans Pacific. Plaintiff then commenced its
  own Rule B against defendant to secure a
  potential costs judgment (it had no counterclaim
  per se).

76
Naias

• Trans Pacific successfully vacated Naias
  attachment because a costs judgment would not
  arise from the same transaction or occurrence
  as the original action.
• The Court also concluded that Naias time to seek
  security for such costs was while Trans Pacifics
  case was still active. Naias failure to act at
  that time precluded security for such costs
  (which might have been awarded had they been
  requested) now.

77
Recent Decisions - Countersecurity

• Bhatia Shipping and Agencies Pvt. Ltd. v. Alcobex
  Metals Ltd., 07 CIV 9346 (BSJ) (S.D.N.Y. July 3,
  2008) (not yet reported)
• Facts Bhatia agreed to deliver Alcobexs pipes
  to England. Bhatia appears to have mistakenly
  delivered those pipes without surrender of
  original bs/l. Alcobex was not paid and made a
  demand against Bhatia. Bhatia admitted the error
  and asked its underwriter to pay the claim. No
  payment was made and Alcobex did not timely
  advance its claim. Bhatia moved the English High
  Court for declaratory judgment on time bar.
  Months later, Alcobex brought its own action, in
  India, for damages. The English Court granted
  Bhatias action and awarded costs.

78
Bhatia

• Bhatia sought to enforce its judgment via a Rule
  B attachment. Funds were secured and Alcobex
  moved to vacate on the following grounds
• 1) Bhatia's costs judgment was not maritime
  under Naias Marine
• 2) Bhatia's claim was not maritime in any event
  and the court lacked admiralty jurisdiction
• 3) Both parties were Indian
• 4) Bhatia's English action was brought in bad
  faith since Bhatia was not the injured party and
  since India was a more convenient and less
  expensive forum
• 5) Even if admiralty jurisdiction existed, under
  equitable principles, this court should vacate
  the attachment and deny recognition of the
  English judgment which was rendered by default

79
Bhatia

• Alcobex's arguments were all rejected by the
  Court.
• 1) While a claim merely for costs without more
  may not be maritime (Naias), a judgment by a
  maritime court for money damages (to either
  side), even solely for costs, is maritime.
• 2) The enforcement of a foreign admiralty
  judgment is an exercise of this court's admiralty
  judgment (citing Victrix)
• 3) The proper place to challenge jurisdiction is
  not in the court where an enforcement action is
  taking place (SDNY), but rather in either the
  place where the court's jurisdiction is subject
  to question (England) or where jurisdiction is
  proper and brought in the alternative (India)

80
Maritime Attachment Anything but Static
81
Q A

• Larry Kahn
• Freehill Hogan Mahar, LLP
• 80 Pine Street
• New York, NY 10005
• [phone]
• [phone]
• kahn_at_freehill.com
• www.freehill.com