1. Please give an overview of ship arrest practice in your country.

There are two principal methods of arresting a ship under a Korean law—an arrest can either be made (1) on the basis of a maritime lien against the ship that is recognized by the law of the ship’s flag or (2) as a preliminary attachment if a creditor can show the existence of a claim against the registered shipowner.

Chapter 5 of the Korean Commercial Code sets forth the rules for arrest of ships by way of a maritime lien, which arise out of the use and operation of a particular vessel.  For foreign-flagged ships, however, the courts in Korea will ascertain the law of the flag state’s jurisdiction to determine whether a particular claim gives rise to a maritime lien, but will apply Korean law (including time bar) to the arrest proceeding.  Arresting a ship by way of a maritime lien automatically commences auction sale proceedings. 

In contrast, the Civil Execution Act sets forth the rules for arrest of ships by way of a preliminary attachment or preliminary disposition proceeding.  An arrest by way of preliminary attachment is available whenever a creditor can show that it has a claim against the registered owner of a ship, irrespective of whether it is a “maritime claim” or whether the claim arose with respect to the concerned ship.  It is also possible to attach other assets under the same law.  The right to arrest a ship by way of a preliminary attachment is based on the principle that a creditor should take interim measures to preserve its rights against the debtor.  The procedure is ancillary to a proceeding on the merits and does not give the Korean court jurisdiction over the merits of the underlying claim.  Furthermore, while arresting a ship by way of a preliminary attachment does detain the vessel (except in the case of vessels flagged in Korea), it is not possible for the creditor to commence auction sale proceedings unless and until a final judgment or award is obtained from a court or arbitral tribunal having jurisdiction over the merits. 

A ship may only be arrested by way of a preliminary attachment if arrest by way of a maritime lien is not available.        

2. Which International Convention applies to arrest of ships in your country?

Korea is not a party to any of the international conventions relating to the arrest of ships. In particular, for an arrest by way of preliminary attachment, there is no requirement of a “maritime claim” or requirement that the claim arose with respect to a particular ship. It is only necessary to show that the debtor on the underlying claim and the registered owner of the ship are the same person.

3. Is there any other way to arrest a ship in your jurisdiction?

In addition to the two methods for arrest of ships detailed herein, it is also possible for a creditor to arrest a ship in reliance on a mortgage or a possessory lien

4. Are these alternatives e.g. saisie conservatoire or freezing order?

An arrest by way of preliminary attachment, which is detailed herein, is effectually a saisie conservatoire.

5. For which types of claims can you arrest a ship?

As stated above, whether a particular claim gives rise to a maritime lien in Korea depends on whether a maritime lien is recognized under the law of the ship’s flag.  For ships that are flagged in Korea, Article 777 of the Commercial Code sets forth the following claims that give rise to a maritime lien:
(1) Claims for the cost of litigation for common interests of the creditors, public taxes imposed on the vessel concerning a voyage, piloting fees, towing fees, maintenance and inspection charges on the ship and her equipment after her last entry into port;
(2) Claims under employment contracts with crew and other persons hired onboard;
(3) Claims for salvage remuneration and contributions in general average; and
(4) Claims for loss or damage arising due to a collision or other navigation accident, loss or damage to navigation facilities, port facilities and waterways, personal injury and loss of life of crew and passengers.

In addition, any type of claim may be used to arrest a ship by way of preliminary attachment, provided that the debtor is the registered owner of the ship.

6. Can you arrest a ship irrespectively of her flag?

A ship may be arrested by way of a preliminary attachment irrespective of her flag.  However, the availability of a maritime lien is determined by reference to the laws applicable in the jurisdiction of the ship’s flag. 

7. Can you arrest a ship irrespectively of the debtor?

A claim against a ship that gives rise to a maritime lien may be used to arrest the ship irrespective of the debtor.  For arrest of a ship by way of preliminary attachment, the debtor must be the registered owner of the vessel.

8. What is the position as regards sister ships and ships in associated ownership?

It is not possible to arrest a sister ship or associated ship in Korea on the basis of a maritime lien.  The arrest of a sister ship is possible in a preliminary attachment proceeding, so long as the registered owner of both ships is the same.  The arrest of a ship under associated ownership is theoretically possible where the circumstances warrant piercing the corporate veil; however, as courts in Korea generally do not permit piercing the corporate veil, this is very difficult in practice.

9. What is the position as regards Bareboat and Time-Chartered vessels?

Arrest of a ship under Chapter 5 of the Commercial Code requires the existence of a claim against the ship, as opposed to a bareboat or time charterer. 

In contrast, to arrest a ship in a preliminary attachment proceeding, the arresting party must have a claim against the registered owner of the ship.  A claim against a mere charterer, even a bareboat charter, will not give rise to a right to arrest a ship by way of preliminary attachment.

10. Do your Courts require counter-security in order to arrest a ship?

Counter-security is required to arrest a ship on the basis of a preliminary attachment.  The amount of counter-security which to be provided by the arresting party in each case is up to the discretion of the individual judge overseeing the matter.  In Busan, where many applications for arrest are filed, judges typically require 20 percent of the claim amount as counter-security, although this can vary depending on the particular case and judge. The type of counter-security may also vary.  While judges will typically accept a surety bond, they have discretion to require some or all of the counter-security in cash.

No counter-security needs to be posted for arresting a ship by way of a maritime lien; however, the payment of maintenance charges and the costs necessary for auction sales proceedings is required.

11. Is there any difference in respect to arresting a ship for a maritime claim and a maritime lien?

Korean law does not recognize the concept of a “maritime claim” as such, but where a claim that is maritime in nature gives rise to a maritime lien under the law of the ship’s flag jurisdiction, then the lien holder may arrest the ship.   Alternatively, the party seeking to arrest a ship for a maritime claim or any other type of claim may do so by way of a preliminary attachment provided that it has a claim against the ship’s registered owner.

12. Does your country recognise maritime liens? Under which International Convention, if any?

Yes, but Korea is not a party to any of the international conventions dealing with maritime liens and mortgages. 

13. What lapse of time is required in order to arrest a ship since the moment the file arrives to your law firm?

Upon receiving all of the documents necessary to file an application for arrest or preliminary attachment of a ship, a minimum of 72 hours is generally required, although it may be possible to arrest a ship within 48 hours in extreme situations. In Korea, it is not possible for a judge to consider the application during a weekend or holiday or outside normal business hours.  

14. Do you need to provide a POA, or any other documents of the claim to the Court?

Yes. An original notarized POA is required to file any application for arrest and, if the POA is notarized outside of Korea, it needs legalization or an apostille.  In addition, the party applying for arrest should provide documents evidencing its claim against the debtor.  In the case of arrest by way of preliminary attachment, the party applying for arrest should, technically, also show that the arrest is necessary to protect its interest in enforcing a subsequent judgment or arbitration award, but in practice this is not a burdensome evidentiary requirement. 

For arrest by way of a maritime lien, the applicant does not need to show that the arrest is necessary to protect its interest in enforcing a subsequent judgment since the application for arrest itself is the first step toward commencing auction sale proceedings in Korea.  Nevertheless, it is necessary for the party applying for arrest to produce evidence showing that it has a maritime lien under the law of the vessel’s flag jurisdiction.  

15. What original documents are required, what documents can be filed electronically, what documents require notarisation and/or apostille, and when are they needed?

In principle, original documents are required to evidence the claim against the debtor and show the existence of a maritime lien.  The latter is usually shown by provision of a legal opinion, together with copies of relevant rules, in the ship’s flag jurisdiction.  All documents originating outside of Korea require notarization and legalization or apostille, as appropriate, and are needed at the time the arrest application is filed. 

For arrest by way of preliminary attachment, the evidentiary burden on the party applying for arrest is substantially less than in the case of an arrest by way of a maritime lien, even more so where counter-security is being provided by the arresting party.  A statement by the arresting party, or the arresting party’s lawyer, together with copies of the basic documents showing the existence of a claim against the debtor will typically suffice.  

16. Will your Courts accept jurisdiction over the substantive claim once a vessel has been arrested?

No. Korean law makes no provision for in rem or quasi in rem jurisdiction. 

17. Which period of time will be granted by the Courts in order for the claimants to take legal action on the merits?

As arresting a ship on the basis of a maritime lien automatically commences auction sale proceedings, the claimants are not required to take legal actions on the merits within any specific period of time. In practice, however, the shipowners will usually challenge the existence of the obligation giving rise to the maritime lien, the claimant’s right to exercise the maritime lien, or both, and apply for the suspension of the execution of auction sale proceedings while the challenges are considered by the court. In order to suspend the execution of auction sale proceedings, the shipowners are required to deposit a cash sum equivalent to the aggregate amount of all claims against the ship plus estimated auction sale costs or, alternatively, to reach an agreement with the arresting party about the type and amount of security to be provided.  If suitable security is provided, the ship will be allowed to sail while the court considers the merits of the shipowners’ arguments.

For arresting a ship on the basis of a preliminary attachment, there is no stipulated period for brining a claim on the merits.  Rather, the shipowners must apply to the court for an order directing the arresting party to proceed on the merits of its claim.  The court will then consider the circumstances of the case and stipulate a time period of more than two weeks, generally closer to one month. Meanwhile, the ship will be detained (if it is not registered in Korea) unless and until the shipowners have provided suitable security to the arresting party, typically a cash amount equal to the amount claimed against the debtor. 

18. Do the Courts of your country acknowledge wrongful arrest?

Yes. A wrongful arrest claim in Korea will be assessed using ordinary tort principles. If the arresting party does not succeed on the merits of the underlying claim, the court will presume that the arrest was effected negligently.  The arrest may also be wrongful, even if the arresting party eventually succeeds in recovering some amount, if the amount recovered is significantly less that the amount initially claimed when arrest the ship.

19. Do the Courts of your country acknowledge the piercing and lifting of the corporate veil?

Korean law permits piercing the corporate veil.  However, in practice, the courts have permitted piercing the corporate veil only in rare circumstances.

20. Is it possible to have a ship sold pendente lite; if so how long does it take?

For arrest on the basis of a maritime lien, a ship can be sold pendete lite and, in fact, will usually be sold pendete lite unless cash security is provided by the shipowners.

In the case of arrest by way of preliminary attachment, it is not possible for the ship to be sold pendete lite as this is only a provisional remedy to secure a claim pending final resolution of the merits of the dispute by a court or arbitral tribunal properly seised of jurisdiction.

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In any maritime dispute, obtaining security for a claim is undeniably of high priority.  Where a ship is arrested and judicially sold, the proceeds are used to pay off the claimants. If the arrested ship is released on provision of security then the security so provided can be looked to for satisfaction of any of any judgment subsequently obtained. Either way, the plaintiff’s claim is secured before judgment is obtained i.e. a pre-judgment security. It cannot be denied that such pre-judgment security help prevent the problem often faced by the claimants of having to locate the shipowners’ assets against which to enforce any judgment obtained due to the international nature of the shipping trade. In addition, with the security obtained before judgment, satisfaction of the claimants’ claim will not be at a disadvantage in the event of any intervening insolvency on the part of the shipowners.

In recent years, maritime disputes are commonly referred to arbitration.  Charterparties, bills of lading and shipbuilding contracts almost always stipulate for arbitration.  Notwithstanding the arbitration agreement, the dispute is still a maritime dispute, and for the claimants the need to obtain security for the maritime disputes remains high priority.

In Malaysia, prior to the Arbitration (Amendment) Act 2011, a ship cannot be arrested as security for a maritime dispute that is referred to arbitration, which had led to an unsatisfactory position and making Malaysia an unattractive and unfavourable jurisdiction for ship arrest.

The Arbitration (Amendment) Act 2011 amends the Arbitration Act 2005 and empowers the Malaysian court that exercises admiralty jurisdiction to order the retention of vessels or the provision of security, pending the determination of arbitration proceedings related to admiralty/maritime disputes. In particular, the Arbitration (Amendment) Act 2011 brings into force the amendments to Sections 10 and 11 of the Arbitration Act 2005.

Section 10 in its amended form reads as follows:
“10. Arbitration agreement and substantive claim before court
(1) A court before which proceedings are brought in respect of a matter which is the subject of an arbitration agreement shall, where a party makes an application before taking any other steps in the proceedings, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed;
(2) The court, in granting a stay of proceedings pursuant to subsection (1), may impose any conditions as it deems fit:
(A) Where admiralty proceedings are stayed pursuant to subsection (1), the court granting the stay may, if in those proceedings property has been arrested or bail or other security has been given to prevent or obtain release from arrest:
(a) order that the property arrested be retained as security for the satisfaction of any award given in the arbitration in respect of that dispute; or
(b) order that the stay of those proceedings be conditional on the provision of equivalent security for the satisfaction of any such award.
(B) Subject to any rules of court and to any necessary modifications, the same law and practice shall apply in relation to property retained in pursuance of an order under subsection (2A) as would apply if it were held for the purposes of proceedings in the court making the order.
(C) For the purpose of this section, admiralty proceedings refer to admiralty proceedings under Order 70 of the Rules of the High Court 1980 [P.U. (A) 50/1980] and proceedings commenced pursuant to paragraph 24(b) of the Courts of Judicature Act 1964 [Act 91];
(3) Where the proceedings referred to in subsection (1) have been brought, arbitral proceedings may be commenced or continued, and an award may be made, while the issue is pending before the court; and
(4) This section shall also apply in respect of an international arbitration, where the seat of arbitration is not in Malaysia.”

The amended Section 11 reads as follows:
“11. Arbitration agreement and interim measures by High Court
(1) A party may, before or during arbitral proceedings, apply to a High Court for any interim measure and the High Court may make the following orders for :
(a) security for costs;
(b) discovery of documents and interrogatories;
(c) giving of evidence by affidavit;
(d) appointment of a receiver;
(e) securing the amount in dispute, whether by way of arrest of property or bail or other security pursuant to the admiralty jurisdiction of the High Court; and
(f) the preservation, interim custody or sale of any property which is the subject-matter of the dispute;
(g) ensuring that any award which may be made in the arbitral proceedings is not rendered ineffectual by the dissipation of assets by a party; and
(h) an interim injunction or any other interim measure.
(2) Where a party applies to the High Court for any interim measure and an arbitral tribunal has already ruled on any matter which is relevant to the application, the High Court shall treat any findings of fact made in the course of such ruling by the arbitral tribunal as conclusive for the purposes of the application.
(3) This section shall also apply in respect of an international arbitration, where the seat of arbitration is not in Malaysia.”

These amendments now have the force of law. Hence, the newly set up Malaysian Admiralty Court dedicated to hear admiralty and maritime cases, can now order the arrest of a vessel in an admiralty claim as security for the satisfaction of any award given in any arbitration. It is also mandatory for the Courts to order a stay of the Malaysia proceedings after security has been obtained, unless exceptions apply. This allows for certainty that the arrest action does not replace the arbitration agreement / proceedings. There are also many ports both in East and West Malaysia making it convenient to track and arrest the vessels that come to port. Also of importance, is the speed and efficiency of the Admiralty Court in issuing the Warrant of Arrest, which should make Malaysia the favoured jurisdiction when one is considering ship arrest as security for any maritime claim including one that is subject to arbitration.

If Malaysia has always been viewed as a more economical jurisdiction for Ship Arrest in the South East Asia region, then (with this new amendment) we would likely see a sudden growth of Admiralty cases in Malaysia.

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