A recent Court of Appeal ruling has shed light on a wrongful arrest claim initiated by the Owners of a Turkish-flagged vessel. The decision holds significance in establishing the accurate computation of freight loss and in determining whether an arrest can be considered wrongful if it is based on a subsequently overturned court ruling.
The Owners and the Defendants entered into an agreement on 2 November 2007, for the procurement of engine equipment intended for a vessel under construction. Subsequently, the Defendants sought damages from the Owners due to alleged non-performance of this agreement. On 5 April 2011, Turkish Commercial Court granted an award in favour of the Defendants.
On 11 March 2013, predicated upon the aforesaid award, the Defendants obtained an arrest order against the Vessel and registered the debt at the Turkish Ship Registry. On 21 July 2013, after loading at a Ukrainian port the Vessel entered Turkish waters and physically arrested by the Execution Office at Ahırkapı, İstanbul. The Owners successfully applied to the Execution Office for a leave to complete the voyage to Sevilla, and returned to Aliaga, Izmir on 29 August 2013 after discharging at Sevilla. While the Vessel was under arrest at Aliaga, the higher court overturned the original award of the Turkish Commercial Court and on 13 December 2013 the Owners presented this ruling to the Execution Office and lift the arrest after 107 days of detention.
The Owners initiated a wrongful arrest claim seeking damages in excess of USD1 million. The Defendants argued that the arrest order was based on a previous court decision, thus was not wrongful, and the Owners could have deposited security to the Court in order to lift the arrest and failure to do so is a fault attributable to the Owners which relieves the Defendants from liability.
The Owners initiated a wrongful arrest claim seeking damages in excess of USD 1 million. The Defendants argued that the arrest order was lawful because it was based on the prior court decision given after a full trial, and therefore not wrongful. The Defendants further argued that the Owners could have posted security to ensure the release of the Vessel, and their failure to do so was a fault attributable to the Owners that relieved the Defendants of liability.
The court noted that the first-tier award was appealable, therefore, an arrest predicated on such appealable award could be wrongful and rejected the contributory negligence defence by holding that a party’s election not to pursue a legal right cannot be regarded as a fault.
Consequently, the Court awarded the Owners total damages of USD735,237.47 calculated as follows:
(i) For three days’ detention during first arrest at Istanbul: the court only awarded running cost damages by rejecting the loss of profit claim given that the Vessel was already performing a voyage,
(ii) In respect of 64 days of 107 days’ detention in Izmir: the Court awarded damages based on two concluded but lost charterparties that is accepted to take 64 days,
(iii) For the remaining 43 days out of 107 days, the Court took into consideration the expert report obtained from Maritime Chamber of Commerce and awarded estimated freight earning less the estimated running costs.
The Defendants appealed the decision, and the Regional Court of Appeal gave the following decision which was upheld by the Court of Appeal.
The Court of Appeal determined charterparty evidence was unverifiable and awarded damages for all 107 days based on Maritime Chamber of Commerce estimations of market freight rates less estimated running costs, with an additional 10% equity deduction for days the Vessel may have been unemployed.
The Court of Appeal further affirmed that the limitation period shall start on the date the wrongfulness of the arrest is determined, that is, the date when the ruling that overturned the original award became final.
It is important to note that the Turkish Court of Appeal is reluctant to accord concluded charterparties as correct evidence for the computation of freight loss. Instead, the Court places its reliance solely upon the assessments provided by the Maritime Chamber of Commerce. These assessments derive from considerations of prevailing market rates and the projected running costs associated with similar vessels during a given period of time. It is therefore very important to provide the court with a detailed private report from reputable brokerage houses or valuation firms that takes into account all the aspects of the particular vessel, and make sure the Court sends this evidence to Maritime Chamber of Commerce in order to avoid a mis-calculations.