Maximum Amount of Any Security to Release A Ship From an Arrest

In the light of the 1973 Brazilian Code of Civil Procedure, there was an express rule authorizing the claim for the replacement of the precautionary measure, pursuant to the wording of Section 805.[1]

Section 805 was a general rule on the precautionary procedure (its location in the 1973 Brazilian Code of Civil Procedure and its wording evidence this). Upon limiting the analysis to our subject, said rule authorized the defendant to claim the replacement of the ship, which was the object of the arrest, by another guarantee, generally a financial guarantee.

It should be noted, and this is important, that defendant was entitled to request the replacement of the ship with another guarantee, and not the duty to replace the guarantee represented by the ship with another guarantee.

In the 2015 Brazilian Code of Civil Procedure there is no express rule authorizing the replacement of the asset subject to an arrest. However, there is no doubt that once the defendant has evidenced that another guarantee will be less expensive and also be as good as the ship, being further able to guarantee future and possible execution by expropriation, the replacement shall be authorized.

Once the question concerning the Defendant’s right (and not the duty) to claim the replacement of the arrested vessel with another security, the question to be analyzed, and the core of our interest, is to identify the maximum value of this possible security to release the ship from the arrest.

It could be thought that the security to be determined by the judge should consider exclusively the principal of the alleged credit, and interest, indexation, attorney’s fees and legal costs.

However, the maximum value of said security must be equal to the value of the arrested vessel.

The link between the maximum value of the security to release a ship from arrest to be provided and the value of the ship is justified. This is because, the arrest is a provisional remedy intended to obtain a guarantee to the future and possible execution by expropriation. In this scenario, since the asset, i.e., the ship, is not replaced with another guarantee, this ship will remain arrested until said arrest is possibly converted into an attachment and the vessel is subsequently expropriated.

Thus, the maximum that a creditor or creditors (whether or not in joinder of plaintiffs) that files a claim for arrest expects to receive is the value of the ship herself.

This issue has already been analyzed by the jurists.

Hugo Simas’ work provides the following (emphasis in the original): “The guarantee shall include the amount of the credit, interest, costs and legal fines. Quid, if the value of the ship is lower than the sum of these claims? Can the judge bind the debtor to the full value of the security? No, absolutely not. Neither the party may require, nor the judge may require a security that exceeds the selling price of the ship, even though the credit being collected exceeds it. This is because, upon attaching the ship, the creditor can only expect to receive the price he/she/it earns at the end of the proceedings, and execution. Consequently, by offering the debtor a security up to that price, the creditor is exactly in the same situation that he/she/it would have been if the arrest remained valid. One cannot intend to improve the situation forcing the ship immobilization."[2]

This thinking is so updated that such a criterion – association of the value of the ship with the maximum value of any security to be provided - was adopted by the 1999 Arrest Convention, which establishes in its Article 4 (2) that the value of the security shall not exceed the value of the ship: "2. In the absence of agreement between the parties as to the sufficiency and form of the security, the Court shall determine its nature and the amount thereof, not exceeding the value of the arrested ship."

In a work published in 2017, upon commenting on the rule above of the 1999 Arrest Convention, Francesco Berlingieri explains that a security to release a ship from arrest in an amount equivalent to the value of the vessel is always sufficient, even if the credit claimed exceeds said value. This is because the security is given as a substitute for the ship, so that if creditors had to execute their credit through expropriation, the maximum they would receive would be precisely the value of the ship.

In the original: "Pursuant to paragraph (2), in fact the security, if determined by the court, cannot exceed the value of the ship. It follows that, as regards the amount, security for an amount equal to the value of the ship is always sufficient, even if the amount of the claim is higher. The security, in fact, is provided in place of the ship and, therefore, the claimant cannot refuse to consent to the release of the ship if security for an amount equal to the value of the ship is provided. Had he enforced the claim on the ship and obtained payment of the proceeds of its sale, he would not have received more. Of course, if the amount of the claim is less than the value of the ship, the security must be deemed to be sufficient if it covers the capital amount of the claim, plus interest and costs.”[3]

It should be noted that the various claims arising out of the same accident or for which the value of the vessel is to be determined in the same port compete with each other in the amount representing the value of the ship.

Therefore, in light of the Brazilian legal system, the maximum value that can be established by the judge as a security to release a ship from an arrest will be equivalent to the value of the ship herself.