1 MARITIME CLAIM SECURITIZATION Mumbai October 3, 2006 William J. Honan Holland & Knight LLP

2 MARITIME CLAIM SECURITIZATION Arbitrators Arbitrators have the power to require the defendant to post security in advance of the hearing(s) on the merits under circumstances they, in their discretion, deem just. Arbitrators have the power to require the defendant to post security in advance of the hearing(s) on the merits under circumstances they, in their discretion, deem just.

3 PRACTICE TIPS A claimant in arbitration is more likely to obtain an arbitration panel’s order requiring the other side to post security if: 1. The claim appears likely to succeed. 2. The claim is for an improper deduction or withholding of funds due to the claimant. 3. The defendant is not doing business in the U.S. and may be able to avoid paying an adverse award. 4. There are other circumstances that lead the arbitrators to believe that the defendant may not pay, e.g., a poor credit history or a pool of funds which may be disbursed by or to the defendant. 5. The defendant has acted in bad faith in connection with the underlying dispute.

4 U.S. Federal Courts Under the Supplemental Rules to the F.R.C.P., a federal court, at the request of a claimant, has the power, without prior notice to the debtor, to cause a vessel, monies or other of the debtor’s assets to be seized and held pending a resolution of the underlying disputes. Under the Supplemental Rules to the F.R.C.P., a federal court, at the request of a claimant, has the power, without prior notice to the debtor, to cause a vessel, monies or other of the debtor’s assets to be seized and held pending a resolution of the underlying disputes.

5 RULE C: ARREST Need only have a common law, statutory or contractual maritime lien Need only have a common law, statutory or contractual maritime lien

6 RULE B: ATTACHMENT Two Requirements a) Plaintiff (i.e., the claimant) must have a maritime claim and b) Defendant (i.e., the “debtor”) must not be present within the district.

7 RULE B: FUNCTION a) To secure the plaintiff’s claim and b) To obtain jurisdiction over the defendant.

8 PREREQUISITES a) Is it a maritime claim? b) Can the defendant be found in the federal court district? c) Is the asset owned by the debtor?

9 RULE E: POST-ATTACHMENT/ARREST HEARING After the attachment or arrest, the defendant has the right to a “prompt hearing” After the attachment or arrest, the defendant has the right to a “prompt hearing” “[At the] prompt hearing the plaintiff shall be required to show why the arrest or attachment should not be vacated....” “[At the] prompt hearing the plaintiff shall be required to show why the arrest or attachment should not be vacated....”

10 WINTER STORM SHIPPING LTD. V. TPI, 301 F.3d 263 (2 nd Cir. 2002) Electronic funds transfers, in the hands of an intermediary bank, are subject to attachment.

11 SEAPLUS LINE CO. LTD. V. BULKHANDLING HANDYMAX AS, 2006 AMC 82 (S.D.N.Y. 2005)... Seaplus bears the burden of demonstrating, by a preponderance of the evidence, that the attachment is necessary to effectuate one of the two purposes of Supplemental Rule B: 1) Is it necessary to obtain jurisdiction over Bulkhandling? 2) Is it necessary to receive any award Seaplus may obtain in the Hong Kong arbitration?

12 Aqua Stoli v. Gardner Smith, ___ F.3d ___, 2006 WL (2d Cir. 2006)... an attachment should issue if the plaintiff shows that 1) it has a valid prima facie admiralty claim against the defendant; 2) the defendant cannot be found within the district; 3) the defendant’s property may be found within the district; and 4) there is no statutory or maritime law bar to the attachment.

13 PRACTICE TIP If you have a significant claim under a dollar denominated maritime contract and you desire security, you may wish to seek to attach assets owned by the other party to the contract in New York even though the contract in question provides for arbitration elsewhere.

14 SIX ASPECTS WORTH REMEMBERING a) You can commence a law suit in the U.S. to attach (or arrest) the defendant’s assets without waiving your right to arbitrate in accordance with the charter party arbitration provision.

15 SIX ASPECTS WORTH REMEMBERING (continued) b) A foreign claimant can attach the property of a foreign defendant even if there is no connection with the U.S. except that defendant’s asset(s) are located there.

16 SIX ASPECTS WORTH REMEMBERING (continued) c) The funds or other assets that are attached need not be related to the transaction in which the breach occurred.

17 SIX ASPECTS WORTH REMEMBERING (continued) d) You can seize the other party’s assets without any prior notice.

18 SIX ASPECTS WORTH REMEMBERING (continued) e) The court, in dealing with the attachment, almost never considers the merits of the underlying claim.

19 SIX ASPECTS WORTH REMEMBERING (continued) f) Usually, no bond is necessary to obtain the attachment.

20 MARITIME CLAIM SECURITIZATION Mumbai October 3, 2006 William J. Honan Holland & Knight LLP