Newsroom Blog
Rule B twists and turns
By Lloyds List Comment
Friday 5 February 2010
THE twists and turns of Rule B — B for baffling — could have been written by a modern Charles Dickens working the narrow canyons south of Wall Street.
The element that made Rule B so delightful to claimants, lawyers and insurers was the ability to freeze electronic fund transfers until a case was decided. Since most shipping transactions are done in dollars, the electrons representing those sums must by necessity pass through US jurisdiction.
This twist of geographical destiny allowed funds to be frozen until a settlement for restitution of a contracted payment was reached.
Rule B is a long-standing and valuable piece of maritime legislation. It was once restricted to physical property such as ships and bunkers, as well as bank accounts. But a US appeals court decision in 2002 in the Winter Storm case paved the way for EFTs to be included in items that could be seized until a settlement emerged. Last October, the New York Second Circuit court ruled in SCI v Jaldhi Overseas Pte that the attachment of EFTs in Rule B cases would be stopped.
What that October ruling also did was put a dampener on the mounting caseload of Rule B cases that had been packing the New York courts. They had emerged as bankruptcies loomed amid the economic downturn and the shipping crisis. But they also emerged because of the convenience of the EFT component of Rule B itself.
That component was very useful for claimants — whether they be shipowners or charterers — because it effectively brought the claim to the front of the legal line, in many cases forcing the respondent’s hand.
The handiness of this, not incidentally, created a lot of business for New York lawyers as well. At the time of the October decision, maritime cases filed in the Southern District of New York sometimes amounted to one-third of all civil filings.
As Lloyd’s List wrote today, the loss of freezing EFTs has put a chill on claims from shipowners to recover money from defaulting counterparties. With little hope of restitution in many cases, the shipowners are abandoning their claims. Insurers, too, are less willing to give support to claimants, if a protracted legal battle will be the outcome.
The October ruling was challenged in January by Shipping Corp of India, which has petitioned the US Supreme Court to restore freezing EFTs to Rule B. However, no one knows whether the Supreme Court will deem the SCI v Jaldhi decision worthy of their review.
At the very least, it looks like a claimant’s right to have a court freeze EFTs will be chilled for some time. Since shipowners can either be claimants or respondents in Rule B cases — because shipowners are often charterers — the chill is neither good nor bad. But with less opportunity to tie themselves up in costly and time consuming litigation, both claimants and respondents in these cases will be freer to turn their heads to recovery opportunities.
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