Arrest of vessels under the Panamanian maritime jurisdiction Maria De Lourdes Marengo, Associate, Patton, Moreno & Asvat, Panama

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1 Arrest of vessels under the Panamanian maritime jurisdiction Maria De Lourdes Marengo, Associate, Patton, Moreno & Asvat, Panama This article aims to better inform the International Maritime Community of the advantages offered by Panamanian legislation in respect of claims arising from acts of maritime commerce and which may be settled through the Panamanian Maritime Court. Normally, claims are initiated by the arrest of a vessel which is to transit, or is in transit through, the Panama Canal. It takes approximately 8 hours for a vessel to transit the Panama Canal and there is no possibility of turning around once transit is initiated. On account of her movable nature, a vessel may distance herself from her creditors and other claimants before these have a chance to start proceedings against her, or before there is a chance to obtain an attachment order against her, leaving these claimants and creditors without an effective method for collecting their claims. Thanks to the procedure of arrest or attachment of vessels in foreign jurisdictions these creditors and claimants can satisfy their claims in the Courts of the countries where the vessel arrives or sails because of its operations. Panama shares with most modern maritime nations the recourse of arrest or attachment of vessels. We must emphasise that the Maritime Jurisdiction in Panama is separate from the Civil Jurisdiction and that the rules of procedure have been enacted to provide an expedient and flexible action which distances itself from the traditional protracted civil litigation. In Panama, an arrest is available in three instances, to wit: i) To arrest the vessel as guarantee to stop the owner from selling the vessel and leaving the creditors without assets from which to make effective their credits against the owner; ii) To acquire jurisdiction over vessels sailing through the Panama Canal or iii) navigating in Panamanian waters; To make effective privileged maritime liens over the vessel. Thus it becomes evident that the arrest is available both through actions in personam against the shipowner (i) and actions in rem against the vessel (ii and iii). The Choice by the creditor as to which procedure to employ depends on the nature of the claim. As a general rule the use of an action in personam with an ancillary petition for an order of arrest against a vessel owned by the defendant is always available to a plaintiff. Actions in rem against the vessel with a petition for an order f arrest are only available in those cases where the applicable law recognises a maritime lien over the vessel, or where there is a right in rem against the vessel. APPLICABLE PROVISIONS OF PANAMANIAN LAW The arrest of a vessel is regulated in Article 164 of Law No. 8 of 30 March 1982, also known as the Maritime Procedure Code, which reads as follows: Article 164: The arrest decreed by the maritime Court shall have as its purpose:

2 1. To assure that the proceedings will not have illusory effect, and to keep the defendant from transposing, dissipating, encumbering, alienating, or impairing properties susceptible to the arrest. 2. To bring within the jurisdiction of the Panamanian Courts, cognisance of cause emerging within, or outside the national territory, as a result of facts, or acts related to navigation, when the defendant is outside its jurisdiction. An arrest constituted in conformity to what is established in this subsection shall have the effect of giving personal notice of the complaint, the plaintiff remaining in all cases obliged to remit to the defendant, within a time period of five days, a copy of the respective complaint, as provided for in the last paragraph of Article 400 of this law. 3. Physically to seize property susceptible to arrest in order to make effective maritime liens over the same. Through these three instances, the vessel s or shipowner s creditors can request the arrest or attachment of a ship as security for satisfaction for maritime claims. i) Petition of arrest to assure that the proceedings will not have illusory effects: This is the case where the plaintiff has an action in personam against the shipowner and has reasons to believe or fear that the shipowner will transpose, dissipate, encumber, alienate or impair the property that he owns, leaving the claimant without assets from which to recover his credit or claim. In this case the plaintiff may request the arrest of the vessel involved in the transaction that gave birth to his claim, pr any other vessel or property belonging to the defendant. ii) Petition of arrest to obtain jurisdiction: This is the case of actions in rem where the plaintiff has not been able to start proceedings in his jurisdiction because the vessel sailed before he had a chance to do so. In this case the plaintiff may request the arrest of the vessel (regardless of her nationality or of the shipowner s nationality) while this is navigating in Panamanian ports, even if there are no other contacts with the Panamanian jurisdiction. iii) Petition of arrest to make effective maritime liens: The plaintiff may request the arrest of the vessel to make effective an existing maritime lien. Whether or not the plaintiff in fact has a maritime lien the vessel will be determined by the applicable law as recognised by article 557 of the maritime Procedure Code. Paragraph 2 of the said article 557 establishes that except as otherwise provided by International Treaties ratified by the Republic of Panama, the rights in rem and maritime liens will be determined by the laws of the country where the vessel is registered. Therefore in order to arrest a vessel to make effective a maritime lien, the laws of the country of registry of the vessel must recognise a maritime lien for the type of claim involved. In some instances, particularly in the case of claims for services rendered to the vessel, the Maritime Court has applied paragraph 13 of article 557 which establishes that with respect to the effects of contracts for services rendered to the vessel or cargo and contracts to furnish supplies to the vessel, unless there is an

3 express agreement to the contrary, the laws of the country where the services were rendered will apply. In these cases the laws of the country where the service were rendered, instead of the laws of the country where the vessel is registered, have been the ones that determine whether there is a maritime lien over the vessel. However, the decision as to which law to apply will depend on the special circumstances of each case as sees by the Court. Panamanian substantive law is contained in Article 1507 of the Panamanian Commercial Code, which reads as follows: Article 1507: The following liens will have privilege over the vessel and will concur over its price in the order stated by this article 1. The judicial expenses caused in the mutual interest of the maritime creditors; 2. The expenses, indemnification and salaries of assistance and salvage owed for the last voyage; 3. The salaries, retribution and indemnification s owed to the captain and members of the crew for the last voyage; 4. The salaries and wages owed to the longshoremen and stevedores hired directly by the shipowner or the captain of the vessel to load or unload the vessel during the last voyage; 5. The indemnification s due for fault or negligence; 6. The amounts owed for contribution for general average; 7. The naval mortgage; 8. The amounts owed for obligations contracted for the needs and provision of the vessel; 9. The sums taken on bottomry on the ship s hull and its gear for stores, supplies and making-ready, if the contract was concluded and signed before the ship left the port where such obligations were undertaken, the insurance premiums for the last six months; 10. The salaries of the pilot, watchmen and cost of the conservation and custody of the vessel, its gear and its stores after the last voyage and entrance to the port; 11. The indemnification s owed to the stevedores and passengers for lack of delivery of the things loaded or for the damages to these imputable to the captain or the crew in the last voyage; 12. The price for the last acquisition of the vessel and the interest owed during the last two years. If the applicable law as determined by article 557 of the Maritime Procedure Code is the law of Panama, and the plaintiff has one or more of the liens provided for in article 1507, he may request the arrest of the vessel. Panamanian law also recognises maritime liens over the freight and carge. These are regulated by Articles 1510 and 1411 of the Panamanian Commercial Code. These maritime liens also give the plaintiff the right to arrest the freight or cargo as per the provision of article 164 (3), to wit: Article 1510: The following credits will have privilege over the freight and will concur over its price in the order prescribed in this article: 1. The judicial expenses caused in the mutual interest of the creditors; 2. The expenses, indemnification s and salaries of assistance and salvage owed for the last voyage;

4 3. The salaries, wages and indemnification s owed to the Captain or members of the crew for the trip in which the freight was due; 4. The amounts owed for contribution to general average; 5. The bottomry bond over the freight accrued; 6. The insurance premiums; 7. The amounts of capital or interest owed in virtue of obligations contracted by the Captain over the freight, with the legal formalities; 8. The indemnification s owed to the stevedores or charterers for lack of delivery of the goods shipped or for the damages to these imputable to the captain or the crew during the last voyage; 9. Any other debt guaranteed with a bottomry bond or with a naval mortgage or pledge over the freight duly registered. Article 1511: The following credits will have privilege over the goods shipped and will concur over its price in the order prescribed in this article: 1. The judicial expenses caused in the mutual interest of the creditors; 2. The expenses, indemnification s and salaries of assistance and salvage owed for the last voyage; 3. The commercial taxes or fiscal rights owed for the goods in the place of discharge; 4. The transportation and cargo expenses; 5. The rent for the deposit of the goods discharged; 6. The amounts owed for contribution to general average; 7. The bottomry bonds and the insurance rewards; 8. The amounts of the capital and interest owed for the obligations contracted by the Captain over the cargo with the required formalities; 9. Any other loan with pledge over the cargo, if the lender had the knowledge. NO SISTER SHIP ARREST Panamanian law does not give a plaintiff the right to arrest a sister ship of a vessel over which it had a right in rem. In respect of in rem actions the arrest may only be affected over the vessel involved. PROCEDURE FOR ARRESTING A VESSEL To initiate the proceedings for the arrest of a vessel, the plaintiff must file an arrest petition together with the complaint against the vessel or it owner depending on whether he has an in rem or in personam action. If time is of the essence and to enable us to proceed immediately, we may file the petition as a third party acting on the plaintiff s behalf for which we would have to consign a bond. An addition deposit for 50% of the amount referred to in the said schedule will have to be consigned for non-submission of the certificate of the legal existence of the plaintiff which is referred to below. In this event the Power of Attorney and a certificate of legal existence of the plaintiff must be filed with the Court within the following two months. Once the Power of Attorney and the certificate of legal existence are produced, the bond will be reimbursed in full. Otherwise and under normal circumstances, in order to file the petition the plaintiff must provide us with a Power of Attorney to start the proceedings on his behalf.

5 If the plaintiff is a juridical person, as opposed to a natural person, he must provide us with a certificate of its legal existence issued by the corresponding authorities of the place where it is incorporated or registered. The Power of Attorney and the certificate evidencing the legal existence of the plaintiff must be notarised and legalised by a Panamanian Consul, or if available, according to the 1961 Hague Convention on the Apostille. The petition for arrest which purpose is to acquire jurisdiction over vessels, or to make effective maritime liens, must be accompanied by circumstantial or prima facie evidence providing the legitimacy of the claimant s rights. The petition for arrest which purpose is to acquire jurisdiction or to make effective maritime liens, must be filed together with security of US$1, 000 for the damages which arrest may cause. Otherwise, the amount of the security to be consigned for damages that the arrest may cause, in the event that an arrest is sought to avoid the owner from disposing of his property in a way that no assets remain available to satisfy the plaintiff s claim, will be prudently fixed by the Maritime Judge, but in any case it shall not be less than 20%, nor more than 30% of the amount of the claim. Besides, the plaintiff must also consign additional security to the order of the Marshal of the Maritime Court in the amount of US$2, 500 as an advance for the expenses which may be brought about in the conservation and custody of the arrested vessel, as well as expenses related to its execution and lifting. In those cases where the arrest remains in effect for a considerable period of time, the Marshal may request the claimant to consign additional sums of money in order to cover the additional expenses incurred in the conservation, maintenance and custody of the vessel if the deposit initially consigned is not sufficient. The existence of previous arrests, of whatsoever nature, shall not prevent the Court from decreeing new arrests orders over the vessel, as long as the new arrest is based on maritime lien. SUSPENSION AND LIFTING OF AN ARREST An arrest shall be suspended when the defendant puts up security to cover the amount claimed and the cost assessed by the Court. The arrest may be lifted in the following cases: 1. When the defendant consigns security, guaranteeing the amount claimed in the complaint and the cost assessed by the Court; 2. When the plaintiff requests that the arrest be lifted; 3. On petition by the Marshall and after a hearing where the plaintiff, his representative or attorney has been notified in writing by the Marshall of the need to supply additional funds in order to meet the expenditures brought about in keeping the vessel in custody, and the plaintiff does not do so within three days after the request. Security may consist of: 1. Cash, which must be deposited by the interested party in the Banco Nacional de Panama, with a certificate of guaranty obtained; 2. Certified cheque, or cashier s cheque, drawn on banks duly licensed to operate in the Republic of Panama; 3. Surety bonds, issued by companies in the Republic of Panama authorised to engage in such transactions; 4. Any other guaranties agreed to by the parties.

6 The parties may agree the amount, the nature and the conditions of the bond which will be substituted for the arrested vessel, and must jointly petition the Judge to lift the arrest, whilst consigning at the same time the agreed bond. If the parties do not reach an agreement as to the bond to be consigned, the Court, on motion by the defendant or third party interest in the lifting of the arrest, shall set the amount of the security so that it covers the amount claimed in the complaint plus interest, costs and expenses. This amount shall not exceed the market value of the property. Notwithstanding the foregoing, when the arrest is requested to make effective proprietary rights, or possession and the use of the property under arrest, the arrest may not be lifted or suspended in any case, until the case is decided. EXECUTION OF ARREST ORDERS DECREED BY FOREIGN COURTS One interesting question usually asked by foreign lawyers is whether judgements decreeing arrest orders against vessels given by a foreign Court can be executed while the vessel is in Panamanian waters. The answer to this question is yes. Interlocutory judgements and resolutions which decree the arrest of vessels, rendered by foreign states shall have in the Republic of Panama the force accorded in international treaties. If special treaties with the state which has issued the order do not exist, the said resolutions shall have in the Republic of Panama the same effect as that given in that state to a similar resolution given by a Panamanian Court. The Supreme Court of Panama will recognise a judgement given by a foreign Court where the arrest of a vessel is decreed provided that: i) The obligation, the compliance of which is demanded, is legal in the Republic of Panama; ii) The copy of the judgement has been notarised and legalised by a Panamanian Consul or according to the 1961 Hague Convention on the legislation by the Apostille. The Supreme Court will issue an order requesting the Maritime Court to enforce and execute the said judgement. The issuance of this order usually takes between one and two months from the date the petition is filed. INTERNATIONAL CONVENTIONS Panama is not a signatory of the Convention for the Unification of Certain Rules Concerning the Immunity of State-Owned Ships, Brussels, 1926, or of the International Convention on the Arrest of Sea-Going Ships of 1952, normally referred to as the 1953 Brussels Convention. However, provisions similar to the ones contained in these conventions have been incorporated in the Panamanian Procedure Code.