Vessels Are Under Arrest

Introduction
Petitions of Arrest
Procedure for Arrest
Suspension of Arrest
Arrest Orders Decreed by Foreign Courts

Introduction

Panama shares with most modern maritime nations the recourse of arrest or attachment of vessels. Because of its movable nature, a vessel may distance itself from creditors before they have a chance to commence proceedings against it, or before creditors have an opportunity to obtain an attachment order against it, leaving them without an effective method for collection of their claims.

Thanks to the procedure of arrest or attachment of vessels in foreign jurisdictions, creditors can now satisfy their claims in the courts of the countries where the vessel arrives or departs.

Domestic legislation provides that claims are usually initiated by the arrest of a vessel in transit through the Panama Canal.

The arrest of vessels is available in order to:

• prevent the vessel's owner from selling the vessel and leaving the creditors without assets from which to make effective their credits;

• acquire jurisdiction over vessels sailing through the Panama Canal or navigating in Panamanian waters; and

• make effective privileged maritime liens over the vessel.

Arrest is available both through actions in persona against the shipowner and actions in rem against the vessel. The creditor's choice as to which procedure to employ depends on the nature of the claim. Generally, the use of an action in persona with an ancillary petition for an order of arrest is always available to a plaintiff. Actions in rem against the vessel with a petition for an order of arrest are only available where the applicable law recognizes a privileged maritime lien over the vessel, or where there is a right in rem against the vessel.

The arrest of a vessel is regulated by Article 164 of Law 8 of March 30 1982, also known as the Maritime Procedure Code.

Petitions of Arrest

Sometimes the plaintiff has an action in persona against the shipowner and has reason to believe 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 such cases the plaintiff may request the arrest of the relevant vessel, or any other property belonging to the defendant.

Petition of arrest to obtain jurisdiction
Where the plaintiff has not been able to start proceedings in his jurisdiction because the defendant is at sea, the plaintiff may request the arrest of the vessel while it is navigating in Panamanian waters or near Panamanian ports, even if there are no other contacts with the Panamanian jurisdiction.

Petition of arrest to make effective maritime liens
Article 557 of the Maritime Procedure Code determines the substantive law that should apply to each type of claim. If the applicable substantive law recognizes a maritime lien over the vessel for the type of claim involved, the plaintiff will be entitled to arrest the vessel, upon proving the provisions of the applicable law.

In cases where domestic law is applicable, Article 1507 of the Commerce Code will apply. Article 1507 lists the maritime liens that are recognized in Panamanian law. If the plaintiff has one or more of these liens, he may request the arrest of the vessel. The relevant leins include:

• judicial expenses;

• expenses, indemnification and salaries of assistance and salvage incurred during the last voyage;

• salaries, retribution and indemnification owed to the captain and members of the crew for the last voyage;

• salaries and wages owed to the longshoremen and stevedores hired directly by the shipowner or captain of the vessel during the last voyage;

• indemnification due for fault or negligence;

• the naval mortgage;

• monies owed for obligations contracted regarding the needs and provision of the vessel;

• sums taken on bottomry on the ship's hull and its gear for stores and supplies, if the contract was concluded and signed before the ship left the port where the obligations were undertaken;

• insurance premiums for the last six months;

• salaries of the pilot and watchmen;

• costs for conservation and custody of the vessel, its gear and its stores after the last voyage and entrance to the port;

• indemnification owed to the stevedores and passengers for lack of delivery of the goods loaded, or for damages incurred; and

• costs for the last acquisition of the vessel and the interest owed during the last two years.

Panamanian law also recognizes liens over freight and cargo, regulated by Articles 1510 and 1511.

Procedure for Arrest

To initiate proceedings for the arrest of a vessel, a plaintiff must file an arrest petition together with the complaint against the vessel or its owner, depending on whether he has an in rem or in persona action.

Under normal circumstances, the plaintiff must provide lawyers with a power of attorney to start the proceedings on his behalf. If the plaintiff is a juridical person he must also provide a certificate of legal existence. Both the power of attorney and the certificate must be notarized and legalized by a Panamanian Consul or, if possible, apostilled.

If there is a need to proceed immediately, the petition may be filed by lawyers as a third party acting on the plaintiff's behalf, for which they must consign a bond. An additional deposit for 50% of the amount of the bond must be consigned in the absence of a certificate of legal existence. The power of attorney and certificate of legal existence must be filed with the court within two months. When they are produced, the bond is returned in full.

The petition for arrest must contain all the information relating to the date and time at which the arrest may be effected. The petition must be accompanied by prima facie evidence proving the legitimacy of the claimant's rights.

Security of $1,000 must be filed with the petition, for damages that the arrest may cause. The plaintiff must always consign additional security of $2,500 as an advance for the expenses that may be brought about in the conservation and custody of the arrested vessel.

In cases where the arrest remains in effect for a long period of time, the upper case marshal may request that the claimant consigns additional funds to cover additional expenses.

The existence of previous arrests is not a barrier to the decree of new arrests over the vessel, provided that the new arrest is based on maritime liens.

In the case of actions in rem, domestic law does not give plaintiffs the right to arrest a sister ship.

Suspension of Arrest

Arrest may be waived or suspended when:

• the defendant consigns security, guaranteeing the amount claimed by the complaint and the costs assessed by the court;

• the plaintiff requests that the arrest be lifted; or

• the plaintiff, his representative or his attorney has attended a hearing and has been notified in writing by the upper case marshal 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 of the request.

Security may consist of:

• cash, which must be deposited in the National Bank of Panama;

• a certified cheque, or cashier's cheque, drawn on banks licensed to operate in Panama;

• surety bonds issued by companies authorized to engage in such transactions in Panama; and

• any other guaranties agreed by the parties.

The parties may agree the amount, nature and conditions of the bond to be substituted for the arrested vessel, and must jointly petition the judge for the lifting of the arrest and consigning of the agreed bond.

If the parties do not agree to the amount and nature of the bond to be consigned, the court (on motion by the defendant or a third party interested in lifting 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.

Arrest Orders Decreed by Foreign Courts

Judgments given by a foreign court decreeing an arrest order against a vessel may be executed while the vessel is in Panamanian waters. Interlocutory judgments and resolutions rendered by foreign states shall have the force of international treaties.

The Supreme Court will recognize a judgment given by a foreign court provided that (i) the obligation is legal in the Republic of Panama and (ii) the copy of the judgment has been notarized and legalized by a Panamanian Consul, or apostilled. The Supreme Court will then issue an order requesting that the Maritime Court enforce and execute the judgment.

For further information on this topic please contact Maria de Lourdes Marengo, Francisco Perez-Ferreira or Jose Manuel Jaen at Patton Moreno & Asvat by telephone (+507 264 8044) or by fax (+507 263 7887) or by e-mail ([email protected] or [email protected] or[email protected]).