Effect of convention
Portugal is a member of the International Convention Relating to the Arrest of Seagoing Ships 1952. Under Portuguese law, arrest is one of the main precautionary measures or injunctions for creditors to use against debtors. This injunction is available against all assets in general, including vessels.
In Portugal, an arrest will be awarded if the claimant is able to prove prima facie two essential conditions:
- The claim or credit on which the arrest is applied for is probable, in the sense of being viable; and
- The creditor has a justified fear of losing the guarantee of its payment, which Portuguese law understands as the estate of the debtor. This condition will be met if the claimant convinces the court that the debtor is dissipating or likely to dissipate its assets. This situation is defined by the concept of periculum in mora (ie, danger in delay).
Periculum in mora is the major difficulty that a creditor faces when trying to arrest an asset in Portugal. The concept is fluid by nature and the circumstances must be analysed on a case-by-case basis. It is extremely difficult to ascertain the amount of evidence of dissipation activity or risk of dissipation by the debtor that is sufficient for a successful arrest application. Evidence that the debtor is resisting payments or is in a bad financial state is not considered sufficient. In most cases, the claimant is obliged to prove actions by the debtor which indicate that assets are being sold or transferred or that such acts are imminent.
In this context, the International Convention Relating to the Arrest of Seagoing Ships comes into play. In accordance with the convention, the claimant need not prove periculum in mora. This rule is the keystone of the ship arrest regime regulated by the convention.
However, Article 1 of the convention limits the list of legitimate claims for arrest to:
- damage caused by a ship through collision or otherwise;
- loss of life or personal injury caused by a ship or occurring in connection with the operation of a ship;
- any agreement relating to the use or hire of a ship, whether by charterparty or otherwise;
- any agreement relating to the carriage of goods on a ship, whether by charterparty or otherwise;
- loss of or damage to goods including baggage carried on a ship;
- general average;
- goods or materials wherever supplied to a ship for its operation or maintenance;
- the construction, repair or equipment of a ship or dock charges and dues;
- wages of masters, officers or crew;
- masters' disbursements, including disbursements made by shippers, charterers or agents on behalf of a ship or its owner;
- disputes as to the title to or ownership of a ship;
- disputes between co-owners of a ship as to:
- employment; or
- earnings; and
- the mortgage or hypothecation of a ship.
Closed list for contracting state vessels
Article 8 of the International Convention Relating to the Arrest of Seagoing Ships uses the criterion of the flag to determine the scope of the convention's application. If the vessel to be arrested flies the flag of a contracting state, the convention is applicable as per Article 8(1).
However, if a vessel flies the flag of a non-contracting state, Article 8(2) establishes that the vessel "may be arrested in the jurisdiction of any Contracting State in respect of any of the maritime claims enumerated in article 1 or of any other claim for which the law of the Contracting State permits arrest".
Therefore, the convention establishes that vessels which fly non-contracting state flags may be arrested based on claims:
- listed in Article 1 of the convention; and
- which permit arrest in accordance with domestic laws.
Portugal has not made use of the facility mentioned in Article 8(3) of the convention. Therefore, by virtue of Article 8(2), which concerns non-contracting state vessels, the list contained in Article 1 serves as an extension of the cases in which arrest is permitted under the convention.
In this respect, Portuguese case law has been clear in establishing that this is the correct interpretation of Article 8(2) of the convention. A recent decision of the Maritime Court of Lisbon confirmed such an understanding and held that:
"the regime established by the Convention is entirely applicable to an arrest of a vessel which flies the flag of a Non-Contracting state… which means that such vessel may be arrested both for the claims listed in article 1 of the CB 1952 and for all others which are admitted by the lex fori."(1)
However, for vessels that fly the flags of contracting states, the effect of the convention is restrictive in the sense that those vessels may be arrested under the convention only for claims listed in Article 2.
Thus, for these vessels, Article 1 has the nature of a closed list. Contracting state vessels will suffer the effects of this list by being exposed to an effective arrest mechanism which does not require evidence of periculum in mora. However, they will be protected by the immunity effect that the convention grants them by excluding the possibility of arrest based on other claims (Article 2).
Claims outside Article 1
The different treatment of contracting state and non-contracting state vessels is crucial when it is realised that the list in Article 1 fails to contemplate some important claims in the shipping industry – insurance premiums and navigation agents' fees are just two important examples.
Another important matter is the claim for judicial costs. Can a claimant with a claim that is eligible for arrest under Article 1 rely on the application of the convention to claim also the judicial costs and expenses incurred with the arrest and connected collection efforts? The Maritime Court of Lisbon replied in the negative in the abovementioned judgment.(2) The fact that the nature of such a claim for costs and expenses does not directly match the claims foreseen in such a list led the court to exclude its eligibility for arrest (while awarding arrest for the bunker's claim in question), despite the claimant's argument that such sums should be considered connected with the eligible bunker's credit.
Portuguese case law must therefore be seen as closely adhering to the exact wording of the list in Article 1, conceding little or no leeway in its interpretation.
Evidence of claim less burdensome
While the typical approach of Portuguese courts towards the requirements of prima facie evidence of a claim for arrest would burden claimants with the need to produce at least some evidence of the claim – which in most cases would involve the presentation of witnesses – the practice of the Maritime Court of Lisbon makes this less burdensome.
In its recent judgment the court held that:
"the convention sets no rule imposing the need for demonstration of the claim that the claimant is arguing. Thus, one can conclude that the mere allegation of such a claim will be enough to obtain the arrest."
The judge only reserves the prerogative of examining the statement of claim to verify that it is not unfounded or frivolous. This is a simple and open approach towards the claimant's burden of proof. In practical terms, this position frees the claimant from the need to present witnesses (usually foreign) on short notice – the urgent nature of the arrest proceedings allow short notice notifications – thus sparing it the costs and logistics involved, which may be significant. The measure therefore contributes to establishing Portuguese ship arrest as an efficient remedy available for creditors whenever the convention is applicable.
For further information on this topic please contact Carlos Costa e Silva at Barrocas Advogados by telephone (+351 21 384 3300) or email (firstname.lastname@example.org). The Barrocas Advogados website can be accessed at www.barrocas.com.pt.
(1) Case 247/15, 5TNLSB, May 11 2015.
(2) Case 247/15, 5TNLSB, May 11 2015.
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