On November 16, 2017, the Fourth Panel of the Superior Court of Justice (STJ) recognized, by unanimous decision, the validity of a ship mortgage in Brazil, constituted and registered in accordance with the laws of the Republic of Liberia.
The decision was rendered for the Special Appeal No. 1705222/SP, in a dispute involving the Liberian ship “OSX 3”, an FPSO, and which partially overrules the decision of the Sao Paulo Court of Appeals (TJSP).
The decision overruled by the STJ had concluded that a foreign ship mortgage can only be recognized in Brazil if the country of registry has ratified the Bustamante Code or the Brussels Convention for Unification of Certain Rules of Law Relating to Maritime Liens and Mortgages, 1926. This is not the case for Liberia, nor is it for some of the major countries in international trade.
The decision of the TJSP also did not find, in the court documents, evidence of a customary international law recognizing the extraterritorial effects of a foreign ship mortgage.
However, the interpretation by the STJ overruled the understanding of the decision of the TJSP and recognized the extraterritorial effects of a ship mortgage in Brazil, despite the country of registry not having ratified the aforesaid international treaties.
The decision of the STJ is currently in the process of being published, which can be followed by the filing of a motion of clarification by any of the parties to the proceedings.
The decision of the STJ represents an important milestone in the legal analysis of the validity of ship mortgages in Brazil. It is the first time that the Brazilian courts have discussed the matter in depth.
This recent decision is relevant to any ongoing or future projects involving a foreign-flagged ship in Brazil, including units employed in offshore exploration and production of oil and gas.