Debt Collections and Ship Arrest

Meana Green Maura, with offices in Madrid, Bilbao and Cadiz, has wide experience in shipping and transportation law, particularly in the dark art of ship arrest, both for members of ITIC and for other players in the shipping world. Verónica Meana, Partner, Meana Green Maura A dark art is quite an accurate description of ship arrest because it is powerful and dangerous and can be complicated. Also, although sometimes our clients think that we can perform magic, we are not Harry Potter or, in my case, Hermione Granger. A colleague once said to me that all a ship owner needed in order to trade was a sympathetic bank manager, a bunker supplier, and a ship agent.

Unfortunately, and increasingly in this market, ship owners tend to confuse their agent with their bank manager and this is a situation that you need to avoid at all costs. It is rather similar to falling off the Eiffel Tower, at each floor the agent may say “so far so good” but, of course, it is not the fall that hurts but the landing. There is no point in putting lots of appointments through your books if you have to write off half of them as bad debts. Before taking on the agency you need to consider whether it is worth your while. By this, I mean, that you need to ask yourselves the question, “will I be paid for supplying the services I am requested to provide to this ship?” If you think that there will be a problem, ask ITIC. I was told once that a lawyer in this position is nothing more than an “ambulance driver”. I prefer to think that we are “doctors”. A lawyer can try to cure, minimise or contain the damage but the person who can prevent the problem arising in the first place is you. Therefore, before taking on the ship, please consider the following:

a. Ship age

b. Is she entered with a respectable P&I Club,

by which I mean an International Group Club.

c. Is she in class?

d. Has she been detained anywhere and why?

e. Who are your principals?

If you don’t know the answer to these questions, ask ITIC. ITIC has access to the most up to date information available. If an owner of an elderly ship, whose class expired three years ago and which has been detained by Port State Control in her last port of call, and who asks you to issue clean bills for a cargo of steel coils when the Mate’s receipts have been claused, you may have an issue and need to speak to ITIC. To give another example, in a recent case, I was instructed to arrest a ship in Vigo on behalf of a ship agent. However, despite scrap prices being high at the time, it was questionable whether the value of the ship exceeded the quantum of the agent’s claim, let alone the innumerable maritime liens which the ship was likely to be subject to during her detention (given that it was clear that her owners were not going to put up security to release her). In that case, we proceed to arrest because surveyors could not rule out that she was worth considerably more than the quantum of the claim. Regrettably, the ship remains in the port and the Spanish authorities are threatening to commence abandonment proceedings. In that particular case, it is possible that the agent may recover some monies even if the authorities seize the ship but my point is that this could be two or three years down the line and there are no guarantees of success. Of course, had the agent been more selective in his choice of principal, he may not have been faced with this situation. As I said before, ship arrest is a powerful tool. Once the arrest is in place the chances are that the claim may be settled. However, the consequences of wrongful arrest can be serious so, like a marriage, one must not enter into lightly. Before making the decision to arrest, you and your legal advisors and insurers must consider its many implications: Ship arrest is time consuming and stressful. You are all business people providing a service to your principals. You want to maximize your income and profit in as simple a way as possible. Spending time discussing the legal niceties of ship arrest with your lawyer or the Club is not what you want to be doing on a Friday afternoon when your wife or husband is screaming for you to come home. You must also consider the possible economic

consequences that the detention of the ship may have for the parties involved in her operation. If it goes wrong, it can develop into a serious claim for wrongful arrest. Also, just because “you can” arrest does not mean that “you should” do so. Ship arrest is only a tool to make sure a future judgement is enforceable. It is merely accessory to the substantive proceedings. It does not create rights of actions or liens. Yet, sometimes an arrest may be possible but enforcement against the ship is not. This is when you may need to consider who your principal is. For example, an agent may have a maritime claim, which does not have the status of maritime lien, against a time charterer. A maritime claim affects the personal assets of your principal. A maritime lien on the other hand affects or follows the ship regardless of whether the owner is your principal or not. Yet, in some jurisdictions, all that is needed for a ship arrest is to allege a maritime claim. In those situations even though ship arrest may seem like the leverage one needs to settle an arrest will be declared wrongful and you may have to pay a substantial amount in damages to her owner. If your principal is a charterer and his only asset is a mobile phone then you are in trouble. Ship arrest differs from jurisdiction to jurisdiction: for example, in Spain, the claimant does not need to make an appearance in Court in order for the judge to grant the arrest. In Portugal, however, the ship agent is obliged to do so prior to an arrest being granted. This must be fine if you are a Portuguese ship agent but a greater logistical problem if you are based in Hong Kong. You should have received a copy of ITIC’s ship arrest handbook. This details the procedures and documentation required in many jurisdictions and will assist you in preparing the documentation you require in order to arrest. Also, if you are using ITIC to arrest, please make sure that you reply to the final message that the Club sends you prior to making the arrest. Without a satisfactory reply to that message, ITIC will not instruct me or any other lawyer to arrest on your behalf. The particular legal complications of the jurisdiction where the arrest is going to take place must also be taken into account when deciding to arrest.

For example, there are jurisdictions which require you to provide:

a. A power of attorney issued by a notary public

and duly legalized and translated if the power of attorney has been issued in a foreign country.

b. Prima facie evidence of the claim – this sometimes means not only presenting documentation but also translations of the same.

c. Countersecurity – this would be to cover the shipowner’s losses in case of wrongful arrest. Countersecurity may be provided either by cash deposit or bank transfer to the assigned account or by bank guarantee. As I understand the situation, ITIC does not provide this countersecurity. You must do it yourselves and this can be a problem if you are arresting in a foreign jurisdiction because putting up a bank guarantee or transferring money from a foreign account takes a few days. In that few days the ship could have sailed and the time, money and effort spent thus could be wasted.

d. Bond – to maintain the ship during the arrest.

e. As stated before, a court appearance.

f. Deadline to present the complaint in the substantive proceedings.

g. Also, you must consider the Court’s availability and idiosyncrasies.

For example, in some jurisdictions, such as South Africa, the Admiralty Courts are extremely proactive and you can even find a Judge on a Saturday morning when he or she is on the golf course who is willing to arrest a ship. However, other jurisdictions, including my own, are trickier. From my own experience, some judges fail to see the urgency of an arrest and the necessity to move swiftly to make ruse the arrest is in place before the vessel departs. This is because they may not be professional judges or if they are, they could be more used to handling other types of matters. I had this experience when a Judge got upset because he had been allocated two ship arrest cases in the very last days of July prior to his holidays. He rejected both and his state of mind was probably at the base of

his decision. Fortunately the vessel was for sale and remained in the Port during the time it took the Court of Appeal to reverse the Judge’s decision. On another occasion, the arrest order was not issued on the date the petition was made because the Judge to whom the petition was assigned had other hearings scheduled for that day and was unable to deal with the petition. Also, please try to avoid needing to arrest a vessel in Spain in August which is the month in which the Courts are “on holidays”. You may think I’m trying to do myself out of business by telling you all the pitfalls of arrest. However, sometimes arrest is the only option and you must go for it and go for it early. There is little point advising the Club and/or your lawyers of a large outstanding debt a week before your lien expires and the ship is sailing off the coast of Somalia. The key is to notify early. Certainly, the Club will thank you. There is an obligation in ITIC’s rules that debt collections must be notified to the Club within twelve months of the debt arising, although, given the state of the current market, you would be well advised to notify Club much earlier.

Hopefully, this means that, if you need to arrest, you will get your money sooner.