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Ship arrest under Cyprus Law

CATEGORY: SHIPPING

Ship arrest under Cyprus Law

Α. Introduction

Cyprus is not itself a party to the International Convention Relating to the Arrest of Sea-Going Ships 1952; however, the Administration of Justice Act of 1956 (AJA)[1], which ratifies the Convention, applies to Cyprus[2]. Under Cypriot law, maritime liens enjoy advantages over all other permitted actions in rem (statutory liens), at the time of creation of the lien, in priority and in the enforceability of the security. In addition, statutory liens have no priority over mortgages.[3] The significance of a maritime lien is that it enables the Court or its appointees to arrest and seize the vessel in satisfaction of the claims against her. Cyprus courts follow the English case The Bold Buccleugh[4], which recognises as maritime liens salvage, bottomry, master and seafarers’ wages, disbursements and liabilities, and damage done by a vessel. The arrest of a ship is only possible in the case of an action in rem (however, the possibility of securing a Mareva injunction for freezing of assets, including a vessel, is also available). Thus, the filing of an action in rem is a prerequisite for such an arrest. The court has wide discretion to order the arrest of the vessel if it is satisfied that the plaintiff is eligible for arrest. 

Similarly, the arrest of a sister ship is applicable in Cyprus by means of Section 3(4) of the AJA. However, the concept of ‘associated ship arrest’ is not recognised under Cyprus law.

Β. Arrest of vessel for contracts relating to the sale and purchase of a ship

It is not possible to arrest a vessel for contracts relating to the sale and purchase of a ship, unless the circumstances of a case give rise to a claim to the possession or ownership of a ship or to the ownership of a share therein (under clause 1(1)(a) of AJA which applies in Cyprus under the Courts of Justice Law 1960 (Law No. 14/1960)). Also, while section 30 of the Merchant Shipping (Registration of Ships, Sales and Mortgages) Laws of 1963 to 2005 (Law No. 45/1963 as amended) provide for the right of an ‘interested person’, to apply to the Supreme Court, in its Admiralty Jurisdiction, for the issuance of the order prohibiting any dealing with a ship or any share therein if it thinks fit under the given circumstances, the case law of the Supreme Court has ruled out the buyer of a ship from the definition of the ‘interested person’.

 C. Arrest of vessel by bunker supplier

It is possible for a bunker supplier (whether physical and/or contractual) to arrest a vessel for a claim relating to bunkers supplied by them to that vessel. In the admiralty case No. 32/2014 between (1) Interbunker Management Ltd, and (2) Novoil Ltd v m/v ‘BARIS’,

The court issued an arrest warrant against the defendant’s vessel which was anchored in the port of Larnaca, Cyprus. The claim of the plaintiffs related to the supply of bunkers to the defendant’s vessel, and the arrest warrant was issued upon filing an ex parte application at the Supreme Court of Cyprus.

D. Procedures of ship arrest

Rule 50 of the Rules of the Supreme Court in its admiralty jurisdiction (RSC)[5] allows any party to apply to the court for the issue of a warrant for the arrest of property (i.e., for the arrest of ship or cargo), at the time of, or at any time after, the issuance of the writ of summons (but not without the submission of a writ of summons) in an action in rem. The application must be accompanied by an affidavit containing the particulars prescribed in the RSC, including the nature of the claim, that the aid of the court is required, the national character of the ship and that, to the best of the deponent’s belief, no owner or part owner of the ship was domiciled in Cyprus at the time the necessaries were supplied or the work was carried out. However, the judge has the discretion to issue an arrest warrant even if the affidavit does not contain all the prescribed particulars.

The arrest warrant shall be served by the marshal of the court in the same manner as prescribed by the Rules for the service of a writ of summons in an action in rem. For instance, if the arrest warrant is to be served upon a ship, or upon cargo, freight or other property that is on board a ship, the warrant shall be considered as duly served if an office copy of it is attached to a conspicuous part of the ship, including a mast. If the cargo, freight or other property is not on board the ship, an office copy must be attached to some portion of the cargo or property.

The RSC vest the power and discretion on the judge to issue provisional arrest orders, notwithstanding that no notice of the application has been given to the ship or the shipowner, on such terms as to the furnishing of security as shall appear to the judge to be having regard to the circumstances of the matter in question (Rule 205). In practice, almost invariably the judge will order the arresting party to provide security in the form of a bank guarantee from a Cyprus bank, the aim of which is to cover the costs of the marshall and to compensate the shipowner for loss he or she may have suffered due to the detainment of the ship, acknowledging the concept of wrongful arrest. However, the security of the arresting party shall not be seized in all cases where the provisional arrest order is finally set aside as unjustified. The arresting party’s guarantee may be claimed only in the event of wrongful arrest, which was so unwarrantably brought that it rather implies malice or gross negligence.

At the time the arrest warrant is issued, the judge will determine the amount of the security that the shipowner or other opposing party may deposit to the court for the arrested ship to be released, taking into account the level of the claim. The ship may be released by an order of the judge upon a written application and provided that the security originally set by the judge is deposited to the court.

Any person desiring to prevent the arrest or the release of any property under arrest or the payment of any moneys out of court may, by a written application to the Registrar of the Admiralty Court, cause a caveat against any such action or procedure and the court or judge will not proceed to issue the requested order without notice to the caveator, unless the judge deems that special circumstances have been presented that render it desirable or necessary to make such order without notice to the caveator, upon such terms as may seem fit to the judge. The caveat shall not remain in force for more than three months from the date of being entered, unless extended by further applications.[6]

Almost invariably at the time an arrest warrant is issued, the ship is located within the territorial waters of Cyprus,[7] either anchored in the port area or anchorage or berthed in one of the ports controlled by the Cyprus government (i.e., the ship must not be berthed in any of the ports that have been illegally occupied by the Turkish administration since Turkey’s invasion of Cyprus in 1974). An arrest warrant against a ship may be issued even if, at the time the warrant is issued, the ship is located outside the territorial waters of Cyprus. However, in this case, the arrest warrant will not be able to be served unless the ship heads within the territorial waters. In such instance, the arresting party must see that the warrant will be adequately timetabled so that it does not expire before served on the ship.

The Supreme Court has recognised the option of a party to the admiralty proceedings to seek the ‘arrest’ of a ship by using the Mareva injunction mechanism under Section 32 of the Courts of Justice Law of 1960 (Law No. 14/1960). However, the Court stressed that the power of the Court to issue such an injunction must be exercised only on the premise that the ship is within the jurisdiction of the court or, in other words, within the territorial waters controlled by the Cyprus government.

The issuance of an arrest warrant, based on Section 50 of the RSC or by way of a Mareva injunction, as security for court proceedings (not arbitration proceedings) pending in another jurisdiction is plausible pursuant to the provisions of Regulation (EU) No. 1215/2012 and, in particular, Section 35 of the Regulation, provided that the ship is within the jurisdiction of the court.[8]

In Nationwide Shipping Inc v. The Ship ‘Athena’,[9] the Supreme Court, by adopting an extract from the judgment given in the English case The ‘Vasso’ (formerly ‘Andria’),[10] held that the Admiralty Court has no jurisdiction to issue an arrest warrant in an action in rem for the purpose of providing security for an award that may be made in arbitration proceedings. However, it seems that the extract from the English judgment extends to other proceedings as the court in The ‘Vasso’ case stressed that the purpose of the exercise of the Admiralty Court’s jurisdiction to arrest a ship is to provide security in respect of the action in rem before it and not for any other purpose. In The Ship ‘Athena’ case, the Court did not consider the application of Regulation (EU) No. 1215/2012, which, of course, prevails over any domestic law and, therefore, confers the jurisdiction to the Admiralty Court to issue provisional measures and orders for matters adjudicated on their merits in other European jurisdictions.

E. Dsclosure obligations in court proceedings

Whilst the Judge always has the discretion to ask, out of its own motion, the parties in the litigation to proceed with disclosure of documents or facts, the Cyprus Admiralty Jurisdiction Order of 1893 (the Order), contains varied provisions which a party in a litigation may utilise to cause such disclosure.

More precisely, the disclosure of documents in an admiralty action is governed by sections 93 and 98 of the Order which constitutes the authoritative regulatory framework governing the admiralty procedure before the Supreme Court in its Admiralty Jurisdiction. In particular, section 93 of the Order provides that ‘the Court or Judge may, on the application of any party to an action and without notice to any other party, order that any other party shall make discovery, by affidavit, of all documents which are in the possession or power relating to any matter in question therein’. A similar ex officio power is vested to the Court or Judge without the motion of any party.

Rule 91 of the Order, empowers any party who is desirous to obtain the answers of the adverse party on any matters material to the issue, to apply to the Court or Judge for leave to administer interrogatories to the adverse parties to be answered on oath within such time as the Judge may direct. It is apparent that the administration of interrogatories by any party lies exclusively in the discretion of the Judge who pays regard on whether the interrogatories are material to the issue in litigation and on whether it is appropriate and convenient to grant the requested leave based on the applicable circumstances. Interrogatories which are intended to elicit admission of facts which may be adduced to the Court at the hearing or which are, or are expected to be, within the applicant’s sphere of knowledge are doomed to rejection.

The Court or Judge may, on the application of any party in the litigation and without notice to the adverse party, order the discovery, by affidavit, of all documents which the other party has in his possession or power relating to any matter in question. Any documents not contained in the affidavit of discovery cannot be put in evidence, unless with the leave of the Court or Judge (Rules 93–95). Also, a party to an action may serve upon any other adverse party a notice to produce, for inspection, any document in his possession or power relating to any matter in question and if the party so served with the production notice omits or refuses to comply with the notice, an order from the Court or Judge to this effect may be sought (Rules 95–100).

Moreover, in an action for damage by collision, the parties are procedurally obligated to file in the Court a statement with certain particulars (the so-called Preliminary Acts) outlined in the Order, relating to the circumstances of the collision. The Preliminary Acts must be sealed up and signed by the parties and must be filed by the plaintiff within one week from the issue of the writ and by the defendant at any time before the time fixed by the writ of summons for the appearance of the parties before the Court.

F. Electronic discovery and preservation of evidence

The Order does not currently contain provisions for, and the Admiralty Court practice in general does not currently permit, the electronic discovery and preservation of evidence. The Cyprus Government has recently established a Deputy Ministry of Research, Innovation and Digital Policy with the mission, inter alia, to develop and implement policies in information technologies and e-government in the public sector, including the justice system. Hence, it is expected that e-procedures, including the e-discovery and preservation of evidence, will soon be a reality in Cypriot justice system.

G. Court orders for sale of a vessel

An arrested ship, cargo or other property may be appraised and sold by order of the court or judge, either before (pendente lite) or after the final judgment. In such case, the judge will appoint the marshal of the court or any other person to appraise the property under arrest (in practice, the court appoints the marshal in almost all cases) and to proceed with its sale at auction (the sale procedure adopted in most cases). Nonetheless, the judge may allow the sale of the ship by private sale if he or she deems this fit and provided that all parties in the litigation acquiesce.[11]

The proceeds from the sale of a ship are paid into the court and, upon an application by any judgment creditor, will be distributed to all judgment creditors who claimed a share of the proceeds, in order of priority. In Cyprus, the priorities have been determined by case law and no guidance is found in the RSC or in any other law or procedural rules applying in Cyprus. Detailed analysis of the order of priorities is outside the scope of this chapter. In general terms, however, governmental fees, including the costs and expenses of the marshal, take priority over any other claims, and maritime liens take priority over statutory liens, while statutory liens have no priority over mortgages.

 Author: Zacharias L. Kapsis

 

FOOTNOTES: 

[1] The Administration of Justice Act of 1956 (AJA) defines the admiralty jurisdiction of the Supreme Court of Cyprus.

[2] By virtue of its Constitution and by Articles 19 and 29 of the Courts of Justice Law of 1960 (Law No. 14/1960).

[3] As seen in Nordic Bank PLC v. The Ship ‘Seagull’ (1989) 1 CLR 420.

[4] The Bold Buccleuch (1851) 7 Moo PC 267.

[5] The Rules of the Supreme Court in its admiralty jurisdiction are stated in the Schedule of the Cyprus Admiralty Jurisdiction Order 1893, which regulates the procedure and rules before the Supreme Court.

[6] Rules 65–73 of the RSC.

[7] The Republic of Cyprus, pursuant to the United Nations Convention on the Law of the Sea 1982 (UNCLOS), as well as the Territorial Sea Law of 1964 (Law No. 45/1964), has a territorial sea, the breadth of which extends to 12 nautical miles from the baselines. The geographical coordinates and the relevant map of the Cypriot baselines were submitted to the Secretary General of the United Nations on 3 May 1993. In the territorial sea, the Republic of Cyprus exercises full sovereignty and applies all related domestic laws, in line with UNCLOS provisions. Furthermore, according to the Regulation of Innocent Passage of Ships through the Territorial Waters Law of 2011 (Law No. 28(I)/2011), as well as UNCLOS, every foreign ship, whether merchant or warship, has the right of innocent passage through the territorial sea of the Republic of Cyprus, without encroaching upon its sovereignty and without a prior licence.

[8] The Commerzbank Aktiengesellschaft v. The Ship ‘Tour 2’, Admiralty Action No. 2/2018, 25 May 2018 is relevant.

[9] [2012] 1C JSC 2343.

[10] [1984] Lloyd’s Law Reports 235.

[11] Rules 74–77 of the RSC.

 

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