Vessel Arrest in UAE

The maritime industry plays a vital role in bolstering the global economy. Maritime trade has its own special significance in contributing to the economy of various countries. The countries with busiest ports where major international maritime transactions take place, demand dedicated legislations to empower them to seize the vessels (ships) in often occurring circumstances, for instance, maritime debts. The United Arab Emirates (UAE), is located between Asia and Europe, happens to be the prime shipping centre for the Middle East. It has fourteen (14) commercial ports located in different Emirates, among which the Jebel Ali Port is ranked in the top 10 of the world’s largest seaports. It is also known as the world’s largest man-made harbour. 

 

The UAE has seen a major escalation in its maritime business; however, every coin has two sides, likewise, with the surge in maritime transactions, maritime disputes have become inevitable too, during the course of business. Federal Law Number 26 of 1981 on the Commercial Maritime Law (the Maritime Law) which is amended by Federal Law Number 11 of 1988, is the governing legislation with regards to all maritime-related issues. During the course of business, it might be necessary for the vessel (ships) to be detained in a manner to recover the maritime debts. Even though UAE has not ratified the Arrest Convention of 1952 or has been party to any international treaty with regard to vessel arrest, it has been able to effectively handle the disputes pertaining to maritime debts through the provisions contained in the Maritime Law. 

 

Having said that, UAE courts may still enforce the contracts formed in line with the international conventions as long as they submit the translated and attested copy of such conventions to the court. In cases where any subject matter in dispute has not been specifically dealt with by the provisions of the Maritime Law, it may apply maritime customs and general principles of justice that are not in contradiction to the provisions of the Sharia Law, pursuant to article 8 of the Maritime Law. To resolve such disputes you must approach the best maritime legal team beside you to get it sorted. The Maritime Law of UAE provides for two kinds of vessel arrest, provisional and executory arrest; articles 115 to 122 of the Maritime Law cover the provisions regulating provisional arrest (preservatory arrests) and articles 123 to 134 cover executory arrests. The provisional arrest can be exercised when it’s a matter of maritime debts. Article 115 of the Maritime Law provides the grounds which can give rise to a claim with respect to maritime debts. The grounds are as follows:

• The damage caused by the vessel as a consequence of an accident or collision;
• The use of a vessel caused the death of someone or has resulted in causing personal damage.
• On the occasions of salvage or assistance;
• When it's regarding the usage of a ship under the charter party or any other such contracts;
• When it's pertaining to agreements as to conveyance of goods under a charter party, bill of lading or any other such documents;
• Loss of or any kind of injury to the goods or chattels on board;
• In the matters relating to general average claims;
• Towage or pilotage of the vessel;
• Supplying necessary products or equipment in order to maintain or operate the ship;
• Matters involving construction, reparation of the ship’s machinery, dock charges and other dues;
• Payments made by the masters, shippers, charterers or agents on behalf of the owner;
• Regarding the salary of the master, officers, crew and other employees working onboard the vessel under a contract of maritime employment;
• When it’s a question of the ownership of the ship;
• A dispute regarding the joint purchase or title of the vessel or regarding the possession or use of the ship, or with the right to the profits emanating from the use of the ship;

• Maritime mortgages.

 

The arrest of Sister Vessels: 

Article 116 of the Maritime Law allows the claimant to not only arrest the vessel in dispute, but also any vessel owned by the defendant at the time when the claim is commenced. The other vessel is referred to as the sister's vessels. However, the UAE courts are not generally interested in piercing the corporate veil in these cases. Nevertheless, the claimant is restricted from arresting the sister ships in the following circumstances:

• If it’s a dispute that pertains to the ownership of the vessel;
• If it’s a dispute over joint ownership, possession or use of the vessel or its matter of right to the profits produced from using the vessel in dispute;
• If it’s a dispute over maritime mortgage; and
• If the vessel was hired by the demised.

 

Article 84 of the Maritime Law provides for vessel arrest in cases of priority debts. The priority debts may include taxes, dues, pilotage fees, damage to the port, wreck removal, port chargers, contracts made by the master for the maintenance and continuance of the vessel, and compensatory claims in favour of the charterer and claims for insurance premiums, among others. In cases of priority debts, the vessel can be arrested even if it is been sold to a third party. 

 

Procedure for Vessel Arrest: 

The claimant shall submit an ex prate application along with all the relevant documents and prima facie evidence establishing the maritime debt against the defendant, to the competent court having jurisdiction over the port where the vessel is. Thereafter, the court will examine the documents and evidence and may grant an order to arrest the vessel, and often such an order is issued without hearing the opinion of the counsel with regards to the same. Once the order to arrest has been issued, in line with article 285 of Federal Law Number 11 of 1992 on Civil Procedures Law (the Civil Procedure Law), the claimant is obligated to file a substantive claim within a period of eight (8) days from the date of such order; or less it shall give a right to the arrestee to file a suit claiming to lift the arrest. 

Although there are no provisions specifying the requirement of submission of a security bond by the party claiming to arrest the ship, the court may at its discretion demand the claimant to deposit a counter-security as a guarantee. The security deposit is for the purposes of compensating the defendant for the damages or losses incurred due to the arrest of the vessel, in cases where such arrest turned out to be wrongful. Apart from the counter security, the claimant is also required to submit an undertaking stating to pay the court fees and other expenses connected with the arrest of the vessel, like towing, moving and maintaining and may also include amounts due unto the crew. It is pertinent to take note that the claimant is required to present to the court their original Power of Attorney (POA). 

 

As UAE is not a party to the Arrest Convention of 1952, the court will only accept the POA which is executed abroad, after getting it notarized in the foreign country and then the same shall be attested by the relevant Ministry of Foreign Affairs of the country of execution and also by the UAE Embassy in that country. The notarized POA then shall be further attested in the UAE by the Ministry of Foreign Affairs and Ministry of Justice. The same shall be translated into Arabic by a certified legal translator. The owner of the ship can contest the arrest order by registering or raising an objection to the arrest by challenging the accuracy of the procedures or based upon the facts of the arrest in line with Maritime Law. 

 

Jurisdiction: 

Article 122 of the Maritime Law covers the scope of jurisdiction of the UAE’s civil courts to accept the substantive claims, which is also in line with jurisdictional powers which are conferred on the civil court under articles 21 (3) and 21 (7) of the Civil Procedure Law, irrespective of if the vessel flies the UAE flag:

• If the claimant’s residence address or main office is in UAE;
• If the maritime dispute or claim emanated in UAE;
• If such claim originated during the voyage upon which the vessel was arrested;
• Where such claim arose as a result of a collision or assistance and over which the UAE courts have jurisdiction;
• If such claim is secured by a maritime mortgage over the arrested vessel.

 

Pursuant to Article 21 (2) of the Civil Procedure Law, the scope of the court’s jurisdiction has also been extended to hear claims against a foreign defendant, who has no residence or domicile in the UAE. In practice, the UAE courts tend to not consider a foreign jurisdiction over the dispute, if the UAE court can exercise jurisdiction over such disputes pursuant to the provisions of the UAE laws and where the claimant or the defendant opts to proceed under UAE’s Jurisdiction. However, the UAE court may not continue with the court proceeding, in circumstances where the arresting party provides evidence of commencement of foreign court proceedings as per their contractual agreement. 

 

If the parties have a valid arbitration agreement, the UAE courts will not interfere in that dispute even though they can exercise jurisdiction over such matter pursuant to the provisions of the Civil Procedure Law. The UAE courts tend to uphold the agreement between the parties to arbitrate over litigation. The UAE court will not disregard a foreign arbitration clause, despite it having jurisdiction over the matter in dispute pursuant to the right to arbitrate recognized by article 203 of the Civil Procedural Law. 

Nevertheless, execution of the foreign judgements in UAE courts can be difficult in the absence of reciprocal enforcement agreements between the UAE courts and the foreign jurisdiction which passed such decree. However, the UAE has become a party to some reciprocal enforcement treaties like the 1996 Gulf Cooperation Council (GCC) convention and also the 1983 Riyadh Arab Agreement for Judicial Cooperation. It also entered into reciprocal treaties with France, China, India and Tunisia. If the foreign arbitration takes place in a state which is a member of the New York Convention on the recognition and enforcement of foreign arbitral awards 1958, makes the enforcement of foreign judgements in the UAE uncomplicated. As per article 235 of Civil Procedure Law, the UAE court will recognize and enforce the foreign judgements on these criteria:

• If the UAE court has no jurisdiction over such disputes;
• If the order is passed by a court which has jurisdiction over the matter as per the law of the country where such judgement was issued;
• If the defendants are duly summoned and represented;
• If such decree or judgement can seek res judicata as per the provisions of the law of the country where the order was issued;
• If such judgement or order is not contradicting the existing UAE judgements.

 

The UAE courts are likely to dismiss any case before the time of delivering judgement if it has no jurisdiction over such matter. The UAE courts will hold the arrest of the vessel which is been made in UAE, for the parties seeking to proceed with foreign court proceedings, as long as they are able to satisfy the UAE courts on the commencement of the foreign litigation within a period of eight (8) days from such arrest. The UAE courts favour the foreign litigation or arbitration clause in the agreement between the parties, as long as the parties have adhered to the provisions of the Civil Procedure Law. Article 31 of the Civil Procedure Law confers jurisdiction on the civil courts on the matters where the defendant is located or has its business in the UAE; where the contract was entered and carried out in UAE; where the damage or loss has taken place in the UAE. Therefore, where the UAE courts can exercise jurisdiction over the dispute, it is unlikely to let the parties proceed with a foreign court jurisdiction. 

 

Sale Order by the Court: 

The court may order the sale of the arrested vessel to retrieve the debts owed. The court will schedule a day for opening a bid price and publish the time and place of the sale in the local newspaper. The sale is not allowed to be taken place before the completion of fifteen (15) days from the date of such publication and not later than ninety (90) days since the issuance of such order. Non-compliance of this duration to make the sale can allow the debtor to apply for the arrest to be declared null and void. The judicial sale takes place in three different auctions at intervals of seven (7) days and the highest bid at each session shall form the base price for the subsequent session. Thereafter, the bidder who won may pay the funds to the court within a period of twenty-four (24) hours, any failure by the bidder to pay such funds within this time period may allow the court to resell the vessel. Any appeal regarding the sale order is required to be filed within fifteen (15) days from the date of such order and the only ground on which it can be made shall be a defect in form. 

 

Procedure for the Release of the Vessel Arrested: 

Article 118 (2) of the Maritime Law provides the procedure to release the ship from arrest. The order to arrest shall be cancelled if the court is convinced that the security or guarantee submitted by the owner whose ship has been arrested is equivalent to paying the amount in dispute. However, the action by the shipowner will not imply that he has accepted his liability or denied his right to limited liability. If the ship’s owner failed to present such security, then the only way to seek the release of the arrest is by contesting the claim and thereby, obtaining the release of the ship. 

 

Exceptions to the release of the ship arrested, despite the presence of a guarantee or security presented by the defendant could be in the circumstances where the matter in dispute is regarding the ownership of the ship, possession or use or rights to profits arising from the use of the ship. In these cases, the court will not nullify the arrest order on the ship but, upon receiving the security, it may order a third-party company to take control of the ship and allow the owner to make commercial use of the ship. The courts tend to accept three types of security bonds in cases of maritime debt, such as cash or a manager’s cheque deposited into the court’s treasury, or a bank guarantee from a bank located in UAE or the parties are allowed to offer alternative assets as a security. The amount of security shall be equivalent to the value of the full claim. 

To commence the order to release the vessel, it is necessary to make copies of such orders and serve them to the concerned authorities like the harbour master, the coast guard and any other competent authorities. The collapse of the famous OW bunker company has led to numerous cases of vessel arrest by the physical suppliers for being not paid. The OW bunker company is the largest bunker supplier. The question here is doing the UAE’s Maritime Law permits the physical supplier to seek an order to arrest the ship used to deliver such bunkers, even though the physical suppliers have no direct contractual relationship with the owner of the ship. The UAE’s Maritime Law confers a right to arrest the ship in cases of unpaid bunkers. This can be initiated irrespective of if such supply contract was entered with the owners, any contractual suppliers or the charterer. On comparing the judgements passed by the UAE courts of different Emirates with regards to the OW bunker’s case – as per the rulings of the Dubai and Ras-al-Khaimah Courts, it can be concluded that the physical supplier has the right to arrest supplied ship and the right to enforce against the ship or any other security placed in the court to release the ship for the outstanding amount of the OW bunker. However, the court was of the opinion that due to the absence of a direct contractual relationship between the supplier and the shipowner, the shipowner is not liable to the physical supplier for the unpaid bunkers and the shipowner can contest the arrest order.

On the contrary, the Court at Fujairah based its opinion on the fact that the standard delivery receipt is signed by the master of the vessel, thereby, it leads to a direct contractual relationship between the shipowner and the physical supplier. Therefore, it can be said that the physical supplier can claim an arrest order against the supplied ship if it’s in UAE’s waters. However, the case with regards to the unpaid bunker has experienced different opinions from time to time based upon the establishment of the contractual relationship between the parties to the dispute. 

 

Appeal Number 44/2020 Commercial

In this following case, the Khor Fakkan’s Court of Appeal has upheld the superseding power of the private law (Maritime Law) over general law (Civil Procedure Law) in determining the validity of the arrest order. The claimant (shipping company) has agreed to sell one of its vessels to the defendant’s company. The defendant agreed to pay twenty (20) per cent of the total purchase price to the claimant before the delivery of the vessel and the rest of the eighty (80) per cent of the purchase price within three (3) days of the delivery of the vessel. The claimant has received twenty (20) per cent of the purchase price and subsequently transferred the ownership to the defendant. However, he has not yet received the remaining eighty (80) per cent of the purchase price. Therefore, the claimant filed for arbitration proceedings in London against the defendant, requesting either the ownership of the vessel or the remaining eighty per cent of the purchase price. 

 

Accordingly, the claimant also acquired an arrest order over the vessel which was delivered at the Khor Fakkan Port based on the sale agreement. Pursuant to the Cabinet Resolution Number 57 of 2018 on the Executive Regulations of Federal Law Number 11 of 1992 on the Civil Procedures Law (CPL), the claimant was not required to take any actions under the provisions of CPL with regards to the validity of the claim on the attachment orders. Therefore, the claimant believed that the arrest order would be considered to be valid until the final award has been passed by the London arbitration court. However, the claimant still filed at the Khor Fakkan’s Court of First Instance requesting the stay on the validity of the arrest order claim in UAE, as he waits for a final award on the validity of the debt claim in London. Upon hearing the claims of both the parties on aspects like jurisdiction, if this debt claim is classified as a maritime debt, which law will prevail between the Maritime Law and CPL. On 22 June 2020, the Court of Appeal upheld the judgement of the Court of First Instance and dismissed the claims raised by the defendant and ruled:

• Pursuant to article 22 of the CPL the court is conferred with jurisdiction to decide upon the validity of the claim on arrest order;
• As per article 115 (D) of the Maritime Law, the claimant’s debt shall be considered as maritime debt;
• As per article 121 of the Maritime Law, the claim for arrest order is valid and this being a private law, should supersede the general rules. Therefore, the ship arrest procedures specified in the Maritime Law must prevail over the general attachment procedures with regards to the ship arrest claims as set out in the CPL. As per article 102 of the CPL, since the validity of the debt claim is before the foreign arbitration court, the validity of the arrest order shall remain until a final award is decreed by the London court.