31 Oct 2016

You’re Under Arrest?

Authored by: Jonathan Brown

You’re Under Arrest?

UAE Law contains provisions which allow for vessel arrests. However, as Jonathan Brown of Hadef & Partners  recently explained in Emirates Law, Business & Practice Magazine change in the Dubai Courts has recently reduced the impact of this potentially useful remedy.

The ability to arrest a vessel is an essential form of security for any party interested in cargo, or for lenders who are involved in a claim which could possibly lead to the judicial sale of a vessel, should that become necessary. Vessel arrests can arise as potential remedies for an assortment of creditors, including ship owners who need to repossess a vessel under a charter party or mortgagees who have terminated a loan facility due to a default.

DUBAI COURT CHANGE

In the UAE, the courts do permit vessel arrests for genuine claims. However, recently there has been a noticeable change in the documentary information which needs to be produced upon application for such an arrest within the Dubai Court system. This has led to the frequent refusal of such orders on the grounds of procedural errors which have occurred after the arrest order has been granted. These errors are also tending to invalidate the arrest as a whole, which can cause both losses for the claimants and also inhibit what would otherwise be a valid claim.

KEY LEGISLATION

Federal Law No. 26/1981 Concerning the Commercial Maritime Law, as amended is the primary statute which governs maritime law in the UAE, and among other things it regulates, the arrest of vessels. Vessel arrests in the UAE are accomplished through ex parte proceedings, that is to say, without the vessel owners’ notification.

ARREST PROCESS

A vessel can only be arrested in order to obtain litigation or arbitration security in respect of a ‘maritime debt’. A ‘maritime debt’ is defined un- der Article 115(2) of Federal Law No. 26/1981 as meaning a claim in respect of a right arising out of 15 potential heads. These heads include including collision, GA, crew wages and mortgage. Generally, in order to arrest a vessel, a claimant or their lawyers must file an arrest petition in the UAE Court which has jurisdiction over the port in which the vessel is located.

ARREST PETITION

The arrest petition must include all supporting evidentiary documents and these documents must be translated into Arabic. The arrest petition will be reviewed by an urgent matters judge who has the discretion to accept or refuse the petition, and also to request further information from the claimant. There are also a number of generally accepted requirements. For example, a judge may require the claimant to lodge counter-security in case the vessel is dam- aged during the period of its arrest. Once complete- ly satisfied, the judge will grant the arrest and is- sue the order to arrest the vessel.

LETTERS

Almost simultaneously, the UAE Court will then  issue two letters. The first letter is sent to the UAE Coast Guard, and the second to the port authority where the vessel is located. These letters inform the Coast Guard and the port authority of the vessel arrest and that the vessel is not permitted to leave its current location. The claimant has to file substantive proceedings on the merits of the claim, within eight days of the arrest order. This is known as the Statement of Claim. This latter requirement is also standard.

FEDERAL LAW NO. 26/1981 REQUIREMENTS

Article 119(1) of Federal Law No. 26/1981 states ‘[c]opies of the Notice of Arrest shall be delivered to the master of the vessel or his deputy thereon, a second copy to the relevant maritime authority in the port in which the arrest is effected to prevent the vessel from sailing, and a third copy to the Registration Bureau in the said port’. Article 120 of Federal Law No. 26/1981 goes on to add ‘1. [t]he Notice of Arrest shall contain a Summons to attend before the relevant civil Court in the area of which the arrest is effected to adjudicate the validity of the debt, of whatever amount. 2. [a] date shall be fixed for the hearing not more than thirty days from the date of the Notice of Arrest. The Court shall promptly enquire into the claim, and the time shall not be further extended’.

PRACTICAL EFFECT

In effect, the Court Bailiff is required to board the arrested vessel and serve the vessel’s master or chief engineer with the Notice of Arrest, which must contain a date for the first hearing which is not more than 30 days from the date of the Notice of Arrest. A copy of the Notice of Arrest must also be served on the port authority where the vessel is located, and another copy sent to the Registration Bureau. It is only after all of the above has been completed by the Court Bailiff that the claimant should file their Statement of Claim or the substantive proceedings which gave rise to the claim, and this should be up to eight days later.

INVALIDATED ARRESTS

Unfortunately, several UAE Court decisions have invalidated arrests and thereby security for the claim because these procedures have not been correctly followed. The court has clarified that the exceptional procedures provided for in Federal Law No. 26/1981 demonstrate that the legislator insists that vessel arrests are handled in an expedited manner. Although it is the Court Bailiff who is required to officially serve the Notice of Arrest, it is ultimately the claimant’s responsibility to ensure the Notice of Arrest contains all the correct information and is served in the manner prescribed in Federal Law No. 26/1981. If this does not happen the arrest will be invalidated as a result of the procedural errors.

INFORMATION EXPANSION

In addition to this tendency to invalidate vessel arrests on the basis of this type of procedural irregularity, there has also been a more troubling tendency to expand the nature of the information which needs to be made available to the court upon the application. In some cases this expansion of the information needed has actually meant it was not practical for the applicant to comply with the request. Vessel arrests, by their nature are made as a matter of urgency. As a result, in some cases only the basic information about the claim may be available but unfortunately time is of course of the essence.

DUBAI’S ONLINE APPROACH

The system now in operation in Dubai (but not fortunately in the rest of the UAE) is that any such application needs to be registered online before the application is made to the court. This is inspite of the inherently urgent nature of such requests. In addition, there is also now a requirement that the defendant’s trade licence be produced at the same time.

TRADE LICENCE

Given the defendant, who is the owner or opera- tor of the vessel, is normally registered outside the UAE, often it is not possible for a ‘trade licence’ to be produced. There can also be cases where such a document does not even exist. There is a system which exists and allows those seeking an arrest to apply to the Chief Justice’s office for a waiver of this requirement, but this would also take time, which those seeking an arrest may not have and on occasion, these requests have been refused.

MASTER’S IDENTITY

The Dubai Courts have also required the identity of the master of the vessel be produced as part of the application. Once again, this is not a practical possibility for the applicant in the vast majority of cases. What is interesting, however, is that none of these documentary requirements coincide with a provision in either Federal Law No. 26/1981 or in UAE Civil Procedure Code (Federal Law No. 11/1992) as amended. Sadly, the overall effect of this is, in Dubai at least, has been to render the redress available by virtue of Article 115 of Federal Law No. 26/1981 of no value. However, whether this effect is an unexpected by-product of a mere administrative change or a shift in policy still remains to be seen.

 

(Originally published in Emirates Law Business & Practice magazine – October 2016 issue)

 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.