05 Jan 2024

Navigating the provisions of the UAE’s New Maritime Law

Authored by: Adrian Chadwick and Mohamed Eissa

In Brief:

  1. Registration and ownership of UAE flagged vessels will be permitted for non-UAE nationals.
  2. There is a new requirement for a financial guarantee from an arresting party before a court ordered vessel arrest and the courts will accept security from a non-arresting party to release an arrested vessel.
  3. There is a new dispute resolution mechanism for maritime disputes and recognition of arbitration agreements.

Body:

The UAE maritime industry is set for enhancement with the recent release of Federal Decree-Law No. 43 of 2023 (the “New Maritime Law”). According to Article 268(1) of the New Maritime Law, this law repeals Federal Law Number 26 of 1981 on Maritime Commercial Law (the “Repealed Maritime Law”) and will eliminate bottlenecks in the area of vessel registration, introduce the acceptance by the Courts of letters of undertaking issued by the P&I clubs to release arrested vessels, and introduce new dispute resolution protocols and recognition of arbitration agreements. The enactment is scheduled for a gradual phase-in period commencing 29 March 2024.

Applicable rules to contractual relationships

Both the Repealed Maritime Law and the New Maritime Law deal with the application of their provisions to any given maritime matter. Article 8 of the Repealed Maritime Law stated that its provisions were applicable without prejudice to the international conventions ratified by the UAE. It also provided that in the absence of relevant provisions, the maritime customs - which are not inconsistent with the Islamic sharia and rules of justice - shall be applicable.

The New Maritime Law specifies in Article 3 that the following provisions apply to the relationship that arises between persons in relation to the matters regulated by the New Maritime Law:

  1. Contracts and agreements concluded between the parties provided they do not violate the imperative/mandatory provisions in the law.
  2. The provisions of the New Maritime Law, in absence of special agreement between the parties or in the event the said agreement cannot be applied.
  3. The relevant laws in the UAE.
  4. Maritime customs which are not inconsistent with the provisions of the New Maritime Law and in the absence of a special provision as per paragraph 1. or 2. above.
  5. The rules of justice in the event that no maritime custom can be applied.

It is therefore clear that the New Maritime Law recognizes that agreements between the parties will govern their relationship. This gives parties liberty to formulate the provisions of their agreements in accordance with their business requirements, provided that the provisions are not inconsistent with the mandatory rules in the UAE. It follows that the stakeholders may also refer to the terms of agreements signed abroad which are relevant to agreements to be signed by them in the UAE.

Registration of a vessel

Article 7 defines a vessel as a tangible moveable subject to the rules of tangible moveable except in the case of ownership by possession. As a significant development, Article 13 (b) of the New Maritime Law allows foreign individuals or companies domiciled in the UAE, or having a business centre or a ship management office in the UAE, to register vessels in their names.

The current cap on foreign ownership is set at 49% under the Repealed Maritime Law. By establishing a more inclusive and accessible framework for those considering entry to the maritime sector, it is hoped that this will help widen the investment possibilities. More detail on the implementation procedures, and other matters regarding the New Maritime Law, is expected to be made public in due course. In the meantime, Article 368(2) states that the existing resolutions and regulations of the Repealed Maritime Law shall continue to apply, provided they are not inconsistent with the New Maritime Law and until the new executive regulations are released.

Article 18 of the New Maritime Law allows charterers of vessels registered abroad to apply for registration of the vessels in the UAE and fly the UAE flag provided they meet the registration requirements of Article 13. If the vessel is not equipped, the duration of the charterparty shall not be less than six months for registration to be approved. Interestingly, Article 19 allows the owners of vessels registered under the UAE flag to apply for permission to fly the flag of another country in the event the vessel is to be rented without equipment. With the application, the applicant must provide a copy of the charterparty for the unequipped vessel together with a letter issued by the registrar of foreign registery of the vessel confirming that they will allow registration of the vessel in the UAE. The specific procedures for the application are yet to be determined.

While there were no age restrictions imposed on the registration of vessels under the Repealed Maritime Law, Article 13(1)(c) of the New Maritime Law requires that the vessel  be no older than 20 years from the date of completion of its shipbuilding contract. Passenger ships can be registered providing they are not more than 10 years old.

By paragraph 2 of Article 7 of the New Maritime Law, the UAE Ministry of Energy & Infrastructure (the “Ministry”) is required to create a “vessel register” for the registration of vessels to include the different types of vessels, their respective classifications, activities and areas of operation in accordance with executive regulations to be issued in due course. The register is another positive step forward which should encourage owners to register their vessels in the UAE.

Further, Article 9(3) of the New Maritime Law permits the registration of shipbuilding contracts for vessels under construction. The New Maritime Law requires that the registration procedures are to be completed by the shipbuilder as opposed to the buyer. Article 9(1) further requires the specifications of the vessel under construction to be approved by the Ministry for registration in a new special register named “Register of Ships Under Construction”.

Ship Arrest

A creditor, who can be a supplier, lender or contractor, has the authority to detain a vessel by order of the Court if the claim filed qualifies as a “maritime debt.” These debts must be associated with maritime activities or transactions such as ship chartering, shipbuilding or repair contracts, cargo transportation, and ship navigation. Such dealings generally give rise to a debt or obligation between the ship owner and the creditor, allowing the creditor to file an arrest application to detain the vessel.

The ship arrest provisions under the New Maritime Law are similar to those in the Repealed Maritime Law. Article 54(1) allows the creditor to apply for the arrest of the vessel to which the debt is connected or any other vessel owned by the same debtor at the time of the arrest order application. Article 54(2) does not allow the creditor to apply for the arrest of sister vessels in circumstances where the debt relates to a dispute concerning the vessel’s ownership, or a dispute between joint owners of the vessel on its operation and distribution of its proceeds, mortgage or security over the vessel or any dispute arising out of a contract for sale of the vessel.

As to the debts of the charterer, Article 55 allows the debtor to apply for the arrest of the vessel during the period of the charterparty, provided that the charterer is solely liable for the maritime debt relating to the vessel and has the right to manage the navigation of the vessel. The application of this Article extends to cases where the maritime debt is attributed to a debtor other than the vessel’s owner.

Unlike the Repealed Maritime Law, which requires the substantive claim to be filed within 8 days of the date of the arrest order, Article 59 of the New Maritime Law requires the claimant to file the substantive claim within 5 working days. The hearing of the substantive claim must be listed within 15 days from the date of the court minutes of the enforcement of the arrest order for judgment to be issued confirming the arrest and sale of the vessel. The judgment may be appealed within 15 days and the Court of Appeal shall issue its judgment within a week and without referring the appeal to the case management office. This is a major development in the dispute resolution process as it allows litigants in maritime disputes to avoid long court procedures. Most noteworthy is that Article 4 of the New Maritime Law applies the provisions of the UAE Federal Law No. 6 of 2018 on Arbitration concerning the ratification of the minutes of settlement or mediation of maritime disputes.

Bank guarantee for arrest orders

While the Repealed Maritime Law overlooked the need to protect ship owners and their vessels when creditors file claims for ship arrests, Article 56 of the New Maritime Law addresses this by requiring the creditor to submit a financial guarantee that covers the safety and security needs of the affected vessel and its crew members throughout the arrest period before the Court will grant an arrest order. This measure ensures that defaulting ship owners or charterers do not have to be concerned about their abandoned seafarers during the legal proceedings. Article 56 clarifies that the amount of the financial guarantee is considered a judicial expense and that the costs of the crew and the vessel during the period of arrest are prioritized and discharged ahead of any amount to the creditors from the proceeds of the execution.

Acceptance of letter of undertaking

The Repealed Maritime Law required the owners of the vessel to provide the Court with cash deposits, bank manager’s cheques, and guarantees from local banks, all of which caused delays and losses for stakeholders. In contrast, the New Maritime Law indicates that the UAE legislators aim to update the law to accord with international standards by recognizing a letter of undertaking (LOU) as a valid security measure to lift a ship arrest.

Article 57(2) provides that the UAE Courts shall accept a LOU or any other security for the release of arrested vessels. The LOUs are usually issued by Protection and Indemnity Clubs (“P&I Clubs”) and are globally used to secure maritime claims. They ensure that if a valid claim arises, the mutual insurance association will honor the financial guarantee up to the amount specified in the LOU. Article 57(3) stipulates that the Executive Regulations of the law shall determine the rules for accepting LOUs issued by P&I Clubs or financial institutions acceptable to the Courts. It should be noted that the New Maritime Law clarifies that the LOUs are not acceptable in matters involving disputes on the ownership of a vessel or its possession or disputes between the joint vessel owners on its operation and distribution of its proceeds. In those circumstances, the vessel will continue to be under arrest until a final judgment is issued in the substantive claim.

Conclusion/Recommendation:

The enactment of the New Maritime Law is a positive development that will enhance the UAE’s maritime sector, both commercially and legally. The maritime sector in the UAE has welcomed this move as a necessary catalyst to bolster the UAE’s position as a premier maritime hub in the Middle East. The amendments cut across the commercial, shipping, and legal sectors, and aim to enhance standards of operation for ship owners and creditors. Although the specific procedures relating to the application of some provisions relating to, among other things, registration of vessels to non-UAE nationals and the acceptance of LOUs by the Courts are yet to be published and may require further analysis, we believe that the New Maritime Law is a positive and long over-due development for all interested stakeholders which accords with international practice and standards and responds to changes requested and desired by the UAE maritime industry.

For further information related to this article, or UAE’s New Maritime Law, we would recommend reaching out to Adrian Chadwick, Partner, or Mohamed Eissa, Senior Counsel, in our Dispute Resolution Team.

 
 

This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.