The arrest of the vessel in the interests of the transport organizer

Quite often in the maritime business there are situations when the shipowner who ordered bunker fuel or other types of supply refuses to pay bills and sells the ship. A ship, like any kind of real estate, may be burdened by third-party claims arising from the shipowner's debts or the charterer, in whose operation the ship is located. However, charters have properties to end, and ships - to be sold as property to new, bona fide buyers. What happens to the burden of the vessel after its sale and purchase, and are there any ways for lenders to protect their interests if the encumbered vessel has long been sold to third parties?

The bunker company has put the fuel on the ship. The vessel has accepted the delivery, about which there is an acceptance certificate, a delivery list, and also a supply agreement. The party of the transaction, obviously, is the shipowner.

Delivery by the shipowner is not paid, or not paid in full. Three months later, the creditor learns that the shipowner sold the ship to a third party, despite the fact that it was his only liquid asset. The debtor company also has all the signs of a “one-day” - a legal entity created without the intention to conduct a fair and long-term commercial activity.

The arrest of a vessel owned by a third party

Despite the fact that for the majority of maritime business participants who find themselves in the situation described above, the case seems hopeless, the creditors have the legal means to levy a claim on a vessel, sold to a third party. Such funds are provided, first of all, by international regulatory legal acts.

With regard to the arrest of ships, there are two conventions: the International Convention on the Arrest of Ships of 1999 and the International Convention on the Unification of Certain Rules Concerning the Arrest of Sea-going Ships of 1952. The 1999 Convention does not apply in Russia. Only 10 countries have ratified it: Albania, Algeria, Benin, Bulgaria, Ecuador, Estonia, Latvia, Liberia, Spain, Syrian Arab Republic. Meanwhile, the 1999 Convention directly provides for the right to arrest a vessel that is not owned by the person responsible for the request. It is allowed if, in accordance with the law of the State in which the arrest is requested, a court decision made on such a request can be executed in respect of such a vessel by selling it by court order or by force (Article 3 § 3 of the Convention).

In Russia, as well as in other 152 countries of the world, the 1952 Convention is in force, which provides for the right to arrest a vessel belonging to a third party only indirectly. Part 4 of Article 3 of the Convention provides that the provisions on the right of arrest also apply “to any case where a person other than the registered owner of the vessel is responsible for the maritime claim for such a vessel”. This provision is also strengthened by part 1 of this article, which provides that, on the basis of the Convention, a “specific vessel” is arrested, without its “binding” to a specific shipowner. Thus, the Convention applies the in rem principle, when the defendant upon request is property, and not its owner.

This approach is confirmed, among other things, by judicial practice, for example, by the Decision of the Vilnius Court of the Republic of Lithuania No. 2-1900 / 2013 in case 2-55-3-01359-2013-9, in which the vessel was arrested because of the freighter’s debt after the official termination charter

Thus, the creditor can arrest the vessel even after it is sold by the debtor to a third party. 

Protecting the interests of the lender in court

The arrest of the vessel is only an interim measure to protect the interests of the creditor. Arresting alone rarely leads to the repayment of the debt to the creditor, including the new owner, unless the vessel is of increased value to it and, or is not on a commercial flight, and its release is not required by the new owner immediately.

Otherwise, the arrest is followed by the filing of a statement of claim to recognize the legality of the creditor’s claims in a competent court. Such a claim can legitimately be filed against, jointly and severally, the previous and new owner of the vessel. In accordance with Article 45 of the Arbitration Procedure Code of the Russian Federation (hereinafter referred to as the APC RF), procedural complicity of several defendants in a case is allowed if the subject of the dispute are common rights and (or) duties of several defendants, as well as rights and (or) duties of several defendants one base. In this case, the basis is a maritime claim, transferred from one property owner to another. 

In the event that the arbitral tribunal settles the case in favor of the creditor, debt collection will be carried out jointly, from the new and previous owners of the vessel, in accordance with the general provisions of the law on enforcement proceedings.

If the court decides that the claims were unreasonable, jointly, in the new shipowner, and only the principal debtor will be recognized in court, the creditor has additional legal means for levying the vessel sold: be recognized as disputable and, as a result, invalid by a court decision. Article 166 of the Civil Code of the Russian Federation stipulates that "a disputable transaction may be invalidated if it violates the rights or interests of the person protected by law, disputing the transaction, including those that have adverse consequences for it. In cases where, in accordance with the law, the transaction is contested in the interests of third parties, it may be declared invalid if it violates the rights or the interests of such third parties protected by law. The requirement to invalidate a void transaction, regardless of the application of the consequences of its invalidity, can be satisfied if the person making such a claim has a legally protected interest in declaring this transaction invalid". This position is confirmed by the extensive judicial practice on the cancellation of purchase and sale transactions of ships of the former shipowners-debtors, including the Resolution of the Federal Antimonopoly Service of the Russian Federation of the Volga District dated June 4, 2013 in case No. A65-27807 / 2012 and Resolution of the Federal Antimonopoly Service of the North Western District of June 18, 2013 in case No. A56-53843 / 2012.

As a result of the recognition of the transaction as invalid, the ownership of the previously sold vessel is returned to the previous owner, the debtor, after which a penalty may be imposed on it by a previous decision of the arbitration court.

The implementation of the vessel in the framework of the enforcement proceedings

In accordance with Part 3 and 4 of Article 69 of the Federal Law "On Enforcement Proceedings in the Russian Federation," the recovery of debtor’s property under executive documents applies primarily to its funds in rubles and foreign currency, and only in the absence or insufficiency of funds from the debtor the recovery is levied on other property belonging to him by the right of ownership, economic management and (or) operational management.

Article 87 of the Federal Law "On Enforcement Proceedings in the Russian Federation" stipulates that the debtor’s property is sold through its sale by specialized organizations involved in the manner established by the Government of the Russian Federation. The specialized organization is obliged within ten days from the moment of receiving the property of the debtor under the transfer and acceptance act to place information about the property being sold in public information and telecommunication networks, and about the property sold at the auction, also in print media. Realization of the debtor's real estate, which is a seagoing ship, is carried out by conducting open bidding in the form of an auction. The order of sale of the vessel at the auction is fully provided for in Chapter 9 of the Federal Law "On Enforcement Proceedings in the Russian Federation".

Execution of court decisions

Many disputes arising in the maritime industry are cross-border: the debtor and the creditor are registered in different jurisdictions, and the subject of the dispute, the ship, is constantly changing its position. Thus, the recoverer will inevitably face the need to recognize and enforce the decision of the Russian court abroad.

Execution of the decision of the Russian court on the territory of a foreign state is possible only if there is an execution of an international agreement between Russia and the state, providing for the possibility of mutual enforcement of court decisions, or after issuing a permit to be enforced by the competent authorities of a foreign state on whose territory the judgment is to be enforced. The plaintiff must appeal to the judge who issued the judgment, with a written request for recognition and authorization of the enforcement of the decision of the Russian court in the territory of a foreign state. The petition is addressed to the competent court of a foreign state.

Kirill Maslov

Managing Partner

Law office of St. Petersburg «Inmarine».