AIYON present at SMM HAMBURG 2024

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Our colleagues in charge of the Algeciras and Cadiz offices, José Dominguez and Enrique Ortiz, represent AIYON at the ‘SMM Hamburg 2024’ fair, which is held in the Hamburg Messe congress hall in Hamburg (Germany).

The ‘SMM Hamburg’ is considered the largest trade fair for the maritime industry, specialising in shipbuilding, machinery and marine technology. This biennial fair has a great international impact, bringing together a wide and varied public (shipowners such as shipping companies, shipyards, auxiliary industry and also the offshore wind sector, etc.), which has been growing in recent years, bringing together this year in the city of Hamburg 40,000 participants from more than 120 countries.

From 3 to 6 September, more than 2,000 companies will be presenting state-of-the-art technologies and services, with workshops, symposia and conferences covering all types of topics related to the maritime industry.

We look forward to seeing you in Hamburg!

AIYON participates in Piraeus (Greece) in the symposium on “Geopolitics, Climate Change and Regulations: The importance of Shipping Straits in the Global Maritime Activities and Markets”

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On their recent trip to Piraeus (Greece), our colleagues from the Algeciras and Cadiz offices had the pleasure of taking part in the symposium entitled “Geopolitics, Climate Change and Regulations: The importance of Shipping Straits in the Global Maritime Activities and Markets”, organised by the companies DINO THEO ATLANTIS M.C., SL and MARGI MARINE.

At the event, José Antonio Domínguez and Enrique Ortiz not only had the opportunity to share experiences and knowledge with the many attendees and speakers, all of them operators in the maritime sector in Piraeus, including shipowners and P&I clubs, but also, on behalf of our firm, José Antonio Domínguez had the honour of participating in the event as a speaker.

Together with Ms. Marilena Orfanides, founding partner of Coventinay and responsible for analysing the main consequences of the geopolitical events, Mr. John Ghio, CEO and Captain at Gibraltar Port Authority, and the directors of the organising companies, Mr. Dino Dritsakis CEO of Dino Theo Atlantis, and Mr. Evangelos Georgoulis, Managing Director of Margi Marine, our colleague José took part in the presentations, explaining to the large audience the Spanish perspective in relation to the Paris MoU, as well as the ship inspections or “Port State Control” carried out in Spain. We are well acquainted with the scope of this matter due to the many matters we handle in the firm related to ship inspections carried out by the Spanish maritime authorities, as well as for handling the varied and always complex administrative sanctioning proceedings that are brought against ships and their owners.

The panel in which we were honoured to take part, coordinated by Ms. Anastasia Vamvaka of Forbes magazine, was part of the “Posidonia International Shipping Exhibition 2024”, and featured a special performance by the renowned Greek singer Peggy Zina (https://event.dtatlantis.com/).

AIYON would like to thank the organisers and the attendees for the warm welcome our colleagues received at this interesting and relevant event, which has helped us to strengthen our ties with the Greek maritime community, as well as to meet new operators in the sector.

Mechanisms to Protect Against the Risk of Non-Payment by Shipyards and Shiprepairers

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I. Introduction

In any commercial or industrial activity involving the exchange of goods or services, there is a risk for the supplier that he will not be paid for his goods or services. To avoid these risks, market operators can take appropriate contractual measures or assert the rights that the legal system, the law, grants them.

The risks of non-payment are not particularly higher in the shipbuilding or ship repair sector than in any other sector under consideration. However, due to the type of asset on which the entire maritime shipbuilding or ship repair business is based, the ship, sometimes under foreign flag and ownership, protection against such risks of non-payment deserves special attention.

Many shipowners are organised under single-ship corporate structures, which means that with the vessel gone, the shipping company is undercapitalised and collection of claims against it becomes impossible.  The mobility of ships, which can easily change jurisdiction, can also add complexity to the recovery of claims in cases where there are no other known assets of the shipping company in the jurisdiction where the shipbuilder or ship repairer operates.

In order to protect their interests, both shipbuilders and ship repairers can implement contractual mechanisms that best protect their claims. There are also legal mechanisms that the legislation provides to these operators with the same protective purpose. In this article we will try to explain some of these mechanisms.

II. Contractual Mechanisms:

When we talk about contractual mechanisms, we refer to preventive measures that can be agreed in shipbuilding or ship repair contracts. There is no legal limitation to adopt this type of contractual covenants, so the will of the parties and the creativity of their legal advisors are the limit. The most common mechanisms that shipbuilders or ship repairers usually adopt are:

(a) Advance payments:

The provision of funds by the shipowner prior to the execution of the work is a common preventive solution to ensure that the shipbuilder or repairer has the necessary resources during the shipbuilding or repair process.

Most commonly, milestone payments are agreed. Through this mechanism, the shipowner makes advance payments based on the achievement of milestones during the construction or repair process, ensuring that the operator receives funds as the work progresses.

This system usually involves the issuing of refund guarantees by the builder/repairer in favour of the shipowner in case the work for which the latter has made the advance payment is not executed as agreed.  The mechanism therefore has a banking/financial cost for the shipbuilder/repairer.

(b) Requiring Sureties or Enforceable Guarantees:

Payment guarantees are another effective form of protection for shipbuilders and ship repairers.  Through this mechanism, the shipowner provides the shipbuilder/repairer with a separate payment guarantee, so that in the event of non-payment by the shipowner, the guarantor, under the guarantee contract, is obliged to make payment on first demand. The most common guarantees are:

  • Bank Guarantee: In this case the guarantor is a bank that will issue a guarantee on first demand in the event of non-payment and up to the agreed monetary limit.

If certain requirements are met, this type of bank document is directly enforceable before the Spanish courts.  The cost of this banking instrument is generally borne by the shipowner.

  • Personal Executive Payment Guarantee: With due formalities, this instrument functions in a similar way to a bank guarantee. In this case the guarantor is a natural or legal person whose solvency is known to the constructor/repairer. By means of this guarantee this person guarantees with his present and future assets the non-fulfilment of the payment obligation by the shipowner.

(c) Retention of Ownership of the Ship.

Finally, we would like to comment on this mechanism of retention of ownership of the ship until the shipowner pays the price. Due to its nature and operation, this contractual solution is reserved for shipbuilders, as it will be difficult or impossible for ship repairers to implement.

It involves retaining ownership of the vessel built until full payment by the shipowner. So that in the event of non-payment the shipbuilder can sell the ship to the highest bidder in order to collect the amount owed. If the market value of the ship is less than the price owed by the shipowner, the contractual arrangement should provide that the shipbuilder will continue to have a claim against the shipowner for the remainder.

In order to guarantee its effectiveness and proper operation, it is advisable to register the construction project in the name of the builder. In this way, if the shipowner’s non-payments are widespread, the registration of the ownership of the project in favour of the builder will prevent third party creditors of the shipowner from enforcing their claims against the vessel.

III. Legal Measures.

Spanish legislation provides shipbuilders and ship repairers with additional mechanisms that they can articulate without having to expressly agree on them. These mechanisms are mainly the following:

(a) Retention of possession of the vessel.

Article 7 of the International Convention on Ship Mortgages and Privileged Maritime Claims 1993 together with section 139 of the Shipping Act 2014 enables the builder and repairer of a ship to retain possession of the ship until they are paid what is due to them in respect of its construction or repair.

Certain requirements must be met:

  • In order to be retained, the ship must be in the possession of the shipbuilder or repairer. That is, the detention must operate prior to delivery and as long as the ship is on the premises or in the possessory custody of the shipbuilder’s or repairer’s personnel.
  • Retention is to be exercised for claims arising from the shipbuilding or ship repair contract, not for other claims.
  • The vessel that has generated these unpaid claims should be retained, not against another vessel.

It is important that all these requirements are scrupulously respected, otherwise there is a risk of improperly exercising the retention, which could lead to civil and even criminal liability.

Certain rules of the Civil Code apply to this lien which result in a lien on the ship. Some authors therefore argue that the shipbuilder or repairer of the ship can ask for the ship to be sold at public auction once the shipowner’s obligation to pay has expired. Thus the measure is sufficiently effective to persuade a shipowner to pay.

The Maritime Navigation Act 2014 only states that, if the compulsory sale occurs while the ship is retained by the shipbuilder or repairer, ‘the latter shall deliver possession of the ship to the buyer, but may obtain payment of his claim with the proceeds of the sale after satisfying those of the holders of maritime privileges… and before mortgage claims and other registered or noted encumbrances’. Thus, the shipbuilder or ship repairer will have preference of collection over ship mortgages and ordinary creditors, but not over privileged maritime claims (accruals in favour of the crew, compensation for death or personal injury caused by the ship, prizes for maritime salvage, port and pilotage fees and material damage caused by the ship due to non-contractual fault).

Since possession of the ship is a prerequisite for the lien, once the ship is delivered the lien and its collection preferences are extinguished.

(b) The Preventive Vessel Attachment:

The freezing of ships is a legal tool that enables the shipbuilder or repairer to secure the immobilisation of a ship wherever it is located in order to guarantee the collection of his claim.

This precautionary, preventive and urgent judicial measure can also be qualified as a burdensome measure due to the economic damage it can cause to the operator of the vessel, such as delays in its navigation, unforeseen costs due to its stay in a port, etc. It can also be a costly measure for the person requesting the seizure if it is wrongly or improperly proposed.

This measure is regulated by the International Convention on Arrest of Ships (Geneva 1999), the LNM and the Spanish Civil Procedure Act.

The immobilisation of the ship may be replaced by the provision of security by the shipowner/shipowner to the seizing court, since the ultimate objective of the attachment is to ensure the effectiveness of a subsequent judgment on the merits of the claim (‘maritime claim’) and thus to guarantee the creditor/shipper the possibility of enforcement.

In the event that the lien is unjustifiably or improperly applied for, the shipowner/shipowner of the vessel is entitled to claim any damages resulting from the lien.

The requirements are as follows:

  • Allegation of a ‘maritime claim’: The list of so-called ‘maritime claims’ is contained in Article 1(1) of the 1999 Geneva Convention, which includes, in paragraph (m), shipbuilders‘ or ship repairers’ claims;
  • attachment of the ‘offending ship’: attachment of the ship causing the claim is permitted provided that the person who was the owner/bareboat lessor of the ship at the time when the claim arose is still the owner/bareboat lessor at the time the attachment is requested. Under certain conditions it also provides for the possibility to seize other vessels owned by the person liable to pay (‘sister ships’).
  • the obligation for the attaching creditor to deposit a security: its purpose is to guarantee that in the event that the attachment is improperly requested, the damage caused to the shipowner/shipowner can be economically alleviated. At present, the minimum amount for this security is 15% of the alleged claim.
  • Where the application for attachment is made as an interim measure prior to the filing of the claim on the merits, it will lapse if the builder/repairer fails to commence proceedings on the merits before the competent court within the time limit set by the attaching court.

In short, this is a very effective precautionary measure that allows the builder or repairer to obtain sufficient security for his claims.

IV. Conclusions

It is a fact that shipbuilders and ship repairers face risks of non-payment by shipowners in their day-to-day business.

To protect against this risk there are a variety of solutions, both contractual and legal, which it is always and in any case advisable to bear in mind in order to minimise the risks to which builders and repairers are subject, all the more so when we are talking about foreign vessels and shipowners without a presence in our territory with complex corporate structures.

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Damages in Maritime Project Contracts: The “Knock for Knock” RULE; when negligence does not matter

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In both project cargo shipping and offshore installation projects (offshore wind, oil & gas) it is crucial to understand the rules governing liability in the event of damage, the fundamental principle being the “Knock for Knock” (“KFK”) rule.

While in some contracts (HEAVYLIFT) the negligent party is liable for damages, in other contracts – HEAVYCON, PROJECTCON, SUPPLYTIME – the rule is that each party to the contract is liable for its own damage to its property and/or its personnel, even if caused by the negligence of the other party. Negligence does not matter; this is what the KFK rule summarises.

Example: Under HEAVYCON, the project cargo suffers serious damage due to the negligence of the shipowner, and an operator of the charterer is injured. Under the KFK rule, the charterer cannot claim damages from the shipowner. Moreover, if the charterer’s operator sues the shipowner, the charterer must indemnify him, even if the shipowner was negligent. This rule is reciprocal, if the damage was to the ship due to the charterer’s negligence, the shipowner should bear the cost of the damage.

The “KFK” rule was developed in London during World War II when, in response to the threat of German U-boats, British ships sailing in the dark with all lights off increased the incidence of collisions between ships. To avoid costly and protracted litigation for damages, operators accepted the KFK principle. This rule has been taken up by the offshore and project cargo shipping industry.

To cover these damages, each party must take out own damage and/or liability insurance. High excesses expose the operator to a high risk, therefore we recommend negotiating to exclude the KFK rule for the first tranche of damages, the equivalent of the excess.

In conclusion, operators in the maritime project sector should be aware of this KFK rule by taking advice to cover their risks.

The LEGAL 500″ and “CHAMBERS & PARTNERS” guides endorse AIYON Abogados’ good work

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Once again, Aiyon Abogados has been highlighted as one of the best maritime law firms in the Spanish market by both Chambers and Partners  and The Legal 500 in their respective 2024 Guides. Our clients have recognised the adaptability and efficiency of the team and its extensive experience in dispute resolution, contract drafting, maritime accidents, pollution, shipbuilding, maritime claims, etc.

During direct client surveys, our clients have highlighted that Aiyon’s lawyers “are client-oriented with a service that goes beyond the legal advice” offering “quick responses and analytical advice and guidance”. “The broad knowledge and set of different personalities at the law firm maintain a solid basis for sharp and tailor-made legal advice“.

On an individual level, Verónica Meana and Mikel Garteiz-goxeaskoa have also been included, once again, in the rankings of the 2024 Guide of both publications as outstanding professionals for their recognised experience and prestige, in which they have been appearing for years, highlighting that Verónica “is very reactive, available and efficient” and Mikel “is a great professional with deep knowledge of the subject matter“.

We would like to thank all our customers for their comments and trust. It is our customers who make us want to improve every day.

The Abandonment of Containers in Maritime Traffic

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A recurring problem in maritime transport is the abandonment of containers loaded with goods.

When the consignee of the goods does not come to collect them after having been requested to do so as the authorised party, shipping companies are faced with a series of costs such as delays due to the occupation of the container with other people’s goods, the storage of the container or the internal transport costs of the container.

In this situation, there are two possible solutions: to initiate a procedure for abandonment and auction of the cargo by the competent customs office, or to initiate a notarial procedure for the deposit and sale of the goods.

Abandonment proceedings initiated by the Customs Department

In order to initiate this procedure, a declaration of abandonment must first be issued by the competent customs administrator and the following rules must be complied with.

As soon as the goods are in a situation of abandonment, in accordance with the provisions of Article 316 of the Decree of 17 October 1947 approving the revised and amended text of the General Customs Regulations, a file is opened, headed by the written declaration of the interested party or by a statement of the facts justifying the abandonment. Within a maximum of 5 days from the opening of the file, the goods shall be examined and, after hearing the second head of customs, the administrator shall decide whether or not the abandonment is admissible.

This decision shall be notified to the person concerned with the goods, if known, and he shall be given a period of 5 days in which to accept or contest it.

If the person concerned is not known, the decision is published in the BOP and on the notice board of the customs office, and a further period of 5 days is granted for the submission of any objections. At the end of this period, the file is sent to the General Directorate of Customs for a decision.

If abandonment is finally declared, the administrator seizes the goods on behalf of the Treasury, which sells them by public auction.

From the proceeds of the sale, customs duties, fines, storage and warehousing costs and any other costs relating to the goods shall be deducted in order. Freight and the costs of loading and unloading the goods may then be deducted and, after the above deductions have been made, the balance, if any, shall be paid tothe Public Treasury as abandoned goods.

Notarial Deposit and Sale of Goods Procedure, regulated in Law 14/2014 on Maritime Navigation (Article 513 ff.)

This procedure for the deposit and sale of goods, regulated in Law 14/2014 on Maritime Navigation (articles 513 et seq.), may be initiated when the law applicable to the charter party of the vessel authorises the carrier to request the deposit and sale of the goods in cases where the consignee does not pay the freight or does not appear to collect the goods transported (containers and their contents).

In order to initiate the procedure, the interested party must indicate the transport in question and provide a copy of the Bill of Lading (B/L); it is also necessary to identify the consignee, the freight or expenses claimed, the type and quantity of goods and an approximate value of the same.

Once the application has been accepted, the Notary will request payment from the addressee, unless the title is not nominative, in which case payment will only be requested if the applicant so wishes and designates a person to do so.

If the addressee is not found within 48 hours, or if the addressee does not pay, the notary will order the goods to be deposited.

Once the goods have been deposited and the depositee has been appointed,

the notary shall authorise their valuation and sale by a specialised person or body or by public auction; the amount obtained from the sale shall be used first to pay the deposit and the costs of the auction, and the remainder shall be delivered to the applicant to pay the freight, or expenses claimed, and only up to that limit.

However, if the holder of the goods objects to payment at the time of the summons or within 48 hours thereafter, the remainder of the sale proceeds shall be deposited pending the outcome of the case. In this case, the holder must initiate legal or arbitration proceedings before the competent court. If the action is not brought within the time limit set, the Notary will return the balance to the claimant in payment of the freight or expenses claimed and up to that limit.

Finally, if the deposit has been avoided or cancelled by the provision of sufficient security by the addressee, the latter must file an action within the time limit. If he fails to do so, the notary will order payment of the claim from the security provided.

Since the notarial procedure involves costs (notary, expert opinions, etc.), it is not advisable for goods of low value, in which case it is preferable to use the customs abandonment procedure.

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UNIPORTBILBAO highlights in its Newsletter the article by AIYON on the Sanctioning Power of the DGMM

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We would like to thank UNIPORTBILBAO – Port Community for including in its April Newsletter our article on the sanctioning power of the Directorate General of the Merchant Navy (DGMM), content that we published last February on our website.

AIYON Abogados, as a member of UNIPORTBILBAO, has been collaborating for several years with this multimodal logistics cluster founded in 1994, which was born from a group of public and private companies in the Basque Country whose objective is to promote, through cooperation, the competitive improvement and promotion of the PORT OF BILBAO and the companies and services related or linked to the port and its daily operations.

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“GREEN SHIPPPING”, 2050

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Like so many other industries, the maritime industry is heading or at least intends to head towards a gradual decarbonisation in this century. While it is true that, as published in the report of the United Nations Conference on Trade and Development (UNCTAD) on the analysis of maritime transport in 2023 (1), greenhouse gas emissions from the maritime sector have increased by 20% in the last decade, and that the sector operates a largely older fleet powered almost exclusively by fossil fuels, it is no less true that at the recent United Nations Climate Conference (COP28) in December 2023, numerous milestones were set in the interests of the longed-for decarbonisation.

In principle, the year 2050 has been set as the target date for the total decarbonisation of the sector according to the new strategy published by the IMO, which will undoubtedly require massive capital investment that could lead to a rise in the costs of maritime transport, and the consequent concern for all those island developing countries that are highly dependent on maritime trade.

The UNCTAD report stressed how environmental objectives will need to be balanced against economic needs, but in any case, the cost of inaction far outweighs the investment required. Similarly, it outlined how factors such as cleaner and more efficient fuels, and digital solutions such as AI or blockchain, are sure to play a key role in improving the sustainability and efficiency of maritime transport.

However, the question of who should be responsible for the transition to full decarbonisation is a complex one.

Well, it appears that the major flag states such as Liberia, Panama and the Marshall Islands will be responsible for meeting and enforcing the new green shipping standards, but in turn, the burden of making investments in alternative fuels, facilities to supply such fuels and more efficient and greener ships, falls on maritime operators in general, ports and the energy industry.

Some of the COP 28 milestones that may have the most potential to help achieve full decarbonisation in maritime transport are:

IN RELATION TO GREEN MARITIME CORRIDORS:
The US announced its partnership with the UK, Canada and Korea to form green shipping corridors for major shipping lanes.  In parallel, the US and Korea also announced that they are undertaking feasibility studies on the use of green ethanol or ammonia to power ships on selected routes.

The UK, for its part, also announced that agreements have been reached on green maritime corridors, including the creation of an International Green Corridors Fund hand in hand with the Netherlands, Norway and Denmark.

The pre-feasibility study of the Chilean Green Corridor has been completed and feasibility studies are underway.

ON ALTERNATIVE FUELS AND THE PROGRESS OF SHIPS:
The Pacific Blue Shipping Partnership (Fiji, Marshall Islands, Kiribati, Solomon Islands, Tonga, Tuvalu, and Vanuatu) – committed to the retrofitting/replacement of more than 11,000 vessels among the 7 member countries.

France announced a USD 800 million investment in green shipping innovations, as well as the creation of a USD 1.2 billion public-private investment fund as part of its national maritime decarbonisation plan, including already USD 500 million in public investment and USD 200 million from CMA CGM for investments in port infrastructure, sustainable marine fuel production, retrofitting and replacement of existing vessels and decarbonisation of the government fleet.

The US Department of Energy invested $7 billion in hydrogen hubs across the country, working in conjunction with several of its ports.

In light of this, together with the other milestones achieved at COP28, it is clear that the outlook for the maritime sector has changed significantly. Maritime transport maintains the lowest level of CO2 emissions per tonne/mile compared to all other types of transport, and the sector is certainly keen to maintain this position as other transport sectors decarbonise as well, having demonstrated at COP28 that shipping is making efforts to invest in and take advantage of the opportunities offered by the energy transition.

(1) Review of Maritime Transport 2023 | UNCTAD

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“ESTRATEGIA EMPRESARIAL”, echoes our almost 9 years of experience in the market

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As a firm founded in 2015 in Bilbao, the publication highlights our multidisciplinary team of eight expert lawyers, valuing our comprehensive 360º legal advice. 

With a proven impact at national level acting from our four offices located in Bilbao, Cadiz, Madrid and Algeciras, with which we cover strategic areas for the transport and logistics sector, ESTRETAGIA EMPRESARIAL also highlights the fact that we have all kinds of collaborators at national and international level that help us to cover all the demands for advice and assistance that our clients may have anywhere in the world.

Likewise, the publication points out our commitment to disseminate all kinds of legislative and jurisprudential developments related to the logistics sector, both in terms of maritime law, transport law in general, insurance and national and international trade via our conferences, talks to clients or the two corporate websites: www.aiyon.es and shiparrestrelease.com.

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Merry Christmas and Happy New Year 2024

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