AIYON collaborates with the ‘Diario del Puerto’ in its report ‘Legal Allies’

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The special report entitled ‘Legal Allies’, recently published by the specialised newspaper of the logistics and transport sector, ‘Diario del Puerto’, has counted on the collaboration of our colleagues Verónica Meana and Zuberoa Elorriaga, among other professionals of the sector.

After analysing the various questions posed to us, which covered different aspects of our work and included our vision for the future in the face of new challenges, we discussed aspects such as the value of advice and prevention in conflict areas, the most common deficiencies and lack of knowledge in the sector, the role we play as lawyers and its importance in the transport sector, as well as the future challenges facing the world of transport, our lawyers provided their perspective, based on their broad and varied experience.

For her part, Zuberoa Elorriaga commented that the lack of the proper coordination and joint vision that should exist between the purchase and sale operation and the subsequent transport operation can give rise to claims and disputes, which could be avoided with good prior advice. We are talking about both the logistics operation and the insurance that accompanies it.

It considers that the transport phase must be highlighted as an essential complement that complements and perfects the sale and purchase from which it derives. Therefore, correct management of routes and delivery times to avoid delays or damage to the goods is essential, a task that always involves a cost if we want to guarantee a correct service at the hands of professionals.

Verónica Meana, in turn, explained that the EU’s growing demands to reduce emissions are forcing the transport sector to look for alternatives, such as the use of electric vehicles or cleaner fuels. All of this is causing concern among operators about the high costs of adapting their fleets, whether by sea, air or land, which will be required by the new regulation.

In addition, she points out that the delay in adopting digital solutions for optimising operations or complying with environmental regulations, and the lack of robustly implemented protocols among employees of transport companies to make them less susceptible to cyber-attacks, are factors that can be improved with good research and planning.

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AIYON Abogados, a Decade at the Service of Maritime and Transport Law

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‘El Canal Marítimo y Logístico’ took advantage of the celebration of the annual meeting of AIYON Abogados S.L.P. to meet in Bilbao with the five partners of the firm. Close to celebrating 10 years in the market, each of them pointed out the strengths of their multidisciplinary team of lawyers, as well as the different challenges they face on a daily basis from their offices located in Madrid, Cadiz, Bilbao and Algeciras.

We invite you to rea the article in its entirety from the link at the end of this article, highlighting below some of the statements made by the partners.

As expert lawyers in chartering and leasing of vessels, both for general cargo and project cargo, AIYON has also been specializing in off.shore construction projects. In this regard, AIYON’s partner in Bilbao, Mikel Garteiz-goxeaskoa, states, ‘This experience has given us the opportunity to assist from our Bilbao office local companies such as SAITEC Offshore Technologies, S.L., in projects as innovative as the launching and installation of its DemoSATH floating offshore wind platform in the BIMEP test area (Armintza), in the open sea two miles off the coast, and in waters 90 meters deep, as AIYON aspires to be a benchmark for companies operating in this sector due to its in-depth knowledge of Maritime Law in all its areas’.

With regard to the specific offshore wind sector, Mikel Garteiz-goxeaskoa highlights the firm’s strengths: ‘In addition to our knowledge and experience, we also have a large international network of collaborating lawyers, also specialized in these matters, mainly from the United Kingdom and Northern Europe. This allows us to rely at all times on up-to-date professionals in their respective jurisdictions to resolve any issued that may arise in the negotiation of the contracts concerned.’

When asked about their latest performances in Madrid, the firm’s partner, Verónica Meana, points our that: ‘We have recently seen in the office a notable increase in the number of cases that are resolved in institutional arbitration in these matters, either under CIAM or ICC rules, compared to the percentage of cases that go to court, which is still higher. This increase, although independent, runs parallel to the firm’s involvement in the Maritime Law working group within the Spanish Maritime Law Association in collaborating with CIAM, in an effort to promote maritime arbitration in Spain as an efficient and quality alternative means of dispute resolution.’

AIYON’s involvement in the teaching and preparation of the new generations is part of its hallmark, a fact that Verónica wants to highlight: ‘On the other hand, form Madrid, as from the rest of our offices, we continue to contribute to the teaching of maritime law. In my case, participating as a lecturer in the Master’s degree of both the IME (Spanish Maritime Institute) and the ISDE (Higher Institute of Law and Economics) in the subjects of maritime law and land transport.’

‘In Aiyon we know what it means to be at the side of both maritime and land carriers on a daily basis’, says Enrique Ortiz, partner of the Cadiz office. ‘And we know what it is like to be there for them both in normal circumstances and in urgent situations that require quick action (such as refusals of delivery by receivers, accidents, blocking of the means of transport by the authorities, etc.). What’s more, in exceptional circumstances, such as during the Covid confinement period or during the road transport stoppages and strikes that took place throughout the country between March and April 2022, our customers have always been able to counts on us.’

In fact, the situation in times of strikes and stoppages in the transport sector was not easy for the companies dedicated to land transport, and many of them, due to the convulsions of the time, even suffered damage to their vehicles caused by a group of people who, in favour of the strike during those dates, ‘took it’, in an absolutely vehement manner, against the vehicles in question. In relation to these events, which occurred to a significant number of road haulage companies and vehicles, Enrique can confirm that AIYON has recently managed to obtain, for one of its clients, a favourable ruling in the first instance, subject to appeal, against the Insurance Compensation Consortium, ensuring that concepts such as ‘riot’ and ‘extraordinary risk’ are not emptied of content, thereby rendering ineffective the coverage of claims that correspond to the Insurance Compensation Consortium. Let us not forget that the Consortium collects part of the premiums that insured hauliers pay to their insurance companies.

Asked about the great activity of the Port of Algeciras, our partner in the location, José Domínguez, tells us: ‘The port of Algeciras occupies a pre-eminent position within the Spanish port system. From our office in Algeciras, we provide ‘dockside’ assistance to shipping companies that provide passenger and goods transport services, both containers and roll-on/roll-off cargo in the Strait of Gibraltar, constantly advising not only in the day-to-day handling of all types of cargo and passengers claims, but also in the planning and management phases of the shipping companies to face challenges such as those of the so-called Operation Crossing the Strait (OPE). To this end, we regularly advise on charterparties, slot charters, shipbuilding and ship repair contracts, ancillary contracts and agreements such as stevedoring, confinement, etc. This is a part of the business that I particularly enjoy, as my background as a merchant seafarer is of great help to our clients, as I speak the same language as they do.’

Another of the most important traffics of Algeciras is the supply of fuel to ships, the so-called bunkering. Domínguez indicates in this respect that: ‘Algeciras is one of the most important bunkering ports in the Mediterranean. The maritime traffic through the Strait of Gibraltar, together with the magnificent anchorage of the port, make our port especially attractive for this type of operations. The figures that are handled are very relevant, close to 350,000 tons of oil products to ships, at a rate of approximately 200 ships supplied per month by a fleet of more than 15 barges of different sizes.’

For her part, Zuberoa Elorriaga, AIYON partner in Bilbao, points out that, in their almost 10 years as active partners, the common effort and trajectory has brought them together, allowing them to learn from each other: ‘Together with the rest of the firm’s staff, we form a close-knit team that encourages cooperation between offices and lawyers. It is not an easy sector as we face different challenges every day, with often complex cases and different actors involved, so the best way to work is to support each other and share experiences, which will always result in a better service for our clients.’

Finally, Zuberoa makes special mention of the continuous learning that the firm’s team is committed to pursuing, proof of which is the Postgraduate Course in Aeronautics and Space Law at the Faculty of Law (ICADE) of the Universidad Pontificia de Comillas, which she completed in 2021, opening up new areas of activity for the firm.

Listening to its partners, it is clear that in Aiyon Abogados they face this first decade of work and common effort as the beginning of a long and productive professional career looking to the future with optimism.

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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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