Knowledge Series: Maritime Law (Volume I – Key Concepts)
Our Associate, Hisham Almansoor elaborates on the key concepts of the Maritime Law with special emphasis on mortgages and seizures.
Hisham Almansoor – Associate ([email protected])
Maritime Law, or Admiralty Law, refers to the body of law which regulates ships, the commercial nature of shipping, navigation and other nautical matters. The Maritime Law is particularly crucial to nations situated by a body of water where much of the commercial activity hinges on the shipping activity to and from the nation.
Decree-Law No. 23/1982 on the Issuance of the Maritime Law (the “Old Law”) was the Kingdom of Bahrain’s first coherent legislation regulating maritime law. Four decades later, the Kingdom enacted a new Maritime Law under Decree-Law No. 10/2022 Promulgating the Maritime Law (the “Maritime Law” or the “Law”) which draws upon new elements in relation to vessel registration, vessel seizure and maritime commercial activities, among other matters.
This article shall cover the key concepts under the Maritime Law and address any amendments to these features in comparison with the Old Law. More regulation is anticipated in the coming weeks and months by way of Ministerial Resolutions issuing the implementing regulations to the Law, which has come into force on 6 October 2022. For areas that are addressed further under the implementing regulations and other Ministerial Resolutions, we defer the discussion of these to subsequent articles once these legal instruments are enacted.
Key Concepts under the Maritime Law
Vessel Registration
The registration of vessels is regulated pursuant to Article 5 of the Maritime Law. In essence, vessels that are owned by Bahraini or GCC nationals/companies will qualify for registration, although foreign-owned vessels may qualify for registration if resident or has elected domicile in the Kingdom of Bahrain. Vessels with a gross tonnage of one hundred fifty (150) tons or more are required to register, with the exception of vessels constructed more than twenty years ago at the time of submitting the registration application. Vessels which have not been registered are prohibited from sailing under the flag of Bahrain.
Carriage of Goods by Sea & the Bill of Lading
Carriage of goods by sea is an important pillar of maritime laws in jurisdictions across the world as they form the basis of commercial relationships between companies. The Maritime Law regulates the carriage of goods by sea and the bill of lading in Articles 217-282.
The bill of lading is a document which proves the carriage of goods contract and serves as the carrier’s receipt or shipment under which the shipper undertakes to deliver the goods against the return of the document. This document is issued by the carrier upon the shipper’s request following receipt of the goods or their loading on board the vessel. It is important to distinguish the role of various parties; the shipper refers to the party actually transporting the goods to their destination, whereas the carrier refers to the party who contracts with the shipper to transport the goods.
The draft Maritime Law (the “Draft Law”) addressed the bill of lading differently than in the final implemented Maritime Law. Article 218(b) of the Draft Law stipulated that “The contract of carriage of goods by seas shall only be established in writing through the bill of lading.” This was likely to lead to practical issues since the bill of lading is issued by the shipper upon the carrier’s request after the goods have been delivered or loaded onto the ship. It is therefore not plausible to have the bill of lading serve as the only document which establishes the contract. Accordingly, Article 218(b) now stipulates that “The contract of carriage of goods by sea shall only be established in writing”.
Mortgaged Vessels & Precautionary Seizure
Mortgages
Ships are akin to other assets that are capable of being mortgaged and subject to legal seizure. When mortgaging a vessel, the ship-owner agrees to provide the bank or lender with an interest in the vessel as security for a loan. Pursuant to Article 47 of the Law, a mortgage on a vessel may only be carried out through a notarized contract, failing which it shall be deemed null and void. Although the Old Law did not limit said contracts to take the form of an official notarized document, the Civil Code paved the way for this requirement, stipulating that “In the absence of any provision to the contrary, a mortgage shall only be concluded over a real property”, and “[a] mortgage shall not be deemed concluded unless made under an official document”. Furthermore, mortgages on vessels now extend to their machinery, equipment and fixtures by virtue of Article 42(d).
To maximize the potential financial utility of a vessel, the Law provides that a mortgage may be registered against a vessel that is still under construction. Contrary to what one may initially expect, mortgages taken against a vessel nonetheless remain on its wreck.
For a mortgage to be registered, an entry must be made by the Ship Registrar after it receives an official copy of the mortgage contract as well as a signed list by the applicant containing the following key details:
- Name, surname, and nationality of each debtor and mortgagee creditor, together with their place of residence and occupation. If the mortgagee creditor is a legal person (i.e. a company), the names of the partners and their nationalities shall be stated;
- Date of the contract;
- The amount of the debt stated in the contract;
- Conditions for settlement;
- Name and description of the mortgaged vessel, and the date and number of the registration Certificate or vessel construction declaration; and
- The elected domicile of the mortgagee creditor in the registration office wherein the registration has been made.
Vessel seizure
Article 57 of the Maritime Law permits the imposition of precautionary seizure on any vessel only in connection with a maritime debt. A maritime debt may arise from any of the following: (i) port and waterways fees; (ii) expenses relating to wreck removal and ship and cargo salvage; (iii) damage caused by the vessel due to collision, pollution or other similar maritime accidents; (iv) losses In human lives or physical injuries caused by the ship or arising from its use; (v) contracts for the use or charter of a vessel; (vi) vessel insurance; (vii) transport of goods; (viii) loss or damage to the goods and baggage transported by the vessel; (ix) salvage contracts; (x) supply of materials or tools necessary for the exploitation or maintenance of the vessel; (xi) the building, repair or equipping of the vessel and dock expenses.
A new provision introduced by the Maritime Law is for the possibility of the precautionary seizure of other vessels owned by the debtor (subject to a few exceptions). This is permissible even if the maritime debt does not relate to the same vessel as the seizure may be requested if the vessel was owned by the debtor at the time the maritime debt arises. This is with the exception of maritime debts arising from disputes on the ownership of the vessel, jointly owned vessels and the possession thereof or mortgaged vessels.
An application for the precautionary seizure of a vessel may be made under Article 59 of the Law. The applicant must include details of the vessel in full, the amount of the maritime debt along with supporting documentation. Said application must be filed before the competent court, and where the court imposes the precautionary seizure, the order must be presented to the master of the vessel or his representative, and another copy to the Ports and Maritime Affairs (“PMA”) to prevent the vessel’s departure from the Kingdom of Bahrain.
Prior to the enactment of the new Maritime Law, applications for the precautionary seizure of vessels would occur through the Court of Execution. The Law now envisages the seizure of vessels under applications to the competent court, or via execution procedures, with the latter regulated under Articles 63-71. The execution procedures are typically used with a view of selling the vessel via public auction. It is key to note that the Court of Execution-sanctioned attachment need not stem from a maritime debt as outlined above in respect of precautionary seizures. Rather, the debt should be established under an ‘Execution Deed’ (i.e. a judgment, debt bond or other legal document establishing the debt. For more on ‘Execution Deeds’, please visit Vol. I of Knowledge Series: Law of Execution). The Maritime Law has also revised the timeframe for the Court of Execution judge to sanction the attachment such that a period of three days must lapse from notification of the debtor to pay from the previous twenty-four-hour deadline.
Mandatory Insurance Coverage
One of the new features introduced by the Maritime Law is a requirement for insurance coverage on vessels, otherwise, she may not be registered before the PMA. Article 6 mandates that the following risks be insured against: (i) liability of the owner towards the crew members, (ii) claims relating to the loss, damage or loss of any goods carried on board, (iii) claims related to the death or bodily injury of a person or the loss or damage to any property due to the vessel’s operation, (iv) claims relating to environmental damage, and (v) claims arising from the removal of the vessel after its abandonment when it becomes a total loss or wreck.
The legislator has added this requirement in a bid to align the Maritime Law with treaties and international agreements signed by the Kingdom since the implementation of the Old Law. The Law envisages insurance against the vessel, the cargo or on liability, with a set of provisions addressing each.
Time-Barring/Prescription Rules
Whilst the Civil Code prescribes various limitation periods depending on the cause of action, each of these rules is without prejudice to specific legislation which may set a different limitation period than that prescribed under the Civil Code. The Maritime Law sets a limitation period of two years in respect of claims arising out of: (i) the towage of vessels, (ii) pilotage (navigational assistance to captains to help in the entry and exit from port waterways), (iii) collision, (iv) liability of vessel owners, (v) insurance and (vi) contracts for the carriage of goods by sea.
Concluding Remarks
Four decades have passed since the implementation of the Old Law. During this time, Bahrain has signed multiple international agreements and treatises on various elements of maritime law, thus the recent enactment of the Maritime Law intends to address global developments on this subject over the years and intends to bring the practice in Bahrain in line with said advances. However, certain aspects of the Law, such as alteration and modification of vessels, the Marine Service Register and Certificate require further clarification through Ministerial Resolutions to be issued this year, and our forthcoming articles shall address these developments.
For more information, please contact us on [email protected].