Dutch Court of Appeal: applicability of the 1952 Convention Relating to the Arrest of Sea-going Ships and the arrest of a ship owned by the charterer

Dutch Court of Appeal: applicability of the 1952 Convention Relating to the Arrest of Sea-going Ships and the arrest of a ship owned by the charterer

Arnold van Steenderen
04 January 2012

Introduction

Recently the Court of Appeal of Leeuwarden (the Netherlands) handed down a judgment interpreting Articles 2 and 3 of the 1952 Convention Relating to the Arrest of Sea-going Ships (hereinafter “Arrest Convention”).1 The Arrest Convention applies to any vessel flying the flag of a Contracting State (Article 2 and Article 8(1)). It seems pretty obvious what “flying the flag of a Contracting State” means, but problems arise when temporary registration documents or permits are issued to fly the flag of a Contracting State, as this could lead to one ship having multiple nationalities.

Where it applies, the Arrest Convention limits the types of claim in respect of which a vessel may be arrested. It is especially difficult to arrest a ship owned by a charterer in respect of claims of the owner of the chartered ship. Article 1 seems to include a claim by the owner against a charterer. However, Article 3(4) provides the possibility to arrest a ship owned by charterers for claims relating to a charter by demise. The last sentence of that paragraph, however, states: “The provisions of this paragraph shall apply to any case in which a person other than the registered owner of a ship is liable in respect of a maritime claim relating to that ship”. The interpretation and implementation of Article 3 differ among jurisdictions.2 In England, the arrest of a ship owned by a time charterer was allowed by the Court of Appeal in The Span Terza3.

Facts

In the case before the Court of Appeal of Leeuwarden the Mexican company, Oceanografia (as charterer), had entered into a time charter with an Indian company, Greatship (as owner), in respect of the vessel “Greatship Dhriti”.

Oceanografia had also entered into a shipbuilding contract with a Dutch shipyard, for the construction and delivery of a sea-going vessel. The newly built vessel was named "Don Alfonso" and the title of the vessel was transferred to CFA, a Mexican subsidiary of Oceanografia. The “Don Alfonso” was intended to sail to Mexico immediately after her delivery by the Dutch yard.

On the basis of the time charter for the “Greatship Dhriti”, Greatship made a claim for unpaid charter hire from Oceanografia and CFA, owners of the “Don Alfonso”. In order to secure the claims of Greatship, the "Don Alfonso" was arrested by Greatship at the time the vessel was still in the Dutch jurisdiction. Oceanografia and CFA started injunction proceedings for the release of the vessel from arrest.

During the injunction proceedings Oceanografia and CFA relied on the fact that the “Don Alfonso” was registered in the Dutch Ship Register. The Dutch Ministry of Infrastructure and the Environment had issued a temporary Certificate of Registry and a permit for a one-way voyage of the ship from the Netherlands to Mexico. The Netherlands is a State party to the Arrest Convention, but Mexico is not.

The findings of the District Court of Leeuwarden in the Injunction Proceedings 4

The trial judge released the vessel from the arrest on the basis of Article 3 of the Arrest Convention. He held that it must be assumed that the “Don Alfonso” was a ship flying the Dutch flag at the moment of the arrest, because of its registration in the Dutch Ship Register. Hence, the Arrest Convention is applicable to the arrest of the “Don Alfonso”.

The findings of the Court of Appeal Leeuwarden

Greatship appealed the decision of the District Court of Leeuwarden. At first, the Court of Appeal considered that the Arrest Convention will be applicable to a vessel that is arrested, where it is flying the flag of a party to the Convention (Article 2 of the Arrest Convention). According to the Court of Appeal, the national law of a State that is party to the Convention determines whether a vessel is allowed to fly the flag of that State as in Article 2 Arrest Convention. Hence, Dutch law is applied to determine whether the “Don Alfonso” flies the flag of the Netherlands.

Subsequently, the Court of Appeal decided that a vessel may fly the Dutch flag according to Dutch law, if it was granted a Dutch Certificate of Registry. In this case, these documents were issued, albeit temporarily and only for one strait voyage from the Netherlands to Mexico. The Court decided that it is not relevant whether permanent registration is possible according to Dutch law, as long as a temporary document was issued. Consequently, the Court of Appeal ruled that the "Don Alfonso" was flying the Dutch flag and the Arrest Convention was applicable with regard to the arrest of the “Don Alfonso”.

The Court of Appeal refers to Article 91 (2) of the UN Convention on the Law of the Sea, which determines that every State shall issue to the ships to which it has granted the right to fly its flag, documents to that effect. However, the Court of Appeal does not mention the first section of Article 91, according to which a ‘genuine link between the state and the ship’ is required for registration. Especially the ‘link’ in this case could be regarded as insubstantial or not genuine. Although the ship had been built in the Netherlands, it was destined for Mexico and was owned by a Mexican party.

Article 3 of the Arrest Convention prevents Greatship from successfully arresting the “Don Alfonso”, since the maritime claim arose out of the chartering of the “Greatship Dhriti”, a vessel owned by Greatship at the time the claim arose. The Court of Appeal considers article 3(1) the Arrest convention to be unambiguous; only the vessel in which respect the maritime claim arose, or any other vessel that is owned by the person who was, at the time the claim arose, owner of the vessel may be subject to an arrest. In this case this would mean only vessels owned by Greatship may be arrested. The Court of Appeal did not mention the last sentence of Article 3 (4).

Conclusion

The Court of Appeal of Leeuwarden has clearly opted for legal certainty. Whenever a ship is entitled to fly the flag of a Contracting State according to the law of that Contracting State, the Court will apply the Arrest Convention. Moreover, the Court has applied a strict interpretation of Article 3 (1) Arrest Convention. The Court justifies this grammatical interpretation by highlighting the ultimate purpose of the Convention as stated in the preamble, which is to “determine uniform rules of law”. However, this effectively excludes the possibility of arresting a vessel owned by a charterer, to secure a claim by the owner of the ship chartered under a time charterparty. This is not in line with judgements of various common law jurisdictions.5