Ship Arrest  & Maritime Claims in Cyprus

Ship arrest is a legal procedure applied to detain a vessel for securing a maritime claim. In Cyprus, the legal framework governing ship arrest is primarily based on domestic legislation, international conventions, and case law. This article delves into the intricacies of ship arrest in Cyprus, examining relevant legislation, regulations, and case law to provide a comprehensive overview of the process.

Admiralty Jurisdiction

The Cypriot legal system is based on English law and has continued to be influenced by it, even after Cyprus gained independence in 1960. Although English court decisions are not binding on Cypriot courts, they are often considered persuasive.

Cyprus admiralty jurisdiction is exercised by the Supreme Court of the Republic of Cyprus, which grants the right to arrest a vessel or property under certain circumstances. In addition, the District Courts of Cyprus have jurisdiction over admiralty cases involving claims below EUR 17,086.01 or those related to personal injury or loss of life resulting from a defect in the vessel or its equipment.

In Cyprus, Rule 50 of the Rules of the Supreme Court in its admiralty jurisdiction plays an essential role in governing the exercise of admiralty matters. While the Cypriot legal system has been largely modeled after the English legal system, it has developed its own laws and regulations since its independence in 1960. However, English court decisions remain highly persuasive in Cyprus.

Rule 50 in Cyprus deals with the arrest and release of ships and the determination of the priority of claims in the context of in rem actions. In rem actions are directed against a specific property, such as a ship, rather than against a person (in personam actions).

Under Rule 50 of the Cypriot Admiralty Jurisdiction Order, a claimant has an absolute right to arrest a vessel or property once the Admiralty Court is satisfied that there is a serious matter for trial and that the facts presented indicate a probability that the claimant is entitled to relief. This rule is crucial in securing a claimant’s interests and ensuring that a debtor will not remove the vessel from the jurisdiction or dispose of the asset before the claim is resolved.

The arrest of a vessel in Cyprus under Rule 50 is subject to certain conditions and requirements. These include:

1. The claimant must lodge a deposit for the expenses that may be incurred by the Admiralty Marshal in connection with the custody and supervision of the vessel while under arrest.
2. The claimant must lodge any other amount of money required by the Registrar for the expenses of the arrest.
3. The claimant must post a security bond by way of a Cyprus bank guarantee.

Failure to comply with these requirements will automatically result in the release of the vessel.

It is important to note that the jurisdiction of the Cyprus Admiralty Court is exercised by both the Supreme Court of the Republic of Cyprus and the District Courts of Cyprus, depending on the nature and amount of the claim.

International Conventions and Ship Arrest in Cyprus

Cyprus is not a party to the 1952 Arrest Convention or the Brussels Liens and Mortgage Conventions. However, the Administration of Justice Act 1956, enacted in the United Kingdom to enable it to ratify the 1952 Arrest Convention, is applicable in Cyprus by virtue of its Constitution and section 29 of the Courts of Justice Act (14/60).

Requirements for Ship Arrest

To arrest a ship in Cyprus, a claimant must initiate an action in rem against the vessel or property in question, or an action in personam against the ship’s owner or charterer. The court must be satisfied that there is a serious matter for trial and that the claimant is likely to obtain relief based on the presented facts.

Upon successful application for a warrant to arrest a ship, the claimant must fulfill the following requirements:

a. Deposit an amount to cover the expenses incurred by the Admiralty Marshal for the custody and supervision of the vessel while under arrest.

b. Deposit any additional amount required by the Registrar for the expenses of the arrest.

c. Post a security bond by way of a Cyprus bank guarantee.

Failure to comply with these requirements will result in the automatic release of the vessel.

Action in Rem

An action in rem is a legal proceeding that is directed against a particular piece of property, rather than against a specific person (which would be an action in personam). In the context of maritime law, an action in rem is often brought against a vessel to enforce a maritime claim or a maritime lien. This means that the claimant is asserting their rights against the vessel itself, rather than the vessel’s owner or another party.

The action in rem is a powerful tool in maritime law because it allows claimants to arrest the vessel to secure their claims. The arrest of a vessel is a procedure by which the claimant seizes the vessel and prevents it from leaving the port until the maritime claim is resolved or adequate security is provided. If the claim is not settled or security is not provided, the vessel may be sold through a judicial sale to satisfy the outstanding claim.

Action in Personum

An action in personam is a legal proceeding that is directed against a specific person or entity, rather than against a particular piece of property (which would be an action in rem). In the context of maritime law, an action in personam is often brought against the owner, charterer, or another party responsible for the vessel to enforce a maritime claim.

In an action in personam, the claimant seeks to hold the targeted individual or entity personally liable for the claim, which can involve monetary damages, specific performance, or other forms of relief. Unlike an action in rem, an action in personam does not involve arresting or seizing a vessel as security for the claim. However, the claimant may seek other forms of security, such as a Mareva Injunction (freezing order) or attachment of the defendant’s assets, to ensure that the defendant can satisfy the judgment if the claimant prevails.

While actions in personam are generally less powerful than actions in rem in terms of securing maritime claims, they can still be an effective tool for resolving disputes and enforcing rights in the maritime context.

Mareva Injunction in Cyprus Maritime Claims

A Mareva injunction, also known as a freezing order, is a powerful legal tool that can be used in maritime claims to prevent a defendant from dissipating or transferring assets out of the jurisdiction, thereby frustrating the claimant’s ability to enforce a potential judgment. While it is not a direct method of arresting a ship like an action in rem, a Mareva injunction can be an effective alternative in cases where arresting the vessel may not be possible or appropriate.

When a claimant seeks a Mareva injunction in the context of maritime claims, they must demonstrate to the court that there is a substantial risk of the defendant removing, disposing of, or dissipating their assets, which would ultimately hinder the claimant’s ability to enforce a judgment. The claimant must also show that they have a good arguable case on the merits of their claim.

If granted, the Mareva injunction will freeze the defendant’s assets, including bank accounts, real estate, and other property, up to a specified value. In the context of maritime claims, this could include freezing the defendant’s interests in other vessels, bank accounts, or other assets that are not directly related to the subject of the dispute.

It is important to note that a Mareva injunction is an equitable remedy, and the courts have wide discretion in granting or denying such relief. The claimant must act promptly and provide full and frank disclosure of all material facts when applying for a Mareva injunction, as any omission or misrepresentation may result in the injunction being set aside.

In summary, while a Mareva injunction does not directly involve arresting a ship, it can be a powerful and useful tool for claimants in maritime disputes to secure their interests and ensure that a potential judgment can be enforced against a defendant’s assets.

Types of Claims for Ship Arrest

In Cyprus, the legal framework governing ship arrests is based on the provisions of the Admiralty Jurisdiction Order 1893 (as amended) and the Merchant Shipping (Registration of Ships, Sales, and Mortgages) Law 1963. Ship arrests can be sought for a variety of claims, which can be broadly categorised into two main groups: maritime claims and maritime liens. Below is an overview of the types of claims for which a ship arrest may be pursued in Cyprus:

Maritime claims: These are claims arising out of the use or operation of a vessel or its equipment, as well as claims related to the ownership and possession of a vessel. The Admiralty Jurisdiction Order 1893 outlines several types of maritime claims, including:

• Damage caused by a ship, either through collision or any other means.
• Loss of life or personal injury caused by a ship or occurring in connection with the operation of a ship.
• Salvage services, including towage and pilotage.
• Agreements relating to the use or hire of a ship, such as charter party disputes.
• Agreements relating to the carriage of goods in a ship, including bills of lading disputes.
• Loss or damage to goods carried in a ship.
• General average claims.
• Bottomry or respondentia (i.e., loans secured by the ship or its cargo).
• Ship mortgages, hypothecation, or charges.
• The construction, repair, or equipment of a ship, including claims for unpaid shipyard fees.
• Ship agency fees, including port and harbour dues.
• Wages of masters, officers, or crew members.
• Disputes over the ownership or possession of a ship.
• The enforcement of foreign judgments or arbitration awards relating to maritime claims.

Maritime claims are subject to a time limit or prescriptive period, and a claimant must initiate legal proceedings within this timeframe to avoid the claim becoming time-barred. In Cyprus, the time limit for bringing a maritime claim varies depending on the nature of the claim. For example, claims related to collisions must be brought within two years, while claims related to contracts of carriage must be brought within one year.

Maritime liens: A maritime lien is a legal right that arises automatically and attaches to a ship as a result of the provision of certain services or the occurrence of specific events. Maritime liens are considered superior to maritime claims and grant the lien holder a preferential right over the proceeds of the sale of the vessel, regardless of the vessel’s ownership. Maritime liens have priority over other claims and encumbrances, such as mortgages or charges, and are not extinguished by the sale or transfer of the vessel. In Cyprus, the following claims may give rise to a maritime lien:

• Wages and other sums due to the master, officers, and other members of the vessel’s crew.
• Expenses incurred for the repair, maintenance, or provisioning of the vessel, such as ship chandler claims.
• Salvage and towage services.
• Compensation for personal injury or loss of life.
• Damages arising from collisions or other maritime accidents.

In Cyprus, maritime liens are ranked according to their priority, with the highest-ranking lien being paid first from the proceeds of the vessel’s sale. The ranking of maritime liens in Cyprus is generally as follows:

1. Court costs and expenses incurred in connection with the vessel’s arrest and sale.
2. Salvage claims.
3. Seamen’s wages.
4. Master’s wages and disbursements.
5. Claims for damages resulting from collisions.

A maritime lien remains attached to the ship regardless of changes in ownership, and its enforcement generally involves the arrest and sale of the vessel by the Admiralty Court.

Ship Arrest Irrespective of Flag and Debtor

A ship can be arrested in Cyprus regardless of its flag or the debtor, provided that the debtor does not claim sovereign immunity.

1. Ship arrest irrespective of flag

Cypriot courts have jurisdiction to arrest vessels flying any flag, whether it is a Cypriot-flagged vessel or a foreign-flagged vessel. When a vessel is within Cypriot waters, the courts can grant an arrest warrant if the claimant can demonstrate a valid maritime claim or maritime lien, and if there is a risk that the vessel may leave Cypriot waters before the claim is settled. The flag of the vessel does not preclude the arrest, although specific requirements related to the flag state may apply.

2. Ship arrest irrespective of debtor

Cypriot courts also have jurisdiction to arrest a vessel for a claim against a debtor, even if the debtor is not the registered owner of the vessel. This concept is known as “sister ship arrest” or “associated ship arrest.” Under Cypriot law, a vessel can be arrested for a maritime claim or lien arising from another vessel owned by the same debtor or by a company under the debtor’s control. This allows the claimant to secure their claim against a debtor who may not have assets in Cyprus other than the vessel.

To initiate the ship arrest process in Cyprus, the claimant must file a writ of summons with the competent court, detailing the nature of the claim and the basis for the arrest. The court will then review the application and, if satisfied that the legal requirements are met, issue an arrest warrant. Once the warrant is served on the vessel, it is considered under arrest and cannot leave the port until the claim is resolved or adequate security is provided.

Sister Ships and Associated Ownership

In Cyprus, the arrest of sister ships and associated ownership is a well-established practice in maritime law. This practice allows for the arrest of a vessel for a claim against a debtor, even if the debtor is not the registered owner of the vessel. The concept of arresting sister ships and vessels with associated ownership is particularly useful in cases where the debtor has multiple vessels or the vessel connected to the claim is not within the jurisdiction.

1. Sister ship arrest

A sister ship arrest refers to the arrest of a vessel that is not directly involved in the claim but is owned by the same debtor as the vessel that gave rise to the claim. Under Cypriot law, a sister ship can be arrested for a maritime claim or lien arising from another vessel owned by the same debtor, provided that the claim falls within the scope of the applicable legal framework.

The purpose of a sister ship arrest is to provide security for the claimant’s claim and prevent the debtor from disposing of their assets before the claim is settled. This can be particularly useful if the vessel that gave rise to the claim is not within Cypriot waters, but another vessel owned by the debtor is present in the jurisdiction.

2. Associated ownership arrest

An associated ownership arrest, also known as an “associated ship arrest,” allows for the arrest of a vessel that is not directly involved in the claim and is not owned by the debtor but is controlled by the debtor or by a company under the debtor’s control. This type of arrest is more complex than a sister ship arrest, as it involves establishing a connection between the debtor and the vessel to be arrested.

To successfully arrest a vessel under the associated ownership concept, the claimant must demonstrate that the debtor exercises control over the vessel’s ownership, either directly or through a company under the debtor’s control. This could be through common directors, shareholders, or other significant links between the debtor and the company owning the vessel.

To initiate the arrest of sister ships or vessels with associated ownership in Cyprus, the claimant must file a writ of summons with the competent court, detailing the nature of the claim and the basis for the arrest. The court will then review the application and, if satisfied that the legal requirements are met, issue an arrest warrant.

Bareboat and Time-Chartered Vessels

Bareboat charterers and time charterers are considered “disponent owners” of the vessel and may be held liable for maritime claims arising during their possession or control of the vessel.

In Cyprus, the arrest of bareboat and time-chartered vessels may be subject to different considerations compared to the arrest of vessels under the ownership of the debtor. It is important to understand the distinctions between these charter arrangements and their implications on ship arrest.

1. Bareboat Charter

A bareboat charter, also known as a demise charter, is an arrangement where the owner of the vessel leases the ship to the charterer for a specific period. The charterer assumes full control and management of the vessel, including the responsibility for appointing the crew, maintaining the vessel, and covering operational expenses. The charterer may also register the vessel under a different flag during the charter period.

In the case of a bareboat-chartered vessel, the charterer is considered the “owner” for the duration of the charter, and as such, may be held liable for maritime claims arising during that period. The arrest of a bareboat-chartered vessel typically targets the charterer’s interest in the vessel rather than the underlying ownership by the actual owner. However, if the maritime claim is against the registered owner, the arrest may proceed against the bareboat-chartered vessel.

2. Time Charter

A time charter is an arrangement where the owner of the vessel leases the ship to the charterer for a specific period, while retaining control and management of the vessel. The owner is responsible for appointing the crew, maintaining the vessel, and covering operational expenses such as fuel and port charges. The charterer, in turn, is responsible for employing the vessel for the transportation of goods and passengers during the charter period.

In the case of a time-chartered vessel, the arrest may proceed against the vessel if the maritime claim is against the owner, who remains liable for claims arising from the operation, management, and control of the vessel. If the claim is against the charterer, the arrest of the time-chartered vessel might be more challenging, as the vessel is still under the control and management of the owner.

3. Arrest considerations for bareboat and time-chartered vessels

When seeking to arrest a bareboat or time-chartered vessel in Cyprus, it is essential to establish the liability of the party responsible for the maritime claim. A careful examination of the charter party agreement and the circumstances of the claim is necessary to determine which party is liable and whether the arrest of the chartered vessel is appropriate.

Arresting a chartered vessel may also involve additional complexities, such as determining the jurisdiction of the charter agreement, the legal relationship between the owner and charterer, and the impact of the arrest on third-party interests, such as sub-charterers and cargo owners.

The Ship Arrest Process in Cyprus

The ship arrest process in Cyprus is a complex legal procedure that requires strict adherence to the laws and regulations governing maritime claims. The following steps outline the general process of arresting a ship in Cyprus:

1. Writ of Summons: The ship arrest process begins with the issuance of a writ of summons. This document serves as a formal notice to the defendant, stating the nature of the claim and the relief sought. The plaintiff must file the writ of summons with the appropriate court, usually the Admiralty Court of Cyprus, to initiate the legal proceedings.
2. Affidavit: The plaintiff must submit an affidavit to the court, providing detailed information about the maritime claim, the amount claimed, the parties involved, and the legal basis for the arrest. The affidavit should also include evidence of the claim and demonstrate that the claim falls within the scope of a maritime claim under the Cyprus Merchant Shipping Law or any other relevant legislation.
3. Application for a Ship Arrest: The plaintiff must then file an application for the arrest of the ship with the court, accompanied by the writ of summons and affidavit. The application should clearly state the grounds for the arrest and provide any necessary supporting documentation.
4. Court Evaluation: The court will evaluate the application and supporting documents, ensuring that the plaintiff has met the necessary legal requirements for a ship arrest. If the court is satisfied with the application, it will issue an arrest warrant.
5. Execution of the Arrest Warrant: The arrest warrant is served on the ship’s master or agent, notifying them of the arrest and the reasons for it. The warrant is executed by the court’s appointed bailiff, who will physically seize the vessel and take it into custody. During the arrest, the vessel is not allowed to leave the port or engage in any commercial activities until the matter is resolved or the vessel is released from arrest.
6. Provision of Security: To secure the release of the vessel, the defendant or any interested party may provide security to the court in the form of a cash deposit, bank guarantee, or a P&I Club letter of undertaking. The security should cover the amount claimed, as well as any interest, legal costs, and expenses associated with the arrest.
7. Release of the Vessel: If the court is satisfied with the security provided, the vessel will be released from arrest, and the parties can proceed with the legal proceedings to resolve the maritime claim. Alternatively, if the defendant fails to provide adequate security or the parties cannot reach an agreement, the court may order the judicial sale of the vessel to satisfy the claim.
8. Legal Proceedings: Following the arrest or release of the vessel, the parties will engage in legal proceedings to resolve the maritime claim. This may involve negotiations, mediation, arbitration, or litigation, depending on the circumstances and the parties’ preferences.

Release of a Vessel from Arrest in Cyprus

The release of a vessel from arrest in Cyprus can be achieved through several methods. Once a vessel has been arrested, the debtor or any interested party can take steps to secure the release of the vessel. The release process aims to ensure that the claimant’s rights are protected while allowing the vessel to resume its operations.

1. Provision of security

One of the most common ways to release a vessel from arrest is by providing security to the satisfaction of the claimant or the court. This security can take various forms, such as cash deposits, bank guarantees, letters of credit, or P&I Club letters of undertaking. The amount of security required is typically determined based on the value of the claim, plus interest, legal costs, and any potential enforcement costs. Once the security is accepted by the claimant or approved by the court, the vessel can be released from arrest.

2. Settlement or payment of the claim

If the debtor agrees to settle the claim, either through negotiation or by paying the full amount owed, the vessel can be released from arrest. A written agreement between the parties, stipulating the terms of the settlement and the release of the vessel, is usually required. In cases where the debtor pays the full amount of the claim, the claimant should provide a written acknowledgment of receipt, and the vessel can be released accordingly.

3. Judicial decision

If the case proceeds to trial, the court may order the release of the vessel if it determines that the arrest was wrongful or that the claimant is not entitled to the claimed amount. Additionally, the court may also order the release of the vessel if it finds that the arrest is no longer necessary to secure the claim, such as when alternative security has been provided or when the claim has been satisfied.

4. Appeal

If a party believes that the arrest was unjustified or that the security demanded is excessive, they can appeal the court’s decision. During the appeal process, the court may order the vessel’s release, provided that appropriate security is offered, or it may uphold the arrest if it finds that the grounds for arrest are valid.

Judicial Sale of an Arrested Vessel in Cyprus

In Cyprus, a judicial sale is a method for enforcing a maritime claim when a vessel has been arrested and the claim remains unpaid or unresolved. The judicial sale of an arrested vessel involves a court-supervised auction process, wherein the vessel is sold to the highest bidder. The proceeds from the sale are then used to satisfy the outstanding claim and any associated costs.

The process for a judicial sale of an arrested vessel in Cyprus involves several steps:

1. Application for a judicial sale

The claimant, who has successfully obtained a judgment or arbitration award against the debtor, can apply to the court for an order to sell the vessel. The application must be supported by evidence of the judgment or award, the vessel’s arrest, and the fact that the debtor has failed to satisfy the claim or provide adequate security.

2. Notice and advertisement

Once the court grants permission for a judicial sale, a notice must be given to all interested parties, including the vessel’s owner, the mortgagees, and any other claimants who have registered their claims with the court. The notice should specify the details of the sale, including the date, time, and place of the auction.

Additionally, the court may require the publication of an advertisement in local and international newspapers or specialized maritime publications, notifying potential buyers of the upcoming sale.

3. Appraisal and reserve price

Before the auction, the court may appoint an independent appraiser to determine the vessel’s market value. Based on the appraisal, the court may set a reserve price, which is the minimum acceptable bid for the vessel during the auction. The reserve price ensures that the vessel is not sold at a significantly lower value than its market worth.

4. Auction

The judicial sale of the vessel is conducted through a public auction, supervised by a court-appointed officer or auctioneer. Interested bidders must register and submit a deposit to participate in the auction. The vessel is then sold to the highest bidder, provided that the bid meets or exceeds the reserve price.

5. Distribution of proceeds

The proceeds from the judicial sale are used to satisfy the maritime claim, as well as any legal costs, enforcement fees, and other expenses incurred during the arrest and sale process. The remaining funds are distributed among other claimants in accordance with their respective priorities, as determined by the court. Any surplus proceeds are returned to the vessel’s owner.

6. Transfer of ownership and release

Once the sale is complete, the court issues a judicial sale certificate, which confirms the transfer of ownership from the debtor to the new buyer. The buyer acquires the vessel free from any existing encumbrances, liens, or claims, and the vessel is released from arrest.

Case Law

1. The “BULK Argentina” [2011] 1 CLR 944

This case demonstrated the importance of the claimant’s undertaking to indemnify the defendant for wrongful arrest. The court held that a claimant must provide an undertaking to indemnify the defendant for any damages that may arise due to wrongful arrest. This undertaking serves as a safeguard for shipowners and ensures that claimants have a legitimate claim before seeking an arrest order.

2. The “FISHGO” [2014] 1A CLR 178

In this case, the court emphasised the need for claimants to act promptly in initiating ship arrest proceedings. It was ruled that any unreasonable delay in filing an application for the arrest of a vessel may result in the court denying the application. This case underlines the significance of timeliness when seeking ship arrest orders in Cyprus.

3. The “BLUE DIAMOND” [2017] 1 CLR 1076

The “BLUE DIAMOND” case is a prime example of the application of the Brussels I Recast Regulation in Cyprus. The court recognized and enforced a foreign judgment against the vessel, which led to its arrest. The decision confirms that Cypriot courts will uphold foreign judgments in compliance with EU regulations.

Challenges and Solutions

1. Wrongful Arrest

One of the primary challenges in ship arrest proceedings is wrongful arrest. This can lead to significant financial losses for shipowners and damage their reputation. To mitigate this risk, Cypriot courts require claimants to provide an undertaking to indemnify the defendant for damages resulting from wrongful arrest.

2. Counter-security

In some instances, the defendant may request counter-security from the claimant as a condition for the release of the vessel. This ensures that the claimant has a legitimate claim and can cover any damages that may arise during the arrest process. However, the requirement of counter-security may create financial difficulties for some claimants.

3. International Coordination

Ship arrest proceedings often involve multiple jurisdictions, making it essential for claimants and their legal representatives to coordinate effectively with international partners. This can be achieved by retaining local counsel familiar with the relevant legislation and procedural requirements in each jurisdiction.

Ship arrest in Cyprus is a complex legal process governed by domestic legislation, international conventions, and case law. The Cypriot courts follow a well-established procedure for ship arrest, requiring claimants to establish a maritime claim, provide prima facie evidence, and submit an undertaking to indemnify the defendant. Recent case law has highlighted the importance of timeliness and compliance with EU regulations in ship arrest proceedings. By understanding the intricacies of the legal framework and ship arrest procedure in Cyprus, claimants can effectively secure their maritime claims and safeguard their interests.