FACULTY OF LAW
Lund University
Anastasiia Sazanova
Enforcement of Maritime Claims:
Russian and Latvian Perspective
Master thesis
30 credits
Proshanto K.Mukherjee
Master´s Programme in Maritime Law
Autumn 2012
Contents
SUMMARY
1
ABBREVIATIONS
2
1 INTRODUCTION
1.1. Significance
1.2.The nature of maritime claims
1.3. Choice of jurisdictions
1.4. International and national legal framework
1.5. Aims, scope and delimitations
1.6. Methodology
1.7. Sources
3
3
4
5
6
10
11
12
2 CHAPTER I. PROCEDURAL LAW OF ENFORCEMENT
2.1. National judicial systems
2.1.1.Russia
2.1.2.Latvia
2.2. Jurisdictional grounds for maritime claims
2.3. Conflict of laws
2.3.1. Choice of law
2.3.2. Application of foreign law
14
14
14
15
16
21
22
25
3 CHAPTER II. ARREST OF SHIPS
3.1. What is arrest of ships?
3.2. Which court to apply?
3.2.1.Functional jurisdiction
3.2.2.Territorial jurisdiction
3.3. International jurisdiction and arrest for security only
3.4. Preconditions for ship arrest
3.4.1.General remarks
3.4.2.List of maritime claims
3.4.3.Proper defendant and proper ship
3.5.Procedural formalities
3.6. Reasoning for arrest
3.7. Counter-security
3.8. Release from arrest
3.9. Sister/associated ship arrest
3.10. Wrongful arrest
3.11. Re-arrest and multiple arrest
28
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52
4
CHAPTER III. MARITIME LIENS, MARITIME MORTGAGES
AND RIGHTS OF RETENTION
54
4.1. Maritime liens
54
4.1.1.General remarks
55
4.1.2.Peculiar features of maritime liens an Russian and Latvian legal
framework
4.1.3.Secrecy
4.1.4.Concept of priviledge
4.1.5.Right of following
4.1.6.Claims secured
4.1.7.Assets subject to maritime liens (maritime property)
4.1.8.Who is responsible for a ship's fault?
4.1.9.Ranking of maritime liens and other claims
4.1.10.Extinction of maritime liens
4.1.11.Forced sale
4.1.12.Foreign liens
4.2. The mortgage of vessel
4.2.1.Concept of priviledge
4.2.2.Applicable law
4.2.3.What can be secured by the mortgage
4.2.4.Subjct-matter of mortgage
4.2.4.1.Ships
4.2.4.2.Ships under construction
4.2.4.3. Insurance indemnity
4.2.5.Registartion of mortgage
4.2.6.Enforcement of security rights
4.2.7.Effects of forced sale
4.2.8.Priority of mortgages
4.2.9.Recognition of foreign mortgages
4.3. Right of retention
55
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5
96
CONCLUSION
BIBLIOGRAPHY
TABLE OF CASES
98
103
Summary
This thesis is a comparative legal research of the enforcement of maritime
claims in two countries of the Baltic sea region - Russia and Latvia. It
focuses on substantive and procedural aspects of enforcement of maritime
claims. Thorough analysis of the ship arrest possibilities provided under
Russian and Latvian law and of encumbrances of maritime property
(maritime liens and ship mortgages) is supplemented by an overview of the
legal systems in question together with a discussion of jurisdictional rules
for international disputes and of conflict of laws rules established in both
jurisdiction.
Key words: comparative legal studies, enforcement of maritime claims,
maritime securities, ship arrest, maritime lien, maritime mortgage, right of
retention, Russia, Latvia.
1
Abbreviations
The 1952 Convention
International Convention Relating
to the Arrest of Sea-Going Ships,
1952
The 1993 Convention
International Convention on the
Arrest of Ships,1999
The 1999 Convention
International Convention on
Maritime Liens and Mortgages,1993
The Law on the Mortgage
The Federal Law of Russian
Federation “On the Mortgage”
The LCC
Civil Code of Latvia
The LCPL
Latvian Civil Procedures Law
The LMC
Maritime Code of Latvia
The RF CPC
Commercial Procedure Code of
Russian Federation
The RF Civil Procedure Code
Civil Procedure Code of Russian
Federation
The RF CC
Civil Code of Russian Federation
The RF MSC
Merchant Shipping Code of Russian
Federation
2
1. Introduction
1.1. Significance
It is of little interest and of doubtful honor to just have a status of creditor,
but it is much more pleasant to be a creditor who can enforce his claim
against the debtor and to get satisfaction. Substantive laws (i.e. grounds for
a claim) can be beneficial only if they are implemented consistently and
effectively (through enforcement mechanism). It can be said that
enforcement is a key stage in the ‘life cycle’ of the claim.
In the maritime context the aspect of enforcement of claims gains even more
vital meaning due to several reasons. First and the most obvious, the scale of
the money flow accompanying maritime affairs is impressive, and so are the
debts which can arise; torts which take place in maritime activity may cause
considerable damage which provides the basis for impressive claims.
Second, ships may be subject to different types of commercial contracts,
like bareboat charters, time-charters, voyage charters etc.; this usually
creates complicated legal chains, involving companies and entrepreneurs
from different countries. Thus, it may be of great complication to discover,
who the actual debtor is and what assets are available for execution of the
claim. The jurisdiction where enforcement will be possible is hardly
predictable. In cases where maritime claims arise on a non-contractual basis
such as claim for damages caused by collision or claims for personal injury
caused in connection with the operation of the ship, the situation looks even
more challenging. Third, as the enforcement can finally happen in any
corner of the world, national legislation comes into play, aggravating the
situation for the claimant if he is alien, or, vice versa, playing into his hand
if he is acquainted with its rules through, for example, being domiciled
there. As noted by Professor William Tetley, “essential to the practice of
maritime law in any country is knowledge of the procedures which provide
3
pre-judgment security for claims, as well as post-judgment execution if a
suit is allowed.”1
Enforcement of maritime claims has peculiar features which make it
different from the enforcement of other civil claims. These peculiarities are
rooted in the nature of maritime claims.
1.2.The nature of maritime claims
Of what legal consequence with regard to its enforcement is it that a claim is
‘maritime’? The answer differs from jurisdiction to jurisdiction. For
example, in English law the phrase ‘maritime claim’ has no technical
meaning, simply indicating a claim which is within the Admiralty
jurisdiction of the High Court or, to put it another way “lies in Admiralty”.2
On the other hand, the phrase ‘maritime claim’ is used in the International
Convention Relating to the Arrest of Sea-Going Ships 1952 (hereinafter
referred to as the 1952 Convention)3 and the International Convention on
the Arrest of Ships 1999 (hereinafter referred to as the 1999 Convention)4,
and, consequently, in states parties to these conventions, as the general label
describing all the claims in relation to which a ship may be arrested under
the conventions.
By its nature, a maritime claim has a close connection with the vessel in two
aspects: first, it arises as a result of operating a vessel (that is why they are
called ‘maritime claims’); second, a vessel may become a legal security for
a maritime claim.
One of the peculiarities of the enforcement procedure of maritime claims is
that its cornerstone is a vessel as a legal security. The rationale behind is
1
W.Tetley, Arrest, Attachment, and Related Maritime Law Procedures, (1999) 73 Tul. L.
Rev at p.1898.
2
D.Jackson, Enforcement of Maritime Claims, Fourth Edition, Informa Publishing, 2005, at
p.8.
3
International Convention Relating to the Arrest of Seagoing Ships. Brussels, 10 May
1952. 439 U.N.T.S.193; 53 AJIL 539.
4
International Convention on the Arrest of Ships. Geneva, March 12, 1999 UN Doc.
A/CONF. 188.6.
4
that a vessel is not only the ‘offender’ or the ‘tortfeasor’, but also the asset
which is valuable and easily accessible.
There are three important sets of rules under which a vessel may become
legal security for a claim.
Firstly, ordinary rules on liens and mortgages can be marked out. Under
these rules certain types of maritime claims are secured by a right in a
vessel. Naturally this means that a creditor has a right to force a sale of a
vessel and to obtain recovery of the debt from the proceeds.
Secondly, in respect of certain claims a vessel may be arrested with the
purpose of restricting, both physically and legally, an owner’s right of
disposition over a vessel.
The third set of rules concerns a right of retention exercised by the creditor
to force the debtor to pay voluntarily for his vessel to be released. In the
context of maritime law, these rules are quite limited in scope: a typical
situation would be a shipyard retaining a ship to provide its bill to be paid.
Moreover, the right of retention is passive: there is no associated right to
have the vessel sold.5
1.3. Choice of jurisdictions
Justification for the choice of topic for this thesis has double reasoning. The
first reason is of a geographical nature, as there was an intention to give an
overview of the possibilities that maritime claimants can enjoy in two
countries of the same region – the Baltic sea region. The international trade
and flows of cargo are increasing exponentially in the Baltic Sea area, the
concept of an integrated multimodal transport network around the Baltic Sea
being one of the top priorities of the EU and all its corresponding states.6
This creates new opportunities and challenges for the Baltic Sea ports. Both
Russia and Latvia has several ports in the Baltic region, which play an
important role in maritime transportation. In the Baltic Sea, the Russian
5
T.Falkanger, H.J.Bull, L.Brautaset, Scandinavian Maritime Law: the Norwegian
Perspective, 3rd ed. (2001, Oslo: Universitetsforlaget), at p.124.
6
S.Dvorak, Competitive Baltic Sea Ports: A comparison of Klaipeda, St. Petersburg and
Turku, <mkk.utu.fi/dok/pub/C49-combalt-ports.pdf>, at p.7.
5
ports of Primorsk and St. Petersburg occupy the lead positions based on
cargo turnover7, whereas the current development situation of the Latvian
ports of Liepaja and Ventspils is one of strong progress. Thus it may be of
interest for any maritime claim holders to assess the possibilities provided
by these two jurisdictions as popular vessels’ destinations with regards to
the enforcement of maritime claims.
The second reason for the choice of jurisdictions for analysis was the fact
that Russia and Latvia ratified different convention regimes – Russia is a
party to the 1952 Convention and International Convention on Maritime
Liens and Mortgages 19938 (hereinafter referred to as the 1993 Convention),
whereas Latvia is a party to the 1999 Convention. Such comparative
analysis will give to the reader an overview of possible advantages and
complications for the claimant if he chooses one of these jurisdictions to
enforce his maritime claim.
1.4. International and national legal
framework
In this section a short explanation of the content of the relevant conventions
and laws in force in Russia and Latvia will be given.
According to D. C. Jackson, there can be marked out three enforcement
aspects of maritime claims:
‘(i) the extent to which a remedy may be obtained by a maritime claimant so
as to ensure that there will be assets available to turn a judgment into material
gain (the interim or provisional remedy aspect );
(ii) the rules governing the bringing of an action to enforce a maritime claim
(the jurisdictional aspect );
(iii) the extent to which a maritime claimant becomes a preferred creditor (the
security aspect )’.9
As somewhat ironically stated by D.C.Jackson (who laments that the
English law is not blessed with the system of unified and codified laws), in
7
Ibid, at p.66.
International Convention on Maritime Liens and Mortgages, Geneva, 06 May 1993, UN
Doc.A/CONF.162/7/33 ILM 353.
9
Supra note 2, at p.14.
8
6
many legal systems the legislation concerning the enforcement of maritime
claims follows the logical (and indeed chronological) order of the above
mentioned aspects of enforcement of maritime claims:

rules of provisional remedy are be found in the Civil Procedure
Code, unless there are particular maritime rules which may then be
included in the Maritime Code.

similarly rules relating to jurisdiction on the merits are most likely to
be found in procedure codes but distinguished from rules relating to
provisional remedy.

rules relevant to preferred creditors will be in the Maritime Code, in
so far as these are maritime rules and in the Civil Code in so far as
they are generally applicable.10
As will be seen later, these words are true with regards to Russia and Latvia,
but with reservation of the fact that the peaks of these national systems of
codified laws are the 1993 Convention and 1952 Convention (with regards
to Russia) and the 1999 Convention (with regards to Latvia).
Russia joined the 1993 Convention (which entered into force on 5
September 2004) on December 17, 1998 by issuing the Federal Law “On the
Russian Federation Joining the International Convention on Maritime Liens
and Mortgages of 1993”11 without any reservations. In 1999 Russia
acceded to the 1952 Convention by issuing the Federal Law ”On the
Russian Federation Joining the International Convention for the Unification
of Certain Rules Relating to the Arrest of Maritime Ships”
12
. The
convention came into force in Russia on 29 October 1999. Also in 1999
10
Ibid.
Federal'nyj zakon ot 17.12.1998 N 184-FZ "O prisoedinenii Rossijskoj Federacii k
Mezhdunarodnoj konvencii o morskih zalogah i ipotekah 1993 goda, "Rossijskaja gazeta",
N 241, 19.12.1998. The consolidated text including numerous later amendments may be
found in electronic legal databases, e.g., Konsultant Plus (available at
<http://www.consultant.ru/popular/apkrf/>).
12
Federal'nyj zakon ot 06.01.1999 N 13-FZ "O prisoedinenii Rossijskoj Federacii k
Mezhdunarodnoj konvencii ob unifikacii nekotoryh pravil, kasajuwihsja aresta morskih
sudov", "Rossijskaja gazeta", N 7, 15.01.1999. The consolidated text including numerous
later amendments may be found in electronic legal databases, e.g., Konsultant Plus
(available at <http://www.consultant.ru/popular/apkrf/>).
11
7
Russia adopted the Merchant Shipping Code13 (hereinafter referred to as the
RF MSC), which adopted some of the provisions of the 1993 Convention
and the 1952 Convention. Although Russia is also not a party to the 1999
Convention, with regards to maritime claims and their enforcement the RF
MSC contains the basic provisions of the 1999 Convention. However the
rules contained in the RF MSC are not fully identical to the text of the 1999
Convention.
According to paragraph 1 of Article 8 of the 1952 Convention, its provisions
shall be applied to the arrest of vessel flying the flag of a contracting state.
Article 15 of the Constitution of Russian Federation provides that, in the
event of a conflict of law between the provisions of national legislation and
international treaties, the latter will prevail.14 Consequently, to the arrest of
vessel flying the flag of a contracting state to the 1952 Convention Russian
courts shall apply provisions of the Convention; in other cases, i.e. as to the
arrest of ships flying the flag of other states, the Russian courts shall apply
the rules of the RF MSC.
The Russian Federation reserved the right not to apply the rules of the 1952
Convention to warships, military logistic ships and to other vessels owned
or operated by the State and which are exclusively used for non-commercial
purposes.
Procedural aspects of the ship arrest are stipulated by the Russian procedural
codes. The application of the procedural codes is subject to the specific rules
of the RF MSC.
Maritime liens and ship mortgages are regulated by the RF MSC. The latter
are supplementary regulated by the Civil Code of the Russian Federation
(hereinafter referred to as the RF CC)15 and the Law on the Mortgage of the
13
"Kodeks torgovogo moreplavanija Rossijskoj Federacii" ot 30.04.1999 N 81-FZ,
"Российская газета", N 85-86, 01-05.05.1999. The consolidated text including numerous
later amendments may be found in electronic legal databases, e.g., Konsultant Plus
(available at <http://www.consultant.ru/popular/apkrf/>).
14
"Konstitucija Rossijskoj Federacii","Rossijskaja gazeta", N 7, 21.01.2009. The
consolidated text including numerous later amendments may be found in electronic legal
databases, e.g., Konsultant Plus (available at <http://www.consultant.ru/popular/apkrf/>).
15
"Grazhdanskij kodeks Rossijskoj Federacii (chast' pervaja)" ot 30.11.1994 N 51-FZ,
"Rossijskaja gazeta", N 238-239, 08.12.1994. The consolidated text including numerous
8
Russian Federation (hereinafter referred to as the RF Law on the Mortgage).
Rights of retention are regulated by the RF MSC and supplementary by the
RF CC.
As to Latvia, originally this country joined the 1952 Convention, but later it
acceded to the 1999 Convention on December 2001. With the 1999
Convention entering into force on 14 September 2011, contracting states to
both Conventions now need to ensure effective national implementation of
the new international legal regime and to denounce the 1952 Convention
(beyond Latvia, this should be done also by Algeria, Benin, Spain and
Syrian Arab Republic) to avoid undesirable overlap between the two
international legal instruments, but the author of this thesis did not succeed
to find any information evidencing that this was done. Latvia incorporated
the maritime claims enumerated in Article 1(1) of the 1999 Convention into
Maritime Code of Latvia16 (hereinafter referred to as the LMC), which was
adopted on 29 May 2003 and entered into force on 1 August 2003.
Therefore, as some scholars claim, the 1999 Convention maritime claims are
enforced when the 1952 Convention is not applicable.17 F.Berlingieri states
that it appears that Latvian courts refer to the Maritime Code provisions
irrespective of whether the 1952 Convention is applicable or not18, and in
the course of this thesis the same approach will be applied.
With regard to national legislation, a huge effect on Latvia’s legal and
administrative system has been caused by Latvia’s application to become a
member state of the European Union. The legal framework for enforcement
of maritime claims in Latvia is based upon the LMC, which is heavily
influenced by international conventions well known in the maritime
community. The method of implementation of the conventions is based on
later amendments may be found in electronic legal databases, e.g., Konsultant Plus
(available at <http://www.consultant.ru/popular/apkrf/>).
16
Jūras kodekss, approved by Saeima (Parliament) of the Republic of Latvia on
2003.05.29., Vēstnesis 91 2003.06.18.
17
F.Berlingieri, Berlingieri on Arrest of Ships, 5th Edition, Lloyd's List/Informa,2011 at
p.41.
18
Ibid, at p.60.
9
the Scandinavian approach, more specifically the experts draw their
inspiration from the Norwegian Maritime Code. 19
According to Section 2 of the LMC, the code shall be applied to all ships
that are located in waters under the jurisdiction of Latvia (hereinafter –
Latvian waters), all Latvian ships, as well as other legal entities which are
associated with Latvian ships or navigation in Latvian waters; the code
does not apply to warships and the personnel thereof unless specified
otherwise by this Code or other regulatory enactments.
Procedural aspects of the ship arrest are provided by the Civil Procedure
Law of Latvia20 (hereinafter referred to as the LCPL). The application of the
procedural codes is subject to the specific rules of the LMC. Maritime liens
and ship mortgages are regulated by the LMC. The latter are supplementary
regulated by the Latvian Civil Code21 (hereinafter referred to as the LCC).
1.5. Aims, scope and delimitations
This thesis has very practical purposes and will concentrate on discussion
and legal analysis of the enforcement of maritime claims in the Russian and
Latvian legal systems, trying to highlight strong and weak points of both
systems from the point of view of a maritime claimant who seeks to get
satisfaction of his claim in one of these jurisdictions.
Since enforcement of maritime claims is not possible in any other way but
through the courts, a brief overview of the judicial systems and procedural
law of these countries should be helpful as a start – it can be found in
Chapter I, Section 2.1. In the same chapter the jurisdictional grounds for the
maritime claims also will be discussed, as well as the possibility to apply
foreign law when filing a claim in these jurisdiction.
19
L.Medin, “Compensation for Ecological Damage and Latvian Law”, in Frank Maes
(ed.), Liability and Compensation for Environmental Damage, Dordrecht:Springer, 2005, at
p.44.
20
Civilprocesa likums, ”LV”, 326/330 (1387/1391), 03.11.1998, Zinotajs, 23, 03.12.1998.
21
Civillikums, 22.12.1992, (Ziņotājs, 1, 14.01.1993).
10
The core of this thesis is Chapter II, which is dedicated to the detailed
analysis of arrest of ship a unique measure available for maritime claimants,
highlighting advantages and disadvantages from the point of view of a
maritime claimant of the 1952 Convention and 1999 Convention when
incorporated in the national legal systems and applied by the enforcement
bodies.
Chapter III is devoted to analysis of the regulations of maritime liens, ship
mortgages and right of retention of ship as regulated and enforced in the
jurisdictions in question.
The inferences are summarized in Conclusion.
Alternative enforcement devices (security arrest) and enforcement arrest is left
beyond the scope of the present research, as these measures do not constitute
something that is only available for maritime claimants, but are available to any
civil claimant.
1.6. Methodology
This thesis is a comparative study, thus to develop it a comparative method
of legal research is used, i.e. new knowledge about the legal systems under
research is gained by taking cognisance of the similarities and differences of
those legal systems.22 Compared legal systems belong to the same legal
family. The comparison is developed on a “micro-scale”23, in three phases:
first, the research of specific elements of different legal systems i.e. legal
rules in two jurisdictions in respect of the same subject, in order to gain
information on the content of the applicable foreign legal rules; second, the
analysis of those identified elements in the foreign legal systems; and, third,
consideration of the similarities and differences existing between the chosen
elements in the compared jurisdictions.24
22
T.J.Scott, The comparative method of legal research, <web.up.ac.za/sitefiles/file/47/
J%20Scott%20-%20Comparative%20research%20perspectives%20_Private%20law_.pdf>
23
“This type of comparison is one where the comparative method may be used to the best
advantage in improving one’s national law”. Church, J and Edwards, AB, ”Comparative
law/Comparative method” in Hosten et al, Introduction to South African Law and Legal
Theory Butterworths (1995), at p.1263. 1261-1270.
24
Supra note 22.
11
1.7. Sources
The sources used to develop this thesis consist of literature contained in
books, articles in peer reviewed journals, as well as international law,
national law and case law. With regards to Russia, the research is based on
the analysis of doctrine and legislative acts. All the Russian legislative acts
cited in this thesis can be found translated into English in different web
resources, although only the English-version of the Commercial Procedure
Code of Russian Federation25 (hereinafter referred to as the RF CPC) is an
official translation, published on the official web site of the Supreme
Commercial Court.26
Thus, taking into consideration the instant
amendments that are done to the Russian legislation, it should be specially
remarked that only the above mentioned official translation of the RF CPC
shall be treated as the up-to-date translation, translations of other legislative
acts provided by non-official sources, shall not be regarded as duly
translated and kept up-to-date unless a double-check is made with the
official text of the act in Russian.
Also, this thesis is supplemented by the analysis of commercial court
practice, as most of the decisions rendered by the commercial courts of all
tiers in Russia are consolidated by the privately run law databases 27 similar
to, for example, Westlaw. Moreover, most decisions are officially published
on the web sites of the courts, which are the official source. From 2007, a
large, albeit still incomplete, database is accessible via the Supreme
Commercial Court web site containing more than one million commercial
court decisions from all instances.28 Unfortunately, none of those cases
which the author will be referring to is available in English translation as no
25
"Arbitrazhnyj processual'nyj kodeks Rossijskoj Federacii" ot 24.07.2002 N 95-FZ,
"Rossijskaja gazeta", N 137, 27.07.2002. The consolidated text including numerous later
amendments may be found in electronic legal databases, e.g., Konsultant Plus (available at
<http://www.consultant.ru/popular/apkrf/>)
26
<www.arbitr.ru/_upimg/B722EA8F0FB9196A465ADC315B86B16B_Commercial%20Pr
ocedure%20Code%20of%20the%20Russian%20Federation.pdf>.
27
For example, database ”Consultant+”. Demo version, which includes all the codes and
main federal laws, is available in the internet, www.consultant.ru.
28
< www.arbitr.ru/bras>.
12
translation of the court practice into foreign language is officially or nonofficially provided.
The situation is worse as concerns access to judgments of courts of general
jurisdiction: most of them are unavailable to the general public. Normally,
judgments are not technically secret, but if they have not been published
(most general jurisdiction court judgments are not), there is no real way to
obtain the text from the court unless one is a participant in the proceedings.
Recently some of the decisions of the general jurisdiction courts of the
second and third tier, as well as of the Supreme Court, became available in
the privately run databases mentioned above. Unfortunately no English
translations of the published decisions are available.
With regard to Latvian legislation, the research is based on the analysis of
legal doctrine and those legislative acts which are available in English in the
on-line database of the legislative act of Latvia translated into English.29
Unfortunately it was not impossible to do a research based on court practice
materials, as none of them are translated into English, whereas the author of
this thesis has no skills in Latvian.
29
<www.likumi.lv>.
13
2. Chapter I. Procedural law of
enforcement
2.1. National judicial systems
2.1.1. Russia
The Russian state judicial system consists of two ‘parallel sub-systems’:
general jurisdiction courts (hereinafter referred to as civil courts) and
economic/commercial courts.30
Russian commercial courts are governed by the RF CPC; general
jurisdiction courts, when judging civil cases, are governed by the Civil
Procedure Code of Russian Federation31 (hereinafter referred to as the RF
Civil Procedure Code). Both codes were adopted in 2002. Economic or
business-related cases, including the enforcement of commercial arbitration
decisions, are under the jurisdiction of commercial courts, rather than the
general jurisdiction courts (Articles 27(1), 236 and 241 of the RF CPC).
To assist the non-Russian reader to easy understanding of the following
discussion, it is necessary to mention that since 01.01.2012 the Russian civil
courts system is four-tiered, the same as the commercial courts system is
(according to Federal Law of Russian Federation “On Commercial Courts
of Russian Federation32 and to the Federal Constitutional Law of Russian
Federation “On General Jurisdiction Courts of Russian Federation”33). For
example, it includes first-instance courts such as the Commercial Court of
30
S.Budylin, “The Enforcement of International Arbitration Awards in Russia”, Review of
Central and East European Law 34 (2009),p.139.
31
“Grazhdanskii Protsessual’nyi Kodeks Rossiiskoi Federatsii”, . Law No.138-FZ, signed
14 November 2002, SZ RF (2002) No.46 item 4532 (hereinafter “GPK RF”).The
consolidated text including numerous later amendments may be found in electronic legal
databases, e.g., Konsultant Plus (available at <http://www.consultant.ru/popular/apkrf/>)
32
RF Federal’nyi Konstitutsionnyi Zakon “Ob Arbitrazhnykh Sudakh v Rossiiskoi
Federatsii” (with subsequent amendments), No.1-FKZ, signed 28 April 1995, SZ RF (1995)
No.18 item 1589. The consolidated text including numerous later amendments may be
found in electronic legal databases, e.g., Konsultant Plus (available at
<http://www.consultant.ru/popular/apkrf/>).
33
Federal'nyj konstitucionnyj zakon ot 07.02.2011 N 1-FKZ "O sudah obwej jurisdikcii v
Rossijskoj Federacii",
14
St. Petersburg and the Leningradskaya oblast; 30 appeal courts, namely, the
Thirteenth Commercial Appeal Court, which reviews those decisions
rendered by the Commercial Court of St. Petersburg and Leningradskaya
oblast that have not yet entered into force; 32 cassation courts such as the
North-West Circuit (Okruzhnoi) Federal Commercial Court, which reviews
the decisions of first-instance and appeal courts that have entered into force;
and the Supreme Commercial Court which is the last ‘supervisory’ instance.
The system of civil courts is similar to the above-described commercial
courts system.
With regard to the analysis of Russian legislation, sometimes references will
be made to court practices and to the informational letters of the Supreme
Commercial Court. It is important to explain that Russia is a civil-law
country; accordingly, no court decision creates a binding precedent in the
strict common-law sense. However, decisions of higher courts can be very
persuasive for their respective lower courts, thus forming a trend, especially
the decisions of the Supreme Commercial Court. Accordingly, Supreme
Commercial Court case law is the most important, its value in court
proceedings effectively reaching that of statutory law. In addition, the
Presidium Supreme Commercial Court is entitled to issue ‘informational
letters’ in order to provide the uniformity of court practice. While these are
also not officially binding, they, likewise, are highly persuasive and
intended to provide guidance to lower courts.34 By contrast, rulings of the
Plenum of Supreme Commercial Court on specific legal issues are officially
binding for commercial courts.
2.1.2. Latvia
Latvia belongs to the Continental-Europe codified legal system. The civil
procedure is regulated by the Latvian Civil Procedure Law (hereinafter
referred to as the LCPL), adopted on October 14, 1998 and effective since
March 1, 1999.
34
S.Budylin, Judging the Arbiters: The Enforcement of International Arbitration Awards in
Russia, Review of Central and East European Law 34 (2009), at p.140.
15
There are no specialized courts for civil or commercial matters in Latvia,
i.e., the courts of general jurisdiction review all civil and commercial
cases.35 A three-tier court system functions in Latvia which comprises: 34
district/city courts which are courts of first instance; 5 regional courts which
are courts of appellate instance, but also which have jurisdiction as a first
instance court in the following cases: 1) disputes regarding property rights
in regard to immovable property; 2) matters arising from rights in regard to
obligations, if the amount of the claim exceeds LVL 150,000.00 (approx.
EUR 214,285.00); 3) patent rights and protection of trademarks; and 4)
insolvency and liquidation of credit institutions; and, finally, the third tier
which is the Supreme Court, where rulings passed by the regional court can
be appealed.36
2.2. Jurisdictional grounds for maritime
claims
When commencing legal proceedings, the first step is to choose a court with
jurisdiction over the case. Generally, several types of jurisdiction can be
determined: 1) international jurisdiction, which empowers courts to deal
with cases involving foreign parties or elements; 2) functional jurisdiction,
which distinguishes special matter courts from other courts; 3) territorial (or
regional) jurisdiction, which means that jurisdiction over any case belongs
to the court in the jurisdictional territory of which occurred the accident, or
can be found the property etc.37 Functional jurisdiction with regards to the
jurisdiction in question was discussed in the previous section, whereas the
territorial jurisdiction in aspect of ship arrest will be analyzed in section
3.2.2. of this thesis. In the present section international jurisdiction, i.e.
general grounds for jurisdiction over claims brought by or against foreigners
(cross-border disputes) in Russia and Latvia will be subject to scrutiny.
Likums ”Par tiesu varu”, 15.12.1992 (Zinotajs, 1, 14.01.1993).
Ilga Gudrenika-Krebs and Irina Kostina, Latvia, in The international comparative guide
to litigation and dispute resolution 2011,London: Global Legal Group, 2011, at p.160.
37
K. X. Li, “Maritime Jurisdiction and Arrest of Ships Under China’s Maritime Procedure
Law”, October 2001, 32 J. Mar. L. & Com., at p.655.
35
36
16
The RF MSC does not include rules on territorial jurisdiction. Thus, the
rules of the appropriate procedural codes are applicable. Both the RF CPC
and the RF Civil Procedures Code contain chapters on proceeding in cases
in which foreign persons participate. The rules on territorial jurisdiction
established by them to cross-border disputes are generally similar to the
rules which apply to internal disputes. Scholars remark that the jurisdiction
of Russian courts established by these rules is rather vast38; some of them
even compare them to the USA “long-arm” statutes.39
The basic rule established by Article 247 of the RF CPC with regard to crossborder disputes is that there must exist a close link between the disputed legal
relation and the territory of the Russian Federation. It is stipulated that Russian
commercial courts consider economic disputes and other cases, related to the
exercise of entrepreneurial and other economic activities with the participation
of foreign or international organisations, of foreign citizens or of stateless
persons, engaged in entrepreneurial and other economic activities, if:
1) the defendant is present or resides on the territory of the Russian Federation,
or the defendant's property is located on the territory of the Russian Federation;
2) the managing body, a representative or branch office of the foreign person is
located in the territory of the Russian Federation;
3) the dispute arises from a contract, according to which the performance is to
take place or took place on the territory of the Russian Federation;
4) the claim arises from the infliction of damage to property by an action or
another circumstance, which took place on the territory of the Russian
Federation, or if damage occurred in the territory of the Russian Federation.
The rules provided by Article 402 of the RF Civil Procedure Code are the
same (save the rules on functional jurisdiction of the civil courts).
Exclusive competence of the Russian courts are cases, the subject matter in
which is immovable property or the rights to it, if this property is located in the
territory of the Russian Federation (Article 248 (1) of the RF CPC, Article 403
38
V.M. Zhujkov, M.K. Treushnikov (ed.), Kommentarij k Grazhdanskomu
processual'nomu kodeksu Rossijskoj Federacii, Moscow: Gorodec, 2007.
39
N.G.Eliseev, Mezhdunarodnaja podsudnost' iskov o pravah na nedvizhimost', Moscow:
Statut, 2008.
17
(1) of the Civil Procedure Code). As will be dicussed in details in Chapter III,
from the legal point of view vessels are considered to be immovable property in
Russia. Uncertainty caused by the vagueness of the wording ’if the property is
located in the territory of the Russian Federation’ with regard to ships (which
are only legally ”immovable”, but physically can travel from jurisdiction to
jurisdiction) can be eliminated by referrence to Article 38(2) of the RF CPC,
which stipulates (although for internal disputes) that claims for rights to sea and
air vessels, inland navigation vessels and non-terrestrial objects are filed with
the commercial court at the place of their state registration. The RF Civil
Procedure Code does not contain a similar provision, but it can be applied by
analogy (more information on application by analogy in Russian law will be
provided in Chapter II within the discussion on possibility to apply provisions
of procedural codes concerning arrest of ship).
By Article 403 (1) also the cases arising out of the contract of carriage, if the
carrier is present or resides in Russia, are referred to the exclusive competence
of the Russian civil courts.
Contractual jurisdiction is recognized by both procedural codes (Article 249 of
the RF CPC and Article 404 of the RF Civil Procedure Code).
As Latvia is a part of the European Union (hereinafter referred to as EU),
the main legal source of the rules of jurisdiction in Latvia in civil and
commercial matters is the Brussels I Regulation40 (Brussels/Lugano
Conventions are not in force and applicable in Latvia; the enforcement
regime under the Brussels Regulation is a simplified and expedited version
of the enforcement regime under the Brussels Convention and Lugano
Convention which are similar41).
40
The Brussels Regulation (Council Regulation (EC) No 44/2001 on jurisdiction and the
recognition and enforcement of judgments in civil and commercial matters). Brussels
Regulation governs issues of jurisdiction as between all EU states (that is, Austria,
Belgium, Bulgaria, Republic of Cyprus (not including Turkish Cyprus), Czech Republic,
Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Portugal, Poland, Romania, Slovakia, Slovenia, Spain,
Sweden, United Kingdom). Denmark is also included by virtue of the separate agreement.
41
”Enforcement of Judgments under the Brussels Regulation Posted in Dispute resolution”,
13 February, 2009, http://www.millerrosenfalck.com/2009/02/ dispute-resolution-guide/
visited on 3 April 2012.
18
Apart from Brussels I, the main legal sources of the rules of jurisdiction are
the LCPL and the bilateral treaties entered into with eight (8) countries on
legal assistance in civil and commercial matters.
According to Article 5 (3) of the LCPL, if the relevant matter is regulated by
legal norms of the European Union, which are directly applicable in Latvia,
the Latvian law shall be applied insofar as it is allowed for by the legal
norms of the European Union. Therefore, in the determination of
jurisdiction applicable to transnational disputes, Latvian courts must follow
EU norms.
Similar to Russian law, the Latvian law does not provide for any specific
jurisdictional rules applicable to cross-border disputes, and international
disputes are resolved mainly on the basis of the rules which apply to internal
disputes.
As states in Article 1 of the LCPL, every natural or legal person has a right
to protection of their infringed or disputed civil rights, or their legal interests
in court. Hence, non-citizens equally to citizens of Latvia may apply to
Latvian courts for legal protection; the same rights are attributed also to
foreign legal entities. Latvian law does not provide for any restrictions on
jurisdiction or specific provisions applicable to civil matters where foreign
persons are involved.42
As stated in Article 26 of the LCPL, claims against natural persons shall be
brought in a court according to their place of residence, but claims against
legal persons shall be brought in a court according to their registered
address. If a place of residence of the defendant is unknown or the defendant
has no permanent place of residence then claims shall be bought according
to the place of location of his or her immovable property or his or her last
known place of residence.
42
D.Zivtina, Comparative Study of “Residual Jurisdiction” in Civil and Commercial
Disputes
in
the
EU,
National
Report
for
Latvia,
<ec.europa.eu/civiljustice/news/docs/study_resid_jurisd_latvia_en.pdf>, visited on 3
December 2012.
19
In other cases the claim would not be accepted in Latvian court unless the
claim by its nature would fall either under the exclusive jurisdiction of the
Latvian court or it would be subject to the jurisdiction chosen by the
plaintiff.
Section 28 provides rules concerning jurisdiction by the choice of the
plaintiff. With regard to the maritime claims of importance are the following
rules:

an action arising in relation to the action of a subsidiary or
representative office of a legal person may also be brought in a court
in accordance with the location of the subsidiary or representative
office.

an action arising out of private delicts (torts) which have resulted in
mutilation or other damage to health, or the death of a person, may
also be made according to the place of residence of the plaintiff or
the location where the delicts were inflicted.

an action regarding damage inflicted to the property of a natural or
legal person may also be brought in accordance with the location
where such damage was inflicted.

an action regarding recovery of property or compensation for the
value thereof may also be brought in accordance with the place of
residence of the plaintiff.

maritime claims may also be brought in accordance with the location
of the arrest of the defendant ship.

an action against several defendants, who reside at or are located in
various places, may be brought in accordance with the place of
residence or location of one defendant.

an action, which arises from employment legal relations, may also
be brought in accordance with the place of residence or place of
work of the plaintiff.
20
Latvian courts have exclusive competence over disputes relating to
immovable property located in Latvia and claims relating to the requested
estate in Latvia (Section 29 of the LCPL). Though, it is necessary to stress
that this rule which is common for many countries, with regards to maritime
property does not play any meaningful role in Latvia, as a ship, by contrast
to the Russian legal system, is not considered to be immovable property.
The LCPL also provides for contractual jurisdiction. Upon entering into a
contract the parties may establish the court of first instance where disputes
are to be resolved. But the exclusive jurisdiction set forth by the law cannot
be altered by such agreement.43
Section 163 of the LMC provides several special rules concerning
jurisdictions of maritime claims. It states that if the parties have not agreed
regarding jurisdiction for the settlement of disputes, an action shall be
brought in court:
1) on the basis of the location, or place of residence, of the
defendant;
2) on the basis of the place where the carriage contract was entered
into;
3) on the basis of the place the cargo is sent to; or
4) on the basis of the place of delivery of the cargo.
2.3. Conflict of laws
As relationships in maritime field are mainly of cross-border nature,
maritime claimants should be ready to deal with conflicts of law regulation
of the jurisdiction where they, for any reason, consider it preferable to
enforce their claim. When the court finds the claim within the jurisdiction of
the specific court according to the procedural law and accepts the statement
of claim filed, the next question is what law to apply in this case.
43
Supra note 36.
21
Two aspect of the conflicts of law in Russia and Latvia concerning maritime
claims will be discussed briefly in this section: first, the choice of law rules
in both jurisdictions; second, possible difficulties which can face the
claimant when national courts of jurisdiction in question will, by
prescription of choice of law rules, apply foreign law. Conflicts of law with
regard to maritime liens and maritime mortgages will be discussed in
Chapter II.
2.3.1. Choice of law
In Russia, the conflict of laws (or, using the continental law system
terminology, private international law) is addressed by Part III, Section VI
of the RF CC. Special conflict of laws rules enacted to determine applicable
law in the relations arising out of merchant shipping are consolidated in
Chapter XXVI of the RF MSC.
According to Article 1186 (1) a foreign law may be applicable to a right or
an obligation if there is a foreign element present.
According to Article 414 (2), the parties to a contract specified in the RF
MSC may, when concluding the contract or subsequently choose, by mutual
agreement, which law is to apply to their rights and duties under that
contract (lex voluntatis). This possibility is available to the parties to a
contract of construction of vessel, to a salvage contract, and to a contract
regulating the relationship between the shipowner and members of the
vessel's crew who are foreign citizens.
According to the provisions of Article 418 of the RF MSC, to the relevant
contract will be applicable the law of the juridical person (lex societatis),
who is:

the carrier, in the contract of carriage of goods by sea;

the shipowner, in the contract of marine agency, time charter or
bareboat charter;

the shipowner of the towing vessel, in the contract of towage;

the principal, in the contract of marine brokerage;
22

the insurer, in the contract of marine insurance.
Lex societatis is also applicable to relations arising out of general average,
in cases where all the parties concerned belong to the same state (Article
419 of the RF MSC).
Law of the flag (lex flagi) is applicable:

to the right of ownership and other property rights to vessel, as well
as the arising, transfer and termination of such rights, as well as the
vessel which is temporarily granted the right to fly the flag of
another state (Article 415 of the RF MSC);

to the relationship between the shipowner and the members of the
vessel's crew (unless otherwise provided by a contract regulating the
relationship between the shipowner and members of the vessel's
crew who are foreign citizens (Article 416 of the RF MSC);

in respect of vessel and other property sunk in high seas (Article 417
of the RF MSC);

to salvage, where the salvaging and salvaged vessels are flying the
flag of the same state, the law of the state of the vessel’s flag shall
apply, irrespective of the place of salvage, and in respect of the
apportionment of the reward between the shipowner of the salvage
vessel, its master and other members of its crew (Article 423 of the
RF MSC);

to collisions between the vessel flying the same flag irrespective the
place of the collision (Article 420).
The law of the country of the court (lex fori) is applicable in respect of a
maritime lien on a vessel and the ranking of claims secured by the maritime
lien on the vessel (Article 424 of the RF MSC) and in respect of the
effectuation of a mortgage on a vessel or vessel under construction and the
ranking of claims arising out of the obligations secured by the registered
mortgage on the vessel or vessel under construction (Article 425 of the RF
MSC). Moreover, Russian law will always be applied if the salvage is
23
carried out in the high seas and the dispute is heard in the Russian
Federation, to the order of general average adjustment, if distributed in the
Russian Federation, and to the collision, where the collision occurred in the
high seas (unless the collision of vessels flying the flag of the same state).
The law of the place of damage (lex loci delicti commissii) is applied to the
relations arising out of collisions of vessels in internal waters or territorial
sea.
The law with which the contract is most closely connected will apply to the
labour contract, if the choice by the parties to the labour contract of the law
to be applied to relationship between the shipowner and the members of the
vessel's crew shall not entail a deterioration in the working conditions of the
crew members in comparison with the norms of the state which shall govern
the said relationship in default of agreement of the parties as to the law to be
applied (Article 416 of the RF MSC).
Law of the situs (lex rei sitae) is applied :

to the rights to the property sunk in internal waters or the territorial
sea, as well as relations arising in connection with sunken property
shall be governed by the law of the state where the said property
sank (Article 417 of the RF MSC);

relations arising out of general average shall be governed by the law
of the state in whose port the vessel terminated its voyage after the
incident causing the general average (Article 419 of the RF MSC);

to relations arising out of the salvage of vessel or other property in
internal waters and the territorial sea, the law of the state where the
salvage took place shall apply (Article 423 of the RF MSC).
Latvian law, unfortunately, does not provide for detailed regulation of the
choice of law. No special provisions with regards to maritime claims can be
found in the LMC, except regulations provided for maritime liens and
maritime mortgages, which will be discussed in Chapter III.
According to Section 19 of the LCC, similar to Russia, Latvian legislation
entitles the contracting parties to agree on the applicable law. Nevertheless,
24
such agreement shall be in effect, insofar as it is not in conflict with
mandatory or prohibitory norms of Latvian law. If there is no agreement
between the parties, it shall be presumed that the contracting parties have
made their obligation, in accordance with its substance and consequences,
subject to the laws of the state where the obligation is to be performed. If
the place where the obligation is to be performed is not able to be
determined, the law of the place where the contract was entered into is
applicable. Obviously, these provision can lead to a diametrical choice of
law if compared with Russian legislation.
As stipulated by Section 20 of the LCC, obligations not based on contract
shall be adjudged, in respect of their substance and consequences, in
accordance with the law of the place where the basis, from which the
obligation arose, was created. Obligations arising from wrongful acts shall
be adjudged in accordance with the law of the place where the wrongful acts
took place.
With regards to property rights, the law of the place where the property is
located shall be applicable (Section 18 of the LCC). As it was already
mentioned in the previous section of this thesis, a ship is considered to be a
movable object under Latvian law. Hence to the ships the provision stating
that where there is a change in the location of movable property, the
property rights of third persons acquired pursuant to the laws of the place
where such movable property was previously located, shall not be affected,
is applicable. Obviously, as the ship is instantly a moving object, such
regulation cannot be considered a clear and effective one, especilly if to be
compared with more traditional regulation that the law of the flag state shall
be applicable to the property right in the ship.
2.3.2. Application of foreign law
Russian procedural codes also contain provisions allowing the court to
apply foreign law in compliance with the international treaty and federal law
(Article 13(5) of the RF CPC and Article 11(5) of the RF Civil Procedure
Code). According to Article 14 (1) of the RF CPC, when applying foreign
25
law, the commercial court establishes its content in compliance with its
official interpretation, practice of application and the legal doctrine of the
corresponding foreign state. Though the RF Civil Procedure Code does not
contain similar provisions, according to legal doctrine, foreign law should
be applied by Russian courts ex officio44, i.e. the foreign law is considered to
be a ”law” and not a ”fact”. This is confirmed by the provision of Article
1119(1) of the RF CC, which states that if a court or an arbitral tribunal
determines that foreign law applies, it should apply the foreign law, and,
moreover, foreign law should be applied as this law is understood in the
country from which this law originates. Persons participating in the case
may submit documents confirming the content of the foreign law which they
refer to in substantiation of their claims and objections and may assist the
court in establishing such content in any other way (paragraph 2 of the
Article 14 (2) of the RF CPC).
On the other hand, paragraph 2 of Article 14 (2) stipulates that as for claims
concerning the exercise of entrepreneurial and other economic activities by
the parties, the burden of proving the content of foreign law may be put by
the court on the parties. Most maritime claims are of an economic or
business nature; hence, maritime claimants shall expect that by the court
ruling the foreign law may transform r a “law” to a “fact”, and it will the
burden of proof of the claimant to establish the content of foreign law
applicable to the claim.
According to Article 14(3) of the RF CPC, if the content of foreign law,
despite the measures taken in compliance with this Article, is not
established within a reasonable time, the commercial court applies the
corresponding norms of Russian law. Moreover, foreign law will not apply
where that foreign law violates Russia's public policy or mandatory norms
of the Russian Federation law (Article 1192(1) and 1193 of the RF CC).
D.A.Hocanov, ”Osnovanija Primenenija Inostrannogo Chastnogo Prava V Doktrine,
Zakonodatel'stve i Sudebnoj Praktike Anglii, SShA i Rossii”, 2008, Zhurnal rossijskogo
prava",N 6.
44
26
Thus, the inference should be that much space is left for Russian courts to
apply Russian law to a maritime claim of a cross-border nature.
The question of application of foreign law is almost not discussed in the
laws of Latvia. According to legal doctrine, the nature of foreign laws
should be considered as hybrid, e.g. in cases where foreign law is applied
according to binding international agreements or according to Latvian law,
foreign law is considered to be the “law”. The court applies it ex officio and
the legal principle”iura novit curia”(“the court knows the law”) is in force.
In such cases the court is always active in collecting materials of foreign
law, including its official interpretation as well as the practice of its
application and doctrine. In cases where foreign law is established upon
agreement of the parties, foreign law is considered to be a “fact”, and the
role of the court is more passive as the burden of proof is imposed on the
party who refers to the foreign law.45
According to Section 22 of the LCC, if it is not possible to determine the
substance of the foreign, it shall be presumed that the legal system in the
relevant foreign state, in the area of law to be adjudged, is in conformity
with the Latvian legal system in the same area. In such cases, Latvian law is
applied. Taking into consideration also Section 24 of the LCC, which
stipulates that the law of a foreign state is not applicable in Latvia it is in
conflict with the social or moral ideals of Latvia, or mandatory or
prohibitory norms of Latvian law, it can be concluded that much space to
apply the national law to a maritime claim is left also for Latvian courts.
V.Nekrosius and V.Vebraite, ”Baltic Countries”, in Application of Foreign Laws,
Munich: Friedrich Pustet KG, 2011, at p.120.
45
27
3. Chapter II Arrest of ship
3.1. What is arrest of ship?
In general, several types of asset arrests concerning ships are available to
creditors:
• a preliminary arrest that is used to secure a claim which has not yet been
filed in court - this is the meaning of the term 'arrest' in the 1952 Convention
and 1999 Convention;
• a security arrest that is used in connection with proceedings that have
already gone to court for the purpose of simplifying the enforcement of a
future court ruling;
• an enforcement arrest that is used to satisfy a judgment, award or other
court ruling (this type of arrest is permitted under neither 1952 Convention
nor 1999 Convention).
Ship arrest in Russian and Latvian jurisdictions as a preliminary measure
will be discussed in the present and next following paragraphs. Enforcement
arrest and Alternative enforcement devices (security arrest) are left beyond
the scope of the present research.
It was already discussed in the Introduction that a dichotomy in Russian
legal system can be found concerning ship arrest: if a ship to be arrested is
flying the Russian flag or flag of any state which is party to the 1952
Convention the latter should be applied, whereas if it is flying the flag of a
state which is not a signatory to the convention, it will be arrested in
accordance with the rules of the RF MSC, which is based principally on the
1999 Convention provisions. This leads to a conclusion that ships flying the
Russian flag or the flag of any other state which ratified the 1952
Convention cannot be arrested within Russian jurisdiction in relation to
following maritime claims: damage or threat of damage to the environment,
wreck removal, port, canal and pilotage dues, unpaid insurance premiums,
unpaid commissions, brokerages and agency fees, disputes arising from
contracts for sale of the ship.
28
It is stated by both the 1952 Convention and the RF MSC that a ship may
only be arrested under the authority of a court or of the appropriate judicial
authority.46 The definition of arrest given by these pieces of legislation also
coincide in essence: "arrest" means the detention (the RF MSC also adds
“or restriction in movement”) of a ship by judicial power to secure a
maritime claim, except the seizure of a ship in execution or satisfaction of a
judgment.47
The 1999 Convention does not introduce any new elements to the definition
of the arrest - "arrest" means any detention or restriction on removal of a
ship by order of a Court to secure a maritime claim, but does not include the
seizure of a ship in execution or satisfaction of a judgment or other
enforceable instrument.48 It also follows the principle of the authority of a
court to arrest a ship.49 These provisions implemented to the LMC.50 Section
49 (1) of it also directly stipulates that a ship may be arrested prior to the
bringing of an action in court.
3.2. Which court to apply?
3.2.1. Functional jurisdiction
The RF MSC specifies that judicial bodies which can grant arrest are courts
(that refers to civil courts, see section 2.1.1. of this thesis), commercial
courts and maritime arbitration court authorized by law to impose arrest on
ship to secure maritime claim.51
A reasonable question for a party with a valid maritime claim is to which
court must it apply for a preliminary arrest of the ship? The decision
depends on the type of claim. Applications for arrest with respect to
'personal' claims (e.g., claims arising out of the carriage of passengers or
luggage, or those related to unpaid crew wages, loss of life or personal
injury) must be filed with civil courts. Applications for arrest for a claim
46
Article 4 of the 1952 Convention, Article 388 of the RF MSC.
Article 1(2) of the 1952 Convention, Article 388 of the RF MSC.
48
Article 1(2) of the 1999 Convention.
49
Article 2(1) of the 1999 Convention.
50
Articles 47(2), 49(1) of the 1999 Convention.
51
Article 388 of the RF MSC.
47
29
arising out of relations between legal entities will be dealt with by the
commercial court.
There is also an option to file a claim arising out of matters related
exclusively to shipping (e.g., the carriage of goods and passengers,
collisions, general average, towage and the sale and purchase of ships) to the
Maritime Arbitration Commission (the maritime arbitration court referred to
in Article 388 of the RF MSC) if the parties so agree.52 In this case a party
may, in theory, apply to the chairman of the commission for the arrest of a
ship.53 It can certainly be claimed that an application for arrest would be
dismissed if an agreement to refer the subject claim to the commission could
not be evidenced by contract (for example, a charterparty or towage
agreement) or by agreements reached after an accident (e.g., in respect of a
collision, salvage or cargo claim)54, although it is not clear whether such an
arrest may be made as a preliminary measure, i.e. before filing the claim, or
only after, as this way to arrest a ship remains untested55. Moreover, the
present law stipulates that no rules of procedure for execution of an arrest
ruling by an arbitration institution. Execution of awards issued by arbitration
institutions is possible through commercial courts (Chapter 31 of the RF
CPC contains relevant provisions; the commercial court may enforce the
arbitration award, which is not executed voluntarily), but the opportunity to
execute other acts of arbitration institutions is vague.
Another option which seems to be more practical is that according to Article
90 (3) of the RF CPC, provisional measures may be taken by the
commercial court upon the application of a party to arbitration proceedings
at the location of an arbitration tribunal, or at the location or place of
residence of the debtor, or at the location of the debtor's property.
52
Article 2 of the Statute of the Maritime Arbitration Commission, the Federal Law “On
International Commercial Arbitration Court” of 07.07.1993 N 5338-1 / Zakon RF ot
07.07.1993 N 5338-1 (red. ot 03.12.2008) "O mezhdunarodnom kommercheskom
arbitrazhe" (vmeste s "Polozheniem o Mezhdunarodnom kommercheskom arbitrazhnom
sude pri Torgovo-promyshlennoj palate Rossijskoj Federacii", "Polozheniem o Morskoj
arbitrazhnoj komissii pri Torgovo-promyshlennoj palate Rossijskoj Federacii".
53
Ibid, Article 4.
54
E.Galasheva, Ship Arrest Procedure, 01 March 2006, <www.internationallawoffice.com/
Newsletters/Detail.aspx?r=12113&i=1062858>, visited on 04 April 2012.
55
Ibid.
30
Availability of this measure to the party to arbitration proceedings was
confirmed by the Presidium of the Supreme Commercial Code.56
There are no specialized courts for civil or commercial matters in Latvia.
Thus the courts of general jurisdiction review all civil cases. A court of the
first instance is the district/city court. Functional jurisdiction in respect of
maritime claims is based on the amount of a claim: matters arising from
rights in regard to obligations, if the amount of the claim exceeds LVL
150,000.00 (approx. EUR 214,000.00) are considered by a regional court as
a court of first instance. Also the regional court has jurisdiction as a court of
first instance over disputes regarding property rights with regard to
immovable property.
3.2.2. Territorial jurisdiction
When applying for preliminary arrest, the applicant should take into
consideration local rules on territorial jurisdiction.
According to Article 99 of the RF CPC an arrest may be applied for at an
arbitration court in the place where:
• the claimant is domiciled (i.e., the place of company registration);
• the defendant's assets or funds are located; or
• the infringement of rights took place.57
Though this wording allows us to conclude that it is up to the applicant to
decide, to which court he should apply, court practice has established
rejection of the application if the court considers that, subject to territorial
jurisdiction, security measures would be more effective if an application
were made to a different court.58 In assessing the possibility to reject the
application for this purpose, the court will take into consideration:
• the type of claim to be secured;
• the type of security measures demanded;
56
Informational Letter of Presidium of Supreme Commercial Code of 07.07.2004 N 78/
Informacionnoe pis'mo Prezidiuma VAS RF ot 07.07.2004 N 78 “Obzor praktiki
primenenija arbitrazhnymi sudami predvaritel'nyh obespechitel'nyh mer”.
57
Article 99(3) of the RF CPC.
58
Supra note 56, Section 3.
31
• the prospects of executing such measures within the jurisdiction of the
court; and
• the time required for execution.59
Court practice has established that for the purposes of this assessment, 'the
location of the ship' is taken to mean its location at the time of arrest, not its
port of registration.60
Obviously the most popular way is to apply for the arrest of a ship at a court
with territorial jurisdiction over the ship's location at the time of the arrest.
This will simplify the execution of the arrest ruling and save time.61
According to Article 28 of the RF Civil Procedure Code, a claim must be
filed with a court in the defendant's domicile. Article 29 of the RF Civil
Procedure Code gives an opportunity to a claimant to choose the
jurisdiction. Therefore, claims arising out of personal injury or loss of life
may be filed at the court of the claimant's domicile, while claims arising out
of collision and salvage may be filed at a court which has jurisdiction over
the place where a ship is located or registered.
It has already been mentioned in the previous chapter, that Latvian
legislation stipulates universal rules for both internal and cross-border
disputes.
3.3. International jurisdiction and
arrest for security only
One of the practical purposes of ship arrest is to allocate the substantive
claim to a certain preferable jurisdiction. Thus any creditor desiring to get
satisfaction of his claim before arresting a ship would face the question of
whether the court accepts jurisdiction over the substantive claim once a
vessel has been arrested.
According to the 1952 Convention62 to which Russia is a party, a court may
accept jurisdiction over a substantive claim, if:
59
Ibid, Section 4.
Section 18 of Informational Letter of Presidium of Supreme Commercial Code of
13.08.04 N 81 / Informacionnoe pis'mo Prezidiuma VAS RF ot 13.08.04 N 81 "Obzor
praktiki primenenija arbitrazhnymi sudami Kodeksa torgovogo moreplavanija RF".
61
Supra note 54.
60
32
- a person who is a creditor under such claim has its principal place of
residence or business in Russia;
- the substantial claim arose in Russia;
- the claim relates to the voyage during which the arrest was imposed;
- the claim arose from a collision or from other damages caused by one
vessel to another vessel, or to people or goods on board such a vessel;
- the claim arose from salvage;
- the claim is based on a mortgage of the arrested vessel.
The 1952 Convention also permits the domestic law to establish jurisdiction
to determine the case upon its merits in other cases. Grounds for Russian
judicial jurisdiction over matters with foreign elements, as stated by national
legislation, were discussed in Chapter I of this thesis. In addition to what has
been already discussed, national procedural law provides Russian courts
with jurisdiction to consider the case upon its merits if the assets of the
defendant are located within the Russian Federation.63 This means that if a
court grants arrest of a vessel, it will have jurisdiction to consider the case
upon its merits. The court practice confirms this conclusion.64
The 1999 Convention, by contrast to the 1952 Convention, does not attempt
to unify grounds for jurisdiction over substantive claims, and directly states
that the courts of the state in which an arrest has been effected or security
provided to obtain the release of the ship shall have jurisdiction to determine
the case upon its merits, unless the parties validly agree or have validly
agreed to submit the dispute to a Court of another State which accepts
jurisdiction, or to arbitration.65 Section 54 (1) of the LMC also states that if
a ship has been arrested in Latvia or the arrest has been revoked against
appropriate security, the matter may be in substance adjudicated by a
Latvian court. General grounds for jurisdiction over claims brought by or
against foreigners in Latvia were already discussed in Chapter I.
62
Article 7 of the 1952 Convention.
Article 402 of the Code on Civil Procedures, Article 247 of the Code on Arbitrazh
Procedures
64
Resolution of Russian Supreme Court 20 November 2003 ”On jurisdiction of the cases
connected with maritime claims”/ Postanovlenie Plenuma Verhovnogo Suda RF ot
20.11.2003 N 18 "O podsudnosti del, vytekajuwih iz morskih trebovanij","Rossijskaja
gazeta", N 244, 02.12.2003.
65
Article 7(1) of the 1999 Convention.
63
33
Can the vessel be arrested, if the court of the country where the applicant
seeks to arrest is not competent to consider a substantive claim? The other
natural question is which court is competent to consider the case, if the
vessel is arrested in Russia or Latvia, but according to the contractual clause
the other court/arbitration is competent to take a decision on the merits of
the claims. With regards to Russia, these two problems are solved by the
1952 Convention66 stipulating an important principle, that if the parties
have agreed to submit the dispute to the jurisdiction of a particular court
other than that within whose jurisdiction the arrest was made or to
arbitration, the court within whose jurisdiction the arrest was made may fix
the
time
within
which
the
claimant
must
bring
proceedings.
Correspondingly, the RF MSC also provides that a ship may be arrested in
order to obtain security even if, in accordance with a jurisdictional or
arbitration clause specified in a respective agreement or otherwise, the
maritime claim pursuant to which a ship is arrested is subject to
consideration by a court or arbitration body of another country.67 Hence the
Russian court will refuse to consider the case upon its merits if the claim is
based on the contract, which has different jurisdiction or arbitration clauses.
This principle is carried on by the 1999 Convention. According to Article
2(3) of it, a ship may be arrested for the purpose of obtaining security
notwithstanding the fact that, by virtue of a jurisdiction clause or arbitration
clause in any relevant contract, or otherwise, the maritime claim in respect
of which the arrest is effected is to be adjudicated in a State other than the
State where the arrest is effected, or is to be arbitrated, or is to be
adjudicated subject to the law of another State. The same is stipulated by the
LMC, Section 49 of which states that:
(2) In order to secure a maritime claim, a ship may also be arrested where, in
accordance with contractual provisions regarding jurisdiction or arbitration
court or the law to be applied, or on the basis of law, the maritime claim
which is secured with the arrest of the ship comes within the jurisdiction of
another court or the court of another state or the matter is to be adjudicated in
accordance with the regulatory enactments of another state.
This is supplemented by Section 54 of the LMC:
66
67
Article 7(3) of the 1952 Convention .
Article 388 (4) of the Rf MSC.
34
(1) If a ship has been arrested in Latvia or the arrest has been revoked against
appropriate security, the matter shall be in substance adjudicated by a Latvian
court, except in a case where the parties voluntarily agree to transfer the
dispute for adjudication thereof to the court of another state which has
consented to adjudicate the matter in substance, or to an arbitration court.
(2) A Latvian court shall not adjudicate a matter in substance if the
substantive adjudication of the matter is within the jurisdiction of a court of
another state.
3.4. Preconditions for ship arrest
3.4.1. General remarks
Three main pre-conditions for ship arrest in any jurisdiction can be marked
out as following:
1) a valid maritime claim;
2) a person applying for a ship arrest should be a proper claimant;
3) an application for arrest should refer to a proper defendant and proper
ship.
Pre-requisites for being a proper claimant are self-evident and closely
connected to the discussion on the nature of maritime claim. Thus it is
reasonable to focus first on a list of maritime claims both under Russian
and Latvian jurisdiction (next paragraph) and then switch directly to the
problem of defining a proper defendant and ship to arrest (paragraph 3.4.3.).
3.4.2. List of maritime claims
According to Article 1(1) of the 1952 Convention, "maritime claim" means
a claim arising out of one or more of the following:
(a) damage caused by any ship either in collision or otherwise;
(b) loss of life or personal injury caused by any ship or occurring in
connexion with the operation of any ship;
(c) salvage;
(d) agreement relating to the use or hire of any ship whether by charterparty
or otherwise;
(e) agreement relating to the carriage of goods in any ship whether by
charterparty or otherwise;
35
(f) loss of or damage to goods including baggage carried in any ship;
(g) general average;
(h) bottomry;
(i) towage;
(J) pilotage;
(k) goods or materials wherever supplied to a ship for her operation or
maintenance;
(1) construction, repair or equipment of any ship or dock charges and dues;
(m) wages of Masters, Officers, or crew;
(n) Master's disbursements, including disbursements made by shippers,
charterers or agent on behalf of a ship or her owner;
(o ) disputes as to the title to or ownership of any ship;
(p) disputes between co-owners of any ship as to the ownership, possession,
employment, or earnings of that ship;
(q) the mortgage or hypothecation of any ship.
Under the 1999 Convention, in addition to 17 categories of claims listed in
the 1952 Convention, it is possible to arrest ships in respect of:

damage or threat of damage to the environment

wreck removal

port, canal and pilotage dues

unpaid insurance premiums

unpaid commissions, brokerages and agency fees

disputes arising from contracts for sale of the ship
A list of 22 maritime claims, which is enumerated in the LMC,
corresponds to list of such claims contained in the 1999 Convention.
According to Article 389 of the LMC a ‘maritime claim’ means any claim in
connection with:
36
- the damage caused during the operation of a ship;
- loss of life or personal injury to an individual on land or at sea in
direct connection with the operation of a ship;
- a salvage operation or any salvage agreement;
- expenses on the adoption by any person of measures to prevent or
minimize damage, including environmental damage, if such a claim arises
from the international treaty or agreement of the Russian Federation, the law
or any agreement, and also in connection with the damage caused or may be
caused by such measures;
- the expenses on the salvaging, removal or destruction of sunken ship
or its cargo;
- any contract for use of a ship;
- any contract of sea carriage of cargo or a contract of sea carriage of
passengers aboard a ship;
- the loss of, or damage to, cargo, including luggage carried by a ship;
- general average;
- pilotage;
- towage;
- supply of provisions, materials, fuel, stores, equipment, including
containers, for the operation of a ship or its maintenance;
- construction, repair, modernization or re-equipment of a ship;
- port and canal dues and dues on other navigable waterways;
- wages and salaries and other sums of money due to the ship master
and other crew members for their work aboard the ship, including the
expenses on repatriation and social insurance contributions paid on behalf of
the ship master and other crew members;
- disbursement expenses made in respect of a ship;
37
- the insurance premium including mutual insurance contributions and
which is paid by the owner of a ship or its charterer under the bare-boat
charter or on their behalf;
- the commission, brokerage or agent's fee paid by the owner of a ship
or its charterer under the bare-boat charter or in their behalf;
- any dispute over the right of ownership of a ship or of its possession;
- any dispute between two or several ship owners over the use of a ship
and the devision of earnings;
- the registered mortgage of a ship or the registered encumbrance of a
ship of the same nature;
- any dispute arising from a contract of sale of a ship.
Article 48 of the LMC encompasses the list of maritime claims in full
compliance with the 1999 Convention.
3.4.3. Proper defendant and proper ship
Under Russian law, these pre-conditions are stated by Article 390 of the RF
MSC,
according to which an arrest (as a preliminary measure) is
permissible of any ship in respect of which a maritime claim is asserted and
only if:

the maritime claim is secured by a maritime lien (list of liens will be
discussed in Chapter III of the present research);

the maritime claim is based upon a mortgage (hypotheque) or a
charge of the same nature on the ship registered in the proper order;

the maritime claim relates to the ownership or possession of the ship;

there is another maritime claim, not listed above, but a person who
owned the ship at the time when such maritime claim arose is liable
for the claim and is owner of the ship at the time when the arrest
procedure begins or the bareboat charterer of the ship is liable for the
claim at the time when such claim arose and at the time when the
arrest procedure begins, remains the bareboat charterer or is an
owner of the ship.
38
This principle, fortified by the RF MSC, that the arrest for a maritime claim
(not maritime lien and not the claim based upon a mortgage or related to the
ownership/possession of the ship) is possible only if a person/entity liable
for the maritime claim is the owner (or a bareboat charterer) of a vessel both
at the moment when the claim arose and at the beginning of arrest
procedures, is in contradiction with the concept incorporated in the 1952
Convention. Article 3(4) of the 1952 Convention states:
When in the case of a charter by demise of a ship the charterer and not the
registered owner is liable in respect of a maritime claim relating to that ship,
the claimant may arrest such ship or any other ship in the ownership of the
charterer by demise, subject to the provisions of this Convention, but no other
ship in the ownership of the registered owner shall be liable to arrest in
respect of such maritime claim. 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.
In other words, no limitation is stipulated as to who may be charged when
the claim accrued, and the ship may be arrested, no matter who was in
charge of the ship when the claim arose.68 Thus in case the 1952 Convention
is applicable to the arrest application, Russian courts allow arresting a vessel
which was in the ownership of the liable person when the claim arose, but is
not in his ownership at the time of consideration of the arrest application69,
because the convention has a higher power in respect of Russian legal acts.
In such cases court practice highlights that it is lawful to arrest a vessel
which was in the ownership of the defendant irrespectively of the fact that at
the moment of arrest it was in the ownership of a different person.70 When
the RF MSC is applicable, then the pre-condition for the arrest is that a
person liable for the maritime claim should be the owner (or a bareboat
charterer) of a vessel both at the moment when the claim arose and at the
beginning of arrest procedures.71
68
W.Tetley and R.C.Wilkins, Maritime Liens and Claims, International Shipping
Publications, 1998, at p.916.
69
Osobennosti Aresta Morskogo Sudna, 15 April 2008, <www.kadis.ru/daily/?id=51194>
visited on 18 May 2012.
70
See, for example, Postanovlenie Federal'nogo arbitrazhnogo suda Severo-Zapadnogo
okruga ot 22.09.05 po delu NA56-6876/05.
71
See, for example, Postanovlenie Federal'nogo arbitrazhnogo suda Moskovskogo okruga
ot 11.12.01 po delu N KG-A40/7121-01.
39
The above mentioned provisions of the RF MSC are in line with the 1999
Convention. They are incorporated by Section 50 (1) of the LMC as
follows:
The arrest of any ship is allowed if in relation to this ship there exists a
maritime claim and if one of the following conditions is in effect:
1) the person who owned the ship at the time when the maritime claim arose
is liable for the claim and is the ship-owner at the time of arrest of the ship;
2) the person who was the bare boat charterer of the ship at the time when the
maritime claim arose is liable for the claim and is the bare boat charterer or
ship-owner at the time of arrest of the ship;
3) the claim arises from a mortgage or other similar type of encumbrance on
a ship;
4) the claim is in relation to the ownership or possession rights in a ship; or
5) the claim is directed against the ship-owner, bare boat charterer or ship's
operator and this claim is secured by a maritime lien.
It is important to mention that Article 3(3) of the 1999 Convention stipulates
that the arrest of a ship which is not owned by the person liable for the claim
shall be permissible only if, under the law of the state where the arrest is
applied for, a judgment in respect of that claim can be enforced against that
ship by judicial or forced sale of that ship.
According to Section 50 (1) of the LMC, the arrest of any ship is allowed if
in relation to this ship there exists a maritime claim and if one of the
following conditions is in effect:
1) the person who owned the ship at the time when the maritime
claim arose is liable for the claim and is the ship-owner at the time of arrest
of the ship;
2) the person who was the bare boat charterer of the ship at the time
when the maritime claim arose is liable for the claim and is the bare boat
charterer or ship-owner at the time of arrest of the ship;
3) the claim arises from a mortgage or other similar type of
encumbrance on a ship;
4) the claim is in relation to the ownership or possession rights in a
ship; or
5) the claim is directed against the ship-owner, bare boat charterer or
ship's operator and this claim is secured by a maritime lien.
40
All in all, it can be concluded that in both jurisdictions the proper ship to
arrest will be defined similarly, unless it is the ship flying the flag of a stateparty to the 1952 Convention is arrested under Russian law.
Sister/associated ship arrest under both jurisdictions will be discussed in
section 3.9. of this Chapter.
3.5. Procedural formalities
Under Article 6 of the 1952 Convention, the rules of procedure relating to
the arrest of a ship, and to all matters of procedure which the arrest may
entail, shall be governed by the law of the contracting state in which the
arrest was made or applied for.
Procedural rules for arrest executed by Russian commercial courts and civil
courts are contained respectively in the RF CPC and the RF Civil Procedure
Code. Granting arrest of a ship by Maritime Arbitration Commission is not
regulated properly, thus this opportunity remains a purely theoretical one
and will not be discussed in this thesis.
The application of the procedural codes is subject to the specific rules of the
Merchant Shipping Code, as Russian law requires that regulations which
cover a specific area of law prevails over the basic regulations which cover
its general principles. As stipulated in the paragraph 16 of the Informational
Letter of Presidium of Supreme Commercial Code of Russian Federation of
13.08.2004 N 8172 and in the paragraph 21 of the Informational Letter of
Presidium of Supreme Commercial Code of Russian Federation of от
07.07.04 N 7873, in case the RF MSC stipulates the regulation different from
those set by the RF CPC, regulations of the latter shall be applied with due
regard for the RF MSC provisions. Moreover, court practice holds that
provisions of the RF CPC should be applied with consideration of
peculiarities prescribed by international treaties, thus ranking the 1952
72
Section 16 of Informational Letter of Presidium of Supreme Commercial Code of
13.08.04 N 81 / Informacionnoe pis'mo Prezidiuma VAS RF ot 13.08.04 N 81 "Obzor
praktiki primenenija arbitrazhnymi sudami Kodeksa torgovogo moreplavanija RF".
73
Section 21 of Informational Letter of Presidium of Supreme Commercial Code of
07.07.2004 N 78/ Informacionnoe pis'mo Prezidiuma VAS RF ot 07.07.2004 N 78 “Obzor
praktiki primenenija arbitrazhnymi sudami predvaritel'nyh obespechitel'nyh mer”.
41
Convention above the code.74 Obviously this is applicable to the civil courts
as well.
Not only applying for ship arrest to Maritime Arbitration Commission is
problematic one in Russia. The creditor seeking for arrest in civil courts in
Russia is also likely to face time-consuming and therefore financially
exhaustive obstacles. The RF MSC, as well as 1952 Convention, allows
arrest of ships, as a preliminary measure, in respect of such maritime claims
as those arising out of personal injury, loss of life or unpaid wages, which
according to the RF Civil Procedure Code on should be filed by an
individual at a civil court. However, the RF Civil Procedure Code does not
contain any regulations on preliminary arrest and deal with security arrest
only: an application for arrest of ship may be made at the same time or later.
On the other hand, the RF MSC takes precedence over the RF Civil
Procedure Code and the 1952 Convention takes precedence over national
legislation, it is logical to conclude that preliminary arrest is possible. Case
law has also demonstrated that an individual may place a ship under
preliminary arrest, although this will inevitably lead to further procedural
complications: some judges might reject such an application on the grounds
that there are no procedural rules in the RF Civil Procedure Code which
regulate preliminary arrest.
75
Such a rejection should be reasonably
appealed. Admittedly, rulings of the RF CPC should be applied by analogy
when claiming for preliminary arrest in a civil court. According to
paragraph 4 of Article 1 of the RF Civil Procedure Code, in case of absence
of the procedural law regulation, the courts apply the rules of law regulating
similar relations (analogy of statute or analogia legis), and in the absence of
such norms consider cases on the basis of the general principles of
administration of justice in the Russian Federation (analogy of law or analogia
juris). Thus the civil courts shall apply the provision of the RF CPC allowing
the arest as a preliminary measure.
In the following paragraphs the arrest of ships in Russia will be discussed as
it is ruled by the provisions of the RF CPC. Unless otherwise specially
74
75
Ibid.
Supra note 54.
42
stipulated, it will be presumed on default that these provisions can be
applied to civil procedures by analogy.
According to Article 92 of the RF CPC, an application for preliminary arrest
must contain:
• the name of the court;
• the names and domiciles of the claimant and defendant (as claims in rem
cannot be initiated under Russian law);
• the subject and amount of the claim;
• the reasons for filing the arrest application;
• a list of documents attached to the application (including power of
attorney).
The application must be supported by documentary evidence, including
documents which confirm the existence of a maritime claim - to confirm the
existence of grounds provided in the law for imposing the arrest. Documents
are allowed to be submitted in copies certified by the applicant or other
person properly authorized by him (in practice that means that a copy
should be certified by the endorsement saying ‘true copy of the original’ and
the signature of the authorizing person, followed by a company stamp).
Commercial documents in a foreign language are not required to be
apostilled, but they should be accompanied by a certified translation into
Russian (a translation certified by notary public within the Russian
territory). Also evidence that a ship in respect of which the arrest application
is made is owned by a person liable for a maritime claims or such ship is a
sister ship shall be submitted.76 Extracts from the shipping registries can be
relevant evidences of that.
Official documents should bear an apostil, if applicable. They must be
legalized, unless an international treaty (multilateral or bilateral) to which
Russia is a party abolishes legalization.
An arrest application can be filed to the competent court personally.77
Application is considered by the judge no later than the next workday after
the day of filing an application in an arbitration court, without notifying the
76
77
Article 92 of the RF CPC.
Ibid.
43
claimant and defendant (ex parte). The arrest ruling will be sent to the
parties no later than the day after issue; if the ruling rejects the application,
it is sent to the applicant only.78 In such ruling the court determines the
deadline (but no more than 15 days) for the applicant to file a claim on the
merits in the competent court; it is the applicant who is responsible for
informing the court which granted the arrest ruling about submission of the
claim.79
According to some practitioners, in an optimistic scenario, 4-5 days80 are
normally required to arrest a ship in Russia with the assistance a of local law
firm from the date of delivery of all the necessary documents to a competent
lawyer to the date of submission of the executive order to the bailiff to
forward it to the harbor-master, no later than the next day after filing the
executive order was filed in the bailiff service.81
The same as the 1952 Convention, Article 2(4) of the 1999 Convention
states that the procedure relating to the arrest of a ship or its release shall be
governed by the law of the State in which the arrest was effected or applied
for. Section 47 of the LMC stipulates that the provisions of Chapters 19 and
77 of the LCPL shall be applied to the arrest of a ship insofar as they are not
in contradiction with the provisions of this Chapter.
According to the LCPL, petition for the arrest of ship and documentation
enclosed must demonstrate to the judge the ground, proof and validity of the
claim. Besides the petition and supporting documents, a relevant original
Power of Attorney is required.82 As according to the Section 13(1) of the
LCPL, court proceedings shall take place in the official language, i.e.
Latvian, the petition for the arrest shall be filed in a Latvian court in
Latvian. Foreign language documents shall be submitted accompanied with
a translation thereof into the official language, certified in accordance with
the procedures prescribed by law (Section 13(2) of the LCPL).
78
Article 99 of the RF CPC
Article 99(7) of the RF CPC
80
E.Kuznetsov, About Ship Arrest in Latvia, <www.shiparrested.com/about-shiparrest-inlatvia-by-edward-kuznetsov-marine-legal-bureau.html>, visited on 13 April 2012.
81
Article 36(6) of the Law on Enforcement Procedure, Federal'nyj zakon ot 02.10.2007 N
229-FZ, "Ob ispolnitel'nom proizvodstve", "Rossijskaja gazeta", N 223, 06.10.2007
82
Supra note 80.
79
44
According to Section 140 (1) of the LCPL, a decision regarding an
application for securing a claim shall be taken by a court not later than the
day following receipt thereof, without giving prior notice to the defendant
and other participants in the matter. Practitioners state that it is realistic to
obtain the court’s resolution within 3-4 days after petition of the plaintiff
and all supporting documents are delivered to the court.83
According to Article 139 (3) of the LCPL, in satisfying an application
regarding the securing of a claim prior to action being brought, a judge shall
set a time period for the plaintiff within which they must submit a statement
of claim to the court.
3.6. Reasoning for arrest
Russian procedural law sets the important requirement that the applicant
should bring a certain reason for an arrest measure. A claimant may apply
for a ship arrest, if there are reasonable and demonstrable doubts that:
a) non-acceptance of the arrest would complicate the future execution of a
court’s decision (can be caused lack of assets owned by the defendant to
satisfy the claim in case of award will be granted, or the defendant’s
actions aimed to sell assets), or
b) the claimant risks incurring substantial damage (in this case applicant
should prove that arrest measure are aimed to maintain status quo
between the parties).84
It was confirmed by court practice that the commercial court should reject
the application if the applicant failed to ground or to evidence the grounds
for arrest measures (see section 13 of the Ruling of Plenum of Supreme
Commercial Court of 09.12.2002 N 11).85
83
Ibid.
Article 90(2) of the RF CPC, Section 9 of Resolution of Supreme Commercial Code of
12.10.2006 N 55/Postanovlenie Plenuma VAS RF ot 12.10.2006 N 55 "O primenenii
arbitrazhnymi sudami obespechitel'nyh mer".
85
Section 13 of Resolution of Supreme Commercial Code of 09.12.2002 N 11/
Postanovlenija Plenuma Vysshego Arbitrazhnogo Suda Rossijskoj Federacii ot 09.12.2002
N 11 "O nekotoryh voprosah, svjazannyh s vvedeniem v dejstvie Arbitrazhnogo
processual'nogo kodeksa Rossijskoj Federacii".
84
45
For example, a claimant may show that the company which owns the ship to
be arrested is a 'one-ship company' and has no other assets or that there is a
risk that the defendant will sell its property, thus making it impossible to
satisfy a future court award.86
When considering applications for injunctive relief, the courts will assess
whether87:
a) the specific measure sought by the applicant is connected with (and
is adequate to) the claim and helps facilitate the enforcement of the
judgment or prevention of damage. It is interesting that quite
frequently the defendants try to appeal arrest ruling, claiming that
due to the fact that at the moment when the maritime claim arose the
defendant was a bear-boat charterer of the vessel and remains the
same at the time of its arrest, in case the claimant gains an award it
cannot be enforced, under Russian law, against this arrested vessel,
because the defendant is not its owner. But this reasoning is rejected
by Russian courts as not being in line with national legislation,
allowing an arrest of a vessel run under bear-boat charter by the
responsible person/entity.88
b) application of arrest measure is reasonable in this particular case; the
arrest measure should be ratable to the amount of claim89;
c) application will risk to bear substantial damages unless the arrest of
the vessel is granted;
d) arrest measure will balance interests of the parties;
e) arrest measure will infringe public interests, interests of other third
parties.
Bringing reasons is very crucial for enabling arrest under Russian
jurisdiction. Its absence cannot be substituted even by counter-security.90
86
Supra note 54.
Supra note 85, Section 10.
88
Supra note 69.
89
Section 7 of the Informational Letter of Presidium of Supreme Commercial Code of
07.07.2004 N 78/ Informacionnoe pis'mo Prezidiuma VAS RF ot 07.07.2004 N 78 “Obzor
praktiki primenenija arbitrazhnymi sudami predvaritel'nyh obespechitel'nyh mer”.
90
Section 11 of the Resolution of Supreme Commercial Code of 09.12.2002 N 11/
Postanovlenija Plenuma Vysshego Arbitrazhnogo Suda Rossijskoj Federacii ot 09.12.2002
87
46
The reasoning for arrest is also required by the Latvian legislation.
According to the Section 139 (1) of the LCPL, a potential plaintiff may
petition for securing of their claim prior to bringing a court action, and even
before an obligation has become due, if the debtor, with the purpose of
avoiding performance of their obligation, removes or alienates their
property, leaves their place of residence without informing the creditor, or
performs other actions which evidence that the debtor is not acting in good
faith. When submitting an application for securing a claim prior to bringing
a court action, the potential plaintiff shall submit evidence that confirms
their rights on the basis of obligations and the necessity of securing the
claim.
3.7. Counter-security
In accordance with Article 393 of the RF MSC, the court or arbitration
which the application on arrest of a ship was filed in, may (but is not
obliged to) order an applicant to provide counter-security against any
damages which may be caused by arrest and for which the applicant may be
held liable. The amount and terms of such security shall be determined by
the court. However, and very reasonably, under Russia law counter-security
may not be required from the applicant, which demands arrest of a ship on
the basis of a claim for amounts due to the master or crew of the ship for
their work on board.91
Regulation of counter-security (if applicable at all) in civil courts remain
unclear, as the RF Civil Procedure Code is silent with respect to the arrest of
a ship as a preliminary measure. As the RF Civil Procedure Code is silent on
the question of counter-security even for arrest as an injunction measure
(obviously, because claims considered by civil courts are usually personal),
it can be concluded, that arrest applications made to civil courts should not
be subject to payment of counter-security.
N 11 "O nekotoryh voprosah, svjazannyh s vvedeniem v dejstvie Arbitrazhnogo
processual'nogo kodeksa Rossijskoj Federacii".
91
Article 393(1) of the RF MSC.
47
Under RF CPC the regulation of counter-security is as follows: Article 94
uses the term ‘counter-security’ to define both the security provided by
applicant to secure the reimbursement of damages incurred to defendant by
ship arrest, and substitute security, which can be provided by the defendant
to release his vessel from arrest. The latter one will be discussed in
paragraph 8.7. As to the counter-security from applicant, it can be applied at
the defendant’s request (obviously after the court has already granted ship
arrest, because application for arrest is considered ex parte) or by the court’s
own discretion. The court ruling on that should be issued no later than the
next day after application for arrest was filed in the court; in this case the
application for arrest is not considered until counter-security is provided.92
The court ruling on counter-security will define the period for providing
counter-security, which may not exceed 15 days, and its amount, which
should be valued at not less than 50% of the claim amount, but not to
exceed the claim amount plus interests.93 The failure to provide countersecurity by the applicant may be (but not necessarily will be) a reason for
rejection of arrest application.94
Practitioners report that Russian courts frequently require counter-security
from applicants as a condition for imposition or continuation of arrest of the
ship.95
Section 140 of the LCPL states that in satisfying an application regarding
securing of a claim, a court or judge may require that the plaintiff secure
losses which the defendant may suffer because of the claim enforcement, by
assigning a certain sum of money to be deposited into the bailiff's deposit
account. Section 53 (1) of the LMC provides more details:
In order to arrest a ship or to preserve its arrest, a court may impose a duty
upon the plaintiff who petitions for the arrest of the ship or on the basis of
whose application the ship is arrested as security for a claim, to provide
security of such type, in such amount and on such conditions as the court
considers necessary for the compensation of any type of loss which may arise
to the defendant due to the arrest of the ship and for which the plaintiff may
92
Article 92 (4) of the RF CPC.
Article 92 (1),(3) of the RF CPC.
94
Article 92 (6) of the RF CPC.
95
Supra note 80.
93
48
be liable, including for such losses as may be caused to the defendant by the
following:
1) unjustified or unlawful arrest of a ship; or
2) requested and provided unreasonably large security.
By contrast to Russian courts, Latvian lawyers report that Latvian courts
require counter-security by the applicant very rarely.96
3.8. Release from arrest
Under both Russian law and Latvian law, the release from arrest is possible
upon presentation of security by the defendant, upon cancellation of the
arrest ruling by a higher court or the same court which granted the arrest
ruling, upon claims of the defendant proving multiple arrest or re-arrest in
breach of corresponding legislation and when the grounds for arrest fall
away.
According to Russian regulations, security can be provided by the defendant
only in the form of money deposited to the court’s account; other guarantees
such as P&I Clubs undertakings etc. do not satisfy the procedural
requirements97. Although some practitioners report, that agreement between
the claimant and the defendant can be reached on the possibility of
substituting the deposit security by some other form of security. In case the
claimant applies to the court about changing the security measure with refer
to such an agreement, then, on approval by the judge, such substitution is
possible.98
Cancellation of the arrest ruling by the same court is possible in the
following situations:
2) if the defendant applied to the court to cancel them disproving the
reasoning for arrest;99
3) if counter-security was considered to be necessary by the court, and
the applicant failed to provide in within the prescribed time limits;100
96
Supra note 80.
Article 92 (2) of the RF CPC.
98
Supra note 54.
99
Section 13 of the Informational Letter of Presidium of Supreme Commercial Code of
07.07.2004 N 78/ Informacionnoe pis'mo Prezidiuma VAS RF ot 07.07.2004 N 78 “Obzor
praktiki primenenija arbitrazhnymi sudami predvaritel'nyh obespechitel'nyh mer”.
100
Article 92 (6) of the RF CPC.
97
49
4) if the applicant failed to file the statement of claim to the competent
court within the prescribed time limits.101
Arrest ruling can also be appealed to a higher court.
With regard to release from arrest on the basis of the appropriate security
was provided, provisions of the LMC follow the wording of Article 4 of the
1999 Convention. As stated by Article 4 of the 1999 Convention and
Section 51 of the LMC, a court shall revoke the arrest of a ship if
appropriate security has been provided. If the parties cannot agree regarding
the amount and type of security, it shall be determined by the court, not
exceeding the value of the arrested ship. Persons who are providing security
may at any time request the reduction, change or revocation of such
security. It is also stressed in the same articles that a request to release the
ship from arrest against security shall not be considered as an admission of
liability or a renunciation of defence or rights to limit liability.
3.9. Sister/associated ship arrest
In accordance with the provisions of the RF MSC, a sister ship is any other
ship owned by the entity or person liable under a maritime claim who was,
at the time the claim arose, the owner, the bareboat charterer, the time
charterer or the voyage charterer of a ship against which a maritime claim
has arisen.102 This is in line with the 1952 Convention provisions. The
divergence here is only in the list of exclusions: according to Article 3(1) of
the 1952 Convention, no ship, other than the particular ship in respect of
which the claim arose, may be arrested in respect of any of the maritime
claims enumerated in Article 1, (o), (p) or (q) (i.e. disputes as to the title to
or ownership of any ship; disputes between co-owners of any ship as to the
ownership, possession, employment, or earnings of that ship; and the
mortgage or hypothecation of any ship), whereas the RF MSC does not
exclude maritime claims out of the mortgages from the application of sister
ship arrest. But Russia made a reservation not to apply Article 3(1) of the
1952 Convention to the arrest of claims arising out of mortgage or
101
102
Article 99 (8) of the RF CPC.
Article 392 (2) of the RF MSC.
50
hypothecation. Thus in Russia, sister/associated ship arrest is possible also
for claims arising out of mortgage or hypothecation.
Section 50 (2,3) of LMC is based on Article 3(2,3) of the Ship Arrest
Convention 1993 and states that any other ship or ships may also be arrested
which at the time of arrest are owned by such persons as are liable regarding
a maritime claim and who at the time the claim arose were:
1) the owner of the ship in relation to which the maritime claim
arose; or
2) the bare boat, time or voyage charterer of such ship,
althought these provisions do not apply to claims that arise from rights of
ownership or possession of a ship.
3.10. Wrongful arrest
Under Article 6 of the 1952 Convention, all questions whether in any case
the claimant is liable in damages for the arrest of a ship or for the costs of
the bail or other security furnished to release or prevent the arrest of a ship,
shall be determined by the law of the contracting state in whose jurisdiction
the arrest was made or applied for.
The RF CPC provides compensation for wrongful arrest in case thecourt
dismisses the claim on its merits, or if the statement of claim was not filed
in the competent court within the prescribed period following a preliminary
arrest.103 A claim for damages must be filed with the appropriate court in
line with general procedural requirements. If the claim for damages will be
filed in the Russian commercial court, then the claimant’s damages could be
recovered in an amount not exceeding 1,000,000 Russian Roubles (around
33,000 USD).104
This provision remains untested yet in practice – no commercial court
decisions concerning claim of damages for wrongful arrest have been
reported until now. But it can be stated that the general rule of tort law is
applicable: only proven damages may be recovered.
103
104
Article 99 (10) of the RF CPC.
Article 98 (2) of the RF CPC.
51
With regard to protection against wrongful arrest, the Latvian legislation
duly incorporated the provision of Article 6 of the 1999 Convention.
According to Section 53 (2) of LMC a court that has made an adjudication
regarding the arrest of a ship may decide whether and to what extent the
plaintiff is liable for the damage and losses which have arisen due to the
arrest, including:
1) due to unjustified or unlawful arrest; or
2) due to the requesting and provision of unreasonably large
security.
Section 53 (3) of the LMC states that in determining the liability of a
plaintiff in accordance with Paragraph two of this Section, Latvian
regulatory enactments shall be applied.
3.11. Re-arrest and multiple arrest
Due to dualism in Russian legal system concerning ship arrest, re-arrests
and multiple arrests are possible where the RF MSC applies to the arrest of
the ship, because the provisions of the RF MSC in respect of re-arrest and
multiple arrest echo those of the 1999 Convention. Thus re-arrests and
multiple arrests are permissible to all ships not flying the flags of the statesparties to the 1952 Convention, if:
1) the nature or amount of the security is inadequate;
2) the party which has provided the security is unable or is likely to be
unable to fulfill some or all of the obligations; or
3) the ship arrested or the security previously provided was released
either on the application or with the consent of the claimant acting
on reasonable grounds, or because the claimant could not by
reasonable means prevent the release.105
Due to the fact that Latvia is a party to the 1999 Convention, the grounds for
multiple arrests and re-arrests are the same.106 Moreover, in Latvia multiple
arrests and re-arrest are possible with regard to sister ships on the grounds
105
106
Article 392 of the RF MSC.
Section 52 of the LMC.
52
stipulated by Article 5 (2) of the 1999 Convention and Article 52 (2) of the
LMC, which state that any other ship which may be arrested based upon the
one and the same maritime claim, may not be arrested except in the
following cases:
1) the type and amount of security in relation to the same claim is
insufficient; or
2) the person who has already provided the security is not, or is
unlikely to be, able to fulfil some or all of that person’s obligation;
3) the ship arrested or the security previously provided was released.
53
4. Chapter III Maritime liens,
mortgages and right of
retention
4.1. Maritime liens
4.1.1. General remarks
Maritime liens are unique to maritime law. There can be traced a long
tradition in maritime law to secure certain claims by a lien in the vessel with
which a claims is associated. The maritime lien is a concept of the codified
lex maritima and the lex mercatoria and has grown over the centuries in
various jurisdictions107, being the product of evolution of custom, statute
and judicial decisions.108
Professor William Tetley describes the essence of maritime lien as follows:
A traditional maritime lien is a secured right peculiar to maritime law (the lex
maritima). It is a privilege against property (a ship) which attaches and gains
priority without any court action, deed or registration. It passes with the ship
when the ship is sold to another owner, who may not know of the existence
of the lien. In this sense the maritime lien is a secret lien, which has no
equivalent in the common law; rather it fulfils the concept of a “privilege”
under the civil law and the lex mercatoria.109
In common law jurisdictions a lien does not describe the right, rather it
describes only how a right is to be enforced.110
Priority of liens is a subject for the lex fori, so the rules differ from
jurisdiction to jurisdiction. Several efforts of unification of rules on
maritime liens were attempted, which led to the International Conventions
for the Unification of Certain Rules relating to Maritime Liens and
Mortgages adopted in Brussels on April 10, 1926111 and May 27, 1967, as
well as the 1993 Convention.
107
Supra note 68, at p.55.
Ibid, at p.60.
109
Ibid, at p.59-60.
110
Supra note 2, at p.460
111
International Convention for the Unification of Certain Rules Relating to Maritime
Liens and Mortgages. Brussels, 10 Apr 1926. 120 LNTS 187; 3 International
legislation 1,845; 27 AJIL supplement 28.
108
54
Russia is a party to the 1993 Convention. Latvia is not a party to any
relevant conventions, but the LMC contains certain provision on maritime
liens, which are in line with the 1993 Convention.
Next paragraph will be focused on the discussion whether the concept of
maritime lien in both jurisdictions in question corresponds to generally
recognized features of maritime liens.
4.1.2. Peculiar features of maritime liens in
Russian and Latvian legal framework
The maritime lien originated in Admiralty in 1851 in The Bold
Buccleugh112, the classic case where the theoretical foundation of the
maritime lien was expressed by the court as:
…a claim or privilege upon a thing to be carried into effect by legal process;
...This claim or privilege travels with the thing, into whosesoever possession
it may come. It is inchoate from the moment the claim or privilege attaches,
and when carried into effect by legal process, by a proceeding in rem, relates
back to the period when it first attached.
Subsequent development and penetration to other jurisdictions formed
features of the maritime lien common for all jurisdictions which
implemented this concept, characterizing the maritime lien as a tacit
hypothecation and privilege, which does not include or require possession
and travels with the vessel into whosoever’s possession it comes.
Unfortunately, no legal definition of maritime lien can be found under
Russian or Latvian law. However, analysis of the relevant provisions
renders some certainty of the concept as implemented in these jurisdictions.
112
The Bold Buccleugh, 7 Moore P.C. 267, 13 ER 884, (1851).
55
4.1.3. Secrecy
A maritime lien is often called "secret" because it does not require
possession or notice through filing. For the most part, liens are not
registrable and, therefore, those who may seek to acquire interests in assets
have no means of checking for the prior existence of a lien. 113 In The Brig
Nestor, Story J. held that ‘…a lien by maritime law is…a tacit
hypothecation’.114 The absence of requirement of registration to make the
claim secured by a maritime lien enforceable is one of the key features
distinguishing it from mortgages or ‘hypotheques’. Unlike the mortgage of
the vessel, no special registration is required for the maritime lien, and it is
attached to the vessel from the moment the claim is secured, irrespective of
the parties' intention to provide additional security for the claim115.
According to Russian law, vessels are immovable property116; the general
rule is that ownership and all encumbrances of immovable properties require
registration.117 Thus maritime lien is an exception from the normal legal
regime of immovable property.
It is not stated clearly in the Latvian law whether the maritime lien is secret,
but neither is it stated that it needs registration. According to Section 842 of
the LCC, ships are classified as movable property. The concept of a
maritime lien as a secret encumbrance is close to the concept of a pledge of
a moveable property.
4.1.4. Concept of privilege
Russia and Latvia are both civil law jurisdictions. As it has already benen
mentioned, in civil jurisdictions, the maritime lien is a privilege against a
ship, which attaches and gains priority. It gives the creditor the right to
113
Supra note 2, p.459.
The Brig Nestor, 1 Sumner 78.
115
D.A.Pentsov, Maritime Liens, Rights of Retention and Mortgage of Vessels under the
Legislation of the Russian Federation, Tulane Maritime Law Journal, 2002, vol. 26, at p.
612.
116
Article 130 of the RF CC.
117
Article 131(1) of the RF CC.
114
56
receive priority in satisfaction of his claim out of the value of the ship over
other creditors, including over registered mortgages.
It is stated in Article 5 of the 1993 Convention, maritime liens ‘...shall take
priority over registered mortgages, "hypothèques" and charges, and no other
claim shall take priority over such maritime liens or over such mortgages,
"hypotheques" or charges...’. A similar provision is incorporated into the RF
MSC, according to which the claims secured by maritime liens on the vessel
take priority over the claims arising out of the obligations secured by the
registered mortgage of the vessel.118 Article 34 of the LMC follows the
wording of the 1993 Convention, stating that maritime liens shall take
priority in relation to claims arising from mortgages and other
encumbrances on a ship.
4.1.5. Right of following
The rule derived from the Bold Buccleugh is that maritime liens follow the
ship into the hands of the bona fide purchaser. The rationale behind this is to
guarantee that the creditor’s interest in a vessel will be enforceable against it
even if a transfer of ownership took place.
This rule is stipulated in Article 8 of the 1993 Convention, according to
which maritime liens follow the vessel, notwithstanding any change of
ownership or of registration or of flag, save to the effect of a forced sale of
the vessel.
Article 370 of the RF MSC also stipulates that maritime liens shall continue
to follow the vessel, regardless of whether there has been a change of
ownership, registration, or flag. Similar wording is used in Article 36 (1) of
the LMC, which provision is also supported by Section 41, which states that
if a claim is secured by ship mortgage or maritime lien, in the case of a
transfer of rights associated with the ship, the person assuming the rights
shall simultaneously assume such claim together with the ship mortgage or
maritime lien.
118
Article 368 of the RF MSC.
57
4.1.6. Claims secured
Only certain types of claims can give rise to a maritime lien and the parties
cannot modify the status of a claim by agreement. The list of claims was and
remains the result of compromise between interests of ship owners and
operators, on the one hand, and of creditors – those who provide services to
make possible the operation of the vessel and those who suffer damages
occurring in connection with operation of the vessel, on the other hand.
According to Article 4(1) of the 1993 Convention, the following claims are
secured by the maritime lien on a vessel:
(a) claims for wages and other sums due to the master, officers and other
members of the vessel's complement in respect of their employment on the
vessel, including costs of repatriation and social insurance contributions
payable on their behalf;
(b) claims in respect of loss of life or personal injury occurring, whether on
land or on water, in direct connection with the operation of the vessel;
(c) claims for reward for the salvage of the vessel;
(d) claims for port, canal and other waterway dues and pilotage dues;
(e) claims based on tort arising out of physical loss or damage caused by the
operation of the vessel other than loss of or damage to cargo, containers and
passengers effects carried on the vessel, excluding:
(a) damage in connection with the carriage of oil or other hazardous or
noxious substances by sea for which compensation is payable to the
claimants pursuant to international conventions or national law providing
for strict liability and compulsory insurance or other means of securing the
claims; or
(b) the radioactive properties or a combination of radioactive properties
with toxic, explosive or other hazardous properties of nuclear fuel or of
radioactive products or waste.
The list of claims secured by a maritime lien is stipulated in Article 367
(1(1-5)) of the RF MSC and corresponds to the requirements specified in the
1993 Convention. The only discrepancy is that according to paragraph 5 of
Article 367 (1), the damage caused by the operation of the vessel other than
loss of or damage to cargo, containers and passengers effects carried on the
58
vessel clearly excludes loss of profit. Although Article 6 of the 1993
Convention allows states parties to it to grant other maritime liens on a
vessel to secure claims, other than those referred to in Article 4, no maritime
liens under national legislation were granted.
Claims secured by maritime liens under the LMC are in full accordance with
Article 4 of the 1993 Convention.119
4.1.7. Assets subject to maritime lien
(maritime property)
It is generally accepted that a maritime lien attaches not only to a bare vessel
but also to its appurtenances, equipment and all of its components.
Nevertheless, when adjudicating on a claim secured by a maritime lien, the
court handling the claim will scrutinize what is considered to be subject to
the maritime lien according to national legislation.
According to Article 7(l) of RF MSC, a vessel shall be understood to be any
self-propelled or non-self-propelled floating construction used for the
purpose of merchant shipping. Not a word can be found in the RF MSC
concerning whether appurtenances are also subject to maritime liens. Hence,
civil legislation shall be applied here simultaneously. Article 135 of RF CC
stipulates that accessory (adjunct) is a thing, intended for the servicing of
another thing - the principal one - and connected with it by the common
purpose (an accessory), and shall share the fate of the principal thing, unless
otherwise stipulated by the agreement.
There can be found only one case in the practice of commercial courts
clarifying what can be considered as adjuncts of the vessel.120 Attributes of
the adjuncts of the vessel are as follows:

such an item that is an essential part of the principal thing serving to
provide its main function (for example, fishing equipment for a
fishing vessel)
119
120
Section 33(1) of the LMC.
Postanovlenie FAS Dal'nevostochnogo okruga ot 18.05.2004 N F03-A51/04-1/1009.
59

dismantling of such an item that leads to unseaworthiness of a
vessel.
The LMC does not stipulates to what assets the maritime lien is attached
either. But the LCC contains numerous provision detailing the concepts of
principal and auxiliary property. According to Section 850 of the LCC,
”principal property” is that which may be the independent subject-matter of
rights, whereas property as exists only in conjunction with, belonging to or
is otherwise associated with principal property, is auxiliary property. With
regard to items of auxiliary property, a distinction must be made between:
essential parts of the principal property, including augmentations within the
narrowest meaning thereof; the fruits of tprincipal property; appurtenances
of the principal property; and expenditures regarding the principal property
and charges encumbering it (Section 851 of the LCC). While auxiliary
property has not been separated from the principal property, they both shall
be subject to identical provisions regarding rights (Section 852 of the LCC).
According to Article 857 of the LCC, auxiliary property acquires the
character of an appurtenance, if its function is to serve the principal
property, or it is permanently connected with it and pursuant to its natural
characteristics it corresponds to this function.The connection of auxiliary
property that determines its belonging to the principal shall not, without fail,
be that both properties must be directly, closely, or physically attached; it is
sufficient for such belonging that there exists between them any other
permanent connection.
It is explained below in detail, that in both jurisdictions the rules defining
maritime property for the purpose of establishing a mortgage (pledge) are
slightly different from those analysed above.
4.1.8. Who is responsible for a ship’s fault?
As per the wording of Article 4(1) of the 1993 Convention, it is the owner,
demise charterer, manager or operator, who is legally responsible for a
vessel’s fault, which gives rise to a claim secured by maritime lien.
60
In Russia, according to Article 367 of the RF MSC, it is a shipowner who
can bind a vessel, with important reference to Article 8 of the RF MSC,
defining a shipowner as a person who operates the vessel in his own name,
whether being the owner of it or on any other lawful basis. Some scholars
conclude, that, based on this wording, a time-charterer is also a person who
can by his actions bind a vessel with maritime lien, as well as those who
operate a vessel based on reduced proprietary rights, peculiar for Russian
national legislation, such as right of economic management and right of
operational management.121 The court practice also recognizes the timecharterer as a person responsible for a ship’s fault thus encumbering the ship
by a maritime lien.122
According to Section 33(1) of the LMC, maritime liens secure claims in
respect of a ship owner, bare boat charterer or ship operator. No definition
of ship operator can be found in the LMC, but wordings of relevant
provisions (for example, Article 1) allow us to conclude that the charterer is
not a ship operator. Section 13(3) of the LMC defines that the operator of a
ship is a person who administers the ship on the basis of a ship management
contract, which contains obligatory requirements regarding the transfer of
the technical management of the ship, including safe ship management in
conformity with the international requirements, to the Latvian operator of
the ship for the time period, during which the ship in accordance with the
contract is registered in the Latvian Ship Register.
4.1.9. Ranking of maritime liens and other
claims
As per Articles 4, 5, 6 and 12 of the 1993 Convention, maritime liens and
other claims, costs and expenses paid out of proceeds of the sale of vessel
rank in the following order:
1. First should be paid the costs and expenses arising out of the arrest or
seizure and subsequent sale of the vessel, including, inter alia, the
121
Article 294 and 296 of the RF CC.
Postanovlenie Chetyrnadcatogo arbitrazhnogo apelljacionnogo suda ot 07.12.2010 po
delu N A05-8933/2010.
122
61
costs for the upkeep of the vessel and the crew as well as wages,
other sums and costs due to the master, officers and other members of
the vessel’s complement (similar to those which would be secured by
maritime liens in case of normal operation of a ship), incurred from
the time of arrest or seizure123;
2. The cost of removal of the ship, if the vessel was a stranden or
sunken, and the forced sale followed its removal by a public authority
in the interest of safe navigation or the protection of marine
environment124;
3. Claims for salvage if salvage operations were performed after all
other maritime lien for the certain vessel arose125;
4. Claims for wages and other sums due to the master, officers and other
members of the vessel's complement in respect of their employment
on the vessel, including costs of repatriation and social insurance
contributions payable on their behalf, other than those incurred before
the arrest or seizure of a vessel126;
5. Claims in respect of loss of life or personal injury occurring, whether
on land or on water, in direct connection with the operation of the
vessel127;
6. Claims for reward for the salvage of the vessel, in case salvage
operation was completed before liens listed under clause 4 and 5 of
this enumeration occured128;
7. Claims for port, canal and other waterway dues and pilotage dues129;
8. Claims based on tort arising out of physical loss or damage caused by
the operation of the vessel other than loss of or damage to cargo,
containers and passengers' effects carried on the vessel130;
123
Article 12 (2) of the 1993 Convention.
Article 12 (3) of the 1993 Convention.
125
Article 5(2) of the 1993 Convention.
126
Article 4(1(a)) of the 1993 Convention.
127
Article 4(1(b)) of the 1993 Convention.
128
Article 4(1(c)) of the 1993 Convention.
129
Article 4(1(d)) of the 1993 Convention.
130
Article 4(1(e)) of the 1993 Convention.
124
62
9. The claims of a shipbuilder or of a shiprepairer who before the arrest
or seizure of a ship enjoyed a right of retention of a vessel in
accordance with national legislation;131
10. Other maritime liens if granted under national legislation132;
11. Registered mortgages, "hypothèques" and charges.133
According to provisions of the RF MSC134, priority and ranking of claims
secured by maritime liens is the same, with the only remark that no other
maritime liens are granted under Russian national legislation.
Section 56(2) of the LMC provides very similar ranking of maritime liens
and other claims, costs and expenses paid out of proceeds of the sale of
vessel, with the only divergence that after the cost of removal of the ship (if
the vessel was a stranden or sunken, and the forced sale followed its
removal by a public authority in the interest of safe navigation or the
protection of marine environment) and before claims for salvage (if salvage
operations were performed after all other maritime lien for the certain vessel
arose) there should be paid claims associated with payment of taxes and
fees.
With regard to Latvian law it is also important to mention the provision of
Section 36 (2) of LMC, which states that if a maritime lien, which secures a
claim regarding which the lienor of a ship is not personally liable, ceases to
exist or acquires a lower priority in case the ownership rights pass, the
alienor referred to shall be liable to the ship's creditor whose claim is
secured by the maritime lien, to such extent as the creditor does not receive
satisfaction of his or her claim due to the transfer of these ownership rights.
As to ranking of maritime liens within the same group, the 1993 Convention
settles the principle, that all the maritime liens with the exception for
salvage liens, shall rank pari passu as between themselves.135 The maritime
liens securing claims for reward regarding the salvage of a vessel shall rank
131
Article 12(4) of the 1993 Convention.
Article 6 (c) of the 1993 Convention.
133
Article 5(1) of the 1993 Convention.
134
Articles 367-369 of the RF MSC.
135
Article 5(3) of the 1993 Convention.
132
63
in the inverse order of the time when the claims secured thereby accrued.136
The same rules are stipulated under Russian and Latvian national laws.137
4.1.10. Extinction of maritime liens
Maritime liens can be extinct in several ways (beyond voluntary satisfaction
of the claim secured by maritime lien). The 1993 Convention recognizes
two reasons for extinction of a maritime line: expiration of the stipulated
time period and the forced sale of a vessel bound by a maritime lien.
According to Article 9 of the 1993 Convention, the maritime liens shall be
extinguished after a period of one year unless, prior to the expiry of such
period, the vessel has been arrested or seized, such arrest or seizure leading
to a forced sale. The one-year period referred to in paragraph 1 shall
commence:
(a) with respect to the maritime lien securing claims for wages and other
sums due to the master, officers and other members of the vessel's
complement in respect of their employment on the vessel, upon the
claimant's discharge from the vessel;
(b) with respect to the other maritime liens - when the claims secured
thereby arise;
This period of time shall not be subject to suspension or interruption,
provided, however, that time shall not run during the period that the arrest or
seizure of the vessel is not permitted by law.
These provisions are duplicated under Russian and Latvian national laws.
National systems duplicate as well provisions of Article 12(1) of the 1993
Convention, stating that in the event of the forced sale of the vessel in a
State Party, all registered mortgages, "hypothèques" or charges, except those
assumed by the purchaser with the consent of the holders, and all liens and
other encumbrances of whatsoever nature, shall cease to attach to the vessel.
The same article also settles requirement for the effect of a forced sale to be
in force:
136
137
Article 5(4) of the 1993 Convention.
Article 369(2) and (3) of the RF MSC, Section 34(3) and (4) of the LMC.
64
(a) at the time of the sale, the vessel is in the area of the jurisdiction of such
State; and
(b) the sale has been effected in accordance with the law of the state and the
provisions concerning the forced sale of the vessel. This latter requirement
will be discussed in details in next paragraph.
4.1.11. Forced sale
The discussion will now turn to benefits which a maritime lien gives to the
claimant over and above a simple legal claim.
In Admiralty, in the common law system, maritime liens are essentially
historically linked with the action in rem, which is the procedure directly
taken against a vessel for enforcing a maritime lien, possibly leading (if no
bond is provided by the defendant) to a forced sale of the vessel for the
creditors (maritime lien holders) to get satisfaction out of proceeds of the
sale of the vessel. However, the action in rem is typical only for common
law countries. In civil law jurisdictions, a maritime lien holder cannot
proceed directly against a vessel; the legal process is always directed against
a person, either a natural or legal entity, such as the partnership or
corporation that owns the vessel. This was the result of the combination of
an in personam action combined with the saisie conservatoire (conservatory
attachment) to effect arrest, the latter permitting seizure of any property of
the debtor (including ships) when the judgment is pending. 138
To reach efficiency, at least to some degree, which maritime lien holders
enjoy at in rem procedure, in civil jurisdictions, a maritime lien holder
normally may, by contrast to other creditors, satisfy claims out of proceeds
from the forced sale of the vessel. The institution of a maritime lien
stipulates that in case the claim against the ship owner (or charterer, etc.) is
secured by a maritime lien on the vessel in accordance with legislative acts,
138
W.Tetley, Arrest, Attachment, and Related Maritime Law Procedures, 73 Tul. L. Rev.
1895 (1999), p. 1898.
65
a forced sale of the vessel is carried out in order to satisfy the above claim,
irrespective of the availability of the debtor’s other assets.139
It is important to mention, that as opposed to common law countries, where
a valid maritime lien, in rem procedure and arrest of vessel are three integral
parts of the enforcement of maritime lien, in civil law jurisdictions arrest of
the vessel to secure a maritime claim is an independent institution of
maritime law different from maritime lien, although this instrument is
available for maritime liens holder and remains an efficient procedural
measure to secure the creditor’s interest. The arrest of a vessel in Russia and
Latvia was discussed in the previous chapter of this thesis. This section is
devoted to the forced sale of a vessel only, as applicable in the jurisdictions
in question.
The 1993 Convention contains only some provisions regulating the forced
sale of vessel, mainly concerning the effects of forced sale (Article 12,
which was discussed in previous paragraph of this thesis) and the notice of
forced sale (Article 11). Obviously, other procedural moments of the forced
sale are left to be regulated at the national level. Unfortunately, in the
Russian dimension this is not fulfilled, thus compelling some scholars to
state even that enforcement of maritime liens through forced vessel is
impossible in Russia.140
Article 371(1) of the RF MSC states that the maritime lien on a vessel shall
be extinguished after a period of one year since the date when the claim
secured thereby accrued, unless, prior to the expiry of such period, the
vessel has been arrested, such arrest leading to a forced sale of the vessel.
This wording allows us to conclude that the RF MSC provides forced sale as
a means of satisfying the claim secured by a maritime lien. This provision
can be found in Paragraph 1 of the Chapter XXII of the RF MSC, named
‘Maritime liens’, which is nevertheless silent about the way the forced sale
may be executed. All the regulations of the forced sale of vessel, including
those duplicating Article 11 of the 1993 Convention, are located in a
different part of the RF MSC, namely Paragraph 2 of the Chapter XXII,
139
Maritime Lien And Arrest of the Vessel to Secure Maritime Claims,
<www.golubovtiagai.com/art7.html>, visited on 12 May 2012.
140
A.A. Shashorin, “Ipoteka morskih sudov i morskoj zalog”, Zakon, 2006, N 12.
66
devoted to ship mortgages. They will be discussed in detail in paragraph
4.2.6. of this chapter with regard to enforcement of ship mortgages. Strictly
speaking, formal interpretation does not allow extending the application of
these provisions to the forced sale of a vessel as an enforcement of a
maritime lien. Some scholars claim that this extension is possible by
analogy.141
Though some court practice may be found confirming that maritime lien
holders are entitled to claim the forced sale of the vessel142, the regulation of
enforcement of maritime liens is still vague. The main practical problem is
the monetary satisfaction of other maritime lien holders claims out of the
proceeds of sale of a vessel, those who were not the initiators of the forced
sale of the vessel. The forced sale of the vessel will be arranged by the court
bailiff on the basis of the writ of execution provided by the initial claimant,
who will distribute the money only among those claimants who can submit
a valid court decision entitling them to get satisfaction from the proceeds of
a forced sale. Thus, at the moment of distribution, all maritime lien holders
need to get the court decisions and the writs of execution validating their
claims.
Ex facte the easiest way here seems to be the joinder of claims of all the lien
holders with the claim which was the basis for ship arrest. But, first of all,
combining cases for their consideration in a single procedure and singling out
claims for considering them in a separate procedure is allowed prior to the
delivery of the judicial act, finalising the consideration of the case by a
commercial court of the first instance (Article 130 (4) of the RF CPC). Thus it
is not possible if the initial claimant has already obtained the decision.
Second, for combining cases for considering them in a single procedure
there should be one of the following basis:

the same persons are participants as a claimant and a defendant; or
141
V.B. Lipavskij, "Pravovoe regulirovanie morskogo zaloga", Jurist, 2006.
See, for example, Postanovlenie FAS Dal'nevostochnogo okruga ot 01.12.2009 N F032502/2009 po delu N A51-10092/2000. In this particular case the claim for pilotage dues
was dismissed with reference to extinction of maritime lien.
142
67

the cases to be joined are interrelated due to the grounds of the origin
of claims and (or) presented evidence, as well as in other instances
where there is the risk of delivery of contradictory judicial acts
(Article 130 (2) and (21) of the RF CPC).
Obviously, the only applicable ground for combining the claims of maritime
lien holders is the risk of delivery of contradictory judicial acts (the
participants are not the same as the claimants are different lien holders,
grounds for the claims are also different, as well as the presented evidence),
but there still can be no confidence that the court will join the cases.
Moreover, to join the cases, both claims should be filed in the court and
accepted by it, but it is likely that for all other claimants except the initial
one there will be obstacles for even filing a claim in the court due to the fact
that there is lack of jurisdictional grounds for filing the claim. The initial
claimant will file a claim on the basis of ship arrest, whereas all others will
not have this ground, as double arrests are not permitted. It is possible, of
course, to file a claim against the shipowner in a different jurisdiction, but to
get satisfaction from the income of the forced sale of the vessel in Russia, it
is necessary to provide to the bailiff the decision of the Russian court on
recognition and enforcement of the decision of the foreign court to the time
of disbursement of that income. All this can be a very hard task which is
almost impossible to be fullfilled within a certain time frame. This situation
looks even worse if it is to be taken into consideration that there is no such
reason for suspending the enforcement procedure by the bailiff under
Russian legislation as pending another court’s decision.
Thus it can be derived that uncertainty of Russian legislation concerning
enforcement of maritime claims is its weak point from the side of those,
who holds a maritime lien against a ship which is arrested in Russia, and its
strong point for those maritime lien holders who desire to get full
satisfaction from the proceeds of the forced sale of the vessel without
competing with other claimants.
The LMC contains no provisions regarding enforcement of maritime liens in
the Chapter IX ”Maritime Liens”. They are set out in the Chapter XII
68
”Arrest of Ships as Means of Securing Maritime Claims”; obviously, the
same procedure is intended to be applicable both to the enforcement of
maritime liens and ship mortgages, and will be discussed in paragraph 4.2.6.
of this Chapter. Generally the same obstacles for other maritime lien holders
than the one who initiated the arrest of the ship to enforce their claims as in
Russia can be predicted. On the other hand, LCPL at least gives more
opportunities for joining the claims of the maritime liens holders. According
to Section 134 (2) of the LCPL, if there are before a court more than one
similarly constituted matters, involving the same parties, or matters where
one plaintiff is bringing an action against several defendants, or several
plaintiffs are bringing actions against one and the same defendant, a judge is
entitled to join such matters in the same court proceedings, provided such
joinder favours faster and more correct adjudication of the matters, and the
parties do not object. The maritime lien holders can apply for the joinder on
the basis that they are plaintiffs bringing actions against the same defendant
provided that their claims were accepted by the court according
jurisdictional rules.
4.1.12. Foreign liens
Foreign law plays an important role with regards to enforcement of
maritime liens: first, an important issue is the law which governs the
creation and enforceability of the lien; second is the problem of recognition
of foreign liens by the forum.
The essence of the problem was aptly formulated by Professor Tetley in the
following words:
Because of these different systems of priorities, a court confronted with a
claim that, under its proper law, is a maritime lien but is not a maritime lien
under the law of the forum, has two fundamental decisions to take. The court
must first decide whether or not to recognize that foreign maritime lien as a
maritime lien, despite the fact that a corresponding claim arising within the
court's own territorial jurisdiction would not constitute a maritime lien.
Secondly, if the court decides to recognize the foreign maritime lien as a
maritime lien, it must then decide how to rank the underlying claim in the
distribution of the judicial sale proceeds. The solutions given these two
69
questions in national conflict of law rules differ radically as between
countries.143
According to Article 424 of the RF MSC, in respect of a maritime lien on a
vessel and the ranking of claims secured by the maritime lien on the vessel,
the law of the state in a court of which the dispute is heard shall apply. This
means that foreign liens different from those claims which constitute a
maritime lien according to Russian law will not be enforced in Russia, and,
probably, the ship arrest is not possible to enforce this claim unless the
claim does not meet certain conditions. These were discussed in Chapter II
of this thesis.
However, this situation is somehow amended by the provision of Article 6
of the 1993 Convention, which states as follows:
Each State Party may, under its law, grant other maritime liens on a vessel to
secure claims other than those referred to in article 4, against the owner,
demise charterer, manager or operator of the vessel, provided that such liens:
(a) shall be subject to the provisions of articles 8, 10 and 12;
(b) shall be extinguished
(i) after a period of 6 months. from the time when the claims secured
thereby arose unless, prior to the expiry of such period, the vessel has been
arrested or seized, such arrest or seizure leading to a forced sale; or
(ii) at the end of a period of 60 days following a sale to a bona fide
purchaser of the vessel, such period to commence on the date on which the
sale is registered in accordance with the law of the State in which the
vessel is registered following the sale;
whichever period expires first; and
(c) shall rank after the maritime liens set out in article 4 and also after
registered mortgages, "hypothèques" or charges which comply with the
provisions of article 1.
Taking into consideration that according to Article 13 of the 1993
Convention, its provisions shall be applicable in states parties to all
seagoing vessels notwithstanding the place of their registration, the
conclusion can be derived that under Russian jurisdiction the maritime liens
which arise under the law of the states parties to the 1993 Convention and
are different from those which are listed in RF MSC, but are in compliance
with the requirements set by the Article 6 of the 1993 Convention, shall be
recognized, ranking after registered mortgages.
143
W.Tetley, Maritime Liens in the Conflict of Laws, Law and Justice in a Multistate
World: Essays in Honor of Arthur T. von Mehren, Transational Publishers, Ardsley, N.Y.,
2002 at p. 440.
70
According Section 45 of LMC maritime liens or retention rights regarding a
ship shall be adjudicated in a Latvian court in accordance with Sections 14,
30—37, 41—43, 55 and 56 of that code. Thus, foreign liens are not
enforceable in Latvian courts.
4.2. The mortgage of vessels
4.2.1. Concept of pledge
Under the Russian law, pledge (mortgage) is a kind of security for the
performance of obligations. Pledge is an obligation dependent on principal
obligation i.e. to be secured by the pledge. The general rule is that the
invalidity of pledge obligation shall not entail the invalidity of principal
obligation but on the other hand the invalidity of the principal obligation
shall entail the invalidity of the pledge obligation.144
Under Latvian law a pledge right is such right in regard to property of
another (Section 841) as on the basis of which the property secures the
claim of a creditor so that the creditor is able to receive from the property
payment for such claim.145 A pledge right in registered mercantile marine
ships is called a ship mortgage and shall be established without transferring
the ship to the possession of the pledgee.146
The major points concerning vessel mortgages irrespective of national
jurisdiction are, first of all, the simplicity and efficiency with which
mortgages can be registered over vessels in a certain register (that is of
interest for both the shipowner seeking for financing of the purchase of a
vessel and the financing banks), and, secondly, the simplicity with which
mortgage security rights can be enforced in terms of the national law (in
other words, a degree of protection to mortgagees, who naturally want to be
confident that their rights as investors will be legally protected under
national legislation).
144
A.Naumchik, Russian Ship Registration and other recent developments in Russian
Shipbuilding and Merchant Shipping, <ilsprim.com/fd/Doc_all.pdf>, visited on 30 October
2012.
145
Section 1278 of LCC.
146
Note to the Section 1279 of LCC.
71
4.2.2. Applicable law
Pledge (mortgage) relationships in Russia are governed by the following
legal acts:
- the RF CC;
- Federal Law of 16.07.1998 N 102-FZ “On mortgage (pledge of immovable
property)”147, hereinafter referred to as the Law on the Mortgage;
- RF MSC as regard to ship mortgages. The entire Chapter XXII ”Maritime
mortgage over the vessel and Mortgage over the vessel or over the vessel
under construction” which are dedicated to the matters of mortgages over
the vessels).
General rules on pledge are contained in the RF CC. According to Article
334(1) of it, the pledge of the land plots, the enterprises, the buildings, the
structures, the flats and of the other immovable property (the mortgage)
shall be regulated by the Law on the Mortgage; the general rules on the
pledge, contained in the RF CC, shall be applied to the mortgage in the
cases, for which no other rules have been laid down by the Code or by the
Law on the Mortgage. The same regulation contains the Law on the
Mortgage148 itself. The vagueness exists concerning ranking the RF CC
regulations and the RF MSC regulations.
According to Article 1(2) of the RF MSC, property relations arising out of
merchant shipping and based on equality, autonomy of will and proprietary
independence of their participants are regulated by this Code in compliance
with the RF CC. This can give a basis for a conclusion that the RF CC has
priority over the RF MSC with respect to property relations. On the other hand,
the second sentence of the same Article 1(2) states that the regulations of the
civil legislation of the Russian Federation shall apply to property relations not
regulated or not fully regulated by the RF MSC.
Some scholars conclude, that property relations arising out of merchant
shipping are regulated by the RF CC and subsidiary by the RF MSC; hence,
147
Federal'nyj zakon ot 16.07.1998 N 102-FZ"Ob ipoteke (zaloge nedvizhimosti)"
"Rossijskaja gazeta", N 137, 22.07.1998.
148
Article 1 of the Law on the Mortgage.
72
mortgage of ships is regulated by the Law on
the Mortgage, then
supplementary by the RF CC, and subsidiary by RF MSC.149 Others are of the
view that RF MSC dominates over the RF CC and the Law on the Mortgage.
Since the MSC of RF is a special Act purported to govern relationship
originated from merchant shipping it has legal priority for governing overall
merchant shipping
relationships including matters of mortgages over the
vessels.150 Analysis of the court practice reveals the position that the RF CC is
applicable to property relations arising out of merchant shipping only if there is
a deficiency in the RF MSC.151
To clear the hierarchy of legislative acts regulating ship mortgages in Russia
is not only of theoretical importance, but is a very practical issue, as the Law
on the Mortgage contains a striklingly different regulation of mortgages if
compared with the RF MSC.
There is no specific mortgage law in Latvia. The LCC governs the creation,
registration and enforcement of security rights. The LCC states that specific
provisions concerning ship mortgages should be set out in the Ship
Mortgage and Marine Claims Law152, but it was never adopted. According
to Section 3(2) other Latvian regulatory enactments shall be applied to such
issues associated with maritime matters that are not regulated by the LMC.
This means that provisions of the LMC prevail over the LCC with regard to
ship mortgages.
4.2.3. What can be secured by the mortgage?
Generally, a mortgage may be established to secure a financial obligation
under a credit agreement, loan agreement or any other financial obligation,
including an obligation resulting from a purchase and sale, lease, contract or
149
Supra note 140.
G.G. Ivanov (ed.), Kommentarij k Kodeksu torgovogo moreplavanija Rossijskoj
Federacii (postatejnyj) , Moscow: Spark, 2000.
151
See, for example, Postanovlenie Chetyrnadcatogo arbitrazhnogo apelljacionnogo suda ot
26.01.2012 po delu N A05-9470/2011, Postanovlenie FAS Dal'nevostochnogo okruga ot
27.06.2006, 20.06.2006 N F03-A51/06-1/2284 po delu N A51-1924/04-28-65.
152
Note to the Section 1279 of LCC.
150
73
other agreement, or inflicting damages, unless otherwise is provided by
federal law.153
But as to merchant shipping, the RF MSC states that only a pecuniary
obligation can be secured by a mortgage on a vessel or vessel under
construction.154 Considering the hierarchy of legal acts in Russia discussed
in the previous paragraph, regulations which are in contradiction with the
Merchant Shipping Code are not applicable. Thus in Russia only pecuniary
obligations can be secured by a ship mortgage.
The situation is different in Latvia. The LMC does not provide any
restrictions, Section 30 only states that if the ownership rights to a ship or
part thereof are registered in the Ship Register, this ship or part thereof may
be used as security for a claim, drawing up a debt obligation on the ship.
According to Section 1282 of the LCC, it is not necessary, for security to be
created pursuant to a pledge right, that the claim be a monetary claim. Thus
any legal claim can be the subject-matter of a ship mortgage.
4.2.4. Subject-matter of the mortgage
According to Article 375 (1) of RF MSC unless otherwise provided in a
contract, the mortgage on a vessel shall attach to adjuncts of the vessel
owned by the same owner as the one of the vessel and to the insurance
indemnity due under the contract of marine insurance of the vessel on the
conditions of liability for wreck of or damage to the vessel. It is added also
that the mortgage on a vessel does not extend to the freight.
According to Sections 30(1) and 31 (1) of the LMC either the ship or a ship
under construction can be pledged.
Thus, it can be derived that both the Russian and Latvian legislation provide
for the mortgage of ships and ships under construction. As distinct from the
LMC, the RF MSC provides also that the insurance indemnity due under the
contract of marine insurance of the vessel can also be a subject matter of the
mortgage.
153
154
Article 2 of the Law on the Mortgage.
Article 374(1) of the RF MSC.
74
4.2.4.1. Ships
According to Article 7(l) of the RF MSC, a “vessel” shall be understood to
be any self-propelled or non-self-propelled floating construction used for the
purpose of merchant shipping. As already mentioned above, Article 375 (1)
of the RF MSC states that the mortgage on a vessel shall attach to adjuncts
of the vessel owned by the same owner as the one of the vessel. This
correlates to Article 340 (1) of the RF CC, which states that the rights of the
pledgee (the right of pledge) to the thing, which is the object of the pledge,
shall be extended to its accessories unless otherwise stipulated by the
agreement.
Commercial court practice confirmed that the mortgage will be attached to
the adjuncts even if they were installed into a vessel after the mortgage was
established. Naturally, the deeds concerning adjunts shall be concluded
following the rules concerning disposal of the item subject to the
mortgage.155
Latvian legislation is more certain about what is an adjunct to a vessel. In
official legislation, the term ”appurtenances” is used (see, for example,
Section 32 of the LMC). According to Section 32 (1) of the LMC, the
pledging of a ship and other encumbrances thereof which are or may be
registered in the Ship Register, shall also relate to each separate part of the
ship and all appurtenances which are located on the ship or have been
temporarily relocated elsewhere. Separate rights shall not be established
regarding such appurtenances and parts of a ship. Fuel and other
consumable
stores
shall
not
be
considered
to
be
such
appurtenances.Provisions of the LCC which stipulate the concepts of
principal and auxiliary property were discussed in section 4.1.7. of this
thesis.
Naturally, as according to the RF MSC,the LMC similarly states that the
pledge is not established with regard to those appurtences that belong to a
third person, and to appurtenances leased by the ship-owner.
155
Postanovlenie FAS Dal'nevostochnogo okruga ot 18.05.2004 N F03-A51/04-1/1009.
75
4.2.4.2. Ships under construction
It can be said that the mortgage on vessels under construction is a trend
ininternational shipbuilding financing. It is the financing bank’s usual
security for ship financing. National legislation of countries such as
Germany156 and Spain157 contain provisions allowing mortgage on vessels
under construction.
Obviously, such means of securing shipbuilding financing is strongly
desirable for developing national shipbuilding, and this was taken into
consideration by authors of the RF MSC. According to Article 374 (1) of
the RF MSC, a mortgage on a vessel under construction shall be effected to
secure a pecuniary obligation by a contract of the owner of the vessel under
construction (mortgagor) and a creditor (mortgagee). A mortgage on a
vessel under construction shall be registered in the Register of Vessels under
Construction where the right of ownership of the vessel under construction
is registered (Article 376 (3)). The latter means that the registration of an
ownership to the ship under construction shall precede.
Article 376 (3) of the RF MSC states that the right of ownership of the
vessel under construction may be entered in the Register of Vessels under
Construction, given that the keel was laid or an equivalent constructional
work confirmed by an expert’s opinion has been performed. According to
Article 375 (2) of the RF MSC, unless otherwise provided in a contract, the
mortgage on a vessel under construction shall attach to materials and
equipment intended for the construction of it, located at the shipbuilding
organization's place of business and distinctly identified by marking or other
means.
Although very logical, the above mentioned provisions hardly correlate to
the general principles of pledge securities stipulated by the RF CC and the
Law on the Mortgage.
M. Brown, The mortgage on vessels under construction – a financing instrument,
<www.lexology.com/library/detail.aspx?g=3dfb30e0-3737-483e-bc8c-34495a14f65c>.
157
P.A.Falileev.
Ipoteka
Morskih
Sudov,
<www.fortisjuris.ru/Falileev
PA_Publications/b1cp4.htm>.
156
76
First, as according to Article 432(1) of RF CC if an agreement has not been
achieved between the parties on any of its essential terms the contract shall
not be regarded as concluded. The RF MSC is silent on what are the
essential terms of the contract of mortgage, the relevant provisions of the
Law of the Mortgage are applicable. According to Article 9 of the Law of
the Mortgage, the mortgage agreement shall indicate the subject of
mortgage, its value, nature, size and term of fulfillment of the obligation
secured by mortgage. The subject of the mortgage shall be defined by giving
its name and location and a description sufficient to identify the subject.
Thus the subject of the mortgage contract, its value, nature and size are the
essential terms of the contract. If the ship under construction is a subject of
mortgage, there will be difficulties with identification of the subject, as it
will be changing constantly, as well as its value will change.
Secondly, only immovable items can be subjects to the mortgage contract
(Article 1 of the Law of the Mortgage), whereas RF MSC states that
mortgage attaches also to materials and equipment (i.e. movables) intended
for the construction of the ship. Moreover, they will be consumed in the
process of building a ship.
Finally, according to Article 374 of RF MSC, only an owner of a ship under
construction (or a person who has a right of economical management over
it) can be a mortgagor, whereas it is not necessarily that he is also an owner
of the materials and equipment.
This vague regulation of mortgages of ships under construction can be a
possible reason for the low activity of the Russian Shipbuilding Registry.
For example, as of 30 August 2007 the RSR with regard to St. Petersburg
port included 13 entries.158 The registration with it is not obligatory but is
mainly for the security of the creditor’s rights. So long as Russian shipping
companies tend to make orders at foreign yards, hardly more clear
regulation of mortgages of ships under construction can be expected as there
is no demand for it.
158
A.Pavlyuk, Legal Comparison of Ship Registration Rules in Russia and Norway,
<www.duo.uio.no/bitstream/handle/123456789/22832/Anastasia_Pavlyuk_ThesisxFINAL.
pdf?sequence=1>, visited on 28 October 2012.
77
To worsen the situation, under Article 376(2) of the RF MSC and item 86 of
Ship registration rules159 the mortgage of the ship which is built for the
foreign buyer may not be registered. Moreover, item 114 of the Ship
Registration rules does not permit foreign persons and entities to be
registered with the Russian Shipbuilding Registry as owners of the ship
under construction. 160
There can be found explanations to such restriction with regard to foreign
nationals or entities by the fact that the ship herself cannot be registered in
Russia by a foreign national or entity after her construction is completed161
due to the nationality requirement of Article 15(1) of the RF MSC. On the
other hand, this argument does not seem to be persuasive as even Russian
nationals and companies after buying a ship from Russian yards are not
obliged to register the ship with the Russian ship register and in most cases
register the vessel outside Russia.162 Moreover, the registration in Russian
Shipbuilding Registry by itself would not grant the ship under construction
the further right to fly the Russian flag after its completion and thus would
not be in contradiction to the nationality requirement of Article 15(1) of the
RF MSC. 163
At the present moment a foreign buyer which entered into a shipbuilding
contract with the Russian yard cannot register its ownership to the ship
under construction and establish a mortgage. This restriction may also
prevent a foreign buyer from borrowing any funds for the financing of the
construction of the vessel164, simultaneously pulling up the further
development of the legislation on the mortgage of the vessels under
construction, which is still in its infancy.
159
Prikaz Mintransa RF ot 09.12.2010 N 27 "Ob utverzhdenii Pravil registracii sudov i prav
na nih v morskih portah""Rossijskaja gazeta", N 78, 13.04.2011.
160
Supra note 158.
161
“Commentary to the Merchant Shipping Code of the Russian Federation”, edited by
G.G. Ivanov. Spark, Moscow 2005p. 359.
162
Vahljalin N.N, Pervye Shagi v Rossijskom Mezhdunarodnom Reestre Sudov, Internetzhurnal «Morskoe pravo», № 3 – June, July, September, 2007,
<www.sealaw.ru/index.php?option=com_content&task=view&id=63&Itemid=76>.
163
Supra note 158.
164
Ibid.
78
The provisions on mortgage of a ship under construction contained in the
LMC are even more laconic and vague than those in Russian legislation.
Section 43 of the Regulation Regarding Registration of Ships in the Latvian
Ship Register states that a ship under construction shall be 
a ship for which a keel is laid and construction work have been
commenced; and

a ship the assembly weight of which is at least 50 tons or covers at
least 1 % of all the mass of the intended construction material
(depending which is the lesser of them).
It contains only one section devoted to the mortgage of ship under
construction - Section 31 of LMC. According to it, if a contract does not
specify otherwise, the pledging of a ship under construction or which is to
be built in Latvia shall also apply to the ship's main engines and larger parts
of the hull if the engines or parts of the hull referred to are being built or are
located in the territory of the shipyard of the main builders. If such parts are
being built by other Latvian shipbuilders, it may be agreed that the pledging
also applies to such parts. If a contract does not specify otherwise, the
pledge rights shall also apply to the materials and equipment which are
located in the territory of the shipyard of the main builders, or in the
shipyards where the main engines or any other large part of the hull are
being built, provided that the materials and equipment are clearly
identifiable by their markings or in another way.
However, contrary to the inconsistencies in Russian legislation, these
provisions seems not to be in any contradiction with provisions of the LCC.
First, according to Section 842 of LCC, tangible property can be either
movable or immovable, depending on whether it may or may not be moved
without external damage from one location to another, and it is clearly
stated that ships, with all their appurtenances, shall be classified as movable
property. Secondly, according to Section 1301 of it, not only individual
properties but also aggregations thereof may be pledged. Moreover,
according to Section
1303, a pledge right, the subject of which is an
79
aggregation of property, applies not only to the already existing but also to
the future, provided that it is not clearly evident that the intention of the
pledger was only to pledge such aggregation of property as was constituted
when the pledge was given.
4.2.4.3. Insurance indemnity
It is stipulated by Article 375 of the RF MSC that the mortgage can be
established over insurance indemnity due under the contract of marine
insurance of the vessel on the conditions of liability for wreck of or damage
to the vessel. Although it can be assumed that the drafters of the RF MSC
intended to provide a high level of security to interests of those financing a
ship purchase or shipbuilding contract, legally this provision is absurd as it
is in striking conflict with provisions of the RF CC. Insurance indemnity is
money, but money cannot be a subject matter of pledge. Moreover, there is
no practical need for incorporating such a provision into a legislative
provision. Practitioners have already invented another effective scheme;
with regard to the mortgage of real estate, the ordinary practice is to
incorporate into the mortgage contract provisions obliging a mortgagor to
insure the subject-matter of the mortgage, stating the mortgagee as a
beneficiary.
4.2.5. Registration of mortgage
As stated in Article 376 (1) of the RF MSC, a mortgage on a vessel shall be
registered in the same register where the vessel is registered.
According to Article 30(1) a vessel in Russia can be subject to registration
in one of the following registers of ships:

the State Register of Ships;

the Small Ships Registry ;

the bareboat charter register of ships;

the Russian International Registry;

the Russian Shipbuilding Registry.
80
A mortgage on a foreign vessel to which the right to fly the State flag of the
Russian Federation is granted temporarily, i.e., registered in bareboat charter
registry, as well as a mortgage on a vessel being constructed for a foreign
purchaser, may not be registered in the Russian Federation as per Article
376 of the RF MSC.
The registration of mortgages is regulated by the Ship Registration Rules.165
The registration of a mortgage is performed within one month after the
application is filed, but the registration entry in the register is dated the same
date as the application was received by the registration authority.166 The
latter rule provides legal protection of mortgagees and is quite common in
other jurisdictions.167
Registration of ship mortgage in Latvia is fulfilled by the Latvian Ship
Register of the State Joint-stock Company Maritime Administration of
Latvia. The Latvian Ship Register may register the ship mortgage only for a
resident-owned vessel.168
According to Section 25 of the Regulation Regarding Registration of Ships
in the Latvian Ship Register one of the persons, who has signed a debt
obligation of the ship, must submit the following documents to the Latvian
Ship Register:

the debt obligation of the ship (Annex 7) with a notarial certification
of authenticity of signatures of the parties; and

if the ship has several owners – a notarialy certified consent of all
the owners of the relevant ship for the registration of the ship’s
mortgage.169
Debt obligations of a ship must be entered in the registry journal of ship
encumbrances in the succession of submission thereof. A note regarding
165
Supra note 159.
Article 377(4) of the RF MSC.
167
Supra note 158, at p.45.
168
Mortgages, <www.jurasadministracija.lv/en/index.php?action=163>.
169
Regulation Regarding Registration of Ships in the Latvian Ship Register (Cabinet
Regulation No. 467 of Republic of Latvia, adopted 6 June 2006).
166
81
registration shall be made and the day and time when the entry is made shall
be indicated on each copy of the debt obligation.170
4.2.6. Enforcement of security rights
The 1993 Convention is silent on the grounds for the foreclosure of a
mortgaged property.
Russian legislation establishes conditions for a foreclosure of a vessel as
following:

according to Article 384 of the RF MSC, where a mortgagor
has failed to perform his duty to pay a debt, the vessel or vessel under
construction charged with a mortgage may be sold by a court order at the
place of location of the arrested vessel or vessel under construction;

according to Article 382 of RF MSC, a mortgagor shall be
obliged to take appropriate measures for the preservation and maintenance
of the vessel or vessel under construction secured by the mortgage.
If a nonfulfilment of this obligation results in a considerable depreciation of
the vessel or vessel under construction, the mortgagee shall be entitled to
effect a mortgage on the vessel or vessel under construction even before the
time the duty is to be performed. This provision deviates from the provision
stipulated by the Law on the Mortgage, which states that in case of a gross
violation by the mortgagor of the regulations for the use of the mortgaged
property, its maintenance or repairs, and his obligation to provide for its
safety , when such violation creates a threat of loss or damage to mortgaged
property, and in case of violation of obligations to insure mortgaged
property
or groundless refusal to permit an inspection of mortgaged
property by the mortgagee, the mortgagee shall have the right to demand
early fulfillment of the obligation secured by the mortgage. In case such
demand is refused or not fulfilled within a term laid down in the agreement
or if such term is not envisaged, then within one month the mortgagee shall
170
Section 30 (2) of the LMC, Section 26 of the Regulation Regarding Registration of
Ships in the Latvian Ship Register.
82
have the right to foreclose on property mortgaged under the mortgage
agreement.
Combining these provisions, it can be derived that in case there is risk of
considerable depreciation of the subject of the mortgage, the mortgagee can
immediately effect a mortgage on a vessel, whereas the mortgagor violates
the regulation for the use of the mortgaged property or the obligation to
insure it, the mortgagee can first demand the early fulfillment of the debt,
and then is entitled to foreclose the ship or a ship under construction.

Article 383 (2) states that in cases where the deregistration of
the vessel or vessel under construction from the State Register of Ships or
ship book, or deregistration of the right of ownership of the vessel under
construction from the Register of Vessels under Construction is obligatory
otherwise than as a result of a voluntary sale, the authority in charge of
registration shall notify the mortgagees about the pending deregistration of
the vessel or the right of ownership of the vessel under construction from
the relevant registers in order to enable the mortgagees to take appropriate
actions to protect their interests.
The LMC does not contain any provisions stipulating the grounds for a
foreclosure of the mortgaged vessel. Thus, general provisions of enforcing
of pledge rights are applicable. According to Section 1319 of the LCC, a
pledgee who has not been satisfied by a debtor within the time provided for,
may resort to the pledged property for satisfaction and, for this purpose, take
all the necessary steps for its sale. As long as the payment term has not
come due, a pledgee may not sell the pledge (Section 1320 of the LCC). If
payments on a claim by a pledgee are divided between several time periods,
then the pledge may be sold as soon as there is default in regard to any such
time periods, provided it has not been directly agreed that there is not to be a
sale until there has also been default in regard to the last, or the second, or
the third, etc. time period (Section 1326 of the LCC). It can be concluded
that in comparison to Russian legislation, the LCC provides a lower level of
protection of pledgee interests, as there are no provisions granting him a
83
right to demand an early fulfillment of the debt; for example, in case there is
a threat to the subject matter of the pledge due to violations of the pledger.
In both jurisdictions the foreclosure of a vessel or a vessel under
construction may be carried out either through an in-court or out-of-court
procedure.
Article 55(1) of the Law on the Mortgage provides that the mortgagee’s
claims can be satisfied out-of-court if the mortgage agreement between the
mortgagor and the mortgagee (certified by the notary) allows the out-ofcourt public sale of the vessel, or the purchase of the vessel by the
mortgagee (in case both the mortgagee and the mortgagor are entities or
individual businessmen). In all other situations, only a court sale is available
for a mortgagee. The out-of-court sale is executed according to the same
rules as the court sale.
According to Section 1321 of the LCC, a pledgee is allowed to sell a pledge
on the open market only in a case where the debtor, either when pledging or
subsequently, expressly grants such right to the pledgee. If such a right has
not been granted to the pledgee, the pledge may only be sold by way of
auction through a court. The sale of pledged property requested by a pledgee
may be prevented by a debtor only by him or her paying the pledge debt in
full, but not by payment of some part thereof or by a promise to provide
security to the pledgee by a guarantee or in some other way. But if the
debtor discharges his or her debt in full, even at the time of the sale itself,
the sale shall be stopped and the pledged property shall be returned to the
debtor (Section 1325 of the LCC). If a pledgee and a debtor have
specifically agreed that, in case of default, the pledged property may
immediately be sold, then the former has neither the duty to specifically
remind the latter nor to notify him or her beforehand of his or her intention
to sell; but if there has been no such agreement, the pledgee must notify the
debtor beforehand of his or her intention to sell the pledge (Section 1327 of
the LCC).
The 1993 Convention provides some details concerning the procedure for a
forced sale of a vessel. As the opposite is not specified, they are applicable
84
both ot the court sale as a result of claims arising both out of maritime liens
and maritime mortgages.
According to Article 11(1) of the 1993 Convention, prior to the forced sale
of a vessel in a State Party, the competent authority in such State Party shall
ensure that notice in accordance with this article is provided to:
(a) the authority in charge of the register in the State of registration;
(b) all holders of registered mortgages, "hypothèques" or charges which
have not been issued to bearer;
(c) all holders of registered mortgages. "hypotheques" or charges issued to
bearer and all holders of the maritime liens, provided that the competent
authority conducting the forced sale receives notice of their respective
claims; and
(d) the registered owner of the vessel.
Such notice shall be provided at least 30 days prior to the forced sale and
shall contain either:
(a) the time and place of the forced sale and such particulars concerning the
forced sale or the proceedings leading to the forced sale as the authority in a
State Party conducting the proceedings shall determine is sufficient to
protect the interests of persons entitled to notice; or,
(b) if the time and place of the forced sale cannot be determined with
certainty, the approximate time and anticipated place of the forced sale and
such particulars concerning the forced sale as the authority in a State Party
conducting the proceedings shall determine is sufficient to protect the
interests of persons entitled to notice.
If notice is provided in accordance with subparagraph (b), additional notice
of the actual time and place of the forced sale shall be provided when known
but, in any event, not less than seven days prior to the forced sale. This
notice shall be in writing and either given by registered mail, or given by
any electronic or other appropriate means which provide confirmation of
receipt, to the persons interested as specified in paragraph 1, if known. In
addition, the notice shall be given by press announcement in the State where
the forced sale is conducted and, if deemed appropriate by the authority
conducting the forced sale, in other publications. (Article 11(2) and 11(3) of
the 1993 Convention).
85
The text of the above mentioned article is incorporated into Russian
legislation by Article 385 of the RF MSC. But in contrast to the 1993
Convention, Article 385 of the RF MSC stipulates that these regulations are
applicable also to the mortgage of ships under construction.
Section 55 of the LMC follows the wording of the 1993 Convention,
without mentioning ships under construction. Obviously, it is implied that
these regulations are also applicable to the ships under constructions.
4.2.7. Effects of forced sale
Both Russian and Latvian legislation contain provisions similar to Article
12 of the 1993 Convention concerning the effects of forced sale of the
vessel. Thus in the event of the forced sale of the vessel in Russia or Latvia,
all registered mortgages, and other encumbrances on the ship, except those
assumed by the purchaser with the consent of the holders, shall cease to
attach to the vessel, provided that:
(a) at the time of the sale, the vessel is in the area of the jurisdiction of
Russia or Latvia respectively; and
(b) the sale has been effected in accordance with the law of the said state,
following the rules on the notification of the forced sale. 171
Following the wording of Article 12(2) of the 1993 Convention, Article
386(5) of the RF MSC stipulates that when a vessel registered has been the
object of a forced sale, the competent authority shall, at the request of the
purchaser, issue a certificate to the effect that the vessel is sold free of all
registered mortgages, except those assumed by the purchaser. Originally, in
Article 12(2) of the 1993 Convention it is stated that such a certificate is
issued to the effect that the vessel is sold free of not only all registered
mortgages, "hypothèques" or charges, but also of all liens and other
encumbrances, provided there is compliance with the requirements set out in
paragraph 1 (a) and (b) have been complied with.
As it was already mentioned above, the 1993 Convention should prevail
over Russian national legislation, but in practice it should be hardly
171
Article 386 (1) of RF MSC, Section 56 of LMC.
86
expected that a servant representing competent authority (i.e. bailiff) after
the court sale is executed will issue a certificate effect that the vessel is sold
free of not only all registered mortgages, but also of all liens and other
encumbrances. These can lead to further difficulties for the new owner of a
ship, who risks suffering from ship arrest arising out of a claim based on a
maritime lien precedent to the court sale.
Latvian legislation stipulates that the court shall additionally approve a
statement of auction in case of a court sale of a ship. According to Section
56(3) of the LMC, in case of a forced sale (auction) of a ship, the court shall
approve a statement of auction and take a decision regarding registration of
the ownership rights to the sold ship in the name of the buyer, as well as
regarding deletion of ship mortgages, encumbrances, other claims registered
in the Ship Register and maritime liens, except for those assumed by the
buyer.
On the basis of the court decision (in Latvia) or on the basis of the
certificate of the competent authority (in Russia), the ship registry shall
delete all ship mortgages, encumbrances and other claims registered in it, as
well as register the ownership rights of the buyer to the ship or issue a
certificate of deletion of the ship (Section 56(3) of the LMC and Article 386
(5) of the RF MSC respectively).
4.2.8. Priority of mortgages
With regard to ship mortgage several aspects of priority of claims may be
discussed. First, the ranking of the claims secured by the mortgage as
among other claims (mainly maritime liens). Second, ranking of claims
secured by the mortgage relative to similarly secured claims. Third, ranking
of claim in case of insolvency of the owner of the property mortgaged.
Ranking of claims secured by the ship mortgage among other claims was
discussed in paragraph 4.1.9. of this Chapter.
With regard to the question on ranking of claims secured by ship mortgage
between themselves, Article 380 (1) of the RF MSC stipulates that where
two or more mortgages are registered on the same vessel or vessel under
87
construction, the ranking of claims arising out of duties secured by the
mortgage between themselves shall be determined as to the dates of their
registration, and the mortgage registered earlier shall have priority over the
mortgage registered later. Additionally, it is stipulated that mortgages
registered on the same day shall have equal force. The latter clarification is
caused by the fact that registration of the mortgage in Russia, by contrast to
Latvian legislation as discussed below, indicates only the date of entry, but
not the hour. Still it is not clear whether the sums payable to both
mortgagees should be equal or should be calculated proportionately, and
court practice gives no answer to this dilemma.
As stipulated in Article 380(2), the ranking of claims arising out of duties
secured by a mortgage on a vessel or vessel under construction set out in
paragraph 1 of this Article may be changed by agreement between the
mortgagor and mortgagee. Such agreement is subject to registration in the
respective register.
According to Section 30(2) of LMC, the priority of the mortgage creditors
of a ship shall be determined by the order of registration of the debt
obligations in the Ship Register journal (the Ship Registrar registers debt
obligations on ships in such order as they are presented, and on each debt
obligation indicates not only the date, when the relevant entry was made,
but also the hour). There is no possibility of changing the priority of the
claim secured by the mortgage by agreement between the mortgagor and
mortgagee can be found in Latvian legislation.
Ranking of claims secured by a mortgage in case of insolvency of the owner
of the property mortgaged in Russia is regulated by the Law on
Insolvency172. According to Article 134 (4) of it the claims secured by
pledge (mortgage) are separated from other claims and should be satisfied
from the value of the property pledged. According to Article 138(1) of the
same law, only 70 % of the income from the sale of the pledged property
172
Federal'nyj zakon ot 26.10.2002 N 127-FZ "O nesostojatel'nosti (bankrotstve)",
"Rossijskaja gazeta", N 209-210, 02.11.2002.
88
will be obtained by the pledgee (mortgagee), while the other income will be
provided to satisfy other creditors.
According to Section 116 of the Latvian Insolvency Law173, a secured
creditor has the right to request the sale of the property of a debtor serving
as security (pledged property). The sale of the property of the debtor serving
as security (pledged property) shall take place in auctions in accordance
with the procedure specified in the LCPL, if the secured creditor has not
agreed with the administrator on the sale of property without an auction. By
agreeing with the secured creditor on the sale of pledged property, the
administrator shall ensure that this property is sold for as high a price as
possible, taking into account the interests of non-secured creditors. If by
selling the pledged property of a debtor, an amount of money is received
which exceeds the secured creditor’s claims and auction expenditures, these
funds shall be transferred to the debtor's property with whatever other
claims of creditors shall be settled. If, by selling the pledged property of a
debtor, an amount of money is received which does not cover the claims of
secured creditors, following the taking of the decision by the administrator
the relevant creditors shall acquire the rights of a non-secured creditor for
the part of the claim not covered.
4.2.9. Recognition of foreign mortgages
The problem of recognition of foreign mortgages has two main aspects:

the status, rights and power granted to the mortgagee by law of
jurisdictions other than the country of the registration of a ship in
case he wants to enforce his claims against the mortgagor outside the
state of registration; and

a possibility to get the already settled mortgage registered in a new
register in case of change of flag of the vessel.
173
The Law on the Insolvency of Undertakings and Companies,
<unpan1.un.org/intradoc/groups/public/documents/untc/unpan018387.pdf>
89
With regards to the rights of the mortgagee in a foreign jusrisdictions,
Article 1 of the 1993 Convention states:
Mortgages, "hypothèques" and registrable charges of the same nature, which
registrable charges of the same nature will be referred to hereinafter as
"charges" effected on seagoing vessels shall be recognized and enforceable in
States Parties provided that:
(a) such mortgages, "hypothèques" and charges have been effected and
registered in accordance with the law of the State in which the vessel is
registered;
(b) the register and any instruments required to be deposited with the registrar
in accordance with the law of the State in which the vessel is registered are
open to public inspection, and that extracts from the register and copies of
such instruments are obtainable from the registrar; and
(c) either the register or any instruments referred to in subparagraph (b)
specifies at least the name and address of the person in whose favour the
mortgage, "hypothèque" or charge has been effected or that it has been issued
to bearer, the maximum amount secured, if that is a requirement of the law of
the State of registration or if that amount is specified in the instrument
creating the mortgage, "hypothèque" or charge, and the date and other
particulars which, according to the law of the State of registration, determine
the ranking in relation to other registered mortgages, "hypothèques" and
charges.
Originally there was no similar regulation in the RF MSC. Chapter XXVI
“Applicable Law” of RF MSC contained Article 425 named “Mortgage on a
vessel or vessel under construction” stated only that effecting of a mortgage
on a vessel or vessel under construction and the ranking of claims arising
out of the obligations secured by the registered mortgage on the vessel or
vessel under construction shall be regulated by the law of the state where the
mortgage is registered. Recently this article was amended174 and now its text
is in full compliance with the 1993 Convention.175
The provision of Article 2 of the 1993 Convention which stipulates that the
ranking of registered mortgages, "hypothèques" or charges as between
themselves and their effect in regard to third parties shall be determined by
the law of the State of registration, whereas all matters relating to the
procedure of enforcement shall be regulated by the law of the State where
enforcement takes place is incorporated into Russian legislation by Article
425 (1) and Article 425 (4). With regard to ranking of registered mortgages
as between other claims (maritime liens), Article 424 of the RF MSC is
174
Federal'nyj zakon ot 14.06.2011 N 141-FZ "O vnesenii izmenenij v Kodeks torgovogo
moreplavanija Rossijskoj Federacii","Rossijskaja gazeta", N 130, 20.06.2011.
175
Article 425 (2) of the RF MSC.
90
applicable, which states that in respect of the ranking of claims secured by a
maritime lien on the vessel, the law of the State in a court of which the
dispute is heard shall apply. This means that maritime liens recognized by
the RF MSC Code will always rank above any registered ship mortgage,
national or foreign.
There can be found positive court practice considering recognition and
enforceability of the foreign mortgages in Russia. Commercial courts
confirm that effect and validity of the mortgage is determined by the law of
the state of registration notwithstanding the fact that enforcement of such
mortgage takes place in Russia. 176
The situation concerning the rights of foreign mortgagee in Latvia is
generally similar, but with certain distinctions. According to Section 45 (1)
of the LMC ship mortgages, maritime liens or retention rights regarding a
ship shall be adjudicated in a Latvian court in accordance with Sections 14,
30—37, 41—43, 55 and 56 of the LMC, whereas Article 45 (2) stipulates
that regarding the priority of registered encumbrances in relation to other
registered encumbrances and the consequences in relation to the rights and
duties of third persons, except for the priority of these encumbrances in
relation to maritime liens and rights of retention, the regulatory enactments
of the state where the ship is registered are applicable. The latter means that
the foreign law which ranks any foreign registered mortgages above any of
maritime liens recognised in Latvia, will not be applied by a Latvian court.
Foreign law is always applicable regarding any encumbrances on a ship if
the priority of these encumbrances ranks after registered encumbrances.177
These provisions are also applicable to the ships under construction. The
priority of rights of retention and other encumbrances upon a ship to be built
shall be adjudicated observing the regulatory enactments of the state where
the ship is being built.178
176
See, for example, Postanovlenie FAS Dal'nevostochnogo okruga ot 11.01.2012 N F033393/2011 po delu N A73-10214/2008.
177
Article 45(2) of the LMC.
178
Article 45(3) of the LMC.
91
With regard to entries into the registry concerning foreign mortgages
Russian law stipulates only that to register an encumbrance, the documents
effecting the encumbrance should be in compliance with Russian law,
including the requirements as to the notary form of the contract.179
Documents executed in a foreign language should be provided in a
translation certified by the notary.180 Such a procedure looks more like a
new registration than recognition of a previously-registered foreign
mortgage.
Latvian legislation provides more detailed regulation. Section 44 (1) of
LMC stipulates that when registering a ship in the Ship Register, the
previous registered foreign encumbrances shall be recognised as in effect if:
1) the ship’s encumbrances have been entered into the certificate of
deletion of the ship or equivalent document, which has been issued by the
previous ship register; and
2) copies of encumbrance documents that have been approved and
legalised in accordance with the procedures specified by
international agreements have been issued.
According to Section 44 (2) of the LMC, if the encumbrances do not
conform to the requirements, which have been specified in the regulatory
enactments of Latvia regarding the registration of the ship, the Ship
Registrar shall specify for both parties a time period of 60 days in which to
draw up the encumbrances in conformity with the requirements of the
regulatory enactments. The registration of the encumbrances shall be in
effect until the end of the applicable time period.
According to Section 44 (2) of the LMC, encumberances of a ship shall be
registered in the Ship Register, preserving the priority thereof.
Section 33 of the Decree of the RF Transport Ministry “On adoption of Rules of of
registration of sea going ships and titles to them in sea ports” dated 09 December 2010 N
277.
180
Section 37 of the Decree of the RF Transport Ministry “On adoption of Rules of of
registration of sea going ships and titles to them in sea ports” dated 09 December 2010 N
277.
179
92
Section 44 (4) states that encumbrances to a ship which is being or is to be
built in a foreign state shall be recognised as in effect, if these rights have
been registered in accordance with the regulatory enactments of the state in
which the ship is being built. The same is applicable to ships which have
been built in foreign states and subsequently registered in the Ship Register.
4.3. Right of retention
Article 7 of the 1993 Convention allows each State Party to grant under its
law a right of retention in respect of a vessel in the possession of either:
(a) a shipbuilder, to secure claims for the building of the vessel; or
(b) a shiprepairer, to secure claims for repair, including reconstruction of
the vessel, effected during such possession.
Article 7 (2) of the same convention stipulates that such right of retention
shall be extinguished when the vessel ceases to be in the possession of the
shipbuilder or shiprepairer, otherwise than in consequence of an arrest or
seizure.
Right of retention is not a novelty for Russian civil law. Article 359 of the
RF CC entitles the creditor, in whose custody is the thing, subject to the
transfer to the debtor shall have the right, in case the debtor fails to
discharge in time the obligation on the payment for this thing or on the
compensation to the creditor of the expenses and of the other losses he has
borne in connection with it, to retain it until the corresponding obligation is
discharged. When parties to the obligation are businessmen, retention of the
item may also secure the claims, which are not connected with the payment
for the thing or with the compensation of the expenses and of the other
losses.
Article 373 (1) of the RF MSC grants the right of retention to a shipbuilding
or shiprepairing organization to secure claims arising in connection with the
building of a vessel, as well as repair of a vessel, including reconstruction.
Article 373 (2) states that the right of retention of a vessel set out in
paragraph 1 of this Article shall be extinguished when the vessel or the
93
vessel under construction ceases to be in the possession of the shipbuilding
or ship repairing entity, otherwise than in consequence of an arrest of it.
Priority of the right of retention over the arrest of the ship is also confirmed
by court practice.181 According to Article 373 (3), in case of the forced sale
of a vessel or a vessel under construction the shipbuilding or ship repairing
entity are entitled to obtain satisfaction of their claims out of the proceeds of
sale of this vessel. Article 386 (4) stipulates that in case where, at the time
of the forced sale, the vessel or vessel under construction is in the
possession of a shipbuilder or ship repairing entity which enjoy a right of
retention, such entity must surrender possession of the vessel or the vessel
under construction to the purchaser but is entitled to obtain satisfaction of its
claim out of the proceeds of sale of the vessel or the vessel under
construction. In the presence of claims secured by a maritime lien on the
vessel, this right of the shiprepairing organization arises after the said claims
have been satisfied.
It is unclear, whether it is the same as regards to the satisfaction of claims
secured by maritime liens in favor of holders other than the claimant who
initiated the arrest of a ship, or how the person who was enjoying the right
of retention at the time of the forced sale can satisfy his claims. Obviously,
it would be a problem to get a disbursement in a way other than by
obtaining a court decision.
A provision concerning the right of retention that is not incorporated into
the RF MSC may be found in RF CC. According to Article 359 (2) of it, the
creditor may retain the thing in his custody, despite the fact that after this
thing has passed into the creditor's possession, the rights to it have been
acquired by the third person. Moreover, part 3 of the same article states that
the rules of the RF CC granting the right of retention shall be applied, unless
otherwise stipulated by the contract. These provisions supplement the
provisions of the RF MSC.
181
Postanovlenie Arbitrazhnogo suda Primorskogo kraja ot 07.06.2005, 31.05.2005 po delu
N A51-15979/04 12-270.
94
Section 35 of the LMC sounds similar to the relevant article of the RF MSC.
It also makes reference to the civil law of Latvia. The only obvious
difference from Russian regulation is that Latvian law does not grant the
right of retention against a bona fide purchaser of the ship, as the Russian
law does. Apparently, a bona fide purchaser may protect his property
rights.182
Ranking of the claim of a person who enjoyed the right of retention at the
time of the forced sale was discussed in paragraph 4.1.9 of this Chapter.
182
Section 913 of the LCC.
95
5. Conclusion
This thesis is a study developed by application of the comparative method
of legal research on a ’micro-scale’. Regulations stipulated in Russian and
Latvian legal system concerning maritime claims, arrest as a mean of
enforcing them and other aspect of enforcement, as well as maritime liens,
mortgages and right of retention are examined. Nevertheless, it is implied
that every academic research should be crowned with ’macro-scale’
inferences. The detailed analysis of the substantive and procedural aspects
of the enforcement of maritime claims provides a good illustration of the
distinctive development of legal systems of two independent states which
have a common legal past due to their political consolidation during the
Soviet period. At present the Russian and Latvian legal systems differ not
only because one of them is a part of the European Union, and the other is
not, but due to the fact of joining to international convention which provide
different legal frameworks for the enforcement of maritime claims.
Russia is an example of a legal system which joined the 1952 Convention,
but incorporated provisions of 1999 Convention, thus establishing a dual
regime of arrest as a way of enforcement of maritime claims. Thus the
Russian legal system maintain all those advantages and disadvanatges that
the rules of both conventions provide. This situation can hardly promote
forming of consistent case law, which is developing rather slowly with
regard to ship arrest and enforcement of maritime claims. The abovementioned discrepancy is just one example of the whole mass of
contradictions which maritime claimants can detect when looking at the
provisions of Russian legislation regulating maritime claims, maritime
mortgages and their enforcement ’through a magnifying glass’ before
making a decision to enforce a maritime claim, or face if the claim is
already filed, or a ship is arrested in Russia. As shown in Chapter III, one of
the most difficult problems for maritime claimants is obtaining satisfaction
of claims out of the proceeds of sale. Surely, imperfection of Russian
legislation is caused partly by the fact that its development started just
96
twenty years ago, after the dissolution of the USSR. But inconsistent
legislation has the result of a trial commencing in Russia or in any
jurisdiction with similar shortcomings unpredictable, which can scare away
a possible claimant. Practitioners state, that notwithstanding the fact that the
legislation on arrest of ships has been in force for over 10 years, Russian
judges are not familiar with modern regulations and meet certain difficulties
with properly applying the rules regarding the ship arrest. Unprofessional
actions of judges can result in a maritime claimant failing to obtain arrest of
a ship related to the debtor. 183 In its turn, the low activity of claimants slows
down the process of refinement of national legislation, thus closing the
circle. Obviously the only possible solution is to amend legislation on the
problematic points highlightend in this thesis.
Latvian legislation can be characterised as more harmonious, although, still
not ideal. The result of filing a claim in Latvia is more predictable, than the
case of filing a claim in a Russian court. Nevertheless, being based on the
provisions of 1999 Convention, it maintains all those detriments, that can be
found in the 1999 Convention (the additional burden of establishing the
personal liability and ownership link for a maritime claimant to arrest a
vessel, restrictions for sister-ship arrest with regard to ’beneficial’, and not
the legal ownership of a vessel).
183
Supra note 157.
97
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104