Just like any work, debt collection from shipping companies has its own nuances. The ones we had to deal with in our practice while specializing, in particular, in the legal services for maritime transport are set out in this article, in the form of a brief overview.
The creditor of the shipping company or a lawyer who has received the relevant task will need to assess the actual possibility of collecting the debt, taking into account a number of factors. Such as:
- The nature of the debt;
- The presence of vessels in the ownership or management of the debtor;
- The presence of other property;
- The domicile of the debtor;
- In which insurance company the risks of the ship owner or vessel's operator are insured;
- Flag of the vessel;
- The region of navigation of vessels owned by the debtor or under its operational control;
- The liquidity of the property of the debtor, which may be foreclosed (the age of the vessel, the condition of other property etc.).
Of course, the key factor is existance of debtor-owned property which can be foreclosed. Composition and condition of this property.
At the same time, practice shows that the location of property is also important, since the law of the country where the property is located (rather, the vessel) is applicable to enforcement collection process. And with the lawyers of this country you will have to cooperate. The communication and its results will be influenced by the mentality of the local lawyer and the existing practices, as well as the mentality and approaches of local officials, including judges, the law enforcement practice of local courts.
In general, the debtor should have property, it should be liquid and you should have a real opportunity to sell this property and receive money. Otherwise, you risk to spend a lot of time and possibly funds of the client or your own and not get the desired result.
Still, the most effective means of collecting a debt from a shipping company is to arrest a ship belonging to it. Such an arrest may act as a means of pressure on the shipowner, in order to compel him to pay the debt voluntarily, or as a means of securing maritime claims and collecting the debt from the cost of the arrested vessel.
The rules for the arrest of ships are regulated by the norms of international maritime law, and are also governed by the norms of the national legislation of the country in which the arrest will take place.
The norms of international law include: the International Convention for the Unification of Certain Rules Concerning the Arrest of Sea-going Vessels (Brussels, 10 May 1952) and the International Convention on the Arrest of Ships (Geneva, 1 March 1999). The second one is less applicable, since it has a little more than 10 participating countries, while the parties to the 1952 Brussels Convention are more than 70 countries. Often the norms of the mentioned Conventions are incorporated into the norms of national legislation. Sometimes these norms are the basis for acts of local legislation, as in Great Britain, or, as, for example, in Ukraine, the norms of the 1952 Brussels Convention are directly used and prevail over the norms of national law. The fact of Ukraine’s accession to the 1952 Brussels Convention by the Law of September 7, 2011, as well as the amendments to procedural legislation adopted by the Parliament of Ukraine in 2017, should be noted as positive facts that made clear and thus simplified the procedure for arresting merchant sea-going vessels in Ukrainian ports.
Much has been written about the theory of the arrest of seagoing ships, so the practice seems more interesting. Given the practice, the lawyer can assess whether there is a real chance to arrest the vessel and recover the debt.
Lawyers of our company, in their practice, had to suffer their share of bumps and bruises, related to the peculiarities of the national legislation of different countries, the mentality and customs of local lawyers and officials, as well as the characteristics of clients.
On some of these features below.
If the client is a sailor, in the overwhelming number of cases his application to lawyers will be related to the need to recover from the shipowner unpaid wages or compensation for harm caused to life or health (in the case of harm to life, heirs will act as clients). If this is a Ukrainian sailor, most often he expects a lawyer to work “for free”, i.e. with the condition of receiving a success fee from the amount collected. Such condition forces the lawyer to more carefully select the means and methods of work on the case, and first and most importantly, take time to evaluate real opportunity to get money - to collect the debt in fact. If your client is a shipowner’s creditor being a legal antity, the assessment of the actual possibility of debt collection must be approached no less carefully, because your reputation as a specialist is at stake.
And now, when assessing prospects, it will be necessary to take into account the factors indicated at the beginning of this article. Next, a little practice.
You were able to track the vessel and found out its navigation area or location.
If these are countries of the Arabian Peninsula, most likely you will encounter the problem of the need to make an advance payment for the work of a local lawyer (you cannot act without him), to prepay his fee and expenses. Arabian colleagues, often because of the fairly high standard of living in these countries, calculate their fees at tens of thousands of US dollars and can ask, as an advance, amounts ranging from US $ 20,000. In the case of a client as a sailor, it is unlikely that he'll make such a prepayment and you will have to think about the need to risk your money if you have them, of course, which is much more touchy than to risk the money of the client.
If you do not have the problem of advancing the work of a local lawyer and you have moved to the next stage - assessing the liquidity of the debtor’s property, you should consider how much the shipowner needs its vessel, inquire about the number of other creditors and the amounts of their claims, analyze the possibility of selling the arrested vessel.
There are cases when shipowners simply abandoned their vessels after an arrest, realizing the impossibility of paying the debt due to the financial condition of their company. Curious, in the negative sense of the word, cases are known where careless creditors, in an effort to collect debt, managed to obtain instructions from the administration of the vessel’s flag, which prohibited the vessel from further movement or its use until the shipowner paid the debt. Under the threat of a fine amounted to thouthands of USD in case of failure to comply with the prescription. The vessel, in this case, was left by the shipowner on the high seas directly with the crew for many months and the public could observe the further efforts of diplomats, lawyers, seamen’s relatives and others in trying to return sailors left without food and fresh water to their homes.
Many creditors are fraught with the fact that, in the event of insufficiency of funds that can be gained from selling the vessel to cover all debts, you, as one of the creditors, will have to negotiate with others in order to proportionally reduce each of their claims, so that the amount received from sales of the vessel, was enough for everyone. Otherwise, you, like other creditors, risk not getting anything. Achieving a consensus, sometimes is a difficult task, and not always achievable, in view of the self-confidence of some creditors, who are confident that they will be able to sell the asset more expensive, or wait until others retreat. It should be borne in mind that, as a rule, the vessel is the only property of the shipping company, which can be levied.
If you have arrested the vessel and you see the possibility of negotiating with other creditors, you can proceed to search for the buyer of the expensive asset and move in direction of the transaction. It should be noted that the average cost of the operated sea vessel is 1 million US dollars. As they say, the buyers of such assets are “not lying on the road” and it will be necessary to spend time searching for them. Having found a buyer, be prepared to face the problem of the ship’s seaworthiness. During the arrest of the vessel, negotiations with the shipowner, his insurance company, other creditors, the time elapsed during which the vessel could have come in a non-seaworthy state. At the same time, the shipowner is ready to part with the vessel by paying off his debts from the value of the vessel, but he is not ready to pay the maintenance costs and, moreover, the restoration of the vessel’s seaworthiness. Here, be prepared to continue negotiations with creditors colleagues about further reducing the amounts that they are ready to receive after the sale of the vessel, as most likely, the price of repairs will be included in the cost of the vessel, which the buyer will offer you.
Comparing the comfort of work in a particular jurisdiction, it should be noted that work in the Russian Federation is quite comfortable, given the similar mentality and a similar (sometimes identical) legal framework. It will be easy for you to negotiate and work with your Russian colleagues. You can even try to do everything yourself if you are ready to spend time and energy on business trips and are ready to master the norms of Russian law in an emergency mode. You will perfectly understand what is happening and assess the risks. You will be able to prepare procedural documents yourself, if you have the time and desire.
Working with Chinese lawyers may surprise you. The Chinese mentality, brought up by severe punishments for the “flexibility” of the approaches inherent in the Slavic mentality, can surprise you greatly and create certain difficulties. In particular, you will not be able to submit an irrelevant, at the time of filing with the court, document on the ownership of the vessel, which is often abused by Ukrainian lawyers. A Chinese lawyer will check the information you provide, notify you about the actual state of affairs and will not succumb to persuasion to close eyes to the absence or unreliability of evidence “for the good purpose” of collecting the debt, which so to say justifies the means.
In India, be prepared for long negotiations with a local lawyer who will first assure you of his willingness to work for a success fee, and then notify you of the impossibility of going to court before receiving an advance payment of “legal costs”, the amount of which the Indian will be difficult to formulate. As a rule, we are talking about amounts from 1 to 5 thousand US dollars.
Work with Greek lawyers will be comfortable - clear and understandable. Considering that, according to the UNCTAD (United Nations Conference on Trade and Development), as of January 1, 2017, Greece continues to proudly carry the banner of the world's largest maritime state. The share of the merchant fleet in the management or ownership of Greek companies is 16.36% of the total world tonnage. Greek lawyers have a long tradition, the necessary knowledge in the maritime law and all the necessary skills to provide high-level legal services. Greek lawyers work on an hourly basis as well as under the condition of receiving a success fee, which they deduct from the amount collected in favor of the client. In this case, you can, for an increased percentage of the success fee, agree with the Greek company on its payment of legal costs and expenses associated with conducting negotiations with the shipowner and third parties.
French lawyers, as a general rule, work on the terms of payment of hourly rates, which, for a respectable law firm, are, on average, 300 euro per hour. You will have to search for a lawyer who agrees to work for a success fee if you are faced with such a task. It's not easy to find shuch a lawyer, but possible. Further work in France promises to be convenient. French courts will not require the provision of true copies of documents and to legalize them. There is also no requirement to provide the original power of attorney issued by the client to represent his interests in court. Consideration by the tribunal of the petition for the arrest of the vessel will take 2-3 days. The Tribunal will not thoroughly consider and assess the substance of the claims and all related evidences and will leave this to the court, which will consider the case on merits.
I can not fail to mention English lawyers who are “trendsetters of world fashion” in the maritime law and international transportation. As it is known, Lloyd’s of London, the largest insurance and reinsurance market in the world, is located in London. It began its work in the 17th century in a small coffee shop next to Tower. Modern norms of private international maritime law are also often based on British roots (sources). The offices of major international law firms with strong and well-known maritime departments (Ince & Co, Clyde & Co, Holman Fenwick Willan and others) are concentrated in London. British boutique law firms specializing in international transportation and trade are not less professional and efficient. You will enjoy working with British lawyers and you can expect them to choose and implement the best possible solution to your problem, but be prepared to pay for it. The rate of an English lawyer in a reputable company can reach $ 1000 / hour.
The format of the article does not allow describing all the nuances that you will encounter, but it may open your eyes to some of them. I would like to finish my brief overview of debt collection practices from shipping companies on an optimistic note, reminding the proverb that we learn by doing, achieve by pursuing.
Andrei Mashchenko, LLC MBLS Law Firm, Managing partner