Newsletter

The new Act 39/2015 on Administrative proceedings came into force on 2nd October 2016.

This Act will have a direct impact on sanctioning proceedings initiated by Harbour Masters. This normally happens in cases of pollution or after PSC inspections, when/if the deficiencies found are also categorized as maritime infringements under Spanish local regulations. Within the last 7 consecutive years Spain is the country with more Paris MOU inspections.

The main changes introduced by the Act 39/2015 are:

1.- The time granted to the Owners to file defence submissions will now also exclude Saturdays (plus Sundays and bank holidays).

2.- The officer from the Harbour Master Office in charge of investigating the facts will be allowed to end proceedings without imposing any fine if certain circumstances concur. This decision shall not be confirmed by any higher authority such as the Harbour Master or the General Directorate of Merchant Marine.

3.- Owners will possibly get a reduction of 20% of the proposed fine by accepting liability and settling the fine before the end of proceedings.

4.- If the facts under investigation did also cause damages, the authorities will be entitled to get reimbursement of costs (for instance, cleaning costs in spillages). Now, Owners will be allowed to negotiate and settle the costs without prejudicing the outcome of the corresponding sanctioning proceedings.

Muñoz & Montañes’ lawyers have wide experience in assisting Owners in administrative sanctioning proceedings and in negotiating with the authorities.

Muñoz & Montañés, law firm specialized in maritime law, transport and international trade, with offices in Valencia and Bilbao, providing services throughout Spain.

When is the Carrier allowed to exercise the lien on cargo for unpaid freight/demurrages?

The Spanish Shipping Act introduced some developments in this matter and clarified certain aspects which had not been regulated before.

The general rule is that the Carrier can refuse delivery of the cargo for unpaid freight due by the subject cargo if the BL is claused “freight collect”. The carrier shall also be allowed to refuse delivery if the BL contains a lien clause.

In case of a Time Charter, where the cargo is not owned by the Charterer, the Owner shall only have a lien on cargo if the freight due by the Consignee to the Charterer is still outstanding and limited to that freight amount, not to the hire. Although the Act is referring to T/C only our view is that the same spirit applies to a C/P coexisting with a sub-charter.

If the Consignee exceeds the free time given to take delivery of the cargo, the Carrier will also be entitled to refuse delivery until demurrages/ storages are duly settled. In all the situations where the Carrier is allowed to refuse delivery of the cargo, he can apply for its sale by a Public Notary (this is commented in this article).

Muñoz & Montañés, law firm specialized in maritime law, transport and international trade, with offices in Valencia and Bilbao, providing services throughout Spain.

In our September ’18 Newsletter about the Sulphur Directive and sanctioning proceedings in Spain, we informed, as per our experience in previous cases, that the penalties for the non-compliance of the limits ranged between Eur. 5,000 and 10,000. Legally, fines could yield to a maximum of Eur. 180,000.

We know that the Spanish General Directorate of Merchant Marine is setting each specific fine based on the following facts:

  – The percentage of Sulphur detected over the maximum.

  – The period of time that the off-spec fuel was used in Spanish waters.

It seems the intention is also to standardize fines with the rest of EU countries. Our assumption is that this adjustment would mean an actual increase in the amount of the sanction.

Shall keep you duly abreast in this regard and we will be ready to assist in case needed.

In order to encourage compliance with the new limit of 0.50% for sulphur content in fuel used while sailing and 0.10% in Spanish Ports, the General Directorate of Merchant Marine (GDMM) has issued an internal guidance addressed to Harbour Masters and PSC Inspectors. Its most remarkable implementations are hereby summarized.

Remarkable implementations:

– The limit of 0.10% does not apply in the Canary Islands, therefore the limit for vessels anchored or berthed in Canary Islands ports will be of 0.50%.

– Priority criteria are established for the selection of vessels to be inspected, according to the information gathered in the THETHIS-EU program, which are:

• Complaints by crew members.
• Alerts for evidence of non-compliance of the sulphur cap in the past 24 months or for the results of previous samplings.
• Warnings issued by another Member State.
• Vessels with emission control systems (scrubbers).
• Vessels that have not been previously inspected or not inspected in the last year.
• Vessels flying the flag of a state not party to the MARPOL Convention or a state included in the MOU blacklist.

– Sampling inspections will be extended from the current annual 20% of the vessels inspected to a 30%. In numbers, in 2020, it is estimated a total of 325 controls of that type.

– Documentary controls will be carried out on fuel delivery notes to ensure that HFO has not been taken.

– In vessels with approved emission control systems (scrubbers), inspectors shall verify that the system is approved, operational and functioning properly.

An important fact to bear in mind is that from the next March 1st 2020, it will be prohibited to transport HFO on board.

Also, further amendments to Annex VI of MARPOL Convention are pending approval, which will make the installation of fuel oil sampling taps mandatory from 2021.

For more information, do not hesitate to contact us, Muñoz & Montañés will be ready to assist you at any Spanish Port.

Two are the scenarios hereby analized in which a vessel can be prevented from sailing from a Spanish port:

a) Her detention by a Spanish Port Authority after a PSC Inspection or a pollution case.

b) Her arrest by a Commercial Court, pursuant to the International Convention on the Arrest of Ships 1999.

In this article we would like to provide you with a practical guideline with the steps needed to release the vessel a.s.a.p. Obviously the situation and requirements would change depending on the authority enforcing the measure.

a) Detention by Spanish Port Authority / Harbour Master:

A guarantee is requested to cover the payment of the fine which might be imposed at the end of the Administrative Sanctioning proceedings as well as to cover the civil liabilities that could raise as a consequence of the infringements committed (e.g. cleaning expenses after a spillage).

Two are the requirements to get vessel’s release:

– The mentioned guarantee, in cash or bank guarantee (BG), to be produced in the Treasury Department. For the time being, note that P&I LOUs are not accepted. Quickest way is the cash deposit that can be replaced at a later stage by a BG. BG has to be issued by a Spanish bank (or foreign bank authorised in Spain) with a particular wording. As per our experience the BG takes at least 2/3 days to be properly issued.

– Designation of an address in Spain by all the eventual liable parties, to be used by the Spanish Authorities in the proceedings for serving the notices of any statement/resolution.

This requirement is easily fulfilled in cases of infringements related to the correct use of the Port and its facilities, safety of life at sea and marine traffic rules, where the allegedly liable parties are “only” the Operator/”Armador” and the Captain. The designation of a domicile in Spain can be fulfilled by the latter by appearing before the Harbour Master/“Capitán Marítimo” and making the designation on his and Operator’s behalf.

The problem arises out of pollution cases.

In such cases, liable parties are not only the Operator and Master but also the P&I and the Registered Owner. The Captain is only entitled to designate the address on his/Operator’s behalf.

Taking into account that in most cases the Registered Owner/P&I are foreign, such designation must be made by an officer of the company, with capacity of acting on its behalf, before a Public Notary, whose signature must be legalized with the “Apostille” of The Hague Convention (or by the Spanish Embassy/Consulate). After all these steps are completed, the original document must be submitted to the Spanish Port Authorities.

Our recommendation is to confer a PoA to the lawyer that will protect their interests in the sanctioning proceedings and, once the original PoA, duly legalized and translated, is on his hands, the lawyer will designate his own address for service purposes. With this, it is possible to kill two birds with one stone: i) designate the address (compulsory before vessel’s departure), ii) appoint a representative in the proceedings to protect his interests (optional).

b) Arrest by a Commercial Court:

According to art. 4 of the Geneva Convention 1999 the arrested vessel should be released when sufficient security has been provided in a satisfactory form. In practice it means two possibilities:

– Reaching an out of court agreement with the claimant with regards to the kind of security, its wording and its amount. Club’s LOUs are often accepted. If this is the case, as soon as the agreement is concluded, claimant must submit an application in Court asking for vessel’s release.

– The alternative is the cash deposit in Court’s bank account or BG to be produced in Court. As suggested before, cash deposit is the quickest way and a BG can replace it at a later stage. The amount of the security will be the principal amount claimed, plus interests and legal costs (maximum 30% of the amount claimed). Once the security is in place, Captain should appear before the Court and ask for the immediate release order.

Muñoz & Montañes’ lawyers have wide experience in assisting Owners/P&I Clubs in this kind of situations. Please feel free to contact us.

Interesting resolution handed down by the Commercial Court of Valencia (Spain) in a claim filed by a cargo underwriter against the freight forwarder and the carrier as a result of the fire on board MV Maersk Honam. The resolution has just become final and unappealable.

Muñoz & Montañés represented the carrier in the proceedings.

After considering applicable the Hague-Visby rules (HVR) to the relevant shipment, Yantian – Valencia, evidenced in a liner Bill of Lading (B/L), the Judge acquits the defendants relying on the fire liability exemption (art. IV.2.b HVR).

The fatal consequences of the incident, the extent of the damages on the ship and her cargo, and the unknown origin of the fire, are circumstances taken into account.

Although our Courts tend to be more “cargo protective” in light of Spain being a cargo country, it is positive to note that they still respect the exemptions on carrier’s liability regime, cornerstone of the shipping law.

Former regulations

Traditionally marine insurance in Spain has had its own specific set of rules, different from the general regime set out in the Spanish Insurance Contract Act. The recently abrogated Spanish Commercial Code contained the general provisions ruling the marine insurance.

The direct action against the third party liability insurer was not established in these specific set of rules but in the Insurance Contract Act.

Spanish Shipping Act

The Spanish Shipping Act which came into force in September 2014 specifically provides the possibility to bring a direct action against a third party liability underwriter in marine insurance.

When ruling Third Party Liability risks on Marine Insurance, the New Act provides:

Art. 463: Scope of the regulation:

The rules governing third party liability insurance will apply not only to this kind of risk but also to any other kind of marine insurance¹ whose cover includes the risk of indemnifying to any third party.
(…)
Art. 465 – Insurer’s duties and direct action:

In this sort of insurance, the insurer’s duty to compensate exists as from the moment when the insured’s liability towards the third party has arisen. The latter will have a direct action against the insurer to make him comply with his obligations. Any contractual agreement which may alter what it is stated in this article will be declared null and void.”

Some jurists have voiced that this new provision would allow any third party who has suffered a loss to bring a direct action against a P&I, regardless the fact that the insurer is not a Spanish company and the contract is not ruled by Spanish law. It has been further said that the direct action is a benefit for a third party which cannot be altered by the will of the parties to a contract.

Our view

In our opinion the direct action against P&I will only be allowed in those cases where the Rules specifically provide the underwriter’s obligation to compensate a third party. Where the rule “pay to be paid” applies, though, there would be no possibility of a direct action against the P&I. Summing up, there is no significant change where the rule “pay to be paid” exists.

The Spanish Supreme Court of Justice issued a Judgement dd. 3/7/2003 on the nature of P&I cover:
“In this kind of insurance, the risk covered is the liability which arises from the damage that might be caused to a third party. But it does not mean that the P&I covers the compensation that should be paid to the third party. P&I only reimburses the member for the compensation already paid to the third party. Therefore, in this kind of marine insurance it is not even known the possibility of a direct action by the damaged party against the insurer”.

Said that, we will have to wait for the interpretation to be made by the Courts of articles 463 and 465 of the Spanish Shipping Act. We can anticipate some claimants daring to bring court actions against the P&I underwriters and possibly, some early negative decisions by less experienced courts.

¹ When stating “other kind of marine insurance” the Act refers to H&M, FDD, cargo and any other interest that might be exposed to the risks of navigation.

Presentation of the case

We draw your attention to a recent decision rendered by the High Court of Valencia in a claim filed by a shipping company represented by Muñoz & Montañes against the holder of a service contract for container demurrages, storages and destruction costs. The claim was initially dismissed by the First Instance Court, but the High Court has admitted it in full. Resolution is now definite and binding.

Facts could be summarized as follows: a trader company entered into a service contract with a shipping line for exporting plastic waste from Spain to China on 2012. Such service contract had never been signed between the parties but exchanged via email. On February 2013 the trader booked 8 containers from the Port of Barcelona to Shanghai, at the same time China implemented the Green Fence policy. Cargo was shipped on board and a Master B/L issued. Trader did not appear in the B/L, though the service contract number was inserted on it. Containers arrived at destination and were refused by Chinese Authorities. Trader tried and seek an alternative destination for the cargo, unsuccessfully. Having failed the trader to provide instructions upon Customs Authorities request,  the shipping company had no alternative but to ship the containers back to Spain, where at the end the cargo was destroyed.

Amount claimed consists of the demurrages and storages accrued at the Port of destination, freight and other expenses to return the cargo to the POL and the destruction expenses.

High Court’s decision

High Court considers that:

 1.- Regardless who was part to the B/L, the contractual relationship between the trader and the shipping company goes beyond a single shipment and it has to be examined under the perspective of a long-lasting relation and the service contract under which this transport was effected.

2.- It is irrelevant that the service contract was not signed and only existed in an electronic format. E-commerce is the present, specially in the shipping industry, and Spanish Navigation Act foresees electronic contracts.

3.- The trader, although not being the shipper nor the consignee, had the control over the goods or, at least, it so transpired from the fact that he looked for different destinations for the cargo before deciding to send them back to Spain.

Practical consequences

The rationale of this decision could be applied to any forwarder being part to a service contract. This is important because in previous longstanding claims against freight forwarders, Hight Court of Valencia was leading the trend of dismissing the claims relying on the forwarder’s inability to dispose of the cargo and avoid/minimize the expenses. Some of these resolutions have been also appealed before the Supreme Court, who will have the last say.

Relying on these arguments, the High Court upholds the appeal finding that all costs should be for trader’s account.

It is a remarkable decision as it considers the service contract as a binding contract between the parties, further than a mere rates agreement, and an independent set from the individual shipments under Bs/L.