The Remedy of Ship Arrest for Unpaid Bunker and Other Supplies at the Maritime Courts in Panama

By Jorge A. Quijano, LL.M
J. QUIJANO Law Offices
www.jquijano.com
Panama City, Panama
Tel: (507) 6676 8500

The Remedy of Ship Arrest for Unpaid Bunker and Other Supplies at the Maritime Courts in Panama

In today’s maritime industry, shipowners and charterers are always in demand for services provided by third parties to fulfill their daily commercial operations. Normally, the most common services required are ship agency, bunker supply, vessel repairs, ship chandelling, and others in connection thereof. However, in an era where providers of these services offer credit facilities as means to develop a continuous business relationship with the main key players in the industry, it is not uncommon that the party that receives such necessaries falls in default and the supplier is compelled to seek a legal remedy to collect the outstanding debt.

“Necessaries” are recognized as maritime liens against the vessel according to Section 9 of Article 244 of Law 55 of 2008:
“                                           Maritime Liens Attaching to the Vessel

Article 244. The following liens shall take priority over the vessel and shall attach to the proceeds of sale thereof in the order outlined in this Article:
……………….
9. Debts incurred in procuring the vessels’ necessaries and provisions.   ”

A maritime lien is a collateral in favor of the creditor that can be made effective against the ship even upon change of ownership without the consent of the shipowner or charterer and remains unconditionally attached to the asset until the moment of judicial sale.

The definition of this lien has been further developed by multiple judicial precedents entered by the Panama Maritime Courts, encompassing all the debts contracted in benefit of the vessel, to satisfy any need including those owed to suppliers of materials and labor employed in the repair and preparation of the vessel.

Nevertheless, to enforce the lien, the plaintiff must file an action in rem against the vessel at the Maritime Courts in Panama based on foreign substantive law and provided it is a maritime lien, statutory action in rem or any other denomination thereof according to Article 530 of Panama Maritime Procedure Law (“Law 8 of

30th March of 1982”). The courts will consequently recognize and enforce the maritime lien but only if the substantive applicable law of the claim gives such character to the claim.

Finally but not least, even though most bunker or service supply agreements include a choice of law clause specifying the governing law, whenever there is no legislation agreed amongst the parties, Article 566 of the Maritime Procedure Law of Panama provides a conflict of laws rule that determines which is the applicable law to the dispute. Any law outside of this rule will be rejected and the arrest dismissed by the courts.