Maritime liens and arrest of vessels under Icelandic law, by Einar Baldvin Axelsson

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ATTACHEMENT OF ASSETS

The general nature of an attachment is that assets of the debtor, e.g. real estate or other property or rights of financial value, are taken from the debtor s control. Through the attachment, the creditor gains a limited proprietary right over the assets of the debtor, who may not dispose of the assets in any manner contrary to the rights of the creditor. An attachment can form the basis for a forced sale of the assets at a public auction. In such a case, the price obtained at the forced sale will be used to satisfy the claims of the creditor.

An attachment made under conditions where the debtor has no assets in his possession is known as an unsuccessful attachment ( rangurslaust fj rn m). An unsuccessful attachment can, within three months from its date, form a basis for the creditor to request liquidation of the debtor s estate in bankruptcy proceedings.

ARREST IN GENERAL

An arrest is not to be literally understood as we are dealing with assets, not people. The main purpose of arrest is to insure the holder of a claim harmless against any impeding risk of the debtor eliminating, selling, mortgaging or disposing by other means of his assets while court proceedings are in progress so that no assets would be available for enforcement procedure following judgment.

The legal effect of arrest is that the person against whom the order is enforced or other owners of the property in question are barred from disposing of it by an agreement, in breach of the rights of the applicant for the arrest. As the circumstances may require, the applicant needs to secure his rights, e.g. over a vessel, by public registration so that third party in good faith cannot obtain superior rights to the property. In addition, the Magistrate can, at the request of the applicant, remove property from the possession of the person against whom the arrest is directed, or other custodian and maintain the property himself at the cost of the applicant. The Magistrate may also entrust the property to a third party if the interests of the applicant are otherwise considered to be at grave risk, provided that there are no third-party rights to preclude such measures. In such an event, the Magistrate shall require from the applicant a security for the taking of possession against damage or loss of use of the defendant and the cost of the custody of the property.

ARREST OF VESSELS

Under Icelandic law the arrest of vessels is regulated by Act no. 31/1990 on general arrest of properties. There are no special rules for arrest of vessels and Iceland is not a party to any international arrest convention.

Only property belonging to the defendant can be arrested to secure payment of a claim against such defendant. If, however, the claim in question is secured by a maritime lien over the vessel, such vessel may be arrested despite the ownership. Accordingly, claims which are secured by a maritime lien over the vessel under Art. 197 of the Icelandic Maritime Act no. 34/1985 are the only types of claims which may be pursued in rem by way of an arrest irrespective of the identity of the owner of the vessel. These claims are more or less the same claims as are stipulated in the Brussels Convention on Maritime Liens from 1967.

According to Art. 197 of the Icelandic Maritime Act no. 34/1985 the following claims relating to a particular vessel enjoy a maritime lien over the vessel:

1. Wages or other emolument due to the Master, Crew and other persons employed on board.

2. Claims for damages due to loss of life or personal injury in so far as such claims have arisen in direct connection with the use of the vessel.

3. Claims for damages due to damage properties in so far as the claim has arisen in direct connection with the use of the vessel and provided that such claim is not based on contract.

4. Salvage, compensation for removal of wrecks and general average contributions.

5. Ship charges.

According to parliamentary comments on this Article item 5 refers to claims for port, canal and waterway dues and pilotage.

Following is a brief outline of the formalities involved in an arrest in Iceland:

1. As a general principle an arrest may be instituted in Iceland if the vessel is situated in Iceland at the time of the arrest.

2. The arrest application must be submitted to the relevant Magistrate s Office. It must contain detailed information as to the facts, which are necessary to enable the Magistrate to consider the matter, and it must be supported by the documents on which the claimant relies in order to proof that the claim exists.

3. Before the arrest can be imposed the claimant must provide security for any damage or loss which may be the result of a possible unlawful arrest. It is for the Magistrate to evaluate the amount of the security, which can be considerable.

4. As a general rule the Magistrate will require the claimant to be represented at a formal hearing of the arrest application. Attendance on behalf of the claimant is required when the arrest application is heard at the relevant Magistrate s office or at other place decided by the Magistrate. However, it is not a legal requirement to be represented by a lawyer.

5. Usually the defendant will be notified of the arrest application and of the hearing. However, if the Magistrate is satisfied that the purpose of the arrest might be lost because of such hearing he may refrain from notifying the defendant of the application for the arrest and of the hearing thereof.

6. After the arrest has been executed the claimant must commence legal proceedings before Icelandic District Courts both to confirm the arrest and on the merits of the claim if such proceedings have not been commenced, within one week of the arrest. The decision of the District Courts may be appealed to the Supreme Court.

7. Icelandic courts will always have jurisdiction over the confirmation of the arrest. However, as regards jurisdiction to hear the merits of the case if a foreign jurisdiction applies to the claim the claimant must commence legal proceedings before Icelandic District Courts concerning the confirmation of the arrest within three weeks and within the same period of time the claimant must also commence legal proceedings before the relevant foreign venue on the merits of the claim. Otherwise the defendant may request the arrest to be set aside.

Usually a security has to be submitted before the arrest. It is up to the Magistrate handling the arrest application whether a security is needed or not and the form and amount of the security if required. Accordingly the amount of the security may differ between the relevant Magistrates districts.

The following provision applies to the determination of the amount of the security:

When determining the amount of a guarantee the Sherriff shall mainly take into account to what an extent the arrest affects the functions of the defendant in terms of doing him harm, whether it is likely that the arrest or request for the arrest will harm his credit status or his business interests and whether he has a chance to make remarks about the validity of the claimant s claim and the arrest. The cost, that the defendant might later have to endure through court procedures due to the arrest, should also be taken into account.

The Magistrate can, by demand of claimant, arrest the vessel without security if one of the following conditions is fulfilled:

1. that the arrest is demanded pursuant to a debenture, a draft or a cheque and the defendant does not protest the claim.

2. that the defendant waives his right for a security in front of the Sherrif.

3. that the defendant acknowledge the claim as being valid in front of the Sherriff or court and that conditions for an arrest are prevailing.

4. that a judgement has been rendered regarding the claimant s claim, but the enforcement period has not yet come to an end.

5. that the claimant s claim is in other terms so that the Sherrif consideres both it and the arrest undoubtedly valid given the conditions prevailing.

If a seurity is required it should be in the form of money, or else in a comparable form. A bank guarantee from an Icelandic bank is required. If the claim is lost, infor court, the shipowner has a right to claim all damages and losses resulting from the arrest of the vessel.

FORCED SALE OF A VESSEL

Icelandic law would permit a contract provision, which stipulates that, the claimant can sell the vessel at market value and apply it to counterparty s obligation. However it is advisable to have the provision detailed, e.g. list how the market value would be determinded.

In the absence of such a contract provision the situation would governed by the Act on Forced Sale no. 19/1991. Chapter 12 of the Act concerns forced sale of securities, claims, etc. Prior to submitting a request to the Magistrate the petitioner must write a formal letter urging payment from respondent with at least 15 days notice. And in that demand it must be made clear that non-compliance will be met with a request for a forced sale, cf. article 9 on the aforementioned Act.

Reykjav k, 5th of December 2002

LOGOS Legal Services,
Shipping Department
Einar Baldvin Axelsson