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Ship Arrest in Philippines, by Domingo G. Castillo, SyCip Salazar, Hernandez & Gatmaitan

SyCip Salazar Hernandez & Gatmaitan
7th Floor, SyCipLaw Center, 105 Paseo de Roxas, 1226 Makati City
Tel. Nos. (63-2) 982-3500, 982-3600 & 982-3700
Fax Nos.: 817‑3896 & 818‑7562
E-mail address: dgcastillo@syciplaw.com

1. Please give an overview of ship arrest practice in your country.

The Philippines is considered a maritime country as evidenced by more than 7,100 islands scattered throughout its national territory.  It is separated from its Asian neighbors by big bodies of water.  Travel through its waters is one of the cheapest and principal modes of transporting passengers and goods to the major islands of the country as well as serving as a vital link to international trade.  As such, the Philippines has its fair share of maritime cases, such as, collisions, sinking, salvage, piracy, hijacking and arrest of ships.

The law and procedure relating to the arrest of vessels may be found in Presidential Decree (“PD”) No. 1521 (otherwise known as the “Ship Mortgage Decree of 1978”) and in the general provisions of the 1997 Rules of Civil Procedure on preliminary attachment, specifically Rule 57.  Under Batas Pambansa (“BP”) Blg. 129, the Regional Trial Court exercises exclusive original jurisdiction in all actions in admiralty and maritime jurisdiction where the demand or claim exceeds P300,000.00 (approximately US$6,923.00) or, in Metro Manila, where such demand or claim exceeds P400,000.00  (approximately US$9,231.00).  (Sec. 19 (3), BP 129, as amended by Republic Act No. 7691)

2. Which International Convention applies to arrest of ships in your country?

The Philippines has not adopted the International Convention Relating to the Arrest of Sea‑Going Ships, signed at Brussels on 10 May 1952.  Neither has it adopted the International Convention for the Unification of Certain Rules Relating to the Immunity of State‑Owned Vessels.

None of the international conventions on maritime liens and mortgages has been ratified by the Philippines

3. Is there any other way to arrest a ship in your jurisdiction?

Article 1 (2) of the 1952 Arrest Convention defines ‘arrest’ as the ‘detention of a ship by judicial process to secure a maritime claim, but does not include the seizure of a ship in execution or satisfaction of a judgment’.  Using this definition, there is a right of arrest in the Philippines, whereby any monetary claim against an owner of a vessel can be pursued by way of an arrest.  However, there are only two (2) cases in which a vessel can be arrested in respect of a claim which does not lie against the true owner of the vessel ‑‑ namely, foreign and domestic ship mortgages and necessaries.

A. Foreign ship mortgages

Section 15 of PD 1521 requires that the ‑‑
‘mortgage, hypothecation, or similar charge has been duly and validly executed in accordance with the laws of foreign nation under the laws of which the vessel is documented and has been duly registered in accordance with such laws in a public register either at the port of registry of the vessel or at a central office,… provided, however, that such preferred mortgage lien in the case of a foreign vessel shall be subordinate to maritime liens for repairs, supplies, towage, use of drydock or marine railway, or other necessaries, performed or supplied in the Philippines’.

B. Domestic ship mortgages

The applicant of the arrest of a vessel should show the following ‑‑
(a) that the mortgagee is a citizen of the Philippines, or a corporation sixty per cent (60%) of the capital of which is owned by citizens of the Philippines; and
(b) that the purpose of financing was for the construction, acquisition, or purchase of the vessel or the initial operation of the vessel; and
(c) that the mortgage is registered in the registry of vessels to be known as ‘Register of Philippine Vessels’ which shall be kept in the office of the Maritime Industry Authority (“MARINA”) in the homeport for vessels of domestic ownership and at the MARINA Central Office for vessels for overseas trade; and
(d) that the Register of Philippine Vessels shall contain the name of the vessel; the names of the parties; the time and date of the recording of the instrument; the ownership of the vessel so mortgaged; the amount and date of maturity of the mortgage; the name, citizenship, nationalities and residence of owners and any material change of circumstances in respect of any of the preceding items, and
(e) that a copy of the mortgage has been furnished to the Central Bank of the Philippines.

4. Are these alternatives e.g. saisie conservatoire or freezing order?

No, the arrest of a ship in the Philippines is a direct action (or in rem) against the vessel.  However, there is also an indirect way under the 1997 Rules of Civil Procedure by way of a freezing order which is called a “preliminary attachment” under Rule 57 of the 1997 Rules of Civil Procedure.

To obtain an attachment by way of a “freezing order” in respect of a general monetary claim it is necessary for the claimant to show that the defendant is non‑resident in the Philippines and that he has no other property, apart from the vessel to be attached, against which the claim may be satisfied in the event of a final judgment in favour of the plaintiff (Section 1 (f), Rule 57, 1997 Rules of Civil Procedure).

In all cases the complaint and any accompanying affidavit will be subject to judicial scrutiny prior to the issuance of the arrest order.  Before the arrest of the vessel, the applicant must post a bond in favour of the adverse party, in an amount fixed by the court in its order granting the issuance of the Writ of Arrest which may be equal to the applicant’s demand or to the value of the vessel to be arrested.  The bond provides that the applicant will pay all the costs which may be adjudged to the adverse party and all damages which he may sustain by reason of such arrest, if the court shall finally adjudge that the applicant was not entitled thereto (Section 4, Rule 57, 1997 Rules of Civil Procedure).  Likewise, the applicant must advance custodial expenses to the sheriff implementing the arrest/attachment by the court of the vessel.

5. For which types of claims can you arrest a ship?

As mentioned in paragraph 3 above, an arrest of the vessel can be made with respect to foreign and domestic mortgages and necessaries.

Section 21 of PD 1521 requires that any person furnishing necessaries to any vessel, whether foreign or domestic, should prove that he has done so ‘upon the order of the owner of such vessel or of a person authorized by the owner’ and it shall be necessary to prove that credit was given to the vessel.  Claims for necessaries constitute a maritime lien under Philippine law.

However, in the case of Crescent Petroleum Ltd. vs. M/V Lok Maheshwari, et al. (G.R. No 155014, November 11, 2005), the Philippine Supreme Court denied a foreign corporation’s claim of a maritime lien on a foreign vessel docked in the Philippines for the satisfaction of unpaid supplies it furnished to the vessel in a foreign port.  The court further held that PD 1521 was enacted primarily to protect Filipino suppliers and was not intended to create a lien for a contract for supplies between foreign entities delivered in a foreign port. The court further ratiocinated that extending the benefit of a maritime lien to foreign vessels and foreign suppliers of necessaries would not promote the public policy behind the enactment of the law to “accelerate the growth and development of the shipping industry” and “to extend the benefits accorded to overseas shipping under Presidential Decree No. 214 to domestic shipping.”

6. Can you arrest a ship irrespectively of her flag?

Yes, the vessel can be arrested in the Philippines irrespective of her flag or registration.

7. Can you arrest a ship irrespectively of the debtor?

Yes, in the Philippines a ship can be arrested irrespective of the debtor.

8. What is the position as regards sister ships and ships in associated ownership?

The Philippines has not adopted nor is it a signatory to the International Convention to the Arrest of Sea‑Going Ships of 10 May 1952.  Because of this, the Philippines does not recognize the arrest of vessels other than the one in connection with which the case arose.

However, under the rules of attachment in the 1997 Rules of Civil Procedure, an attachment against a sister ship or an associated ship may be made provided that the ship seized is shown or alleged to be also owned by the same defendant owner, whether he be unknown or disclosed (Sections 2, 7 and 14, Rule 57, 1997 Rules of Civil Procedure).

This recourse in the arrest of sister ships is possible even if the other vessels are not directly owned by the debtor but owned by him through a corporation.  Philippine courts can invoke the doctrine of ‘piercing the corporate veil’ if it can be shown that the fiction of corporate personality is being used as a shield to further an injustice, or as an alter ego, adjunct or business conduit for the sole benefit of the stock­holder.  (McConnell vs. Court of Appeals, 1 SCRA 722)

9. What is the position as regards Bareboat and Time-Chartered vessels?

To charge a vessel for repairs or supplies, they must have been furnished to and made for the benefit of the vessel and, more importantly, ordered by someone authorized by the owner to contract on behalf of the vessel.  PD 1521 authorizes both the owner of the vessel and the charterer to procure repairs, supplies and towage to enable the supplier thereof to have a maritime lien on the vessel which will authorize him to arrest the same.  PD 1521, however, requires that ‘no person tortuously or unlawfully in possession or charge of the vessel shall have authority to bind the vessel’ and neither when the furnisher knew, or by exercise of reasonable diligence could have ascertained, that because of the terms of the ‘charter party, agreement for sale of the vessel, or for any other reason, the person ordering the repairs, supplies or other necessaries was without authority to bind the vessel therefor.’  (Sections 22 and 23, PD 1521).

10. Do your Courts require counter-security in order to arrest a ship?

Yes.  A Philippine court will issue the Order of Arrest even without a hearing upon filing of a bond in an amount to be fixed by the court (but not exceeding the applicant’s claim) and conditioned that the latter will pay all costs and all damages which the adverse party may sustain if the court shall finally adjudge that the applicant was not entitled to arrest the ship.  The security may be in the form of cash or surety bond issued by a local bonding company which will oftentimes charge a premium from 1% to 2‑1/2% of the amount covered by the bond.

11. Is there any difference in respect to arresting a ship for a maritime claim and a maritime lien?

No, there is no difference in respect to arresting a ship for a maritime claim and a maritime lien since the procedures for both are the same.

12. Does you country recognise maritime liens?  Under which International Convention, if any?

Yes, the Philippines recognizes maritime liens pursuant to PD 1521.

13. What lapse of time is required in order to arrest a ship since the moment the file arrives to your law firm?

There is no mandatory period or time for which it is necessary to file with the Philippine court a complaint or petition for arrest of the vessel.  Based on my experience, it would take approximately one (1) week from the time the folder or file arrives in our law firm to file the complaint or petition to arrest the vessel due to the following factors:

(a) It is necessary to determine if the vessel is within the jurisdiction;

(b) There is a mandatory provision in the 1997 Rules of Civil Procedure that the complaint or petition must be verified by a person who personally knows the facts as alleged therein and it is necessary that a “Verification and Certification of Non-Forum Shopping” must be signed and notarized.  If the certification is signed outside the Philippines, it is necessary that this certification must be signed and executed before the Philippine Consulate of the place of execution.

When the Verification and Certification of Non-Forum Shopping are duly signed and notarized, it usually takes a period of two (2) days therefrom for the case to be filed after the payment of filing fees with the Clerk of Court of the Regional Trial Court where the case is filed.  Thereafter, it is subject to a raffle among the different branches of the court where the executing judge will appoint or designate the complaint to be heard by the judge to whom the case is raffled-off too.

14. Do you need to provide a POA, or any other documents of the claim to the Court?

Generally, powers of attorney (POA) are not required by lawyers or by the courts for the purposes of commencing actions or arresting a vessel except for the executions of the “Verification and Certification of Non-Forum Shopping”.

A personal claimant usually does, but it is not mandatory, to retain the services of a local lawyer to prepare and file the verified petition or complaint and to deal with the Sheriff.  However, it is advisable for a foreign claimant to retain a local lawyer to ensure that the action is properly done and the arrest of the vessel carried out with a minimum of delay.

15. What original documents are required, what documents can be filed electronically, what documents require notarisation and/or apostille, and when are they needed?

It is necessary that all the original documents evidencing the claim are already in the possession of the local lawyer before filing the complaint or petition for the arrest of the vessel.  The original documents are required if and when the judge issuing the court order may want to see these original documents for him to issue the Order of Arrest.  In this jurisdiction, the Order of Arrest issued by a Philippine court is usually issued ex parte, i.e., without a hearing conducted by a judge.  Oftentimes, the judge issuing the Order of Arrest may examine:

(a) the original documents; and
(b) the arrest bond which is a requirement under PD 1521 that in the event that the arrest of the vessel has no basis, the vessel (and her owners) may seek security by way of damages it sustained from the arrest bond filed by the plaintiff/claimant.

Oftentimes the documents required for notarization (as mentioned above) refers to the verification of the person having knowledge of the facts which would constitute the basis to arrest the vessel and in the event that the person attesting to the facts of the case and the execution of the Verification and Certification of Non-Forum Shopping is made abroad then there is a necessity for both the Verification and Certification of Non-Forum Shopping to be authenticated/apostilled/consularized before the Philippine Consulate of the place of execution in order to have legal effects in the Philippines.

16. Will your Courts accept jurisdiction over the substantive claim once a vessel has been arrested?

Yes, the court will obtain jurisdiction over the substantive claim once the vessel has been arrested here in the Philippines.

17. Which period of time will be granted by the Courts in order for the claimants to take legal action on the merits?

Under the 1997 Rules of Civil Procedure it is necessary that the claimant or plaintiff should vigorously pursue the legal action based on the merits of the case and not delay the presentation of evidence both testimonial and documentary.  This means that when the case is calendared/scheduled and the local lawyer finds that he is available on such periods, the claimant or plaintiff must be ready to present his evidence.  That is why it is necessary that the original documents should already be in the possession of the local counsel to avoid any unnecessary delays in the prosecution of the case.  If the court determines that the plaintiff is unduly delaying the prosecution of his case, the court may motu propio dismiss the complaint based on failure of the plaintiff to prosecute the case.  Based on my experience, once this case is dismissed the court may allow a motion for reconsideration to be filed by the local counsel with a manifestation that the plaintiff or claimant will vigorously prosecute the case.  The motion for reconsideration is usually granted/approved by the Philippine court.

18. Do the Courts of your country acknowledge wrongful arrest?

Yes, the Philippines acknowledges wrongful arrest.  However, if the arrest of the vessel was erroneous or wrongful to begin with, the vessel (or her owner/s) may file a claim for damages against the security or arrest bond filed by the plaintiff.  The arrest bond that is often filed by the plaintiff or the claimant makes mention of the fact that the applicant files a bond executed to the adverse party in the amount to be fixed by the judge, not exceeding the applicant’s claim and condition such that the latter will pay all the cost which may be adjudged to the adverse party and all damages which he may sustain by reason of such arrest if the court shall finally adjudged that the applicant was not entitled thereto.  Based thereon, this is why the judge mandates and would require that an arrest bond must be accompanied for the filing of the Order of Arrest for him to grant the ex parte motion to arrest the vessel.

19. Do the Courts of your country acknowledge the piercing and lifting of the corporate veil?

Yes, the Philippines recognizes the doctrine of ‘piercing the corporate veil’ if it can be shown that the fiction of corporate personality is being used as a shield to further an injustice, or as an alter ego, adjunct or business conduit for the sole benefit of the stockholder (McConnell vs. Court of Appeals, 1 SCRA 722).

20. Is it possible to have a ship sold pendente lite; if so how long does it take?

If the ship which is subject to arrest has many creditors where the same is filed in court and, more importantly, when the ship may suffer a deterioration in commercial value due to its not being sold within a reasonable period of time, a motion may be filed in court seeking the sale of the vessel pendente lite.  A motion to sale the vessel is usually filed.  Oftentimes, the motion to sell would state any of the valid grounds to sell the vessel pendente lite, such as:

(a) it may be damaged or lost in view of the fact that the Philippines is visited by many typhoons from the months of June to November (which is the typhoon season) and the vessel may break from her anchorage and bump/collide with other vessels or maritime structures which may considerably damage the arrested vessel;

(b) if the vessel has been abandoned by the owners or the charterers and there are no person onboard to guard the vessel to protect her from bay pirates or other natural elements prevailing in the port;

(c) if the parties jointly agree to sell the vessel; and

(d) it will be for the best interest of all the parties concerned that the vessel be sold at the best possible commercial price.

The time from filing of the motion up to the date of the sale would usually take a period of four (4) to six (6) months since the court would first determine the floor price of the auction with respect to the minimum bid price of the vessel, allow prospective bidders to examine the vessel and, more importantly, to advertise in a newspaper of general circulation or other periodical/websites to attract the best possible bidders to pay the highest price.

More importantly, the winning bidder would submit the bid price to the court where the same will be deposited to wait the judgment by the court to whom the sales proceeds should be awarded to based on the evidence presented by the plaintiff/claimant and other creditors who furnished necessaries to the vessel.