The purpose of this article is to highlight some legal considerations that need to be taken into account when arresting a vessel in Chile. For this, we will first summarize the legal regime applicable to ship arrest in Chile. Second, we will emphasize the situation concerning the arrest of sister ships and the practical effect of article 280 of the Code of Civil Procedure. Finally, we will indicate some conclusions.
Before we begin, two annotations for clarification: (1) although under the Code of Civil Procedure it is possible to obtain a court ruling ordering the retention of a vessel, ship arrest in Chile is specifically regulated in the Code of Commerce. (2) A vessel may be arrested in order to exercise a privileged credit (i.e. credits which enjoy a special status and may be deemed to be a statutory lien) or to enforce a final judgement that may result in the judicial sale of a vessel. The contents of this article deal with the arrest of a ship resulting from the former, the exercise of a privileged credit.
1.- Summary of the legal regime applicable to ship arrest in Chile:
The list of privileged credits is contained in articles 844 to 846 of the Code of Commerce. The creditor, or titleholder of a listed privileged credit, may request the duty Civil Court of the port where the vessel presently is or is expected to arrive to place the vessel under arrest. No guarantee is needed from the arresting party and only sufficient evidence to presume the existence of the privileged credit being claimed is required. Given these conditions, the Court is required to grant the arrest with no further formalities. Notice of the arrest is given to the local Maritime Authorities who are those putting the arrest into effect. It should be noted that the “privilege” – which benefits the credit and which is required to request the arrest – normally expires after one year, although in some specific circumstances it may expire before one year. With regard to the steps to materialise the petition to arrest a vessel, the arresting party needs to present a written petition requesting the arrest of the vessel. The presentation will need to include the elements of fact and law which support the arresting petition as well as attaching evidence to presume the existence of the privileged credit being claimed. The petition should also indicate the nature and amount of the guarantee, which would be acceptable for the claimant to lift the arrest.
Strictly speaking, the only condition to lift the arrest is to present the exact guarantee indicated in the arrest petition. In these circumstances, the Court is again required to lift the arrest with no further formalities. Alternative guarantees may be presented, but whether they are suitable substitutes will not immediately be decided by the Court, which will typically submit the alternative guarantee to the arresting party. The arresting party thereby has three days to consider their decision. Consequently, if (as it is normally the case) the arrest is to be lifted by way of a P&I LOU, it is advisable to agree on the LOU as an acceptable guarantee with the claimant ahead of time. If a decision is made to fight the arrest, it should be noted that the ship will remain under arrest until the objection is resolved. Again, it is advisable to grant the guarantee, get the ship freed and then fight the arrest if so decided. The same goes in the case of petitions requesting changes in the amount or nature of the guarantee.
Finally, once the arrest has been granted, article 280 of the Code of Civil Procedure requires that within 10 working days (which may be extended to a maximum of 30) from the day in which the arrest is granted, the petitioning party must present the lawsuit and request that the arrest be maintained. Failure to do so results in the immediate cessation of the arrest and in liability for the party that has obtained it.
2.- Arresting a vessel in Chile to secure the enforcement of a judgement or award issued abroad:
As just mentioned, once the arrest has been granted, there is a ten-working day time limit (which may be extended to a maximum of 30) to present the lawsuit and request the arrest be maintained. This may present a substantial problem when the arrest is obtained in Chile to secure the enforcement of a future judgement or award issued abroad. Namely, if the creditor wants to start substantive proceedings abroad (e.g. London arbitration), then within the time limit of 10 or 30 working days the creditor will need to prove to the satisfaction of the Chilean Court that granted the arrest, that the relevant substantive proceeding has been started in London according to English Law. For this, the documentation required in England to commence the proceeding will need to be obtained and duly legalized according to English Law up to the Chilean Consul in England. Subsequently, the documentation will need to be sent to Chile to complete its legalization and then presented (duly translated) to the Court before which the arrest has been obtained. As a result, when approached to obtain an arrest in Chile to secure the enforcement of a future (and foreign) judgement or award, detailed regard must be given to this provision (i.e. article 280) to determine – beforehand – whether or not it will be possible to comply with it. This is the case since failure to do so results in the immediate cessation of the arrest and in liability for the party that has obtained it.
3.- The arrest of sister ships in Chile:
According to article 1234 (b) of the Chilean Code of Commerce, it is possible to arrest another vessel (i.e. a sister ship) provided that she is under the same ownership, management, or is operated by the same person. In few words, with regard to liability in rem under Chilean Law, there is no need to have the connection between the relevant person (the person liable in personam) who also owns the ship to be arrested. As a creditor, in Chile you only need to have a credit that falls within the list of the privileged credits mentioned above which is the basis for arresting a vessel according to the Code of Commerce. Provided that you have a privileged credit, you can arrest either the relevant vessel or any other sister ship as defined by Chilean Law. Under Chilean Law, the definition of a sister vessel is wider that under English Law. Sister vessels are not only those under the same ownership (as if both vessels are owned by the debtor) but also vessels under the same management and/or operation. Consequently, in Chile it is possible to successfully arrest vessel “X” as a sister ship of vessel “Y” on condition that both vessels are managed or operated by the same company, and even if they be owned by different companies.
As should be expected, this broad definition of a sister vessel under Chilean Law has given rise to a fair amount of litigation and controversy. In essence, the constitutionality of this provision has been severely questioned. This since accepting this wide interpretation may lead to a situation where the owner of a vessel may end up having to suffer the judicial sale of his vessel only because she shared the same management or operation with the vessel owned by the person liable in personam. Our Firm has maintained that the broad interpretation of a sister ship mentioned above is possible only if within the arresting proceeding the claimant is able to produce enough evidence to pierce the corporate veil so as to prove to the satisfaction of the Court that ultimately both vessel belong to the same owners / shareholders.
All in all, we conclude this brief article reiterating that its purpose is to highlight at least two issues (article 280 of the Code of Civil Procedure and the situation of the arrest of sister ship) that should be considered before arresting a vessel in Chile.