Panama channels its maritime future

THE maritime sector in Panama has been experiencing unprecedented growth in the last few years. Even further growth is expected as a result of the country's ambitious plans to widen the Panama Canal, Panama's emergence as one of the most important container transshipment centres in the Americas, and the continuous increase in tonnage of the Panamanian Merchant Marine.

In order to keep pace with the rest of the maritime sector, and to unlock Panama's full potential as a centre for maritime dispute resolution, the Panamanian Maritime Law Association (PMLA) has recently created a special committee to work on an amendment package to the Code of Maritime Procedure (CMP).

The PMLA aims to modernise the CMP to further expand the jurisdictional limits of Panama's Maritime Court, while at the same time regulating the sometimes thorny issue of forum non conveniens. Among the other changes being discussed is the procedure for effecting judicial sales of arrested vessels, which will be simplified and made more expeditious. Execution of foreign judgments and arbitration awards will also be made much more straightforward.

But perhaps more importantly, the National Assembly recently passed a law intended to modernise the system of administration of justice which, inter alia, expressly provides for the creation of a second maritime court. The additional maritime court is expected to be operational by the beginning of 2002, in time to handle the anticipated increase in the number of maritime cases resulting from the transfer of the administration of the Panama Canal and the ever-expanding container ports.

In the not-too-distant future, the PMLA also envisages an in-depth revision of Book Two of the Panamanian Commercial Code, which deals with maritime commerce. The amendments will seek to bring Panamanian maritime substantive law in line with its counterparts in the UK and/or US, allowing Panama to evolve from its position as a popular arrest forum into a recognised regional centre for maritime dispute resolution.

Recent significant supreme court judgements

Forum non conveniens

On May 21, 2001, the Supreme Court issued a judgment in Luz Marina Reyes et al v Diamond Camelia SA & Mitsui OSK Lines. The judgment reversed a ruling by the maritime court denying defendants' motions to stay the action in favour of the Philippine courts and ordered a stay of the action in favour of such courts. This is the latest Supreme Court judgment on the issue of forum non conveniens on Filipino crew claims.

In the last five years, dozens of these claims have been filed in Panama's Maritime Court and there was a recent streak of successive rulings by the maritime court denying defendants' motions to stay actions in favour of the forum prescribed in the contracts of employment - the Philippines. This had raised shipowners' concerns about the maritime court's willingness to give due consideration to forum selection clauses. The most significant aspect of this judgment was the fact that the vessel in respect of which the claim arose, the Sea Prospect, was a Panamanian ship, the shipowner defendant was a Panamanian company, and Panamanian substantive law, by virtue of Panamanian conflict of laws rules, was applicable to resolve the claim.

Yet the Supreme Court ruled that there was an express forum selection clause in the contract of employment, which was binding on all claimants. It also determined that the Philippine courts were the proper forum in which to resolve the claim because most material witnesses lived in the Philippines. The judgment sends a positive signal to all shipowners, but especially those with vessels registered in the Panamanian Merchant Marine.

Debt collection - enforcement of liens for unpaid P&I calls

The viability of Panama as a convenient forum to arrest ships and collect on claims arising from unpaid P&I calls was reinforced through a recent judgment of the Supreme Court. On April 6, 2001, a judgment by the Supreme Court in Liverpool & London Protection and Indemnity Association Limited v M/V Milos ex Mando, interpreted a clause in the Liverpool & London P&I Club Rules to allow such a club to file claims in Panama's Maritime Court in accordance with Panamanian substantive law, rather than English law. The importance of this interpretation lies in the fact that, under Panamanian substantive law, this type of claim gives rise to a maritime lien, which survives the private sale of a vessel, while, under English law, it does not even give rise to a statutory right in rem. The relevant clause in the Liverpool & London P&I Club Rules was as follows:

"48 LAW
These rules and any special terms of entry from a contract of insurance, between the Association and a member, and subject to the right of the Association under Rule 47c to enforce its right of lien in any jurisdiction in accordance with local law in such jurisdiction, shall be construed in accordance with English Law."

The maritime judge had refused to admit the claim in rem, as he had concluded that English substantive law was applicable to resolve the claim under Panamanian conflict of laws rules, namely Article 557(11) of the CMP. Under such article, the applicable substantive law to determine the effects of a marine insurance contract is the law of the principal place of business of the insurer, unless the parties have agreed otherwise. The judge considered the local law in Rule 48 to refer to procedural law only, rather than to also encompass the substantive law of the place the association sought to enforce a lien.

In reversing the maritime judge's decision, the Supreme Court pointed out that the reference to local law, in Rule 48 of the Liverpool & London P&I Club rules, should not have been so narrowly interpreted as to limit it only to procedural law. The Justices concluded that, at least prima facie, the claimant has shown the applicability of Panamanian substantive law and therefore the existence of a maritime lien against the M/V Milos under Article 1507(9) of Panama's Commercial Code.

On another issue, the judgment also admitted the complaint for the full amount of the claim, $2,177,818, which not only included the debt of the Milos but also the outstanding calls of three other vessels in the same management, which had been entered under the rules of the association pertaining to fleet entry. Those rules established the joint and several liability of each vessel for the debts of all vessels entered with the association as a fleet for underwriting purposes. Article 1515(6) of the Panamanian Commercial Code, which provides for the joint and several liability of vessels under a fleet mortgage, was used by analogy.

The judgment is particularly significant for P&I clubs which, by incorporating the right wording in their rules, could have a maritime lien for claims for unpaid calls under the laws of any convenient jurisdiction where a vessel may be found. In the particular case of Panama, the lien provided by Panamanian substantive law even survives the private sale of a vessel.

Article 1508 of Panama's Commercial Code provides that the liens listed in Article 1507 of the same Code do not become extinguished until six months after the registration of a transfer of ownership. If a claim in rem is filed within that six-month period, the lien is protected, irrespective of when the vessel is subsequently arrested.