Panama ready for new challenges

MARITIME law in Panama should make lawyers jealous the world over. Where else would you have a captive audience, a dedicated maritime court, and a government that relishes its country's importance as a maritime nation?

But the recent growth in the number of ship arrests has raised questions about the Panama Maritime Court's ability to handle a growing caseload. And with the handover of the Panama Canal Zone at the end of next year, that caseload is set to rise further.

At the moment, the Panama Canal is governed by the United States. Claims and cases arising within it are heard in the Southern District Court of Louisiana in New Orleans. But after the transfer of the canal to the republic next year, that jurisdiction will rest with Panama's Maritime Court, and any cases pending, or arising after that date, will be judged in Panama.

There is concern in Panama over the court's ability to handle more cases. Local lawyers have called for more support from the government, with the Maritime Law Association of Panama submitting a recommendation that the government fund another maritime court to meet expected demand.

Luis Shirley of Shirley & Asociados says, "Panama needs a second maritime court to ensure its ability to handle marine litigation after the handover. Ideally, the government would fund a second maritime court at Balboa, and one on the Atlantic coast at Cristobal."

Jaime Ricardo Arias, of Arias, Arias & Asociados, says, "Panama is keeping up with the caseload for the moment. Just. But we need to have at least a second maritime court up-and-running by the handover next year. This would ensure that we can maintain the efficiency of the present system, and Panama's reputation as a centre for maritime litigation."

The number of vessel arrests in Panamanian waters increased from 68 in 1995 to 116 in 1997. These figures generally reflect the peculiarities of the pursuit of marine claims worldwide. But an increasing proportion of arrests in Panama have been for salary and personal injury-related claims, particularly from Filipino crews.

For crews with a grievance against a shipowner, a canal transit may just be the perfect opportunity for an arrest action. The cases are heard quickly, and judgments are usually delivered before the vessel has left the canal. But there is a danger that the system may be abused, as one recent case illustrates.

The maritime court ruled that Panama was a forum non conveniens for a personal injury claim, and transferred it to a Philippines court for judgement. David Robles, senior shipping partner at DeCastro & Robles, says, "The only connection this vessel had with Panama was its transit of the canal. If seafarers are allowed to abuse the authority of our maritime court, it will help destroy the reputation of Panama as a venue for quick and just decisions."

The growth of Panama's Register of Shipping (Secnave) has also increased administration and litigation work for some of Panama's leading law firms. Management of the register is now handled by the Panama Maritime Authority, but the legal aspects of registering a vessel, and managing that registration, are still handled by law firms.

Most firms acknowledge that this work isn't a big revenue earner, but realise that, to meet client demand, they must offer a range of services. This can include financial litigation for some clients, but there is a lack of ship mortgage and financing deals in Panama, largely because interest rates are so high.

Enrique de Alba, senior shipping partner of Morgan & Morgan, says, "Shipping is not given the priority it deserves in terms of finance in Panama. Although some local banks have started to devote more resources to the financial needs of shipping companies, a better deal can still be had elsewhere."

Other shipping lawyers agree that the banks will have to do something soon. Celma Moncada, senior shipping partner at Moncada & Moncada, believes in Panama's importance as a banking institution in its own right. "Banking is an area we could grow on. If the banks recognised the contribution the industry makes to Panama, and put in place facilities to encourage shipping companies to bank here, we would have achieved the all-round shipping industry many of us feel is essential," she says.

Lack of consultation about proposed changes to the liability regimen of the Panama Canal has also led to concern in the local shipping community. The canal currently accepts responsibility for accidents in its waters, but new plans have been proposed which would require owners and operators to take out insurance against their liabilities. Pilotage in the canal is compulsory, but new pending legislation envisages the authorities restricting their liability for pilotage errors. The canal authorities would in effect simply maintain catastrophe cover, arguing that this would bring the canal into line with other ports.

"But the canal and its environs are not just another port," says Luis Shirley. "If the legislation is ratified, it would mean that pilots will no longer be able to offload their liability as employees of the commission. This is complicated further because, unlike other ports where the pilot exists in an advisory capacity to the ship's master, Panama Canal pilots take total responsibility for vessels transiting. In effect, they take temporary command of the vessel when it is in canal waters."

For the pilots, meanwhile, the continuing worry is whether they will be able to insure their new levels of liability in the market.
David Robles thinks the new legislation is a mistake. "The present claims procedure works well," he says. But others feel the issue is being blown out of proportion. Jaime Arias says, "New legislation will actually give the canal commission the authority to regulate the issue of the liability regimen, and we believe that thereafter the canal will initiate a process of consultations among all interested parties before proceeding. Also, we must remember that there is no other canal in the world which operates with unlimited liability." He does think, however, that there should have been more consultation with the shipping community, a criticism to which the commission has responded with a promise to conduct proper consultation on future issues.

Port development and foreign investment, meanwhile, have led to a rise in appointments for some law firms. The Panamanian government has been quick to encourage private involvement in the country's development, and although it retains executive control of the ports, it has offloaded the costs of modernising and upgrading them to the private sector.

Shipping lawyers have seen increased work as facilitators on behalf of prospective investors. Morgan & Morgan represented Hutchison's Panama Ports Company in its recent deals with the government over the ports of Balboa and Cristobal, and Enrique de Alba says, "Investing in Panama's ports will pay dividends when the government's plans for port development are realised. Panama is a service provider, and the ports are a conduit for those services. As companies gradually come to use Panama more as a hub, the port operators will have made good on their investment."

Labour issues are another source of work for law firms. The Panama Maritime Authority is responsible for seafarers' issues, and has been heavily involved in drafting a new maritime labour code with a number of law firms. It is the first time Panama has had a maritime labour code, and Celma Moncada sees it as vitally important to improving the image of the Panama flag in the future.

"The globalisation of the Panama register can be very good for Panama," she says. "By addressing seafarers' issues in the new maritime code, we are ensuring that all aspects of shipping are covered." But she admits to some disappointment at the government's decision to hear claims in the labour courts rather than in the Panama Maritime Court. "It could mean that awards to seamen might not reflect what they could get in the Maritime Court," she says. "But it is a step in the right direction."

Panama is having to address a number of important issues which are crucial to its development as a major maritime nation. But it has the support and full backing of a government keen to promote the country as a service provider, and the legal expertise that will undoubtedly be needed to achieve its objectives.