New era for Cyprus register

THE Cyprus register ranks sixth largest in the world. It is estimated that the Cyprus registered merchant fleet should equal approximately 25 per cent of the registered tonnage of existing member states once Cyprus becomes part of the EU.

Much progress has been achieved over the last six years to bring Cyprus to where it stands today. The efforts of the government to bring the Cyprus register to the "highest possible standard" are recognised by the European Commission, as stated by Madame De Palacio, Vice-President of the European Commission, and Commissioner for Transport and Energy, who recently addressed Cyprus's shipping community. But, apart from Cyprus maintaining its competitiveness in terms of its laws and tonnage tax, and improving shipping safety standards, an added interest in the register may be brought about if the government were to open up the current conditions for registration and ownership of Cyprus-flagged ships.

Until recently, any suggested widening of these requirements for registration may well have been challenged by such parties as the International Transport Workers' Federation (ITF) on grounds such as the ITF's controversial and much-disputed flag of convenience campaign and "genuine link" argument. But a widening of the ownership requirements under the Cyprus Merchant Shipping (Registration of Ships, Sales and Mortgages) Law is now inevitable, being a direct consequence of Cyprus's treaty obligations to the EU.

Under EU law, persons exercising the right of establishment in a member state of the EU are required to be treated under the same conditions laid down for nationals of that state.

These issues have been met before and extensively discussed in the context of discrimination, nationality, and ship registration, in Reg v Secretary of State for Transport, Ex parte Factortame Ltd (No 3), (Factortame). In that case, action was brought against the UK, where the applicants alleged incompatibility of the 1988 Merchant Shipping Act, and/or the regulations, with EC law. The litigation ultimately resulted in the UK government being found to be in breach of its EC obligations and led to a finding that the UK government was bound to pay compensation to the applicants.

These issues have been considered in the case of Cyprus, and steps will almost certainly be taken to ensure that the present ownership and registration requirements, which currently provide that more than half the shares of the ship should be "owned by a Cypriot" or by "a company established and operating under and in accordance with the Laws of the Republic of Cyprus," will be amended. As a result of community law, the ownership conditions and requirements will have to also allow for nationals of member states of the European Union, or a company established in accordance with the laws of a member state, to be free to own and register a Cyprus-flagged ship.

A requirement as to the management of the ship, touched upon in Factortame, is not deemed contrary to community law. In the past, Cyprus has actively encouraged Cyprus-flagged ships to be managed from the island. The government has introduced certain schemes to encourage this, for the benefit of both the owner and the manager, as it is recognised that this enhances safety standards and effective control of the ship. Since Cyprus-based shipmanagement has not been made a mandatory condition in other areas of Cyprus's shipping laws, it cannot be expected that it will be made a mandatory provision in the relevant Cyprus ship registration laws. But provisions as to management of the ship will most probably be introduced in some context in any amendment to the law, reflecting Cyprus's current policy and approach.

Cyprus today is one of the largest third-party shipmanagement centres in the world and has a well-founded shipping infrastructure. In the words of Loyola de Palacio, "Cyprus is regarded as one of the world's leading shipping centres, offering firm foundations to any shipping company wanting to do business in Cyprus. Over the years, it has witnessed the development of a prominent industrial cluster and maritime community … that has contributed to the creation of a thriving maritime centre".

Any added flexibility as regards the conditions for ownership and registration of a Cyprus ship, especially in the context of EU ownership, will certainly encourage further flagging under a register which will acquire new perspective and attractiveness as a result.