Sunday, 28 September 2014

Enforcing a first preferred ship’s mortgage from St. Vincent & the Grenadines in Greece

The Piraeus CoA published mid 2013 a unique judgment on the enforcement of a preferred ship’s mortgage issued in the island of St. Vincent & the Grenadines. The court applied domestic Civil Procedure provisions, reversing the 1st instance ruling, which dismissed the application [Piraeus CoA Nr. 271/2013, unreported]

THE FACTS: The applicant is a maritime company founded pursuant to Bulgarian law. It owned a ship bearing the name "DOBRUDJΙΑ", sailing under the flag of St. Vincent & the Grenadines, and registered in the ship registry of Kingstown. The applicant concluded a time charter agreement with another foreign company. During this time, the charterer ordered certain repairs of the ship, which took place in Varna, Bulgaria, however without paying the amount due (nearly ½ million €). As a result of the above, the shipyard blocked the departure of the ship from Varna. Following payment made by the applicant on behalf of the charterer, the ship was finally allowed to leave Bulgarian inland waters. In addition, the latter owed more than half a million € to the former, arising out of non payment of freight. The parties reached an agreement in May 2011, by signing a contract, which gave the applicant the right to register a first preferred ship’s mortgage immediately after the sale of the ship to a third company. The sale of the ship was concluded 10 days after the agreement, and the mortgage was indeed registered according to the law of St. Vincent and the Grenadines at the ship register of Kingstown.
It has been proven that the charterer did not abide by the terms of the agreement. By virtue of Art. IV Para. 3 of the agreement, the applicant notified the charterer of its intention to start litigation, unless the latter proceeds to payment within 7 working days upon receipt of the notice. The charterer failed to respond.
Given the circumstances aforementioned, the applicant filed a motion for a freezing order against the charterer before the Siros 1st Instance Court. The request was granted, and the ship still lies in the harbour of the island of Siros (at least at the time the hearing was taking place before the Piraeus CoA). Therefore, the applicant further requested the declaration of enforceability of the first preferred ship’s mortgage, so as to proceed to the ship’s seizure, and receive the proceeds from the future auction.
The application before the Piraeus 1st Instance Court was dismissed on the following grounds: Pursuant to Art. 6 Para. 1 of Law Decree 3899/1958 ‘on preferred mortgages on ships’, foreign judgments or authentic instruments regarding obligations arising from preferred mortgages, which are enforceable pursuant to the law of the state of origin,  shall be enforced in Greece without any control of their content. The enforcement order is always granted by the President of the competent 1st Instance Court. Contrary to the provision above, the applicant chose to file his request before the 1st Instance Court bench of voluntary proceedings. The application was therefore dismissed. The applicant appealed.

THE RULING: The Piraeus CoA acknowledged that the title in question is equivalent to an enforceable title according to the law of St. Vincent and the Grenadines, as evidenced by an experts’ opinion of English jurists, produced by the appellant/applicant. It also took into account the fact that an arbitral award of the London Maritime Arbitrators Association was issued in July 2012, acknowledging the default of the charterer to fulfil its obligation towards the applicant. The award was declared enforceable by the Piraeus 1st Instance Court early 2013.
Coming then to the points raised by the appellant, it reversed the 1st instance decision, because Art. 6.1 of Law Decree 3899/1958 has been tacitly abolished by virtue of Art. 1 points e & f of the Introductory Law on the Code of Civil Procedure. Hence, normal exequatur proceedings prevail over the matter, i.e. the process provided for by Art. 905 Code of Civil Procedure.
In light of the above, the CoA examined the foreign title in accordance with Para. 2 of Art. 905, which sets forth, that the 1st Instance Court declares a foreign title enforceable, if it is enforceable pursuant to the law of origin, and it is not contrary to bona mores or public policy. The CoA stated that the requirements of the law are met, because the first preferred ship’s mortgage constitutes an enforceable title according to the law of St. Vincent and the Grenadines, and it does not contravene Greek bona mores or public policy. Finally, it noted that domestic law, i.e. Art. 905 Para. 2 Code of Civil Procedure was to be applied, since no international agreement exists between the two countries on the matter.

COMMENTS: There hasn’t been any doubt so far, that Art. 905 Code of Civil Procedure is the one and only way for those seeking to enforce foreign judgments / authentic instruments in Greece, as long as no international conventions or EU Regulations are involved. The CoA rightly pointed out that Greece has no bonds with St. Vincent and the Grenadines in terms of recognition and enforcement of foreign judgments and authentic instruments (both countries have signed the 1958 NYC on the recognition and enforcement of foreign arbitral awards though).
What is interesting in this case is that it took us almost 50 years to realize that there is still a provision ‘hidden in the bushes’, regulating the matter in a different fashion compared to Art. 905 Code of Civil Procedure. The legislator tried to solve the matter from the very beginning, by declaring that all provisions contrary to the Code of Civil Procedure shall be considered as repealed [see Art. 1 point e of the Introductory Law on the Code of Civil Procedure]. Still, the 1st Instance Court did not apply this rule. Hence, the appellate court’s ruling sheds light and gives guidance to an issue previously unexplored. 

Another issue deals with the territorial competence of Piraeus courts. According to Art. 905 Para. 1 Code of Civil Procedure, if the judgment debtor has no domicile, residence, or seat in Greece, the application is to be filed before the courts of the capital. In this case the application was filed before Piraeus courts. There’s a provision from 1993 (Art. 51, Para. 2 Law 2172/1993), which exceptionally grants venue to Piraeus courts for maritime disputes, even if Athens would have been the proper forum. The question to be answered is whether an application to enforce a foreign judgment falls under the notion of a ‘maritime dispute’. In the case presented, the Piraeus CoA decided that it does, whereas the same court followed a different line nearly 20 years ago [Piraeus CoA Nr. 1448/1995, Enterprises & Companies Law Review 1996, 153]. I have traced two more judgments, following the approach chosen by the CoA in its recent ruling: The first one comes from 2010 [Piraeus 1st Instance Court Nr. 2767/2010, unreported], whereas the other is mentioned in a 1995 judgment of the Fifth Circuit of the United States Court of Appeals [see: 40 F3d 741 Crescent Towing Salvage Co Inc v. M/v Anax Sa]. As long as there’s no ruling coming from the Supreme Court, one cannot exclude that the existing disharmony might continue.