Contributed By Patton Moreno & Asvat (Panama)
The intention of Maritime Finance Law No 50, dated 28 June 2017, is to incentivise, enhance and add the financial aspect to Panama's enormous potential in becoming a bona fide international maritime hub, taking advantage of Panama's favourable conditions, as follows:
Law No 50 provides the following: “Maritime Finance Entity. Any local or foreign person or entity dedicated to maritime financing, certified as such by the Certification Council and Supervisor of Maritime Finance Entities.”
Article No 3 of Law No 50 establishes that those allowed to perform this type of financial activity operations will be:
However, in order to obtain the benefits established in Law No 50, persons or entities wishing to operate as a maritime financing entity must obtain certification through the Certification and Supervisory Board of Maritime Financing Entities.
Article No 2 of Law No 50 defines a Maritime Finance Project as follows:
Any maritime project wishing to adhere to the benefits established in Law No 50 must obtain certification from the Panama Maritime Authority’s Directorate General of Public Registry of Property of Vessels. This must be acknowledged by either the Directorate General of Ports and Maritime Auxiliary Services, the Directorate General of Merchant Marine or the Directorate General of Seafarers, which would recognise it as a “fundable maritime project”, as the case may be.
The procedures for certification will be carried out through a maritime one-stop department, which will be considered a department of Panama Maritime Authority’s Directorate General of Public Registry of Property of Vessels.
Law No 50 grants certain tax incentives through reforms made to articles of the Tax Code of the Republic of Panama and through special laws of the Republic of Panama, such as Law No 7 of 1990 on Leasing.
These modifications are set forth in Chapter IX of Additional Provisions and include, among others:
(a) the income of companies that establish their operations in the Republic of Panama with the purpose of creating construction yards for commercial ships, yachts, military ships and other types of ships for transport of merchandise or passengers, and/or companies dedicated to financeable maritime projects;
(b) earnings from income arising from interests and commissions earned by ships and/or maritime financing entities stemming from granting a naval mortgage; and
(c) earnings from income arising from insurance and reinsurance that guarantee credits for maritime financing entities that are duly certified and/or financeable maritime projects.
(a) Article No 24 modifies Article No 23 of Law No 7 of 1990, which regulates the leasing contract, establishing that lease contracts stemming from the leasing of duly registered merchant ships for international maritime trade shall not be subject to income tax in the Republic of Panama; and
(b) Article No 6 establishes import tax and other fees at 3% for introducing into the country machinery, marine equipment, rolling industries, materials, tools and other necessary elements for ship construction or the exclusive use of shipyards.
Chapter IV of Law No 50 regulates the applicable migratory incentives. Among others, the main established ones are:
Chapter V of Law No 50 regulates the applicable labour incentives and provides the following main aspects:
Law No 50 was enacted as a general law in order to create the basic legal framework for maritime financing incentives in the Republic of Panama. Matters pertaining to procedural aspects for certification, either for maritime finance entities or maritime projects, are expected to be covered in a future executive decree regulating the general law, hopefully to be enacted in 2019.
Chapter VIII, Articles No 18 to 20 of Law No 50, establish that the operations of this new activity will be governed by a governmental entity called the Certification and Supervisory Board of Maritime Financing Entities.
It is provided that the council will be composed of representative members from:
Each representative member will be appointed for a period of five years, concurring with the presidential term, and may be re-elected for additional periods.
Article No 28 of Law No 50 establishes that exemptions and tax incentives granted and established in its paragraph e) and in the last paragraph of Article No 708 of the Tax Code, and in Article No 23 of Law No 7 of 1990, shall have a duration period of 20 years from the moment the law enters into effect.
Work permits, however, shall be granted for a period of one year and extendable for a period of up to five years.
Panama is not a party to LLMC 76; however, similar provisions have been included in the Maritime Code of Procedure, Law No 8 of 1982, as amended.
Panama is not a party to LLMC 76, nor to its 1996 protocol.
Panama has included in the Maritime Code of Procedure, provisions almost identical to those found in LLMC 76, thus domesticating into substantive law the convention. One of the main differences in the provisions is that the bar for tonnage is set at 500 tons and vessels under that tonnage may request a limitation.
The limitation of liability action must be requested within six months of the first creditor claim received.
The following claims are subject to limitation of liability:
The following claims are not subject to limitation of liability:
Limitations of liability may be barred if it is proven that the damages resulted from a personal act or omission, committed with the intent to cause those damages, or recklessly and with knowledge that such damages would probably occur. The party against whom the limitation is being established has the burden to prove the limitation claimant’s excluding conduct.
The limitations of liability are calculated as follows:
(a) 333,000 Special Drawing Rights (SDR) for vessels up to 500 tons; and
(b) for ships in excess of 500 tons, the limitation under (a) above shall be applicable to the first 500 tons, with the addition of the following:
(i) for each ton from 501 to 3,000 tons: SDR500;
(ii) for each ton from 3,001 to 30,000 tons: SDR333;
(iii) for each ton from 30,001 to 70,000 tons: SDR250; and
(iv) for each ton in excess of 70,000 tons: SDR167.
(a) SDR 167,000 for vessels under 500 tons; and
(b) For vessels over 500 tons the limitation under (a) above shall be applicable to the first 500 tons, with the addition of the following:
(i) for each ton from 501 to 30,000 tons: SDR167;
(ii) for each ton from 30,001 to 70,000 tons: SDR125; and
(iii) for each ton in excess of 70,000 tons: SDR83.
The party would have to prove that the damages resulted from the ship-owner’s personal act or omission, committed with the intent to cause those damages, or recklessly and with knowledge that such damages would probably occur.
The Maritime Code of Procedure does not specify the type of guarantees acceptable. It is ample in its drafting as to accepting guarantees subject to the court’s discretion.
The Maritime Code of Procedure does not specify the type of guarantees acceptable. LOUs are subject to the agreement of all parties involved. Given that this is a universal proceeding with several creditors, it is unlikely that an LOU would be accepted.
All other prior claims and arrests will be accumulated into the limitation proceedings once the fund is granted and constituted.
Before ordering the judicial sale of a vessel, the maritime court must establish the arrest expenses and all other foreseeable expenses up to the sale, as well as the international market value of the vessel.
The court order, which includes the vessel information and the sale dates, is published twice a week in a national newspaper up until the sale.
The court appoints an expert appraiser to establish market value of the vessel based on international standards. The appraiser may also be appointed or suggested to the court by creditors.
Three rounds on separate dates can take place in a judicial sale proceeding.
The minimum bid for the first round will be 75% of the vessel appraisal price and for the second round it will be 50%. The third round has no minimum bid and the vessel will be sold at the best price offered.
The auction will start at 8am and offers will be accepted until 11am. Bidding will start at noon and will last until the marshal announces the award.
An attorney need not be present for a prospective bidder to post an offer.
The prospective bidder will have to file a deposit or guarantee for 5% of the vessel appraisal.
A successful bidder will have three days to post the sale price or lose the 5% deposit posted.
A party that has a judicially recognised credit against the vessel may place a bid on its credit and will be awarded the sale if there are no superior bids.
If the proceeds of the auction do not cover the debt and the costs, the execution will be expanded to other debtor assets, provided that the creditor denounces said assets. This rule does not apply to in rem proceedings or special maritime proceedings for the meeting of privileged lien-holders.
The Republic of Panama is currently not a party to any carriage of goods by sea regime convention.
The Maritime Commerce Law, Law No 55 of 2008, has enacted provisions similar to the Hague-Visby rules into domestic legislation.
Our carriage of goods by sea rules apply to cases in which the applicable substantive law is Panamanian law. If the contract has a different governing law, the case may be heard before the maritime courts of Panama, with the applicable foreign substantive law as agreed upon.
A bill of lading will constitute evidence of a contract of carriage under the Maritime Commerce Law, Law No 55 of 2008.
The contracting parties in a carriage of goods by sea contract are: the carrier (contractual), the effective carrier (if applicable) and the shipper. The consignee may also have legitimate interest in a carriage of goods by sea contract.
The party that has suffered a cargo-related loss may claim for a cargo claim. This includes the shipper, the consignee and the insurer or underwriter of that cargo.
The carrier (contractual), the effective carrier (if applicable) and their employees or agents may be sued for cargo claims.
The carrier is the party that, by itself or through another acting on its behalf, enters into a carriage of goods by sea contract with a shipper. The effective carrier is the party upon whom the carrier entrusts the execution of the transport or carriage of goods by sea.
A vessel can be sued in rem for cargo claims based on Panamanian substantive law provisions that recognise as a privileged maritime lien the compensation due to shippers for non-delivery or damages to the cargo.
Cargo claims give rise to a maritime lien under Panamanian substantive law provisions that recognise as a privileged maritime lien the compensation for the non-delivery or damages to the cargo due to shippers.
A claimant can sue in tort under the vessel-flag substantive law or the law of the country where the tort has arisen.
The effectiveness of Himalaya clauses in bills of lading has not been addressed by the maritime courts of Panama. However, Himalaya clauses could be contrary to Panamanian public order, specifically consumer law.
The following immunities are available to the carrier under the Maritime Commerce Law:
The common immunities available to all defendants under the Maritime Code of Procedure are also recognised:
The carriers’ liability may be limited to limited to an amount equivalent to SDR666.67 per package or unit used in transportation, or to SDR2 per kg of gross weight, of the goods lost or damaged, whichever is greater.
As a general rule in a cargo claim, the burden of proof lies with the claimant. However, if the defendant invokes any particular defence or immunity, then the defendant will have the burden of proof of the circumstances of that defence.
The consignee must give the carrier written notice of any apparent loss or damages to the goods at the time of delivery. If the loss or damages are not apparent at the time of delivery, the consignee must give written notice to the carrier within seven days of delivery for general cargo and within 15 days for goods transported in containers.
No written notice is required if, upon delivery, the state of the goods has been the subject of a joint inspection or appraisal by the carrier and the consignee.
The carrier shall not be liable the for delay in the delivery of the goods if the consignee does not provide written notice on losses within 60 days of delivery.
The time-bar for cargo claims is one year.
The time-bar cannot be extended by the parties as time-bars are a matter of public order and as such are not subject to private negotiations or agreements.
Panama maritime courts will usually recognise the validity of jurisdiction and choice of law clauses negotiated and agreed between the parties. However, this rule does not apply to standard form or adhesion contracts, such as bills of lading, as these are not considered negotiated by the parties.
Law No 19, dated 11 June 1997, known as the Panama Canal Organic Law, covers the subject of marine accidents in Panama Canal Waters.
Panama Canal Waters are defined as all waters within the compatibility area of Panama Canal operations. These are described in Agreement 13 of 1999, which establishes the navigation rules for the Panama Canal.
Pilotage is compulsory within Canal Waters, and the Panama Canal Authority will determine the number of pilots required for transit.
A ship-owner can recover against the Panama Canal Authority for damages caused to the vessel, its cargo, crew or passengers arising from a marine accident in Canal Waters.
The Panama Canal Board of Inspectors is tasked with investigating all maritime accidents in Canal Waters. This includes inspecting the vessels involved and investigating the facts, acts or omissions resulting from navigation through the Canal that have caused damages to the vessels, their cargo, crew, passengers, any workers or the Panama Canal Authority itself.
The Board of Inspectors must investigate serious maritime accidents occurring in Panama Canal waters that cause damages to any Panama Canal Authority property, or result in death, personal injury or damages to vessels.
The Board of Inspectors may investigate maritime accidents that occur outside of Panama Canal Waters if the investigation is requested by the Master or ship agent of the vessel involved, or if required by the Panama Canal Authority maritime operations director.
The hearing will be conducted by the president of the Board of Inspectors, with one or more members of the board. The hearing will be in English and the decision will be rendered by the majority. Only parties directly involved will be called upon to participate in the hearing, though they may be assisted by attorneys. Both parties may propose witnesses and cross-examine them.
A ship-owner may request an investigation by the Panama Canal Board of Inspectors to recover damages. The Panama Canal Board of Inspectors may also initiate proceedings upon knowledge of an accident.
The time-bar for filing an administrative claim against the Panama Canal Authority is two years from the date of the incident.
Damages caused to the vessel, its cargo, crew or passengers, as a result of the transit through the canal, whether caused during the transit through the locks or in adjacent areas outside the locks, can be claimed against the Panama Canal Authority.
Given the nature and characteristics of the operation of the Panama Canal, damages resulting from stays, overstays or delays in transit through the canal cannot be recovered.
The following events or circumstances cannot give rise to a claim against the Panama Canal Authority:
If a claimant does not agree with the determination on responsibility, the damages awarded or the quantification of those damages, they may file a claim before Panama’s maritime courts.
The time-bar for filing a judicial claim against the Panama Canal Authority will be one year from date of service of the final decision on damages.
The maritime courts of Panama and the Maritime Court of Appeals have exclusive jurisdiction to hear and adjudicate judicial claims against the Panama Canal Authority.
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