Shipping 2020 Comparisons

Last Updated February 24, 2020

Law and Practice

Authors



Patton Moreno & Asvat has offices in Panama and London, and six members in its shipping department, which is active in maritime law, ships registry, ship finance and shipping litigation. Clients in the maritime sector include ship-owners, charterers, shipyards, ports and port terminal owners, insurance companies, international banks and financial institutions, private equity investors, and consortiums. The firm is a member of the Panama Maritime Law Association (APADEMAR).

The main regulatory body that governs maritime activities in Panama is the Panama Maritime Authority (PMA), which was created by means of Law Decree No 7 of 10 February 1998.

The PMA is divided in four main General Directorates:

  • General Directorate of Merchant Marine (DIGEMAR), which has the objective to execute all administrative acts for the registration of vessels under Panamanian flag. To oversee the strict compliance of the provisions regarding navigation, security, cleanliness and pollution prevention to the maritime environment by Panamanian vessels wherever they may be. Regular filings for the issuance of valid navigation documents are requested and processed through this Directorate.
  • General Directorate of Public Registry of Property of Vessels (“Ships Registry”), which has the objective to manage all procedures regarding the registration of titles of ownerships, mortgages and any other liens over vessels registered under the Panamanian flag in order to provide publicity and legal effects against third parties.
  • General Directorate of Ports and Auxiliary Maritime Industries, which has the objective to propose and coordinate the general plan for the development of the National Port System and of the auxiliary maritime industries. Regular filings to obtain operation licenses in order to provide auxiliary maritime services are requested and processed through this Directorate.
  • General Directorate of Seafarers, which has the objective to analyse, manage and control the application of legal provisions on the education, formation and certification of Seamen in Panama. Licenses as well as seamen certificates are requested and processed through this Directorate.

A General Antitrust Law was enacted by Law No 29 of 1 February 1996 which applies to all commercial activity inside Panama. There are no specific provisions nor exemptions in Law No 29 for the maritime industry.

Panama has been the first Flag State of the world since 1993, both in number of vessels and gross tonnage with more than 8,000 vessels and 222.6 million of gross tonnage.

Panama has ratified the following conventions:

  • HONG KONG CONVENTION;
  • IMO Convention 48;
  • SOLAS Convention 74;
  • SOLAS Protocol 78;
  • SOLAS Protocol 88;
  • LOAD LINES Convention 66;
  • LOAD LINES Protocol 88;
  • TONNAGE Convention 69;
  • COLREG Convention 72;
  • STCW Convention 78;
  • SAR Convention 79;
  • IMSO Convention 76;
  • INMARSAT OA 76;
  • FACILITATION Convention 65;
  • MARPOL 73/78 (Annex I/II);
  • MARPOL 73/78 (Annex III);
  • MARPOL 73/78 (Annex IV);
  • MARPOL 73/78 (Annex V);
  • MARPOL 73/78 (Annex VI);
  • London Convention 72;
  • INTERVENTION Convention 69;
  • CLC Protocol 92;
  • FUND Protocol 92;
  • PAL Protocol 02;
  • SUA Convention 88;
  • SUA Protocol 88;
  • SUA Convention 2005;
  • SUA Protocol 2005;
  • BUNKER CONVENTION 01;
  • ANTI FOULING 01;
  • BALLAST WATER 2004; and
  • NAIROBI WRC 2007.

The following classifications societies are recognised by Panama:

  • American Bureau of Shipping;
  • Bureau Veritas;
  • CR Classification Society;
  • China Classification Society;
  • Croatian Register of Shipping;
  • DNV GL AS;
  • Hellenic Register of Shipping;
  • Indian Register of Shipping;
  • Inter-maritime Certification Services, SA;
  • International Maritime -Register (Panama), Inc;
  • International Naval Survey Bureau (INSB);
  • International Register of Shipping (Panama) Inc;
  • Isthmus Bureau of Shipping;
  • Korean Register of Shipping;
  • Lloyd’s Register Group Limited;
  • Macosnar Corporation;
  • National Shipping Adjuster, Inc;
  • Nippon Kaiji Kyokai;
  • Overseas Marine Certification Service, Inc;
  • Panama Maritime Documentation Services Inc;
  • Panama Shipping Registrar Inc;
  • Phoenix Register of Shipping, SA;
  • Polski Rejestr Statkow;
  • Qualitas Register of Shipping, SA;
  • RINA SERVICES SpA; and
  • Russian Maritime Register of Shipping.

PMA has two main types of registrations: the Internal Service Registration, which allows vessels to navigate only within Panamanian territorial waters; and the International Service Registration, which allows vessels to be registered in Panama for international navigational purposes. The latter established Panama's status as the first registry of the world.

DIGEMAR will grant to the vessels registered under its International Service Registry a Navigational Patente and Radio Licence valid for five years. However, the juridical status of these vessels is governed by the Ships Registry which will allow the registration of ownership titles of the vessels and mortgages thereon.

Within the International Service Registration, Law No 57 of 6 August 2008, the General Merchant Marine Law allows certain types of special registries to satisfy the needs of the maritime industry.

Special Registration for Temporary Navigation

This registry allows the enrolment of a vessel for a period of up to three months for ultimate scrapping, for a delivery voyage or any other kind of temporary navigational purpose. The interested party needs to pay a sole charge of 40% of the net tonnage of the vessel plus USD150.

The vessel will be deleted by operation of law at the end of the three-month period at no cost, but the interested party may, at any moment, request such deletion by way of filing a petition thereof and effecting payment of the regular deletion of governmental fees.

The registration of title of ownership or mortgages is optional for this type of registration. Nevertheless, if a mortgage is to be recorded the same must contain the acknowledgment of the mortgagee that the registration of the vessel will elapse at the end of the three-month registration period.

Dual Registration Under a Bareboat Charter Agreement

The Panama flag allows a ship with primary registration on a foreign registry to be registered under the laws of Panama as a secondary registry pursuant to bareboat charter party arrangements. The inverse situation is also permitted by our laws.

The system contemplated under Panamanian laws results in the dismemberment of the features or attributes of registration. On the one hand, the laws of the primary registry govern the juridical status of a vessel in terms of the concept of ownership and encumbrances, while, on the other hand, the laws of the special subordinated registry govern matters regarding the administrative and technical operation of the vessel, ie, manning, labour relations, safety and security matters.

A vessel registered in Panama under a bareboat charter agreement will have a registration valid for a period up to the validity of the bareboat charter agreement, this period may be renewed as per renewals of the subject charter agreement.

A vessel registered under this special type of registration will be considered a Panamanian registered vessel and will only be allowed to fly the Panamanian flag. Likewise, it will be subject to all regular applicable taxes, fees and duties in accordance with Panamanian law. Payment in respect of those applicable during the whole period of registration must be made in advance upon enrolment.

Pleasure Vessel Registration

Yachts, irrespective of the nationality of its owner or its measurements and tonnage, may be enrolled under Panamanian flag.

For this enrolment to be achieved it is necessary to file an affidavit declaring a yacht will only be used as a personal pleasure vessel, ie, not for commercial purposes.

Registration charges amount to USD1,500, save for yachts owned by a Panamanian company or Panamanian natural person for who the charge amounts only to USD1,000. This is a single charge payable during the two-year term of registration.

Lay Up Registration

This type of special registration was created to mitigate the financial burden of the shipping business crisis of recent years.

This registration is valid for one renewable year and allows the registration of vessels under Lay Up status subject to certification issued by a Recognised Organisation (RO) or the applicable Port Authority where the vessel is located.

One of the advantages of this type of registration is that no enrolment fees apply to vessels that will be enrolled in Panama under this type of registration for the first time, and will be exonerated to pay part of the applicable regular annual tonnage taxes and fees. In addition, they will be exempt from having technical, safety and security certificates on board, but the respective RO should make the pertinent annotations concerning the Lay Up status in the subject certificates.

Once re-activated, an inspection must be carried out by a RO to ascertain the vessel is duly fitted and in accordance with all national and international maritime laws and regulations as a requirement to revert to a regular international service registration.

The Panamanian Register offers various types of discounts such as:

  • newbuilding’s discounts;
  • discounts for vessels of five years or less of construction;
  • loyalty discounts granted to economical groups with more than five vessels registered in Panama;
  • discounts on account of no Port State Control Detentions;
  • discounts granted to a fleet of no less than three vessels to be enrolled simultaneously or within the same calendar year; 
  • discounts to vessels of less than 15 years of age and more than 10,000 gross register tonnage (GRT); and
  • eco-ship energy efficiency discounts.

There are no citizenship requirements for registration of a vessel under the Panamanian Register. Any person, natural or juridical, irrespective of the nationality, may enrol a vessel under Panamanian flag.

Presently, Panama does not have a specific law of cabotage. There is however, a project to create such law in the works.

Panama has a renowned international banking centre which serves primarily local and regional financing of projects. However, its activities in financing have not specialised in the maritime sector. Nevertheless, Law No 50, approved in 2017, created incentives to attract international financial institutions to settle in Panama and offer ship financing. Panama is aiming to soon become an important centre for ship financing in the region and, with future expansion, become an international action. 

Ship mortgages are required to be registered at the Ships Registry in order to provide legal and binding effects against third parties.

Registration may be effected preliminarily via the filing of an application form containing the description of the essential terms of a mortgage. This preliminary registration can be effected during the course of one business day and it has full legal effects for a period of six months within which period of time the interested party must file for permanent registration. Upon completion of permanent registration, the effects are retroactive to the time and date of the preliminary one.

Preliminary and permanent registrations are both effected at the Ships Registry, but a preliminary registration may be effected at said Ships Registry through any of the Panamanian consulates abroad which received the application and payment of registration fees, and handles and effects the registration at the Ships Registry in Panama within the same timeframe of the place of the closing of the transaction.

Bills of Sale need to be translated into Spanish and protocolised into a Notary Public Deed for registration with the Ships Registry.

On the other hand, Panamanian ship mortgages can be registered via a full translation into the Spanish language protocolised into a Public Deed or, alternatively, the same can be registered in its original English version,  provided a short mortgage extract is executed in respect of the mortgage and the same is translated into Spanish for permanent registration together with the original mortgage and any relevant attachments in English.

The preferred mode of ship finance registration is through the granting of a ship mortgage. These would include mortgages that may secure future obligations, third parties' obligations and vessels under construction.

There is also the capacity to register an international leasing as a lien to a ship, however, the few existing precedents have been only under preliminary registration.

A ship mortgage is the sole collateral guarantee used to secure a ship finance transaction which is registered at the Ships Registry. Any other encumbrances are not subject to registration unless they are attached to the mortgage and filed for registration accordingly.

The records kept at the Ships Registry are available on the public website and any third party may access this in order to obtain information about ownership title and encumbrances registered over Panamanian vessels. 

Records kept at DIGEMAR are not available to the public unless access is allowed to their online platform service; however, access is only granted to the local resident agents of Panamanian vessels aside from the PMA and the Panamanian consulates authorised to act in maritime matters.

Certificates may be issued in Spanish or English languages upon request. Certificates issued by any of Panamanian Consulates abroad may be issued in the language of the jurisdiction where they are located and issuance is effected if so requested. This does not apply to technical certificates which are only issued in Spanish and English.

A standard certificate issued by the Ships Registry locally or via a Panamanian Consulate will confirm the ownership title (owner, registration data and registration’s date), mortgages recorded over the vessel (mortgagee, amount secured, registration data and registration’s date) and any other registered record such as conservatory/protection measures (ie, injunction orders). Nevertheless, the Ships Registry, upon request, may certify any information that is recorded therein.

Certificates are generally issued in Panama within the course of one business day unless there is an extraordinary backlog at the Ships Registry. If the certificate is to be issued by a Panamanian consulate, this must be requested locally in Panama. As such, the Panamanian consulate is authorised by the central offices in Panama and the time difference must be considered when calculating the timeframe for issuance.

The Registry does not work with other registries at the time of reflagging. This is not an usual practice nor is a change contemplated under our administrative procedural laws. Nevertheless, if there is such a need, this could be considered by the flag on a case by case basis.

Preliminary registration charges are:

  • USD450 for the first two million dollars of the mortgage’s secured; and
  • USD150 for each additional million or fraction (up to USD1,200), plus USD50 in review fees.

Permanent registration charges are:        

  • USD0.10 per net registered tonnage up to USD500;
  • 20% surcharge tax levied of the above amount; and
  • USD50 in review fees.

In addition, if preliminary registration is effected via Panamanian consulate, USD750 consular fees apply.

Container owners may register their title of ownership, leasing, mortgages or other types of encumbrances at the Ships Registry. The procedure for registration follows the same steps and requirements as those for title of ownership and mortgages over ships.

The costs for registration of titles of ownership and mortgages on containers are:

  • title of ownership of container, USD450 plus USD25 for every container included in the contract up to USD4,000; and
  • mortgages and encumbrances over containers, USD450 plus USD25 for every container included in the contract up to USD4,000.

A Panamanian vessel can be subject to several mortgages. The ranking and priority of the mortgages will depend on the date when individual mortgages were registered.

Consent is not required from higher registered mortgagees in order to have subsequent mortgages registered.

Only a general pledge of assets is subject to registration in Panama. No other specific pledges (ie, pledge of shares) are available for registration.

In order to prove a mortgage as a preferred maritime lien, the court will require prima facie evidence of the existence and registry of said mortgage. This may include copies of the mortgage agreement and certificates issued by the Ships Registry, which shall be issued within the 30 days prior to filing of the claim. The plaintiff must also file prima facie evidence of the sums owed.

A mortgage, unless it is sold judicially, cannot be sold nor cancelled from the registry without previous consent by the mortgagee or a prior registration of a discharge of mortgage executed by the mortgagee.

There is no legal expiration of the mortgage but a cancellation is required to be registered at the Ships Registry. If the principal obligation which the mortgage is securing has been settled or ceases to exist, the mortgagee needs to register a discharge of mortgage document in order to cancel its mortgage registration at the Ships Registry.

There are no special regulations under Panama maritime laws providing the authority to the Panamanian government to requisition vessels.

Nevertheless, under the terms of Article 51 of the National Constitution, in case of war or grave disturbance of public order or urgent social interest, the Executive may decree the expropriation or take possession of private property. In the concept of private property, vessels may be included.

Under the scope of criminal law, the government may expropriate assets (including vessels) in Panama which have been related to any acts of terrorism, drug trafficking and/or money laundering.

The usual method for capital financing in Panama for ship finance is through bank loans from international banks, either individually or by syndication. Additionally, capital is also provided through private venture and through the bond market and securitisation.

Fleet mortgages and syndicated loans are common in Panama. Syndicated loans, however, are provided by banks outside Panama which may be secured by Panamanian fleet mortgages.

Usually, banks prefer well-known established flags, like Panama, to have their securities registered. Efficiency and trustworthiness in the flag have always been important elements when considering providing financing to a shipowner. In the past, banks exercised an important influence in a shipowner’s decision when choosing flags. However, in recent years banks have given more freedom to a shipowner on this election.

Securitisation is now seen, more than before, as a method for ship financing.

Panama is not presently a jurisdiction considered as a major capital market for shipping. However, it is in its initial stages to potentially become an international market to obtain and/or raise capital for shipping transactions by means of Law No 50 of 28 June 2017 regarding incentives to Maritime Financing. This law was enacted in order to take advantage of Panama’s geographical, logistical and economical characteristics providing tax, labour and immigration incentives to any local or international financial institution that wish to finance ships or specific maritime projects in Panama.

Panama has adopted the following conventions related to maritime labour: 

  • Unemployment Indemnity (Shipwreck) Convention, 1920 (No 8);
  • Placing of Seamen Convention, 1920 (No 9);
  • Minimum Age (Trimmers and Stokers) Convention, 1921 (No 15);
  • Medical Examination of Young Persons (Sea) Convention, 1921 (No 16);
  • Seamen's Articles of Agreement Convention, 1926 (No 22);
  • Repatriation of Seamen Convention, 1926 (No 23);
  • Protection against Accidents (Dockers) Convention (Revised), 1932 (No 32);
  • Officers' Competency Certificates Convention, 1936 (No 53);
  • Shipowners' Liability (Sick and Injured Seamen) Convention, 1936 (No 55);
  • Sickness Insurance (Sea) Convention, 1936 (No 56);
  • Minimum Age (Sea) Convention (Revised), 1936 (No 58);
  • Food and Catering (Ships' Crews) Convention, 1946 (No 68);
  • Certification of Ships' Cooks Convention, 1946 (No 69);
  • Seafarers' Pensions Convention, 1946 (No 71);
  • Certification of Able Seamen Convention, 1946 (No 74);
  • Identity Documents Convention, 1958 (No 108);
  • Minimum Age (Fishermen) Convention, 1959 (No 112);
  • Medical Examination (Fishermen) Convention, 1959 (No 113);
  • Fishermen's Articles of Agreement Convention, 1959 (No 114); 
  • Fishermen’s Competency Certificates Convention, 1966 (No 125);
  • Convention of the International Maritime Organization;
  • Protocol related to the International Convention for the Safety of Human Life at Sea, 1978;
  • International Convention regarding the rules for formation, title and custody for seafarers, 1978; and
  • UN Convention on the Law of the Sea, 1982 (Montego Bay).

Relevant laws include:

  • Law No 2 of 2009 which ratifies the Maritime Labour Law Convention, adopted on 23 February 2006 during the 94th Maritime Meeting of the General Conference of the International Labour Organization held in Geneva, Switzerland and which is in force as of 20 August 2013. This convention does not apply to fishing vessels or related activities, or ships of traditional construction. 
  • Executive Decree No 86 of 2013 regulating Maritime Labour Law Convention.
  • Law Decree No 8 of 1998 which regulates work at sea and navigable waters amended by Law Decree No 41 of 2013. Applies to Panamanian flagged vessels of interior services and Panamanian flagged vessels of national or international fishing activities. 
  • Law No 60 of 1978 which regulates seafarer visas.
  • The National Constitution which provides a special labour regime for Panama Canal workers. 

There is no required percentage of local seafarers to be on board of international vessels registered in Panama.

For local vessels engaging in cabotage trade, 90% of seafarers per vessel must be local, the remaining 10% seafarers may be international but are required to have valid work permits to work in Panama.

Minimum wages in Panama are established on an activity basis. The current minimum wage for transportation by sea and complementary activities is set at USD2.94 per hour. National fishing activity of an artisanal nature is set at USD2.17 per hour and USD2.38 per hour for industrial activity. 

The maximum daytime working is eight hours, and the corresponding working week up to 48 hours. The maximum night time working is seven hours, and the corresponding working week up to 42 hours.

Working hours are considered to be all the time the worker cannot use freely because of being subject to the availability to the employer. Working time that exceeds the limits of the maximum working hours, or contractual limits, is considered to be overtime.

Among the causes for justified dismissal of a seafarer are:

  • providing false information related to the seafarers' aptitudes or qualifications;
  • acts of violence, threats or insults against a shipowner, their representatives, higher ranking officers or other members of the crew, except when there is provocation;
  • disclosing technical information, privileged management information or information regarding the cargo that may cause damage to a shipowner;
  • questionable conduct or dishonest acts, criminal conduct against the property of a shipowner, the vessel or any individual onboard, the shipper or consignee;
  • causing with intent, in the performance of his functions or by reason of them, serious damages to the machines, installations, equipment, structure or operation of the vessel or its cargo;
  • compromising, due to negligence, the security of the vessel, its cargo, the individuals onboard or the environment;
  • rejecting, on various occasions, the adoption of safety measures and procedures to prevent professional risks or material damages;
  • disregarding without justified cause, to a shipowner’s standards, the orders issued by his superiors in accordance with the labour contract, labour convention or internal regulations onboard;
  • possession of illegal drugs, or being under their influence, or appearing for their shift under the influence of alcohol;
  • sexual harassment or immoral conduct, assisting the introduction of stowaways or allowing an unauthorised individual to board or leave the vessel;
  • abandonment of their position, including abandoning the vessel without authorisation or unwillingness to work without justified cause;
  • not being onboard at time of departure, despite prior written notice onboard;
  • not giving assistance to guarantee immediate safety of the vessel, of the individuals onboard, the cargo or assisting other vessels or individuals in danger at sea, provided their life is not put in danger; and
  • initial lack of capacity or manifest deficiency to perform and comply with their duties onboard.

A minimum compensation schedule exists, divided and classified according to body parts, where a percentage is assigned to each injury affecting a section of that body part according to the degree of severity of the injury. The percentage is applied to the salary earned during a year (monthly salary earned during the last 12 months), in order to determine the compensation amount. A 5% default rate applies to accidents not considered in the schedule. In case of death, the sum of USD7,500 is to be paid in favour of each child – minor, up to four children. A maximum insurance cap of USD50,000 is set per accident.

Social security is complementary of the medical insurance that must be provided by shipowners pursuant to the Maritime Labour Law Convention of 2006. Panama shall grant to all seafarers with regular residence in the territory and those under their supervision access to social security in accordance to the existing laws and regulations.

Regarding vessels of interior services, social security affiliation is mandatory.

Maritime labour disputes related to navigation in Panamanian flagged vessels of interior services and Panamanian flagged vessels of national or international fishing activities, can be brought before the courts of the labour jurisdiction.

Seafarers can file claims for damages arising in tort or resulting from labour accidents due to a shipowner’s or a third party’s fault or negligence, or wilful misconduct, before the Panamanian maritime courts.

Labour disputes involving foreign flagged vessels can also be brought before the Panamanian maritime courts. Furthermore, the Labour Affairs Department of the General Directorate of Seafarers assists in mediation and conciliation (individual and collective) between seafarers and shipowners, and deals with complaints and investigations regarding safety and labour conditions onboard.

Claims filed by Panama Canal workers are solved pursuant to the Panama Canal Labour Relations Regulations.

Seafarers may negotiate and agree with a shipowner on the dispute resolution avenue, which may include arbitration.

It is the obligation of the shipping company or shipowners, before terminating the employment, whatever the type of contract, repatriate to the seafarers, at his choice, to the hiring place or port, or to the boarding port.

Repatriation expenses must include everything related with transport, accommodation, salary and maintenance of the crew during the trip to the hiring place or boarding port. Also included are room and board costs of the crew until the time set for departure.

Although some transport unions in Panama are affiliates to the ITF, collective bargaining is usually done under the rules established in the Labour Code of the Republic of Panama.

Panama has a specialised maritime jurisdiction composed of two first instance maritime courts, of equal standing, and a Maritime Court of Appeals with nationwide jurisdiction.

Disputes arising out of maritime commerce, transport and traffic, occurring within the territory of Panama, its territorial sea, the navigable waters of its rivers, lakes and in those of the Panama Canal, are considered maritime in nature and subject to the Maritime Courts. These causes will include claims arising from acts that are executed or must be executed from, to or through the Republic of Panama. Claims that involve the Panama Canal Authority must adhere to what is established in the Panama Canal Law.

The Maritime Courts shall also have exclusive jurisdiction to take cognizance any legal action arising from the above referred acts which take place outside of the boundaries of Panama, in the following cases:

  • if the pertinent legal actions are brought against the vessel or its owner and the vessel is seized in the jurisdiction of Panama as a result of said legal action;
  • if the Maritime Court seizes any other assets belonging to the defendant even if they are not domiciled in Panama;
  • if the defendant is located in the jurisdiction of Panama and has personally been notified of any legal action filed in the maritime courts; and
  • if any of the vessels involved is registered in Panama or substantive Panamanian law is applicable by virtue of an agreement, or as provided by Panamanian law, or if the parties expressly or tacitly submit to the jurisdiction of the maritime courts of Panama.

The main types of proceedings available for maritime disputes are the following:

  • Ordinary Proceedings (in personam); and
  • Special Proceedings:
    1. collision;
    2. shipowner’s Limitation of Liability;
    3. enforcement of maritime liens (in rem);
    4. enforcement of naval mortgage;
    5. creditors’ concursus;
    6. abbreviated proceedings seeking summary judgment; and
    7. special proceeding for enforcement of domestic and foreign decisions.

Both in rem and in personam proceedings are valid in Panama. Also, it is possible to file mixed in rem and in personam proceedings where the same assets are pursued, although the cause of action is different. When a same event gives rise to both in rem and in personam liability, the amount of the complaint is the same, in order to prevent claiming twice or more of the resulting liability.

To obtain an arrest order it is necessary to file an arrest request and complaint, with “prima facie” evidence of the claim. The plaintiff must also cover the Court expenses to arrest the vessel and the expenses to maintain the vessel while under arrest.

An arrest order is usually granted within 24 hours of the request being filed. The time for execution of the arrest depends on the location of the vessel (Pacific or Atlantic). Both Maritime Courts are located on the Pacific. It takes approximately two hours to drive from one ocean to the other and then some additional time for navigating to the vessel.

A similar time frame would apply when requesting an injunction on a vessel.

The Maritime Procedure Law recognises the validity of arbitration agreements, provided is in writing and has been negotiated between all parties. Arbitration can be conducted pursuant to the rules chosen by a party, otherwise the Panamanian law on arbitration will govern the arbitration proceeding. Maritime courts have to abstain, at the request of one of the parties, from continuing to hear a claim already submitted to arbitration, as well as in cases where an arbitration clause exists. In such cases, the Maritime courts can order the taking of appropriate measures to safeguard a parties’ rights, such as the consigning of a surety bond before the competent court or a waiver of time bar defence, if the statute of limitations has been interrupted. If an arrest or seizure has taken place, or it is not possible to consign a bond before the competent court, the Maritime courts can stay the main proceeding and keep the arrest or seizure in place, subject to the results of the arbitral proceeding.

Parties may also engage in mediation privately or through the Centre for Maritime Conciliation, Mediation and Arbitration.

The Court will fully supervise the judicial sale of vessels. When an order for sale is made, the Court will instruct the Marshal to carry out the sale procedure. The Court will appoint a ship surveyor to determine her market value. The auctions shall take place on the date fixed by the Court Marshal.

On the date of the sale, the Marshal will issue a Provisional Adjudication Certificate in favour of the successful bidder. After the full purchase price has been paid, the court will issue a Statutory Adjudication Certificate in favour of the purchaser. This document will constitute the legal title of the vessel and will state that the vessel has been acquired in a judicial sale free from any encumbrances.

The sums collected from the judicial sale of the vessel will be consigned with the court by the Marshal and will be deposited in a special account maintained by the court. The Marshal must apply to the court for payment of his fees and expenses of arrest, custody and sale.

Once the sale proceeds have been paid into court, any party who has obtained a judgment in rem against the vessel or her sale proceeds may apply to the Court for determination of priorities, if necessary, and for payment out. The order of priorities in which the sale proceeds will be paid out will be determined by the applicable substantive law.

Common Exceptions

The most common exceptions considered by the Code of Maritime Procedure are: payment; remission of debt; novation of obligation; wilful misconduct or fraud intervening in the formation of a contract; falsehood of the claim obligation; nullity of the contract or act; transaction/settlement; res judicata; agreement not to request or petition; early petition; pending performance of a required condition; statute of limitations; lapsing of the litigation or procedural instance; force majeure; and lack of standing.

In addition to exceptions, there are also incidents or challenges raised by motions that can lead to an annulment of proceedings, such as lack of jurisdiction; lack of competence; improper representation; lack of proper service of the complaint on defendant; incomplete integration of the parties to the proceedings due to absence of a party necessary for the proceedings; and absence of a hearing date or its celebration if required by law.

The exceptions of res judicata, statute of limitations, lapsing of the instance, lack of standing, and the settlement or withdrawal of the right of action (when such withdrawal results in the extinction of the right of action) are decided as matters requiring a prior and special resolution. These exceptions are heard together with challenges of annulment of procedure, declination of competence/jurisdiction, and determination of the applicable law, and will be decided in a single decision.

Types of Bonds

As a general rule, bonds have to be consigned in the form of a cash deposit with the National Bank of Panama, certified or cashier’s cheque issued by a bank with the licence to operate in Panama and guarantee bonds issued by locally licensed companies. In the case of lifting of vessel arrests or other seizures, the parties can negotiate other form of bonds (eg, P&I Club LOU).

Act Ex-officio or Negotiorum Gestio

A bond ranging from USD100 to USD3,000 set in proportion to the claim amount is required. In case an attorney does not provide a certificate of legal existence of a company on whose behalf he is acting ex-officio, then the bond shall be increased by 50% of the initial bond amount set in accordance with the claim amount.

Vessel Arrest

In case of an in rem claim or use of an arrest as a means to grant jurisdiction to a Maritime court, the bond is in the amount of USD1,000 plus USD2,500 for initial expenses. Seizures or arrests seeking only to secure a claim, require consigning a bond representing 20-30% of the claim amount, set at a Maritime court’s discretion. Injunctions require a bond in the amount of USD1,000 (starting at USD10,000 if a prohibition not to sell or encumber is requested) not to exceed USD50,000, set at a Maritime court’s discretion.

Lift Arrest

A bond covering the amount of the claim, plus legal costs as set by the Bar tariff, plus three years of interest (10% yearly rate), and expenses is required, unless something different is negotiated between the parties.

Judicial Sales

Requires consigning a bond representing 5% of the appraised value of the vessel or relevant asset.

In order to enforce a foreign decision, a writ of exequatur (declaration of enforceability in Panama) issued by the Fourth Chamber of the Supreme Court of Justice is required. While the writ of exequatur is pending by the Supreme Court, an applicant can petition a Maritime court to order the arrest of a vessel or seizure of an asset of defendant. Once the writ of exequatur is granted by the Supreme Court, then the applicant can commence enforcement proceedings. In this case, a Maritime court will serve the defendant who will be granted a ten-day term to file objections. In case a defendant files objection, the Maritime courts will call a hearing, to be followed by a ruling. This ruling can be challenged through appeal.

In cases where a maritime court has previously declined jurisdiction to a foreign court, the applicant can request enforcement provided an authenticated and legalised copy of the final decision is provided with the petition.

In a creditors’ concursus the law of the flag determines the order of priority of maritime claims.

Ship mortgages rank in fourth order of priority, behind judicial costs caused in the common interest of the maritime creditors, expenses, indemnifications and salaries of assistance and salvage and the salaries, payments and indemnifications due to the captain and members of the crew.

Sisterships or vessels owned by affiliates may be sued in rem in lieu of those on which the claim originated, when the applicable substantive law permits it. Plaintiff must file prima facie evidence demonstrating that under the applicable substantive law, the arrest of a sister ship is viable, and that the vessel subject to the arrest is a sistership under the applicable substantive law.

Claims subject to limitations of liability include claims related to:

  • death, bodily injury, loss or damage to objects (excluding damage to harbour works, basins and waterways, bridges, canals, assistance in navigation and installations of the Panama Canal), which occurred onboard or were directly connected to the exploitation of a vessel or salvage or assistance operations and damages resulting from any of these causes;
  • damages resulting from a delay in the transportation of cargo, passengers or their luggage, by sea;
  • damages different from those arising from contractual rights, caused in direct connection with the exploitation of the vessel or with salvage or assistance operations;
  • re-floating, removal, destruction or disposal of the danger of a sunken, wrecked, stranded or abandoned ship, including all that is or has been aboard such ship;
  • removal or destruction of vessel cargo or elimination of the danger of such cargo; and
  • claims filed by an individual who is not the liable party, in connection with the measures that may be taken to limit or reduce damages by the liable party that can try to limit its liability, in accordance with the law and those resulting thereafter.

Claims exempt from limitation include those related to:

  • assistance or rescue operations or salvage operations in case of gross average;
  • damages resulting from pollution caused by hydrocarbons, in the sense given to such damages in the International Convention on Civil Liability for Oil Pollution Damage of 29 November 1969, and in any amendment or protocol in force;
  • claims pursuant to any international treaty or national legislation that governs or prohibits the limitation of liability for nuclear damages; and
  • claims against the owner of a nuclear ship, related to nuclear damages.

Maritime claims can terminate through settlement, as well as through withdrawal which may be with or without prejudice. Withdrawal of a challenge (ie, appeal) can also lead to termination. A defendant can also abide or accept the facts and statement of relief sought in a complaint.

Maritime claims can also be exceptionally terminated due to the lapsing of the instance, if proceedings are paralysed for a period exceeding three months. This term is interrupted through the filing of petitions, briefs or other actions of parties. It should be noted that lapsing of the instance does not immediately apply, it has to be declared by a judge either by their own initiative or at the request of the parties, therefore, any filing taking place beyond the three-month term causes its interruption. 

The Panamanian tax system is based on the principle of territoriality. Only income generated in the national territory is taxed and foreign source income is exempt.

2010 amendments to the Tax Code introduced provisions in relation to transportation and include the international transportation in the portion corresponding to freight, passengers, cargo and other services whose origin or final destination is Panama as an activity that shall be considered as income obtained from sources within Panama. Notwithstanding, it is important to indicate that the amended Tax Code specifies that these activities will be exempt if the international companies have their home port in Panama.

Income obtained within Panama from the operations of ships registered abroad will also be exempt if the income obtained by Panamanian registered vessels in such country is given a similar exemption under the principle of reciprocity. The same applies to income obtained within Panama from operations of ships registered abroad by foreign persons resident or not in the national territory provided that Panamanian natural or legal entities are given similar treatment in the country of the nationality of that person.

The sale of vessels registered under the Panamanian flag and engaged in international trade shall be exempt from income tax.

As of 1 January 2017, entities incorporated in Panama that do operate within Panama are required to keep accounting records and maintain documentation of support which indicates clearly and precisely the commercial operations of a company, its assets, liabilities and patrimony, which allow the determination of the financial situation of the company and are also required to maintain financial statements in the offices of its Resident Agent within Panama, or in any other place within or outside the Panama. If it is the latter, indication of where such records are maintained and who keeps them must be given to the company’s Resident Agent.

Shares of Panamanian companies may be issued in nominative and bearer form. As of August 2016, companies to be incorporated with bearer shares shall deposited the bearer shares with an authorised custodian together with a sworn declaration indicating information on the beneficial owner of such shares.

Pursuant to Law No 85 of 22 November 2012, a Panamanian company will be deemed dissolved once the liquidation process is completed, that is as of the date in which the resolution of the shareholders confirming that all credits have been collected, all debts have been paid and all remaining assets have been distributed to the shareholders is recorded at the Public Registry in Panama.

Panama operates a territorial tax system. Article 694 of the Fiscal Code specifies that only "taxable income generated from any source within the territory of Panama regardless of where it is received" is subject to income tax. Income that does not arise in Panama or is not derived from Panama is not subject to tax in Panama.

Companies incorporated under the Law No 32 of 1927 will continue their existence for a period of three years from the date of dissolution for the specific purpose of initiating special proceedings that may be considered convenient, defending its interests when prosecuted, settling affairs, paying its debts, conveying and transferring its assets and dividing its capital stock, but it will not continue the business for which it was incorporated.

Panama has ratified double taxation treaties signed with Barbados, Czech Republic, France, Ireland, Israel, Italy, Luxembourg, Mexico, Portugal, Qatar, Singapore, South Korea, Spain, The Netherlands, UAE, UK and Vietnam, all of which include provisions in relation to operation of ships engaged in international transit. Provisions vary between one agreement and another but in general terms it is established that the profits that a company resident in a Contracting State obtains from the exploitation of ships in international traffic can only be taxed in that State.

The term profit may include gross income and income derived from the exploitation of ships and/or interest directly generated by the operation of vessels in international traffic that are incidental to such exploitation and/or the profits arising from the use, maintenance or leasing of containers, including trailers and related equipment for the transport of containers, used to transport goods or merchandise. Reference to exploitation of ships includes, in accordance with the provisions of some of the signed agreements, the freight or lease of ships for international transit, the leasing or use of containers and related equipment and the sale of ships, containers and related equipment provided that the freight, rental or sale are accessories to its exploitation of ships.

Treaties signed with countries as France, Spain, Italy and Israel are specific in indicating that the profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the company is situated. The treaty signed with France also specifies that the profits and income from the exploitation of ships that are exempt from taxes in the Contracting State where the effective address of the company is located, in accordance with the laws in force in that Contracting State, will be taxable in the other Contracting State.

Patton Moreno & Asvat

Capital Plaza, 8th floor
Roberto Motta Ave.
Costa del Este, Panama
0819-05911
Panama City
Republic of Panama

+507 306 9600

+507 263 7887

info@pmalawyers.com info@pmalawyers.com
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Law and Practice in Panama

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Patton Moreno & Asvat has offices in Panama and London, and six members in its shipping department, which is active in maritime law, ships registry, ship finance and shipping litigation. Clients in the maritime sector include ship-owners, charterers, shipyards, ports and port terminal owners, insurance companies, international banks and financial institutions, private equity investors, and consortiums. The firm is a member of the Panama Maritime Law Association (APADEMAR).