As a part of preparations for EU membership, Turkey is in the process of amending or promulgation its primary and secondary legislation. Within this framework, the long pending Turkish Commercial Code, a key element for the accession negotiations, was promulgated on 14 February 2011 and entered into force on 1 July 2012 ("New TCC"). Turkish Commercial Code regulates the maritime matters as well as other areas of commercial transactions and shall radically amend many aspects of Turkish maritime law, including arrest of ships.
This article outlines the new ship arrest rules and procedures under the New TCC.
Turkey is not a party to any of the international conventions on the arrest of ships and the existing domestic law before the enactment of the New TCC did not have specific rules on this matter and the arrest of a ship was in general terms no different than any other conservatory measure or conservatory attachment of any other assets of a debtor. Theoretically, a ship could be arrested for any claim whatsoever, whether maritime or not. In other words, theoretically, the possibility to arrest a ship was not limited to maritime claims provided that there was prima facie evidence about the claim and the risk of securing it. In practice, however, the courts were very reluctant against ordering conservatory measures. Most of the courts rejected such applications based on ground that the claim in question "requires judgment". Due to the restrictive application of the cautionary measures by majority of the courts, the claimant's lawyers tried to file their applications for arrest before certain courts which were more liberal in granting such measures even though the ship may not be within the jurisdiction of such courts.
Another important problem with respect to the previous arrest practice was that the countersecurity requirements differed significantly from one court to another. Some of the courts required countersecurity in the amount of 10% of the claim amount while some others could require as high as 40% of the claim amount for exactly the same claim and under similar conditions. All those factors led to a great varience in the arrest practices in different ports of Turkey although theoretically the same rules had to be applicable.
The New TCC
The committee that has prepared the New TCC looked the arrest rules of various states such as England, Germany, US, South Africa as well as international arrest conventions. The arrest provisions of the New TCC mainly reflect the provisions of the International Convention on the Arrest of Ships 1999 even though Turkey is not a party to the aforesaid convention. In addition, relevant provisions of the International Convention on Maritime Liens and Mortgages 1993 are also reflected in the New TCC.
The New TCC aims to bring a full and unified set of rules dealing with all aspects of arrest of ships and to tackle the special needs of the different parties in maritime transport.
- Applicable Law to the Arrest Procedure
The provisions of the New TCC that deal with arrest are applicable to both Turkish flag and foreign flag ships. It is nearly undisputed in Turkish practice that the courts should apply lex fori with respect to the conservatory measures, including arrest, and enforcement proceedings. The New TCC follows this well established principle and explicitly provides that the procedure relating to the arrest and release of a ship shall be governed by the law of the state in which the arrest was effected or applied for. So in the event that an arrest application is made before the Turkish courts, the courts shall apply Turkish law with respect to the arrest procedure even if there is a foreign element. The application of the Turkish law, however, shall be limited to the procedural matters. The law applicable in the merits of the dispute shall be determined in accordance with the Turkish Conflict of Laws rules and may be a foreign law.
- Claims in respect of which a ship may be arrested
According to the previous arrest rules, arrest of a ship in Turkey could take place for all types of claims regardless of whether the claim has a maritime character or not or whether it is connected with the ship to be arrested or not. Under the New TCC a ship may only be arrested in respect of a closed list of 22 "maritime claims", which are enumerated exhaustively, but in respect of no other claim. Maritime claims aims in respect of which a ship may be arrested are under the New TCC are the same as those listed in Article 1 of the International Convention on the Arrest of Ships 1999.
(a) loss or damage caused by the operation of the ship
(b) loss of life or personal injury
(d) damage or threat of damage to environment
(e) wreck removal
(f) any agreement relating to the use or hire of the ship
(g) any agreement relating to the carriage of goods or passengers
(h) loss of or damage to or in connection with goods carried on board the ship;
(i) general average;
(l) goods, materials, provisions, bunkers, equipment (including containers) supplied or services rendered
(m) construction, reconstruction, repair, converting or equipping of the ship;
(n) port, canal, dock, harbour and other waterway dues and charges;
(o) crew wages
(p) disbursements incurred on behalf of the ship or its owners, including the loans obtained for the vessel;
(q) insurance premiums;
(r) any commissions, brokerages or agency fees
(s) any dispute as to ownership or possession of the ship;
(t) any dispute between co-owners of the ship as to the employment or earnings of the ship;
(u) a mortgage or a "hypothčque" or a charge of the same nature on the ship;
(v) any dispute arising out of a contract for the sale of the ship.
The only difference is related to Art 1 (p) of the Convention: According to Art 1 (p) refers to claims arising out of "disbursements incurred on behalf of the ship or its owners" whereas the corresponding provision of the New TCC reads:
"disbursements incurred on behalf of the ship or its owners including the loans obtained for the vessel"
The reference to bank loans has been added pursuant to the demand of the Turkish Bank Union Association.
The New TCC does not provide an explicit provision as to what law shall be applicable in determining as to whether a claim is to be classified as a maritime claim within the meaning of the Code, but based on well-established Court of Appeal precedence which is followed in the preparatory work of the New TCC, it can be stated that this issue will also be governed by lex fori. Accordingly, when an arrest application is made before a Turkish court, Turkish court shall apply Turkish law in order to determine as to whether the claim can be classified as a maritime claim, but the substantive issues such as for example is we are talking about a charterparty dispute, the issue as to whether the hire is due or not shall be governed by the law applicable to the c/p.
- Conditions for obtaining an arrest order:
According to the new arrest rules, it is necessary and sufficient that the claimant provide sufficient evidence with respect to two issues:
- The amount of the claim
- the claim in question falls under one of the 22 maritime claims listed in the New TCC
Once this is done the court must give arrest orders. There is no requirement to prove that there is any danger of the debtor evading payment or any other similar conditions if the maritime claim is due at the time when the arrest application is made. If, however, the maritime claim is not due and payable at the time when the arrest application is made, in addition to the amount and type of the claim, the claimant must also provide evidence of danger of the debtor's evading the debt.
- Arrest is the only permitted conservatory measure
From the procedural point of view, conservatory attachment leading to the arrest of the vessel is the only conservatory measure permitted under the New TCC. Other conservatory measures such as a freezing order or similar shall not be applicable with respect to a maritime claim.
- Ships that may be arrested:
a-) the ship against which the maritime claim arises: "that ship"
Arrest of "that ship" the maritime claim is related is permitted. In addition the "owner" of that ship must be the debtor of the claim. In contrast to the 1999 Arrest Convention, the New TCC does not permit the arrest of the ship for the debts of the demise charterer or any other charterer or manager on the grounds that under Turkish law a judgment in respect of that claim cannot be enforced against a ship which is not owned by the person liable for that claim.
Of course if the claim is secured by a maritime lien or a mortgage or a charge of the same nature or if the claim relates to the ownership or possession of the ship, the arrest of the ship shall be permissible even if the owner is not personally liable for the debt.
b-) "any other ship of the debtor"
Arrest is also permissible of any other ship of the debtor. The relevant provision of the New TCC exactly reflects Art 3.2 of the 1999 Arrest Convention and is as follows:
Arrest is also permissible of any other ship or ships which, when the arrest is effected, is or are owned by the person who is liable for the maritime
claim and who was, when the claim arose:
(a) owner of the ship in respect of which the maritime claim arose; or
(b) demise charterer, time charterer or voyage charterer of that ship.
This provision does not apply to claims in respect of ownership or possession of a ship.
As stated above, under the previous rules and practice of arrest, the Turkish courts required countersecurity for arrest and had extensive discretion to determine the amount of the countersecurity. In practice the countersecurity amount was determined by the courts as a percentage of the claim amount regardless of the actual damage to be incurred by the vessel as a result of the arrest and would usually be between 10% to 40% of the claim amount. The New TCC also requires the claimant to put up countersecurity but fixes the amount of the countersecurity as 10.000SDR regardless of the claim amount. The claimant has to lodge the countersecurity along with the arrest application. The countersecurity may be increased or decreased upon the application of the parties.
- Procedure for arrest
The application for arrest must be filed before the competent courts with jurisdiction for arrest.
The claimant must present documents evidencing a possible maritime claim and the amount of the claim and must lodge the countersecurity along with the application.
The court can give an arrest order based on the ex parte application of the claimant without service of the application to the opponents.
Once granted, the claimant must apply to the competent Bailiff within three working days as from the date of the arrest order failing which the arrest shall automatically become invalid.
The arrest order is enforced by the Bailiff Office immediately upon the application of the claimant. The New TCC explicitly provides that the arrest may be enforced even during out of office hours and official holidays. The arrest order is served on the Master or owner or demise charterer or any of their representatives by the bailiff and that party is appointed as a guardian. The arrest is also notified to the Harbor Master, coastal safeguard and the customs authority as well as the Ship Registry and for foreign flag vessels, to the relevant diplomatic consulate of the flag state.
In the event that the vessel has sailed at the time the arrest order is to be enforced, for Turkish flag vessels the Bailiff will serve the arrest order to owner or demise charterer or the debtor who may not be the owner and shall order them to put up security within 10 days or delivery of the vessel to the Bailiff office in its next voyage. In the event that the foreign flag vessel has set sail before the enforcement of the arrest order, the coast guard can follow the vessel until she leaves Turkish territorial waters.
Under the New TCC, the action in merits has to be filed within one month before the competent tribunals. Under the previous rules, the action in merit had to be filed within 7 to 10 days (depending on the type of conservatory measure obtained) as from the date of arrest, which usually was not sufficient to prepare for the pleadings in merits or to reach an out of court settlement among the parties and in most of the cases the parties would file the action in merits to preserve the arrest and at the same time try to reach a settlement and if a settlement was reached the action in merit would be cancelled, which created unnecessary costs and workload for the courts. The extension of the period to file the main proceedings in merits to one month will give more time for any possible settlements or preparation for action in merits.
- Scope of arrest
Another new provision introduced by the New TCC is that the arrest order will not be limited to the arrested vessel. The earnings of such vessel will also fall within the scope of the arrested property. It is difficult to predict how this provision shall be applied by the courts.
- Procedure for release
The vessel may be released by putting up a security covering the claim amount, interest accrued and costs.
Under the pervious rules, the courts only accepted cash or bank letter of guarantee issued by Turkish courts which must be unlimited in time. Under the New TCC, the type of the security can be agreed by the parties, which introduces the possibility to provide P&I letters as security.
It is also possible to file an objection against the arrest if the arrest order is given based on the ex parte application of the arrestor. The objection may be filed either before the court that has given the arrest order or if an action in merit has been filed before a Turkish court, before that court. If the action in merits is filed before an arbitral tribunal or a foreign court, the objection may be filed before the court that has granted the arrest order.
- Jurisdiction for the arrest and the merits of the claims:
The New TCC provides for specific rules of jurisdiction for arrest. Accordingly, the court at the port of call or place of anchorage or berthing or mooring or drydocking shall have exclusive jurisdiction to hear arrest applications (For Turkish flag vessels, the courts at the place of registry of the vessel shall also have jurisdiction). This provision will prevent Claimants from making arrest applications to courts of their choosing in advance of the vessel's arrival.
Another important impact of this new rule is that it will not be possible to arrest vessels in transit through the Turkish Straits, which is possible at the moment. We were able to have arrest orders for vessels that are in transit through the Turkish Straits. It seems that this will not be possible anymore under the New TCC unless the transit is interrupted.
Under the previous rules, Turkish courts were be reluctant to give arrest orders to secure claims pending before foreign courts or arbitral tribunals. The New TCC has an explicit provision dealing with this issue. Accordingly, a ship may be arrested by Turkish courts for the purpose of obtaining security even if by virtue of a jurisdiction clause or arbitration clause in any relevant contract, or otherwise, the maritime claim in respect of which the arrest is effected is to be heard before a foreign court or an arbitration.
The proceedings in merits must be filed before the foreign court or arbitration tribunal that has jurisdiction in merits within one month as from the date of the arrest order. In addition to the other rules for jurisdiction, the New TCC explicitly provides that the arrest itself confers international jurisdiction to the Turkish court which has given the arrest order to hear the action in merits of the claim.
- Damages for wrongful arrest:
Should the arresting party lose the action in merits, he may be held liable for loss and damages suffered by the vessel. The court which has given the arrest order has jurisdiction to hear the lawsuit for damages for wrongful arrest. In the event that the main proceeding in merits is filed before a different court or arbitration tribunal, the proceedings for the damages for wrongful arrest shall be stayed until the final judgment is given under the action in merit.
- Maritime liens
Due to their direct impact on the right to arrest, the provisions dealing with the maritime liens under the New TCC are also outlined herebelow.
Turkish law shall be applicable to determine whether a claim is secured by a maritime lien with respect to claims filed before Turkish courts. The claims secured by a maritime lien can be enforced against the vessel even if the owner may not be the debtor.
New TCC, the claims secured by a maritime lien are to a large extent the same as those listed in Article 4 of the International Convention on Maritime Liens and Mortgages 1993. The list consists of the following:
- Wages and other sums due to the crew (including costs of repatriation and social security contributions)
- Loss of life or personal injury
- Port, canal and other waterway dues and pilotage dues,
- Tort based loss and damage
- general average contributions
In addition to the claims listed International Convention on Maritime Liens and Mortgages 1999 general average contributions also give maritime lien under the New TCC.
We had a wider list of claims secured by maritime lien under the previous TCC. For example: claims related to provisions, bunker supplied to a vessel, cargo damage, etc are secured by maritime lien. So we were able to a arrest ship for such claims even if the owner may not be the debtor or the vessel is sold to a third party after the claim has arisen, which will not be possible under the New TCC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.