By Andreas Haviaras1
I COMMERCIAL OVERVIEW OF THE SHIPPING INDUSTRY
The Cypriot merchant fleet ranks among the 10 largest fleets in the world and ranks third in the European Union, with 12 per cent of the total fleet of the 27 Member States of the EU. It has 1,857 ocean-going vessels of a GT exceeding 21 million.
Cyprus is also a major ship management centre with a total of around 60 ship management companies, some of which rank among the largest of their kind in the world, operating from within Cyprus. From those ship management companies, 87 per cent are controlled by Cypriot and EU interests and they employ almost 40,000 seafarers, out of whom 5,000 are EU nationals. The total fleet managed from Cyprus represents 20 per cent of the world third–party ship management market.2
Cyprus' ports are the commercial ports of Limassol and Larnaka, the industrial port of Vassiliko, the Paphos Port, the small port at Latchi and the oil terminals at Moni, Vassiliko and Dhekelia. All of them are under the Cyprus Port Authority jurisdiction. The ports of Famagusta and Kyrenia and the Karavostasi terminal are, unfortunately, still under Turkish occupation and therefore are not open to shipping activities. Restrictions have been put in place that declare these ports as closed to all vessels .3
In 2013 there were 4,534 calls of ships in the Cyprus ports moving 270,364 passengers and 277,276 metric tons of cargo.4
II GENERAL OVERVIEW OF THE LEGISLATIVE FRAMEWORK
Cyprus has a legal system based on the English model harmonised with relevant EU legislation. As regards the ship registration, maritime safety, security and seafarers' legislation, the key laws are:
a the Merchant Shipping (Registration of Ships, Sales and Mortgages) Laws of 1963 to 2005;
b the Merchant Shipping (Masters and Seamen) Laws of 1963 to 2002;
c the Merchant Shipping (Ship owners' Insurance for Maritime Claims) Law of 2012; and
d the Protection of Cyprus Ships Against Acts of Piracy and Other Unlawful Acts Law of 2012 (Law 77(I)/2012).
As regards the taxation of shipping activities the key laws are:
a the Merchant Shipping (Fees and Taxing Provisions) Laws of 1992 to 2007 (repealed apart from its first schedule concerning the registration and other fees which still remains in force);
b the Merchant Shipping (Taxation of Ship Management Services) Regulations of 2000;
c the Merchant Shipping (Fees and Taxing Provisions) Law of 2010 (New Tonnage Tax Law);
d the Tonnage Tax For Ship Managers (Special Provisions and Requirements) Notification of 2010 (PI 511/2010);
e the Tonnage Tax (Special Provisions for the Calculation of the Community Flagged Share) Notification of 2010 (PI 536/2010);
f the Tonnage Tax (Arm's Length Principles) Notification of 2012 (PI 136/2012); and
g the Taxation of Owners of Cyprus Ships Notification of 2012 (PI 137/2012).
Cyprus imposes a special reduced tax on companies engaged in international maritime transport, which replaces the corporate tax, and this without unduly distorting competition. This scheme allows companies to opt for a tax calculated on the net tonnage of the fleet that they operate (tonnage tax) instead of being taxed on the actual profits of their maritime transport activities. The scheme is authorised until 31 December 2019. The tonnage tax system is available to any owner, charterer or ship manager who owns, charters or manages a 'qualifying ship' in a 'qualifying shipping activity'. The tonnage tax is calculated on the net tonnage of the ship according to a broad range of bands and rates prescribed in the legislation. The rates applicable to ship managers are 25 per cent of those applied for ship owners and charterers. A 'qualifying' ship is any sea-going vessel certified under applicable international or national rules and regulations and registered in the ship register of any member of IMO and the ILO. Certain types of ships such as fishing vessels, ships used primarily for sports or recreation, river vessels, non-self propelled floating cranes and non-ocean going tug boats are specifically excluded.
A 'qualifying shipping activity' is any commercial activity that constitutes 'maritime transport', crew management or technical management of ships. The definition of 'maritime transport' includes the traditional carriage of goods and passengers, as well as ancillary services such as all hotel, catering, entertainment and retailing activities on board a qualifying ship, the loading and unloading of cargo the operation of ticketing facilities and passenger terminals. Towage, dredging and cable laying are also eligible for the tonnage tax regime.
Ship owners of Cyprus-flagged ships automatically fall within the scope of the tonnage tax system. Ship owners of EU-flagged ships may opt to be taxed under the tonnage system. Ship owners of foreign-flagged ships must comply with certain requirements to qualify for the option to be taxed under the new system. These include the requirement that a share of their fleet comprise EU-flagged ships, which share must not be reduced in the three-year period following the exercise of the option (flag-share requirement) and that the commercial and strategic management of the fleet be carried out from the EU or EEA.
Any ship owner opting for the tonnage tax system must remain in the system for 10 years. Early withdrawal will result in penalties, calculated as the difference between the amount paid the period the ship owner was under the tonnage tax system and the amount that would have paid had it been subject to corporation tax in the same period. In addition, the ship owner will lose the right to opt for tonnage taxation until expiration of the 10 years from the date the option was first exercised.
The tonnage tax system covers profits from shipping operations, dividends paid directly or indirectly out of such profits, profits on the sale of the ship and interest earned on funds used as working capital or for the financing, operation or maintenance of the ship.
Any charterer who charters a ship under bareboat, demise, time or voyage charter is eligible for the tonnage tax system provided the tonnage of the ships under time or voyage charters do not exceed 75 per cent of the total tonnage of ships chartered and owned, for more than three consecutive years. This eligibility percentage increases to 90 per cent if the ships chartered are from the EU or EEA. The charterers of a fleet comprising EU and non-EU flagged ships must also comply with the flag-share requirement.
An eligible charterer may opt to be taxed under the tonnage tax system, but once the option is made, it must remain in the system for 10 years. Early withdrawal will result in the penalties outlined above for ship owners.
The tonnage tax system covers profits from shipping operations, dividends paid directly or indirectly out of such profits and interest earned on funds used as working capital or for the payment of expenses arising out of the charterparty.
A ship manager who provides crew or technical ship management services is eligible for the tonnage tax system provided it satisfies certain criteria. These include the maintenance of a fully operational office in Cyprus, the employment of a sufficient number of qualified personnel (51 per cent of whom should be EU or EEA citizens) and at least two-thirds of the management is entirely carried out from territory in the EU or EEA. Further, a share of this fleet must comprise EU-flagged ships, the share of which must not be reduced in the three-year period following the exercise of the flagshare requirement. All ships and crews under management must comply with relevant international standards and EU law requirements must be fulfilled, in particular those relating to maritime security, safety, training and certification of seafarers, environmental performance and on-board working conditions.
Other specific criteria must be complied with, depending on the ship management service provided (i.e., full implementation of the MLC for crew managers and the ISM Code certificate for technical managers).
The tonnage tax system covers profits from the provision of crew or technical ship management services, dividends paid directly or indirectly out of such profits and interest earned of funds used as working capital or for the payment of expenses relating to the management of the ships. The 10-year option rule also applies to eligible ship management and the same penalties apply for early withdrawal.
The international conventions ratified by Cyprus are:
a the SOLAS Convention (Ratification) Laws of 1985 to 2012;
b the MARPOL Convention (Ratification) Laws of 1989 to 2005;
c the STCW Convention (Ratification) Laws of 1985 and 1998;
d the Load Lines Convention (Ratification) Laws of 1969 to 1997;
e the Tonnage Convention (Ratification) Law of 1986;
f the Colregs (Ratification) Laws of 1980 to 2009;
g the IMO Convention (Ratification) Laws of 1973 to 1996;
h the CLC (Ratification) Laws of 1989 to 2005;
i the CLC 1992 Notification of 2008;
j the Bunkers Convention (Ratification) Law of 2004; and
k the Maritime Labour Convention 2006 (Ratification) and for Matters Connected Therewith Law of 2012.
Shipping disputes in Cyprus are litigated before the Supreme Court of Cyprus in its admiralty jurisdiction or, exceptionally, before a district court of Cyprus. The Supreme Court of Cyprus is empowered with the same powers as those vested in the High Court of England in its admiralty jurisdiction as those existed immediately before the independence of Cyprus (16/8/1960). The district courts of Cyprus have jurisdiction to hear admiralty cases remitted to them by the Supreme Court of Cyprus, however, the District courts do not have power to order the arrest of a ship unless it is in execution of an existing judgment.5
There is a general six-year time bar for claims arising out of contractual relations and three-year time bar for civil wrongs claims,6 however, claims related to the carriage of Goods by Sea have a time bar of one year.7
Admiralty courts gain jurisdiction for in rem claims simply by the presence of the ship in the territorial waters of Cyprus whereas they will not deny jurisdiction to litigate disputes on the ground that, assuming jurisdiction, would amount to forum shopping. Characteristically, Supreme Judge Papadopoulos said:
ii Arbitration and ADR
Cyprus does not have any specific maritime procedure other than that provided for other commercial disputes.9 The Admiralty Court of Cyprus lacks jurisdiction to arrest a ship for the purpose of aiding foreign arbitration proceedings.10
iii Enforcement of foreign judgments and arbitral awards
Foreign judgments or arbitration awards, whether admiralty or otherwise, first need to be recognised before being capable of execution in Cyprus. This is possible under EU Regulation No. 44/2001 for those of EU origin or under bilateral or multilateral treaties for those of non-EU origin. In an admiralty case it has been decided that an action based on a foreign arbitration award on a dispute under a charter party is in fact based on the charterparty itself and not on the arbitration award. A direct consequence of such finding is that the arbitration award holder is entitled to claim his appropriate priority on the proceeds of sale of the ship.11
IV SHIPPING CONTRACTS
i Ship building
Cyprus does not have any significant ship-building facilities.
ii Contracts of carriage
The main local law related to the carriage of Goods by Sea is an adoption of the Hague Rules.12 Cyprus has ratified the Hague-Visby Rules but has not, so far, adopted the Hamburg Rules or the Rotterdam Rules.
iii Cargo claims
Cargo claims may be brought either by an action in rem against the cargo itself or by an action in personam against the appropriate person depending on the facts of the case. The contract of carriage is evidenced by the terms of the bills of lading, which may or may not incorporate the terms of the charterparty including dispute resolution clauses. The admiralty court has very recently accepted that the terms of the charterparty are in fact incorporated into bills of lading even if the appropriate parts of the bill of lading remain blank.13
iv Limitation of liability
The carrier's liability may be limited by adopting in the bills of lading the terms of the Hague-Visby Rules.
Further by Law No 20(iii)/2005 Cyprus has adopted the LLMC and the Protocol of 1996 amending said Convention.
i Ship arrest
The in rem jurisdiction of the admiralty court of Cyprus may be invoked with a ship arrest or cargo arrest or sister ship arrest that is within the jurisdiction under the circumstances specified in Section 1 of the English Administration of Justice Act 1956. The claimant must file an in rem writ of summons and within those proceedings to apply ex parte for a warrant of arrest. The application needs to be accompanied by an affidavit verifying the facts of the case and requeseting the aid of the court in arresting the targeted property. The court, when issuing a warrant of arrest, will order the claimant to file a security (normally in the form of a bank guarantee) to be answerable in favour of the defendant's property in the event of the arrest being proved wrongful. At the same time the court will determine the amount of the countersecurity that, if offered by the defendants (again in the form of a bank guarantee), will secure the release of the arrested property. The court will further order the claimant to deposit with the court an amount sufficient to cover the initial expenses of the marshal of the court who will effect the arrest and maintain the arrested property in his or her possession. There has never been an arrest with the use of a helicopter but there have been arrests at anchor in territorial waters by the use of launches.
The arresting party must pursue its claim in Cyprus. It is not possible to arrest the ship in aid of foreign proceedings.
ii Court orders for sale of a vessel
The admiralty court may order the sale of the ship or cargo in execution of an in rem judgment or pedente lite. In the latter case an application must be filed and the court will issue the order for the sale only if it is satisfied that maintaining the ship or cargo under arrest will diminish its value or put it at unreasonably high risk. In both cases the court fixes a minimum reserved price and the sale is effected by the marshal of the court by public auction or private treaty.
With regard to safety and pollution prevention, Cyprus has harmonised its legislation with the EU legislation. From an implementation point of view, the Cyprus Department of Merchant Shipping has been strengthened by specialist personnel and a network of inspectors at the most important ports around the world something that has contributed substantially to the increase of inspections of Cyprus-flagged ships. With such set up, the number of detentions of Cyprus ships with regard to serious deficiencies has greatly diminished so as to allow Cyprus to enter both the Paris MoU and the Tokyo MoU 'white lists' and to be removed from the United States Coast Guard (USCG) targeting system.
As regards the danger of ships being used or being a target for terrorist activities, Cyprus adopted the ISPS Code and all ships under the Cyprus flag, as well as all port facilities in Cyprus, have been duly certified as complying with its requirements.
Recently, Cyprus participated voluntarily in an audit scheme undertaken by the IMO. The completion of the audit revealed that the Department of Merchant Shipping has substantially complied with the IMO Assembly principles established under Resolution A974(24) and with the Code for the implementation of the mandatory IMO instruments included in Resolution A973(24). This voluntary scheme demonstrates Cyprus as the only open registry to have achieved this and i onlys the second country in the world being voluntarily audited. The Department of Merchant Shipping already has in place a complete system for adopting and implementing the IMO's conventions and therefore the IMO audit scheme is viewed as a means of identifying weaknesses for the purpose of refining and perfecting the system.
ii Port state control
The Cyprus Ports Authority was established as a public entity14 to apply the policy of the government. This policy is conveyed and supervised by the Minister of Communications and Works. The Cyprus authority is member of IAPH,15 ICHCA,16 IALA,17 ESPO18 and Med Cruise Association.19 Under the provisions of the Agreement for Financial Support to Cyprus the government has committed itself to privatising a number of public entities, one of which is the Cyprus Port Authority. The CPA has the power and authority to run and exploit the Cyprus ports.
iii Registration and classification
A vessel may only be registered in the Register of Cyprus Ships if more than 50 per cent of the shares of the ship are owned by Cypriot citizens or EU citizens who, if not being permanent residents of the Republic, have appointed an authorised representative in Cyprus; or the 100 per cent of the shares of the ship are owned by one or more corporations that have been established and have their registered office in Cyprus or are established and have their registered office in the European Economic Area and which will have either appointed an authorised representative in Cyprus; or the management of the ship is entrusted in full to a Cypriot or a Community ship management company.
Ships of any type or size other than those constructed for exclusive use on inland navigation or which are to be used exclusively on inland navigation or are banned on port state control grounds20 may be registered in the Register of Cyprus Ships or the Special Book of Parallel Registration, provided the applicable agerelated requirements and the applicable type-related requirements are complied with. The registration of the types specified in the table below may be allowed provided the age of the ship does not exceed the maximum age limit corresponding to the type of the ship and the related conditions corresponding to the type of the ship (i.e. entry inspection and additional inspection) are complied with.
Cyprus law allows for the provisional registration of a vessel. This will allow the ship owner time (up to nine months, including a three-month extension) during which it will be able to complete the administrative formalities for permanent registration.
The application for registration of a ship under the Cyprus flag must be made by a local lawyer to the Minister of Communications and Works through the Registrar of Cyprus Ships. A ship may be provisionally registered under the Cyprus flag either in Limassol, by the Registrar of Cyprus Ships or at any diplomatic mission or consular post of the Republic of Cyprus abroad who will act on instructions issued by the Registrar of Cyprus Ships. At the time of her provisional registration under the Cyprus flag a ship must be at a port so that she can be surveyed and certified on behalf of the Cypriot government.
The permanent registration of a ship must be effected within six months (or nine months if the three-month extension has been obtained) from the date on which it was provisionally registered.
Under Cypriot legislation parallel (bareboat) registration of vessels is possible. The legislation provides for the two forms of internationally accepted bareboat registration: 'parallel-in' registration and 'parallel-out' registration. These two options offer some very interesting opportunities for leaseback, hire-purchase and finance arrangements. 'Parallel-in' and 'parallel-out' registration may be effected with more than 20 states whose legislation is compatible with Cypriot legislation.
Cyprus exclusively recognises and authorises the organisations that meet the criteria as specified in the Annex to European Union Directive 94/57/EC, as amended to carry out statutory surveys, inspections and certification services for ships flying the Cyprus flag.21 The Department of merchant Shipping has in place a biannual audit schedule for monitoring each RO's performance so as to satisfy itself that the RO complies with the requirements of Directive 94/57/EC, as amended and of Appendix 1 of the Annex to Assembly Resolution A739(18), including future amendments thereto.
The classification societies recognised by the Republic of Cyprus and authorised to carry out assessment, auditing, verification and certification of safety management systems and ISPS Code, on behalf of the Republic of Cyprus are:
a American Bureau of Shipping;
b Bureau Veritas;
c China Classification Society;
d Det Norske Veritas;
e Germanischer Lloyd;
f Korean Register of Shipping;
g Lloyds Register;
h Nippon Kaiji Kyokai;
i Polish Shipping Register;
j Registro Navale Italiano; and
k Russian Maritime Register of Shipping.
The standard agreement between Cyprus and the classification societies provides that if liability arises out of any incident that is finally attributed to the Republic of Cyprus by a court of law, or as part of the settlement of a dispute through arbitration procedures, and this may be attributed to an omission or gross negligence of the classification society, its bodies, employees, agents or others who act on its behalf, the Republic of Cyprus will be entitled to financial compensation to the extent of the said loss, damage, injury or death, as decided by that court, caused by it.
iv Environmental regulation
The key legislation in force in relation with sea pollution is set as follow:
a The Convention for the Protection of the Mediterranean Sea against Pollution and Related Protocols (Ratification) Law of 1979 (No. 51/79) (EU No. 1524, Supplement I, dated 8 June 1979).
- The Convention for the Protection of the Mediterranean Sea against Pollution and Related Protocols (Ratification) (Amendment) Act 2001 (Law 20(III)/2001). (EU No. 3537, Section (III), dated 15 October 2001).
- The Convention for the Protection of the Mediterranean Sea against Pollution and Related Protocols (Ratification) (Amendment) Act 2007. (No. 35(III)/2007) (EU No. 4092, Section (III), dated 20 July 2007).
b The Agreement between Cyprus, Israel and Egypt on Cooperation in Addressing Major Marine Pollution in the Mediterranean Sea (Ratification) Law of 2001 (V.21(III)/2001) (EU No. 3537, Supplement I (III), dated 15 October 2001).
v Collisions, salvage and wrecks
Cyprus has in place the Wrecks Law Cap. 298 and the Shipwrecked Passengers Law Cap. 297. It has also ratified the Assistance and Salvage Convention and the Protocol of Signature, 1910.
vi Passengers' rights
Cyprus has in place the Merchant Shipping (Liability of Carriers of Passengers by Sea in the Event of Accidents) Law No. 5(I) /2014. This law applies to carriage of passengers falling within the scope of Regulation (EC) No 392/2009, which incorporates certain provisions of the Athens Convention.
vii Seafarers' rights
There are a number of laws regulating the seafarers' training and certification whereby Cyprus has ratified the MLC by Law No. 6(III)/2012.
Haviaras & Philippou LLC
Andreas Haviaras was admitted as lawyer to the Cyprus Bar Association in 1977. A law graduate of the Law Faculty of the University of Athens in 1975 and of University College London in 1976, he was admitted to the Cyprus Bar Association in 1977. He ran his own practice until 1987, which then merged with one of the oldest law firms in Cyprus. Since 2008 he has been the managing partner of Haviaras & Philippou LLC. He was a member of the following permanent committees of the Cyprus Bar Association: the Permanent Advisory Committee for Offshore Companies and Tax Planning; the Permanent Committee for the Revision of Legislation; the Permanent Committee for the Rules of Etiquette; the Permanent Committee for the Cyprus Stock Exchange; and the Advisory Committee for the revision of the Civil Procedure Rules.
1 Andreas Haviaras is the managing partner of Haviaras & Philippou LLC.
2 The merchant Shipping Department of Cyprus, www.mcw.gov.cy/mcw/dms/dms.nsf/index_en/index_en?opendocument.
3 Decree of the Cabinet of the Republic issued on 10.03.1974 (PI 265/74).
4 Cyprus Port Authority, www.cpa.gov.cy/CPA/page.php?pageID=1&langID=13.
5 Courts of Justice Law No. 14/1960 as amended, Sections 19 and 22B.
6 Law No 66(1)/2012.
7 Carriage of Goods by Sea Lae Cap 263.
8 Williams and Glyn's Bank plc v. the ship MARIA (1992) 1 CLR, p. 309.
9 The Arbitration Law Cap 5 and the International Arbitration Law No. 101/1987.
10 Appeal No. 24/10 Nationwide Shipping Inc v. the ship Athena.
11 Caspi Shipping Limited and others v. the proceeds of sale of the ship SAPPHIRE SEAS (1998) 1 AAΔ 1015.
12 Carriage of Goods by Sea Law Cap 263.
13 Action No. 22/2011 Oscar Shipping Pte Ltd v. The cargo on board the ship Asphodel, dated 12 April 2013.
14 Law No. 38/1973.
15 The International Association of Ports and Harbors.
16 International Cargo Handling Coordination Association.
17 International Association of Lighthouse Authorities.
18 European Sea Ports Organisation.
19 Association of Mediterranean Cruise Ports.
20 Circular 12/2012 of the Merchant Shipping Department of Cyprus.
21 Law for the Recognition and the Authorisation of Organisations No. 46(I)/2001 as amended by Law 83(I)/2004.
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.