UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Archive for March 30, 2010

Offshore Company Formation in China Business Law Journal March 2010


CBLJ Mar 10 (2)

I am featured in the March 2010 issue of China Business Law Journal in regards to offshore company formation.

Joint Marine Losses in the UAE


Federal Law No. 26 of 1981 on Maritime Trade Law for the UAE

Article 340:

  1. Any damage or loss which affects the ship or cargo during a maritime voyage is a maritime loss.  It shall also include any additional expenses that might be spent to secure the voyage’s safety.
  2. Maritime loss shall be settled according to the following provisions unless a special agreement exists among the concerned parties.
  3. Maritime losses are of two kinds: private and joint.


Article 341:

Private losses are considered so when they do not meet the conditions of joint losses.  Private losses are the liability of the owner of the damaged material or who has paid the expenses, without prejudice to his right to sue the person who caused the damage or benefits from his expenditures.

Article 342:

  1. Joint losses are sacrifices and extraordinary expenditures, voluntarily and reasonably incurred in a time of general peril for the common safety of the ship or its cargo.
  2. Joint losses particularly include the following:
    1. Commodities jettisoned into the sea and damage to the ship and cargo as a result of the jettisoning.
    2. Voluntary landing of the ship for public safety, unfurling of sails or the increase of steam in order to refloat it and the damage to the ship as a result of this.
    3. Damages to the ship or cargo as a result of splashing water or holding the ship to extinguish a fire which has emptied in it.
    4. Expenditures incurred when the ship is force-landed to lighten the ship, expenses incurred in hiring crafts for the purpose and the cost of reloading the cargo.
    5. Material and supplies used for the needs of public safety such as fuel if the ship is supplied with enough fuel before departure but runs out of it for any reason.
    6. Expenditure for the ship’s shelter, for public safety, in a port or at an anchor due to extraordinary conditions, expenditure for resumption of the voyage with the original cargo or part thereof and also expenditures to take it for repairs to a port other than its usual anchorage.
    7. Expenses of unloading commodities, fuel or supplies if this is necessary to repair a damage which is considered part of joint losses and if the ship could not resume and the voyage without repair of such damage.  Included also are the expenses of reloading commodities, storage, insurance and repairing damage to the cargo, fuel and supplies during the process.
    8. Wages of the captain and crew, and the price of fuel and supplies consumed during the extension of the voyage due to the ship seeking shelter to protect itself or to make repairs which are considered average losses during a reasonable period to enable the ship to resume its voyage.
    9. Assisting and towage expenses.
    10. Joint loss adjustment expenses.


Article 343:

Losses are presumed to be particular average losses and those who claim that they are joint losses shall have to prove this.

Article 344:

  1. Losses shall be considered to be joint losses even if the collision which caused them is due to a fault made during the voyage by one of the persons concerned, without prejudice to the right of other parties to claim liability of the person who committed the error.
  2. The person who commits the fault has no right to ask that the damage which was caused by his fault be considered a joint loss; nevertheless, if the accident is caused by a navigational fault caused by the captain, the carrier may request that the damage be considered a joint loss.


Article 345:

  1. Joint losses include material damage and expense which are directly caused by an act having the characteristic of a joint loss.
  2. As for indirect losses caused by delay or hindrance of the ship or a drop in prices of commodities or any other reason, they shall not be considered joint losses.


Article 346:

Joint losses include expenses made instead of other expenses which could have been considered joint losses, if they were spent within a reasonable amount.

Article 347:

  1. Goods loaded on deck in violation of the provisions of Article 273 contribute to joint losses if salvaged, but if jettisoned in the sea or destroyed, their owners have no right to consider them joint losses unless they prove that they objected to loading them on deck, or if the maritime custom is not to load them in this way.
  2. The above mentioned paragraph shall not be applicable in case of coastal navigation.


Article 348:

  1. Joint losses shall not include destruction and damage to goods loaded without the captain’s knowledge; nevertheless if such goods are salvaged, they shall make up part of joint losses on the basis of their actual value.
  2. Goods with a price in the manifest less than their real value shall not be accepted as joint losses if destroyed or damaged unless this takes place on the basis of the price written in the manifest.  If salvaged, such goods shall take part in joint losses on the basis of their actual value.


Article 349:

Luggage of passengers and crew without a bill of lading or a transfer receipt from the carrier as well as postal parcels, whatever their kind shall not be considered joint losses if salvaged; if they are sacrificed, however, they shall be considered joint losses.

Article 350:

Rights to joint losses form a creditor group, and liabilities arising from such losses form a debtor group.

Article 351:

Listed in the creditor group are damages and expenses which are considered joint losses and which are estimated as follows:

a.)  The value of damage to the ship shall be estimated as the reasonable expenditures actually made on repair after deducting renewal differences according to expenses and the price collected from sale of the wreckage.  If the ship has not been repaired, a reasonable amount shall be estimated.  If the ship is a total loss or a semi-total loss, its contribution to joint losses shall be determined according to the value of the ship before its destruction and after deducting the estimated value of repairs, which are not considered joint losses and the price of the wreckage, if any.

b.)  The value of damage to goods in case of destruction or damage shall be estimated on the basis of the commercial value of goods on the last day of unloading the ship at the port of destination or on the last day of the voyage if it ends at a port other than the port of destination.  If the damaged goods are sold, the damage to be considered a part of the joint losses shall be determined on the basis of the difference between the net sale price and the price of the undamaged goods were not damaged on the last day of the ship’s unloading at the port of destination or on the last day of the voyage if it did not end at the port of destination.

Article 352:

If one of the concerned parties does not pay the required share of the joint losses, the ordinary expenses which are paid in order to obtain these funds shall be considered joint losses.

Article 353:

The debtor list shall include the ship, the shipping charges and the cargo shipped on board as follows:

  1. The ship’s actual net value at the port where the voyage ends in addition to the value of the sacrifices it has born.
  2. The ship’s total lease and three quarters of the transport fare of passengers, not including that part of the lease which has been stipulated to be payable in all cases.
  3. The salvaged and sacrificed goods according to their actual commercial value or the value estimated at the unloading port.


Article 354:

Administrative expenses not to exceed 5 percent of the total amount of the joint losses shall be calculated.  These administrative expenses shall be added to the joint losses until a final settlement is reached, taking into account what might have been paid to the concerned parties before the settlement.

Article 355:

  1. If the owners of the goods present cash sums to guarantee their share in the joint losses, these sums shall be deposited in a joint account opened in a bank agreed upon by the concerned parties in the name of a representative of the owners of the goods.  These funds and whatever administrative expenses may be added thereto shall be reserved to guarantee payment to those who have a right to the joint losses.
  2. If a dispute should arise, the concerned civil court shall appoint a representative for the goods owners and designate the bank in which the funds are to be deposited.


Article 356:

Joint losses are to be distributed among the parties concerned with the voyage according to the share of each one in the debtor group.

Article 357:

Joint losses shall be settled by one or more experts.  If the concerned parties fail to appoint the expert or experts, the concerned court shall appoint him/them.

Article 358:

If the concerned parties failed to agree on the settlement it shall, at the request of one of the parties, be filed before the concerned civil court.

Article 359:

Every one of the concerned parties shall clear himself of taking part in the general average losses by leaving his property in the debtor list.

Article 360:

  1. The captain has the right to refuse to hand over cargo which contributes to joint losses or to deposit them with third parties unless its owner presents a guarantee that their share in the joint losses will be paid for.  If the two parties fail to agree on the guarantee, the matter shall be filed before the concerned civil court, which shall appoint an expert to estimate the guarantee.
  2. The court shall order the sale of all or some of the goods so as to obtain this guarantee.  Rules implemented with respect to mortgaged goods shall likewise be implemented with regard to the goods to be sold.


Article 361:

  1. Debts resulting from joint losses are considered privileged debts.
  2. This privilege shall be applicable to amounts payable to the carrier of the ship on salvaged goods or their sale revenues.
  3. As for amounts due to goods owners the privilege shall apply to the salvaged ship, its fares and its attachments.
  4. Expenses for settlement of joint losses shall be given priority over all other debts.


Article 362:

No reciprocity shall exist among parties bound to contribute to joint losses.  Nevertheless, if one of them is unable to pay his share of these losses, the share shall be distributed among the others according to the commitment of each of them to the joint losses.

Article 363:

No request to take part in settling general joint resulting from damage to goods shall be approved unless the captain is informed in writing within 30 days of receiving the goods.  If the request concerns damages to the ship the goods owners be informed within thirty days of the end of the voyage.

Article 364:

There shall be no settlement in case of a total loss of shared funds on a marine voyage.

Article 365:

  1. In case of denial and absence of a legal excuse, suits for participation in joint losses shall not be heard as of two years from the date of the ship’s arrival at the destination port, or the port at where the sea voyage is interrupted.
  2. In addition to other causes for on hearing of a suit, the period during which suits may be heard shall be interrupted by the appointment of a settlement expert; in this case a new period shall begin at the same rate.  It shall begin from the date of the signing the joint losses settlement, or from the date on which the settlement expert discontinues his services.

Liens on Ships in the UAE

Federal Law No. 26 of 1981 on Maritime Trade Law for the UAE

Article 115:

  1. Provisional custody may be imposed on a ship at the request of the concerned civil court for the settlement of a maritime debt.  A maritime debt is a claim which originates due to the following causes:
    1. Damage caused by the ship as a result of collision or other reasons.
    2. Loss of life, or bodily injury caused by the ship or occurring as a result of its utilization.
    3. Assistance and rescue.
    4. Contracts for utilizing the ship according to a lease or other contract.
    5. Contracts on cargo in accordance with a contract, a shipping bond or other documents.
    6. Destruction of or damage to goods or luggage transported by the ship.
    7. Joint losses.
    8. Pilotage and towage of the ships.
    9. Supply of products or materials necessary for the investment of the ship or its maintenance in any place where this supply took place.
    10. Dues due for building, repairing or equipping the ship and dock charges.
    11. Amounts spent by the captain, shippers, charterers, or agents on behalf of the ship or its owner.
    12. The wages of the captain, officers, the crew or others who work on board according to a maritime work contract.
    13. A dispute regarding the Ship’s ownership.
    14. A dispute over joint ownership, possession or utilization of the ship or rights to profits accruing from such utilization.
    15. Maritime mortgage.


Article 116:

  1. Anyone holding one of the debts mentioned in the previous article may seize the concerned ship or any ship owned by the debtor if he owns it at the time of the occurrence of the debt even if it is ready to sail.
  2. Only those ships to which the debts of items, m, n, o of paragraph 2 of the previous article may apply may be seized.


Article 117:

  1. If a ship is leased to a charterer who is granted navigational administration rights, he shall be solely responsible for any maritime debt on it and the creditor can impound this ship or any other one owned by the charterer himself.  No other ship owned by the lessor owner may thus be impounded.
  2. The provisions of the previous paragraph shall apply to all cases in which someone other than the ship’s owner bears responsibility for a maritime debt.


Article 118:

  1. Impoundment of the ship shall result in preventing it from sailing off.
  2. The concerned court shall order the lifting of the impoundment if a security or a guarantee is given to pay the debt.  The lifting of the maritime debts mentioned in provision m and n of Clause 2 of Article 115.  In this case the court can permit the custodian to utilize the ship if he presents a sufficient guarantee.  The court may entrust another person to manage the ship during the impoundment period in the manner which it decides.
  3. A request for lifting of an impoundment or the provision of a security or a guarantee shall neither be considered a recognition of liability for the debt nor a relinquishment of adherence to the legal determination of the liability of the ship’s owner.


Article 119:

  1. Copies of the impoundment order shall be given to the ship’s captain or his substitute, to the concerned maritime authority in the seaport in which the ship is impounded to prevent the ship from sailing off and to the registration office in said seaport.
  2. If the ship is registered in the state, the registration office in the seaport in which the ship is impounded, whether inside the state or abroad, shall notify the ship’s registration office of the impoundment in order that a note may be made of the record to this effect.


Article 120:

  1. The impoundment order shall include a summons to appear before the concerned civil court in whose area of jurisdiction the impoundment took place to determine the veracity of the debt irrespective of its amount.
  2. A date shall be fixed for the hearing within a period of 30 days from the date of the impoundment order.  The court shall immediately consider the case and shall do so within this period of time only .


Article 121:

The verdict upholding an impoundment order shall include the order of sale, its terms, date and the basic price.  Appeal against the sentence shall take place in accordance with legal measures within 15 days of the announcement of the sentence; otherwise it shall become null and void.  The court shall consider the appeal without delay.

Article 122:

The civil court in whose area of jurisdiction the impoundment took place shall be empowered to settle the law suit in the following cases even if the ship does not hold the nationality of the state concerned as well as cases to which the state law applies.

  1. If the plaintiff has a regular place of residence or main office in the state.
  2. If the maritime debt arose in the state.
  3. If the debt arose on a voyage during which the ship was impounded.
  4. If the debt arose from a collision or a type of assistance ones which by the court has jurisdiction.
  5. If the debt is guaranteed by a maritime mortgage on the impounded ship.

Marine Mortgage in the UAE


Federal Law No. 26 of 1981 on Maritime Trade Law for the UAE

Article 97:

A ship may be mortgaged if its total tonnage exceeds 10 tons.

Article 98:

If a ship is jointly owned it may be wholly mortgaged upon the agreement of a majority of owners holding at least ¾ of the shares.  If such a majority is not secured, the matter may be placed before the civil court, the jurisdiction of which includes the area where the ships registration office is located.  The court shall decide on the matter in conformity with the interest of the joint owners.

Article 99:

The ship shall be mortgaged with an official deed; otherwise, the mortgage shall be void.

Article 100:

  1. The mortgage on the ship or any part thereof shall continue to remain valid if it is wrecked.
  2. Mortgage on the ship shall neither apply to freight, nor to remuneration, subsidies or assistance granted by the state or to insurance or indemnity for damage.  However, it shall include the indemnity due to the owner for unrepaired material damage to the ship.
  3. It may be agreed upon in the mortgage deed that the creditor shall get his dues out of the insurance dues with the written consent of the insurers, or by informing the insurers of said procedure.


Article 101:

A ship under construction may be mortgaged, but such a mortgage shall be preceded by an official letter from the concerned marine administration in the sea port in which the ship is being constructed mentioning its approximate length, dimensions and load capacity, and the shipyard’s address or the place in which it is being built.

Article 102:

  1. The mortgage shall be entered in the ship’s register at the office of the seaport where the ship is registered, or at the state’s Consulate if the mortgage takes place abroad.
  2. If the mortgage takes place while the ship is under construction, it shall be entered in the ship’s register at the registration office located in the area of its construction.


Article 103:

For purposes of registration, an official copy of the mortgage deed shall be submitted to the Marine Inspection Administration and shall be accompanied by two lists signed by the person demanding the registration.  Such lists shall include the following:

  1. The name, surname and the nationality of both the creditor and the debtor, their places of residence and their occupations.
  2. The date and the type of contract.
  3. The amount of the debt mentioned in the contract.  If the mortgage is on more than one ship, the two lists should fix the amount of debt of each of these ships.  If the mortgage is on the ship and other assets, the two lists shall specify the amount of the guaranteed debt on the ship.
  4. The conditions regarding the costs of debts, if there are any and the payment terms.
  5. The name of the mortgaged ship, its description, the date of its registration and the number of its registration certificate or a report on its construction from the concerned administration in accordance with Article 101 and its registration number in the register of the place where it was built.
  6. The location chosen by the creditor in the district of the registration office in which the registration takes place.


Article 104:

  1. The ship’s registration office shall record in the register the contents of the two lists and shall give the person requesting the registration one of the two lists. The copy shall be marked to prove that the registration has taken place.  The registration certificate shall also bear the same mark.
  2. The registration office in which the mortgage is concluded shall notify all the other registration offices in the state.


Article 105:

  1. The mortgage shall directly follow the privileged debts referred to in provisions a, b, c, d, and e of Article 84.  The order of the debts guaranteed by a mortgage shall be according to their entry dates.
  2. If two or more mortgages are listed on a ship or on one of its shares, they shall be listed in order according to their time of registration even if they are registered on the same day.
  3. The registration shall guarantee the debt cost for the two previous years besides its costs for the current year when the final bid is made at auction.  These costs shall be similar to the original debt.


Article 106:

The registration of mortgage shall be cancelled based on an agreement between the concerned parties, or a final judgment.

Article 107:

  1. The mortgage creditors to a ship or to a part thereof shall follow it wherever it goes, and the mortgage shall not be voided in the event of confiscation of the ship for violating the state’s laws.
  2. The ship shall not be disposed of after the record of seizure is entered in the ship’s register.


Article 108:

Any disposal of a ship burdened with a mortgage which results in its losing its nationality shall be null and void.

Article 109:

  1. If only 50 percent of the ship’s shares are mortgaged, the mortgage creditor shall only seize and sell this number of shares, but if more than 50 percent of the shares are mortgaged, the creditor may sell the whole ship after seizing it.
  2. In both cases, the creditor shall officially notify the rest of the shareholders at least 15 days before the beginning of the sale arrangements that they must either pay the debt due or bear the cost of execution procedures.


Article 110:

The adjudication of an auction shall provide for clearing the ship of all mortgages and the creditor’s dues shall be included in the price.

Article 111:

  1. In case of the transfer of the ownership of a mortgaged ship or part thereof before the seizure order is entered, the mortgagee creditor shall officially  notify the custodian of the seizure order and the necessity of paying the debt.
  2. If the custodian wants to cancel the measures for seizure and sale, he shall, before the beginning of these measures or within 15 days of being notified to pay the debt give notice to the creditors listed in the ship’s register of his readiness to immediately pay the guaranteed mortgaged debts whether they are due or not, within the limit of the ship’s price.  the aforesaid notification shall include the following:
    1. Summary of his contract stating the date of the contract, the name of the seller, his nationality, the ship’s name, type, loading capacity, price and expenses.
    2. A list of debts, their dates, their amounts and the name of creditors.


Article 112:

  1. Every creditor mentioned in the previous article may request that all or part of the ship be sold at auction.  He shall increase its price by one-tenth and provide security for the price and the expenses.
  2. Such a request shall be communicated to the custodian after it is signed by the creditor within 10 days of the date of the announcement mentioned in the previous article.  The demand shall provide for the summoning of the purchaser before the concerned civil court in whose area of jurisdiction the ship is located or the civil court in whose area of jurisdiction the ship’s registration harbor is located if the ship is abroad, to hear the ruling on auctioning the ship.


Article 113:

If no such request is made by any mortgage creditor, the purchaser shall clear the ship of the mortgage by depositing its price in the concerned court.  He shall have the right to cancel commitments without the adoption of any other measures. 

Article 114:

Before registering the mortgage, the foreign mortgage creditor may request that the administration consider him an authorized mortgage creditor.  If the mortgaged ship’s ownership passes to this creditor, he shall, within 60 days of the transfer of ownership, request the administration to offer it for sale to the state or its citizens at a price not less than the debt and its associated liabilities.  If the state or the citizen accepts the offer within 6 months of the time it is made the ship shall be cleared of all its debts and commitments providing that its entire price be paid upon its delivery.  If the aforesaid offer is not accepted within the stipulated period, the ship shall retain its registration for a period not exceeding 6 months from the date of notification of rejection of the offer or from the date of the expiry of said period.

UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance