United Arab Emirates: Transport Transactions

Last Updated: 24 March 2010
Article by Hassan Arab

Transactions related to sea and air transportation, including the building, sale, purchase, rent, utilization, repair or maintenance of ships and planes, shall be deemed as commercial transactions.

The facts

The plaintiff filed a suit against the defendant before Dubai Court of First Instance seeking a judgment to terminate the charter parties in relation to two vessels on the grounds that:

  • The lease period had expired;
  • The defendant had caused damage to the vessels; and
  • That the defendant had failed to pay the rent due on the vessels.

The plaintiff also requested the Court to appoint a maritime expert in order to determine the amount of damages as well as the overdue rent. The plaintiff requested interest of 9% per annum on top of any judgment sum.

The plaintiff pleaded that pursuant to the abovementioned charter parties the defendant rented the two said vessels at the rate of $US 1,600 (first vessel) and $US 3,100 (second vessel) per day. The rental period was three months, renewable for similar periods unless the plaintiff advised the defendant of its wish not to renew, with such advice to be given no later than ten days prior to the expiry of the charter party.

In respect of both vessels the plaintiff did not wish to renew the charter party, and gave proper notification of the same to the defendant. Despite proper notice being given the defendant failed to return the two vessels and pay the rent. The plaintiff also alleged that the defendant had caused damages to the vessels.

The defendant pleaded that the Dubai Courts lacked the requisite jurisdiction to hear the suit; however, this argument was rejected by the Court. The Court of First Instance appointed a maritime expert in order to determine the nature of the relationship between the two parties, including whether the defendant had performed its obligations, whether the charter period had expired and whether the vessels were damaged (and the equivalent monetary value of any such damage).

The expert concluded that the amount of AED 2,750,830.90 was payable from the defendant to the plaintiff in respect of the two vessels. Both the plaintiff and the defendant objected to the expert's report. The Court requested that the expert file a supplementary report. Following the issue of the supplementary report the Court handed down its judgment. The Court ordered that the subject charter parties be terminated, and further ordered the defendant to pay the plaintiff the amount of AED 2,750,830.90 together with interest at the rate of 9% per annum from the suit filing date until full payment.

The defendant appealed the decision of the Court of First Instance. The Court of Appeal upheld the appealed judgment and the defendant consequently appealed to the Court of Cassation. The Court of Cassation ruled against the defendant as follows:

Firstly, Article 31.3 of the Civil Procedures Law provides that jurisdiction to hear commercial matters shall be vested with the Court in which jurisdiction the defendant is domiciled, the Court in which jurisdiction the agreement was executed or performed in whole or in part, or the Court in which jurisdiction the agreement should be performed. In addition, Article 5.6.1 of the Commercial Transactions Law provides that transactions related to maritime and air navigation, including the building, sale, purchase, rent, utilization, repair or maintenance of ships and planes, shall be deemed as commercial transactions.

It was established that the dispute between the parties was commercial and related to the chartering of the two vessels by the defendant from the plaintiff. It was also held that as the charter parties were executed in Dubai, and the premises of the defendant was in Dubai, the Dubai Courts should have the jurisdiction to hear the suit.

Secondly, the Court of Cassation held that Pursuant to Articles 216, 244, 245, 246, 247, 249 and 251 of the Commercial Maritime Law1 a time charter of a vessel is a contract whereby the vessel owner is obliged to place the subject vessel (in seaworthy condition and equipped to carry out the operations agreed upon in the charter party) at the disposal of the charterer at the time and place agreed upon. The owner shall also be obliged to keep the vessel in the said condition during the term of the contract. Unless otherwise agreed with the charterer, the owner shall retain navigational management of the vessel and shall be responsible for maintaining the vessel as well as appointing and paying the wages of the crew. On the other hand, the charterer shall have commercial management of the vessel and shall bear the costs and expenses necessitated by the commercial use thereof. The charterer shall pay the agreed charter amount to the owner for the period during which the vessel is at his disposal. Such charter amount shall not be payable if the vessel is damaged beyond commercial utilization, destroyed, or becomes unseaworthy for a reason attributable to the owner or its subordinates (including by reason of force majeure). The charter party shall terminate upon the expiry of the agreed period or renewal thereof with the mutual agreement of the parties. Upon such termination, the charterer shall return the vessel to the owner on such date as agreed and in the same condition as when it was received at the beginning of the charter period. The charterer shall be responsible for damages resulting from the commercial utilization of the vessel (normal wear and tear is expected). Further, Article 254(5) of the same law provides that in the event of refusal or delay by the charterer in returning the vessel to the owner upon the expiry of the charter period for a reason attributed to the charterer, the charterer shall be obliged to pay double the charter rate for the period of the delay, unless the owner proves that the damage exceeds this compensation.

Finally, the Court of Cassation also held that the Court of First Instance enjoyed the discretion to determine the following, as long as valid grounds for such determination exist:

  • Termination of a vessel charter party based on the documents submitted in the suit;
  • Assessment of the extent of breach by the charterer of its obligations resulting in termination of the charter party;
  • Assessment of whether the damages sustained by the vessel during the period of utilization by the charterer are due to commercial utilization, in which case the charterer shall be liable for the same, or to normal use, for which the charterer shall not be liable; and
  • Assessment of the damage incurred by the owner due to the delay by the charterer in returning the vessel after the expiry of the charter period.

In summary, it was held that the defendant had violated its obligations and failed to return the two vessels after the expiry of the two charter parties, and further, that the defendant had breached its obligation to pay the rent, as well as having caused the damages sustained by the two vessels (beyond that which would be expected through normal use).

Conclusion

The jurisdiction to hear commercial matters, including matters related to maritime and air navigation, including the building, sale, purchase, rent, utilisation, repair or maintenance of ships and planes, shall be vested with the court in which jurisdiction the defendant is domiciled, the court in which jurisdiction the agreement was executed or performed in whole or in part, or the court in which jurisdiction the agreement should be performed.

Breach by the charterer of its obligations and its failure to return the vessel after the expiry of the charter period and pay the due rent shall result in termination of the charter party and an obligation on the charterer to pay the amount due from it.

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.

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Authors
Hassan Arab
 
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