A New Era for The Shipping Sector in the UAE

A New Era for The Shipping Sector in the UAE

The Ministry of Energy and Infrastructure (MOEI) has unveiled the forthcoming Federal Decree Law No. 43 of 2023 regarding Maritime Law (the “2023 Maritime Law”), slated to come into force from March 2024. This legislation marks a significant departure from the current maritime law, ushering in substantial modifications that will reverberate across the shipping, legal, and commercial sectors.

Leveraging our extensive expertise and recognized position as thought leaders in the maritime industry, we note that the 2023 Maritime Law introduces important amendments, presenting both advantageous enhancements on certain issues and potential challenges in others.

We set out below our preliminary impressions and several key provisions that have been notably augmented:

UAE Flag and Vessel Registration Under the 2023 Maritime Law

In a significant departure from the existing maritime law, the newly introduced legislation permits vessels owned by foreign entities and persons to be registered under the UAE flag. Traditionally, the privilege of flying of the UAE flag was exclusively allocated to UAE nationals and companies, requiring a majority of shareholders to hold Emirati nationality.

However, the 2023 Maritime Law broadens the eligibility criteria for vessels to obtain UAE nationality and fly the UAE flag. According to Article No. 13 (b) of the 2023 Maritime Law, vessels can now fly the UAE flag not only when the majority of the vessel shares are held by natural or legal persons holding the nationality of the UAE or any of the GCC Arab countries but also if owned by individuals or entities with a domicile, business center, or office managing the vessel within the UAE.

Consequently, this new criterion opens the UAE flag registration to foreign nationals and GCC companies residing in the country, allowing their vessels to fly the UAE flag.

Impact of the 2023 Maritime Law on Maritime Claims and Vessel Arrests

Under the current maritime law, provisions for maritime claims allowing creditors to arrest vessels were derived from the 1952 International Convention Relating to the Arrest of Sea-Going Ships. However, the 2023 Maritime Law aligns with the more expansive 1999 Arrest of Ships Convention. This alignment broadens the range of actions available to creditors and the claims for which vessels can be arrested in the UAE.

Consequently, there could be a significant surge in maritime claims, potentially positioning the UAE as a favorable jurisdiction for vessel arrests. While such developments might make vessels hesitant to call UAE, the 2023 Maritime law, particularly Article No. 56, introduces an obligation for the party initiating the vessel’s arrest to provide an accepted financial guarantee for the court to accept the arrest application.

This financial guarantee is to cover the necessary security and safety requirements for both the vessel and its crew during the arrest period. Moreover, any disbursements from this guarantee are considered judicial expenses, to be thus allocated on priority when the proceeds from execution are distributed to the different parties.

This welcome development which guarantees the well-being of the crew members and the safety of the vessel, outlined in Article No. 56, could potentially streamline and limit speculative claims, offering a crucial layer of protection to ship owners.

Recognition of Letter of Undertaking in UAE Maritime Disputes

The long-awaited acceptance of letters of undertaking (LOU) as security for the release of an arrested vessel marks a significant development in the realm of maritime dispute resolution. Widely recognized globally, LOUs serve as a crucial instrument in expediting the settlement of maritime disputes. Typically issued by Protection and Indemnity Clubs (P&I Clubs), it acts as a security measure, guaranteeing that in the event of a rightful claim, the P&I Club will honor a judgment up to the guaranteed amount.

Under the current provisions, UAE Courts do not accept an LOU as a valid provision of security to lift provisional arrest orders. Only cash deposits, guarantees issued by local banks or bank’s manager cheques allow the lifting of provisional arrest orders, with all the delays consequential to the organization of such guarantees leading to knock on losses to various stakeholders.

Recognition of P&I LOUs as a recognized means of security is thus going to be a fundamental change, expected to stifle spurious litigation and balance the increased scope for arrest under the new provisions of Article No. 53.

Our Outlook for the Future

While the new maritime law presents numerous positive provisions poised to elevate the maritime industry, some aspects raise concerns and uncertainties. It’s a pivotal time for stakeholders to understand and adapt to these changes shaping the future of the UAE shipping sector.

For further details and in-depth clarification on the new maritime law’s implications, stakeholders are encouraged to reach out at info@fichtelegal.com for comprehensive insights and guidance.