UAE introduces new Maritime Law to boost shipping industry

Introduction  

The UAE government recently issued Federal Decree-Law No 43 of 2023 on Maritime Law, which came into effect on 29 March 2024 (the “Maritime Law”).

The Maritime Law aims to modernise the legal framework for maritime activities, align with international standards, and enhance the UAE's status as a regional shipping hub. This represents a substantial change from the old maritime law, Federal Law No.26 of 1981 Concerning Commercial Maritime Law.

The Maritime Law features a significantly enhanced structure, offering greater ease of navigation and accessibility. The provisions are now systematically organised, as opposed to being dispersed, which simplifies the process of locating specific regulations.

There remains some uncertainty regarding the practical application of the Maritime Law, as it will be subject to future Executive Regulations that should provide detailed guidance on its interpretation, as well as courts’ interpretation of the Maritime Law in litigation.

This is the first of two Law-Now articles which will summarise the key elements of the Maritime Law. The first article will focus on the changes to vessel registration, liens, chartering, and time bars. The second article focuses on the changes to vessel arrests, which you can view here.

Ownership of a UAE Registered Vessel

Foreign Owned Vessels: The Maritime Law permits foreign-owned vessels to be registered under the UAE flag.  This is a significant departure from the old regime, which only permitted vessels that were owned by UAE nationals or a company with a majority of shareholders with Emirati nationality to be registered under the UAE flag.

Article 13(b) of the Maritime Law permits vessels to fly the UAE flag if they are owned by natural or legal persons who are nationals of the UAE or any of the GCC Arab countries, or if they are owned by individuals or entities who have a residence, business centre, or ship management office in the UAE.

It will be interesting to see whether UAE vessel registration increases as a result of this change, as it will also depend on other factors besides nationality requirements, such as tax incentives and strategic planning.

Vessel Registration

New-Build Ship Register: under Article 9 of the Maritime Law the Ministry of Energy and Infrastructure will create a "Register of Ships Being Built” in which all shipbuilding contracts are to be registered. The shipyard (“Shipbuilding Contractor”) is required to record the contract in the Register.

The specifications of the proposed vessel need to be approved by the Ministry.  Article 11 makes provision for defects and defects remediation, matters which are normally dealt with in a shipbuilding contract. 

Ship Register: pursuant to article 7(2), the Ministry is to create a Ships Register “to register ships and seagoing watercrafts”. Details to be registered include vessel type, size, classification, navigation purposes and sailing areas. Article 13 sets out additional requirements for registration including that the vessel’s drawings and specifications are to be accepted by the Ministry or authorised representative.

Ship Age Requirements: According to Article 13(1)(c) of the Maritime Law, a vessel can only be registered in the Ship Register if it is less than 20 years old based on when completion under its shipbuilding contract occurred, except for passenger ships which have a 10-year limit. This is a change from the old regime, where an oil or gas tanker had to be younger than 10 years old on January 1st of the year when it was registered. This age limit did not apply to any other kind of vessel.

Once the Executive Regulations are published, it will be interesting to observe what exactly the procedure will be for registration and whether submissions can be made in the name of the ship owning/management companies rather than individuals.

Co-ownership: as before, more than one party can own a ship, but no co-owner is permitted to mortgage or sell their share without the approval of the other owners. A notice of proposed sale must include the proposed price and the remaining owner(s) have the right to buy the relevant share at the agreed sale price.

Liens

Article 29 creates eight distinct categories of lien, which are not subject to formal procedures or proof. These include judicial expenses spent to maintain and sell the ship and distribute its price, as well as loading, ports, lighthouses, and other fees and taxes of the same type, rights arising from employment of master and crew, salvage and general average, compensation for marine casualties, debts arising under contracts concluded by the ship’s agent and from pilotage / towing / loading / unloading, certain compensation to charterers, and certain insurance premia.  These last two - compensation for malfunctions and damage requiring compensation to charterers and unpaid insurance premia - can be registered in the Ship Register, provided that the contracts are notarised.

Liens, considered preferred debts, attach to the ship and the fare for the voyage during which the debt occurred. There is a one-year time bar for liens, which can be reduced to six months for debts from contracts made by the ship’s agent or captain. However, this period can extend to three years if seizing the vessel within UAE waters is not feasible, with certain conditions for nationality and domicile.

Finally, lien rights on a ship expire with the judicial or voluntary sale of the vessel, provided specific requirements are met, including registration and publication of the sale details. Lienholders have 30 days from the last publication of the sale summary to transfer their claim to the purchase price.

The new law does not seem to prioritise mortgages in the way that banks would prefer, particularly if they were considering using the UAE flag or jurisdiction for structuring. It's possible that there may be changes once the regulations are published. Additional requirements could alter the standing of mortgages in the priority list.

Chartering

”Charter out”: Under Article 19(1) a UAE flagged ship can be registered on another flag where its bareboat charterer so requests (subject to a licence from the Ministry being obtained). The concept of dual registration introduces a nuanced layer to maritime regulations. Typically, vessels must adhere to nationality requirements to protect domestic trades and ensure safety and pollution-prevention.

“Charter in”: Article 18 permits charterers of ships registered abroad, which meet the registration requirements in Article 13, to request registration in certain circumstances. Article 137(2) expressly includes “ship contracts” which “end with ownership” or are “accompanied by a promise to sell” within the scope of bareboat charters.

Time Charters: Article 137(2) of the New Maritime Law states that a charter that “ends with ownership” or is “coupled with a promise to sell” may be categorised as a Charter contract of an unequipped ship. In other words, if a ship contract includes a purchase option or obligation, it might fall under the category of a bareboat charter. This could cause confusion as to whether a time charter or other contract could, be classified as a bareboat charter from the point of view of UAE law.

Time Bars

The law has clarified  time bars for various maritime claims, structured as follows:

• One year for claims from the maritime transport contract and bills of lading, starting from the merchandise receipt date or the expected delivery date.
• Ninety days for recourse lawsuits against third parties, starting from the payment date.
• One year for claims of restitution of undue payments, starting from the day the right to recover is known.
• Two years for passenger claims related to death or personal injury.
• One year for claims for the carriage of luggage, starting from the day after the vessel’s departure.
• Three years for tort claims.
• Two years for salvage claims, marine insurance claims, and compensation claims arising from collisions.

Conclusion

The Maritime Law is a testament to the UAE’s recognition of the vital role of shipping in its economy and its ambition to become a leading maritime hub in the region. The changes to key elements of maritime law will facilitate a more robust and effective maritime sector and will be welcomed by the industry.  Indeed, further clarification and implementation through future Executive Regulations and court decisions will have to be monitored and will shape the practical application and interpretation of the law. However, along with the significant changes to vessel arrests, which will be detailed in the second part of this Law-Now, it is expected that the changes of the Maritime Law will be conducive to promoting business growth in the shipping industry in the UAE.

This article prepared with the assistance of Deniz Guzel, Trainee Solicitor at CMS.