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Part II. Flag and Registration of Vessels andMortgages on Vessels

A. Flag and registration of vessels

1. SOURCES OF LAW AND THE PRINCIPAL RULES

1.1. Restrictions as to nationality and domicile of owners

The law of Portugal on the flag vessels and mortgages, is contained in theCommercial Code (‘Codigo Comercial’). The law relating to registration is foundin the Registration Commercial Act (Decree law 42.644, dated 14 November1959) and the (‘Regulamento Geral das Capitanias’) (a maritime registration actcontained in Decree law 265/72 dated 31 July 1972).

Particular reference is made in Part E below to the Madeira InternationalRegister (‘Registo Internacional de Navios da Madeira’ known as ‘MAR’), whichis an international dual-registration system organised in the Madeira Islands.

As a general rule, only Portuguese owned vessels may be registered in Portugal.This contribution deals only with vessels registered in Portugal and not withsmall vessels or fishing vessels to which different rules apply.

Portuguese law is required to be applied to Portuguese flag vessels and, as amatter of conflict of laws, this extends to Portuguese law on such matters asownership, liens and mortgages, crew, environmental protection, salvage andassistance, general average and so on.

It would be contrary to EC Law for Portugal to discriminate against other ECvessels and, accordingly, there is no such discrimination under Portuguese law.

1.2. Links between registration and flag

As mentioned above, there is a direct link between registration and flagnamely, that a vessel registered in Portugal must fly the Portuguese flag.There is only one exception, which is that it is permitted to register a vesselin Portugal on a bareboat-charter basis in cases where the ownership is registeredabroad and so only the charterer is connected with Portuguese jurisdiction. Insuch a case, where the bareboat-charter is registered with the Portuguese Regis-trar of Ships the vessel may also fly the Portuguese flag in spite of the fact that herownership is registered abroad. In such cases, the system of dual nationality ispermitted.

It is not possible to exclude any part of the vessel from registration since thevessel is regarded as a unit even when she is only bareboat-chartered or waiting to

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be built or still under construction. However, a Portuguese flag vessel may beowned by a foreign owner in the same way as a foreign flag vessel may be ownedby a Portuguese shipowner.

1.3. Entitlement to flag in and flag out

A Portuguese shipowner is no longer obliged to register a vessel underPortuguese flag. As stated above, bareboat-charter registration is permittedunder Portuguese law in relation to foreign owned, vessels. The inverse situation(namely the registration of the ownership in Portugal and the bareboat-charterabroad), is a matter on which Portuguese law is irrelevant. Portuguese law doesnot apply on such a point and ignores the registration of the bareboat-charterabroad.

MAR provides a special legal regime, which is dealt with below. Every vesselregistered with MAR must fly the Portuguese flag. MAR will accept applicationsfrom foreign shipowners registered with the Madeira Free-Trade Zone and fromshipowners located outside the Zone.

2. MAIN FEATURES OF THE REGISTER

2.1. Location and type of register

2.1.1. The registration of a merchant vessel in Portugal requires two steps:

(i) registration with the Harbour Master (‘Capitania’);(ii) registration with the Registrar (‘Conservatoria do Registo Comercia’) in

the same area as the Harbour Master is located.

Registration with the Harbour Master relates to title.Besides the identification of the applicant and the description of the vessel’s

particulars, as mentioned below, it is required that a technical certificate is firstissued by the regulatory authority, namely the General Inspection of VesselsAuthority (‘Inspeccao-Geral de Navios’). A certificate of survey is needed both fora new building (first registration) and for a second-hand vessel seeking registra-tion in Portugal.

The main steps required to register a vessel in Portugal are therefore:

(i) performance of survey (‘vistoria de registo’) by the General Inspectionof Vessels Authority);

(ii) registration with the Harbour Master;(iii) completion of the commercial registration with the Registrar.

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2.1.2. Registration may be permanent or provisional. Registration on thepermanent register is the normal registration and a vessel is treated as perma-nently registered only after all formal requirements have been completed.

Provisional registration, on the other hand, constitutes an incomplete form ofregistration which is effected if any requirement for permanent registration hasnot been fulfilled or the procedure for permanent registration has not beenproperly complied with, (for example, if a document submitted is not suffi-ciently clear about the identification of the applicant or the vessel).

Since registration is a very important formality, the law is not intended tojeopardise the interests of the applicant and so it allows registration and treats itas correct and complete, but only for a period of six months as from the issue ofthe provisional registration certificate, on the condition that the applicant com-pletes the registration within the six month period. If this is not done, theregistration is automatically terminated.

In any circumstances, permanent registration is treated valid and effective asfrom the date and time at which the application for registration is submitted tothe Commercial Registrar. Therefore, once registration is completed andpermanent, it is effective form the date and time that the application was filed.

Another important procedure that can be used (but is not mandatory) con-cerns the entitlement of a future owner of a vessel to secure priority of rightof registration of the vessel by applying for provisional registration based onlyon a statement issued by the existing owner authorizing registration in suchcircumstances in the expectation of transfer of title. As a result of this type ofprovisional registration, which is also valid for six months, the future owner issure, before having to take any risk resulting from the transfer of title, that noother permanent registration by a third party will be entered on the registerbefore his application for the permanent registration of the vessel. If this pro-cedure is followed, the future owner who has submitted an application forprovisional registration is preferred to any other third party whose title is notpreviously registered. During that six month period and whilst the title has notbeen transferred there are no substantive effects. The only legal effect producedis the priority right of registration if and when the permanent registration iscompleted.

2.1.3. Legal effects of registration are dealt with below in Chapter 5.

2.2. Types of vessels eligible for registration

2.2.1. The law provides for the categories of vessels as follows:

(i) merchant vessels;(ii) fishing vessels;

(iii) pleasure craft;


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(iv) tugs;(v) auxiliary vessels.

A vessel is defined as a floating unit which is or can be used for transportationor other activity on water. The definition of a merchant vessel is limited tovessels suitable for a commercial sea-going or inland transport of people andgoods. Only merchant vessels are eligible to be registered with the Registrar.Vessels which do not come within that definition are therefore not subject toregistration with the Registrar and nor are floating units such as dumb-barges,pile laying barges, crane barges, floating docks, and other similar vessels.

Merchant vessels may be sub-divided as follows:

(i) vessels engaged in local traffic;(ii) vessels engaged in domestic or international coastal navigation;(iii) vessels engaged in cabotage;(iv) sea-going vessels.

2.3. Types of owners eligible for registration

The categories of persons qualified to be owners of a Portuguese vessel com-prise individuals, companies or other legal entities. The latter category com-prises both companies and other legal entities set up in Portugal or abroad.

A vessel cannot be registered in such a way that different parts of the vessel areowned by different people. The vessel is identified and described in the registeras a unit. More than one individual company or other legal entity may own avessel but all are co-owners of the whole ship, not of distinct shares.

2.4. Particulars recorded

2.4.1. There are no special requirements to take into account as regards thedifferent categories of merchant vessels which are capable of registration.Although non-merchant vessels do not have to be registered with the Registrarthey must be registered with the Harbour Master, unless (as previously men-tioned) they are small fishing vessels, auxiliary vessels already kept on board aregistrable vessel or small vessels which are not self-propelled for sporting use orbased on beaches for leisure activities and the like. They are subject to licensingby the Harbour Master despite not being registered with him.

2.4.2. The following merchant vessels are registrable with the Registrar:

(i) new buildings vessels which were built in Portugal;(ii) new buildings vessels built abroad or second-hand vessels previously

registered abroad which the owner decides to register in Portugal;(iii) vessels under construction or to be built in Portugal.



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2.4.3. The Particulars of a merchant vessel which are registered with theRegistrar are:

(i) particulars concerning the acquisition of title; and the following factsin relation to vessels already registered in Portugal:

(ii) concerning the acquisition, modification or termination of the usu-fruct over a vessel;

(iii) contracts for construction of a vessel to be registered in Portugal orcontracts for substantial repair of a vessel registered in Portugal;

(iv) mortgages and their modification and termination as well as theirassignment or the assignment of their priority;

(v) pledge over a mortgage (as a matter of fact, under Portuguese law anymaterial right may be subject to pledge. A mortgage right is, therefore,able to be pledged);

(vi) attachment through a court order of a vessel and arrest by a mortgagee;(vii) assignment of claims secured by a mortgage and the subrogation of

such claims;(viii) court actions intended to vest, modify or terminate any of the rights

mentioned above.

2.4.4. The sanctions for lack of registration of the particulars above are:

(i) the vessel may not initiate any voyage;(ii) rights and any other beneficial interests cannot be registered, even

though they are valid between the parties directly involved (forinstance between the buyer and the seller of a vessel in a bill of saleor the shipbuilder and the employer of a vessel in a construction con-tract of a vessel), may not be enforceable as against third parties. There-fore, the transfer of title resulting from a bill of sale of a vessel, thoughvalid between the seller and the buyer, may not be enforceable asagainst third parties;

(iii) a mortgage is not valid even between the parties (the mortgagor and themortgagee) if the vessel is not registered. A fortiori, it is also not valid asagainst third parties.

2.4.5. The Registry of Vessels covers all Portuguese territories, includingMadeira and the Azores.

A merchant vessel subject to registration with the Registrar must have beenregistered already with the Harbour Master. The local Registrar with whom thevessel must be registered is the one corresponding to the Harbour Master withwhich the vessel is enrolled. The Harbour Masters currently correspond tospecific jurisdiction of the largest Portuguese ports.


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2.5. Errors and changes in the register

An invalid registration may be of two types:

(i) null and void; or(ii) voidable.

A registration (although it may have been recorded in the books of a Registrar)is null and void where it has been made through a Registrar different from thatcorresponding to the territorial jurisdiction where the vessel is registered withthe Harbour Master. In other words, a vessel must be registered, first of all, with aHarbour Master and, after such registration is completed, with the Registrarcorresponding to the territorial jurisdiction where the Harbour Master islocated. If the registration is made through a different Registrar it does notexist for legal purposes and it is considered null and void. Another cause ofnullity of registration is where the registration is not signed by the Registrar eventhough it has been recorded in the books.

By contrast, registration is only voidable inter alia:

(i) where it has been made but was supported by false documents or basedon documents which are not sufficient proof of the facts subject toregistration;

(ii) where it has omissions and other defects that render uncertain thepersons benefiting from the registration and the object of registration.

A voidable registration operates as a valid registration and accomplishes thepurpose for which the register as organised until the invalidity has been judi-cially ascertained and declared.

Once judicially declared, the nullity operates retrospectively except as con-cerns parties who have acquired in good faith and for value rights based on theregistration and have registered such rights before the action to declare theregistration void has been filed and registered. (An action with the intentionof obtaining a declaration of nullity of registration must be registered).

Other small errors do not affect registration and do not produce importanteffects. They are corrected ex officio or upon request of the interested parties.

3. DOCUMENTATION REQUIRED TO EFFECT REGISTRATION

3.1. Generally

There is a distinction between the documents required for registration withthe Harbour Master and the Registrar.



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3.1.1. Documents required for registration with the Harbour Master

The following are required for registration with the Harbour Master:

(i) permission by governmental authority (whenever legally required) forthe building or acquisition of the vessel;

(ii) original document of title (the building contract for a new building orthe bill of sale for a second-half vessel) or a notarised copy;

(iii) licensing document (if required) issued by the Harbour Master for theconstruction of the vessel;

(iv) tonnage certificate;(v) certificate evidencing call sign;

(vi) certificate issued by the General Inspection of Vessels Authority)concerning approval of technical and safety requirements of the vessel;

(vii) copy of the by-laws of the applicant (if it is a company);(viii) certificate evidencing the payment of customs duties and VAT if the

vessel has been imported from abroad.

The principal facts which must be supplied for registration with the HarbourMaster are:

(i) name of the owner in accordance with the document evidencing title;(ii) the document evidencing title;

(iii) name of the vessel, classification, place and date of construction, ton-nage measurement, method of propulsion;

(iv) date of survey (‘vistoria de registo’) by the General Inspection of VesselsAuthority which certifies that the vessel meets all the technical andsafety requirements including anti-pollution measures.

3.1.2. Documents required for registration with the Registrar

Documents required for registration with the Registrar are as follows:

(i) Documents relating to the registration of the vessel (‘matricula’):a) new building (first registration):

(1) document evidencing acquisition (bill of sale) or construction(the building contract);

(2) document issued by the General Inspection of Vessels Author-ity relating to the technical survey;

(3) document evidencing title registration with the HarbourMaster; and

(4) application comprising the vessel’s name and official number,tonnage measurement and other principal measurements, themain characteristics of the engine, place and date of construc-tion of the engine and the hull, the identification signs in


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accordance with the international conventions, name anddomicile of the owner together with the insurance certificateand classification certificate (in both cases, if any).

b) in the case of vessels under construction or to be built, the buildingcontract. Once construction is completed the vessel is registeredfollowing the procedure and based on the documentation men-tioned above for a new building.

c) ex officio registration of a vessel: whenever an applicant intends toregister a mortgage, attachment or arrest ordered by a court over anunregistered vessel, the Registrar promotes an ex officio registrationbased on a certificate as to registration of title issued by the HarbourMaster and the document evidencing the mortgage or the courtattachment or arrest order.

(ii) in the case of a vessel previously registered in another country, whethertitle results from acquisition under a bill of sale or, on construction, abuilding contract, or in the case of a mortgage taken abroad, registra-tion is effected by presenting the same documentation as mentioned in(i) above. Usually these applications are presented to a Portugueseconsulate abroad who directs the documentation concerned to theRegistrar in Portugal. Portuguese law does not require a deletion cer-tificate in respect of registration in another country.

3.2. New buildings

The major differences between the registration of a new vessel and a second-hand vessel previously registered in another country concern the documentevidencing the tide. As to a new building vessel, the document evidencingtide is a till of sale or the building contract and a certificate showing that thevessel and her owner have previously been registered with the Harbour Masterwho is normally die Harbour Master of the area where the owner is based. In thecase of purchase of a vessel from a foreign owner, it will be in the form of acertificate evidencing the registration of the vessel with die Harbour Master andthe bill of sale.

In both cases (registration of a new building and a second-hand vessel) dieHarbour Master may not issue the certificate of registration unless the owner hasbeen shown to have obtained from the General Inspection of Vessels Authoritya certificate showing that the vessel meets all die technical requirements to beregistered as a Portuguese vessel including safety, environmental protection andsuitable conditions for the crew.

3.3. After a court sale

First of all, the judgment must be tested by a Portuguese Court of Appeal andonly after having obtained the ‘exequatur may the vessel be registered with the



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Portuguese Registrar, having supplied the other documentation mentioned in3.1.2. (i) above. However, the EC Regulation 44/2001 should be taken intoaccount where applicable.

4. DEREGISTRATION

4.1. After a private sale

Deregistration is required when a sale results in a change of flag, namelywhenever die vessel ceases to fly the Portuguese flag. The Registrar may notderegister a vessel if the Harbour Master concerned does not first issue a deletioncertificate regarding the registration of the vessel with the Harbour Master’soffice. As a matter of fact and as indicated above, a vessel in Portugal is subjectto a dual registration system, with both the Harbour Master and the Registrar.

The bill of sale representing the change of flag must be presented at theHarbour Master’s office or at a Portuguese consulate abroad where an officialdocument (so-called ‘auto de perda de nacionalidade) is produced in which is statedthe date of termination of Portuguese registration. After that, the HarbourMaster issues a deletion certificate which must be submitted with an applicationto the Registrar where the vessel is registered.

Only after this procedure is completed, through the issue by the Registrar of asecond deletion certificate (the first one having been given by the HarbourMaster), is the procedure for the deregistration completed and the date of ter-mination of Portuguese flag indicated in the ‘auto de perda de nacionalidade’mentioned above effective as against third parties.

4.2. After a total loss

4.2.1. The law considers a total loss to have occurred for the purposes ofderegistration in the following situations:

(i) demolition of the vessel instituted by the owner and approved by theHarbour Master;

(ii) dismantling ordered by the Harbour Master due to unseaworthinesswhich cannot be made good or if the vessel represents a peril or hin-drance to navigation;

(iii) any event that implies an actual total loss of the vessel;(iv) constructive total loss due to disappearance more than two years as

from the date the vessel left the port where she is registered.

4.2.2. Demolition can only be effected once prior authorization has beengiven by the Harbour Master where the vessel is registered. The request shouldbe directly submitted to him or through a Portuguese consulate abroad. Theauthorization for demolition is only given after the vessel has been inspected


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and the registered mortgagees and unknown claimants having a lien or otherclaims which may be enforced over the vessel under Portuguese law have beennotified to show and prove their rights within a stated time. Unknown claimantsare notified by public advertisement.

If any claimant opposes the application for demolition presented by theowner, the Harbour Master must decide if the authorization for demolitionshould be given or refused. In cases where authorization is given, the HarbourMaster evaluates the vessel and notifies the shipowner to deposit an amountequal to the valuation in a bank. Afterwards, the Harbour Master’s file is sent tothe court where a judge decides the claims and their priority to be paid out of thedeposit.

The procedure concerning protection of claimants in case of dismantling issimilar to that explained above.

4.3. Consent of mortgagees

Mortgages are only registered with the Registrar and not with the HarbourMaster. The deregistration of the vessel with the Registar is never effectedwithout all the mortgagees having authorized the deregistration. If the vesselis demolished or dismantled as set out in 4.2. the mortgages are always notifiedby the Harbour Master to demonstrate their entitlement and, if applicable, therights of the mortgagees are enforced in court as set out in 4.2. above.

4.4. Governmental consents

In principle, there is no need to obtain governmental consent to deregistera vessel. However, in cases where the government has granted specialfacilities (financial subsidies, for example) to the shipowner to build or buythe vessel the deregistration may not be effected without prior permissionfrom the government.

5. LEGAL EFFECT OF REGISTRATION

5.1. Generally

5.1.1. The registration of a vessel with the Registrar creates a public record ofthe qualification of a vessel as a merchant vessel, the owner, registrable chargesand encumbrances, the vessel’s name and her principal characteristics. Registra-tion with the Harbour Master is an essential prerequisite for the commercialregistration with the Registrar and concerns technical matters relating to thevessel and her legal ability to operate as regards commercial and navigationalqualifications. As mentioned above, registration with the Harbour Master does



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not include registration of mortgages or other charges. Therefore, only the legalnature and effects of registration with the Registrar are covered here.

5.1.2. The following legal effects of registration aspects should be noted:

(i) acts legally subject to registration are valid and effective between theparties concerned irrespective of registration (for instance, the transferof tide pursuant to a bill of sale is effective between the seller and thebuyer whenever the bill of sale is completed). Registration is not requiredto show the transfer of title from one party to the other. An exception tothis rule is that mortgages are not effective even between the mortgagorand the mortgagee if not duly registered – see below paragraph 5.1.3.

(ii) such acts are not effective as against third parties if and whilst they arenot registered, namely in the example above, the bill of sale of a vesselis effective between the parties, but the buyer may not prove as againstthird parties that he is the new owner and the seller may not proveagainst third parties that he is no longer the owner unless the bill of salehas been registered.

5.1.3. Mortgages benefit from a special regime in relation to transfer of titleresulting from a bill of sale or other registrable act, as a mortgage is not effective(even between the mortgagor and the mortgagee) if and whilst registration hasnot been completed. As mentioned above, the presentation of an application forregistration of a mortgage to the Registrar is the relevant act to make effectiveand establish the time when the mortgage becomes effective.

5.1.4. Liens other than mortgages are not registrable.

6. INTERNATIONAL CONVENTIONS

The Conventions for the Unification of Certain Rules Relating to MaritimeLiens and Mortgages signed in Brussels on 10 April 1926 was signed by Portugalin 1931 and the right provided in the last paragraph of Article 9 was not reserved.Maritime claims not governed by this Convention are governed by Article 574et seq. of the Commercial Code.

Portugal has not yet signed the 1967 Convention.As to pollution the following conventions and agreements (inter alia) have

been signed by Portugal:

(i) the International Convention on High Seas in Cases of Oil PollutionCasualties 1992;

(ii) the International Convention for the Prevention of Pollution fromVessels (MARPOL) 1973 and its 1992 Protocol;

(iii) the Oilpol 54/62 Convention;


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(iv) the International Fund for Compensation for Oil Pollution Damage(the 1971 Fund Convention) and its Protocol of 1992;

(v) the Tanker Owners Voluntary Liability Agreement for Oil Pollutionso-called (TOVALOP);

(vi) the Contract Regarding an Interim Supplement to Tanker Liability forOil Pollution (CRISTAL).

Every international convention mentioned above has been implemented inPortugal by statute. The owner and the master of a Portuguese vessel commit aninfringement if, bearing in mind the nature of the service for which the vessel isin port, the vessel is unfit to sail without serious danger to human life. Charterersand managers who have directly or indirectly taken on the responsibility of theowner as to the vessel’s fitness may also commit this infringement.

7. LAW APPLICABLE TO SAFETY AND OPERATION OFREGISTERED VESSELS

7.1. International conventions

Portugal has signed and ratified the major international conventions includ-ing the International Labour Organisation’s conventions. The following con-ventions, inter alia, are in force in Portugal:

(i) International Conventions for Safety of Life at Sea 1960 and 1974;(ii) The European Agreement on the organization of working time of

seafarers, resulting of the EC Directive 1999/95/CE and implementedby the Decree Law 146/2003;

(iii) The 1979 International Convention on Maritime Search and Rescueand the EC Directive 95/21/CE relative to marine safety prevention ofpollution and conditions on board of vessels;

(iv) The employment of seafarers on Portuguese flag vessels is governed bythe Decree Law 280/2001 of 23 October which implemented theEC legislation on the matter, namely, the EC Directive 98/35/CE of25 May 1998 and the 95 amendment to the STCW Convention.

7.2. National laws and regulations

7.2.1. General

The general law of employment to a large extent applies to seafarers but thereare additional provisions applicable to seafarers taking into account the specialconditions of work on board a vessel. A number of collective agreementsbetween unions and employers supplement the law.



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7.2.2. Number of officers and crew

The Director-General of Seafarers of the Department of Transport is theregulatory authority that establishes the number and level of certification ofthe crew of a vessel (including officers, doctors, cooks and others). A minimumnumber of crew members is specified by the regulations and depends on the typeof vessel, its size and area of operation bearing in mind the safety of the vessel,crew, cargo and environment.

The same regulatory authority may exceptionally authorize a vessel to operatewithout meeting the minimum crew requirements provided that there are jus-tified reasons and there is no danger to the safety of the vessel.

The owner of a vessel is liable to fines if the vessel goes or attempts to go to seaundermanned. The vessel may also be detained at any time. The regulatoryauthority may issue a prior and non-binding opinion on the minimum crewof a vessel upon application.

In any case, both officers and crew members must be duly recorded and have avalid licence approved by the respective Harbour Master in Portugal whichallows them to sail a Portuguese flag vessel.

7.2.3. Nationality of officers and crew and immigration lawsto be observed when hiring foreigners

Without prejudice to the European Community rules and other bilateralconventions between Portugal and other countries all officers and crew mem-bers of a Portuguese flag vessel must be Portuguese nationals. There are excep-tional cases in which foreigners may be hired to become officers or crew of aPortuguese flag vessel. However, the Captain and the Mate must always bePortuguese citizens. Those exceptional cases must be duly justified and autho-rized by the relevant governmental regulatory authority (IMP ‘Instituto Marı-timo Portuario’). Other exceptional circumstances which do not require priorpermission are those in which there is a need to complete the crew when abroaddue to illness of existing crew members or other force majeure situations.However, such contracts must terminate as soon as the vessel calls a Portugueseport where the temporary crew members can be replaced by Portuguesenationals.

The EC rules about this matter are laid down in the Directive 89/48/EECwhich was implemented in Portugal by Decree-Law 289/91 dated 10 August1991.

Whenever a foreigner is authorized to become an officer or a crew member ona permanent basis he must obtain a work permit from the Immigration Office ora Portuguese Consulate abroad. A written employment agreement madebetween the shipowner or substitute and the seaman is required as well asany other formalities indicated by the authorities concerned.


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7.2.4. Certificates of masters and officers

The certification of masters and officers is governed by law and depends onthe vessel concerned. This is considered in practice on a case by case basis.

7.2.5. Rules in respect of minimum wages, shore leave, socialsecurity and insurance

Minimum wages, hire conditions, leave, termination of employment con-tracts and other matters relating to employment are defined in twostatutes (a general act on contracts of employment and a specific act whichgoverns seamen’s contracts of employment) and in collective agreementswith the shipowners concerned. It would take too long to discuss the mostimportant aspects of the regime here, so prior consultation with an expert isrecommended.

Social security relations are the same as for any other worker in Portugal. Theemployer is bound to pay 24.5 per cent of the worker’s salary (including otherpossible remunerations and allowances) in social security and the employee pays11 per cent of the same amount. The employer must retain at source the employ-ee’s contributions. Workplace accidents and industrial illness are not covered bysocial security. Compensation and other legal consequences resulting fromworkplace accidents and illness arising from the particular conditions underwhich the work is performed must be insured against.

Portugal has signed several conventions on social security with othercountries which govern common rules in respect of nationals working inother countries which are also parties to the convention concerned. They shouldbe taken into account when considering the intercommunication of benefitsand obligations.

The International Convention for the Safety of Life at Sea (SOLAS) 1974 wassigned by Portugal in 1983 as well as the 1988 Amendments.

B. Dual registration

8. PROCEDURE FOR FLAGGING IN

8.1. Generally

Any merchant vessel may fly the Portuguese flag even though it remainsregistered in another country. Such registration is only allowed on a temporarybasis by the government if a Portuguese registered shipowner takes a foreignflag vessel on bareboat-charter, which grants him to an option to purchase thevessel.



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8.2. Time restrictions

Permission is given for a limited term which shall not exceed five years. Theperiod may be renewed by the government once or if necessary more than once.

8.3. Registration

Vessels benefiting from registration in Portugal under the conditionsdescribed in this chapter are subject to the same technical requirements asany other Portuguese vessel. Therefore, there is no difference between a vesselhaving principal registration in Portugal and a vessel having only a secondregister in Portugal (see the respective requirements in the chapters concerned).

8.4. Documentation

The application for dual registration in Portugal is addressed to the Ministryof Sea accompanied by the following documents:

(i) original or certified copy of the bareboat-charter duly translated intoPortuguese;

(ii) a memorandum describing the advantages for the Portuguese economyand for the applicant of dual registration in Portugal;

(iii) a statement duly signed by the shipowner in which the dual registrationin Portugal is authorised;

(iv) a statement by the competent authority of the country in whichthe principal registration is made authorising the dual registration inPortugal;

(v) a certificate proving ownership and registration of the vessel in thecountry in which the principal registration is made and the mortgagesand other charges recorded therein;

(vi) a copy of the camber’s certificate;(vii) current copies of the certificates of class and seaworthiness.

8.5. Application for registration

The vessel herself is registered with the Harbour Master only and not with theVessels Registrar. The latter is, however, required to register the bareboat-charterif the shipowner is registered as a Portuguese company. The application forregistration must contain (i) the owner’s name and the nationality and thename of the register in which principal registration is made; (ii) the Portuguesecharterer’s name; and (iii) the term of validity of the temporary registration inPortugal established by the Government.


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9. PROCEDURE FOR FLAGGING OUT

There is no law covering this matter in Portugal. Therefore, a Portuguese flagvessel which is flagged out on the basis of a bareboat-charter is acknowledged inPortugal as a Portuguese vessel only, which means that the second registrationabroad is not valid in Portugal.

C. Mortgages on vessels

10. SOURCES OF LAW

10.1. Sources of the law and general characterisation of mortgages

10.1.1. Under Portuguese law the so-called ‘hipoteca’ which we can, forpractical reasons, compare to the concept of ‘mortgage’ does not, however,have the same nature or, of course, the same legal regime of the mortgageunder anglo-saxon law. ‘Hipoteca’ is a security traditionally connected with build-ings and other immovables in general, as they are registerable assets, so the legalregime of ‘hipoteca’ is substantially based on the registration of buildings eitherregarding the effectiveness of the security (because an ‘hipoteca’, although createdby contract between the parties, if it is not registered, has no legal effect evenbetween the parties concerned) or as to the priority of claims once duly registered.

10.1.2. A pledge concerns only movable assets and receivables and is notsubject to registration. There are three types of movable assets which are man-datorily subject to registration with a specific Registrar and for this reason thesecurity which may be created over them is an ‘hipoteca’ and not a pledge. Theyare: vessels, aircraft and cars. As a matter of fact, the law puts upon an equalfooting immovable and movable objects which are subject to registration.A security over a vessel takes the form of an ‘hipoteca’.

10.1.3. The legal definition of the ‘hipoteca’ is given by Article 686 of CivilCode as follows:

‘a security which confers on the claimant the right to be paid according to theproceeds of the forced sale of certain immovables or similar things owned bythe debtor or a third party (who has given security over its own asset to securethe payment of the debt of a third party) with priority over other claimantsexcept those claimants benefiting from a ‘privilegio creditorio’ (lien) or amortgage ranking prior in time to the legislation of his mortgage’.

It is the explanation and the development of this definition as it concerns avessel that will be dealt with in this chapter.



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10.1.4. A mortgagee (‘credor hipotecario’) is not deemed to be the owner ofthe vessel nor does the mortgagor cease to be the owner of the vessel under a‘hipoteca’. They are deemed only as a secured claimant and a debtor respectively.

Furthermore, the mortgagee himself is not entitled to take possession of andto sell the vessel when enforcing the ‘hipoteca’. He must do it through the courtonly. A clause providing for the possibility of the mortgagee acquiring title overthe mortgaged asset when the mortgagor does not fulfil its obligations is null andvoid (Article 694 of the Civil Code). However, the mortgagee is entitled to ask toacquire title over the mortgaged asset during the court proceedings of enforce-ment of the mortgage. Also null and void is a clause preventing the mortgagorfrom selling the mortgaged vessel, although it is valid for the purposes of estab-lishing that if transfer of title occurs the debt secured by the mortgage maturesand becomes due at once (Article 695 of the Civil Code).

The mortgagee is also entitled to arrest the vessel as a preparatory measure tothe enforcement of the security, if his claim is one of those ‘maritime claims’allowing the arrest (see Maritime Law Handbook – Part I. Arrest of Vessels inPortugal).

10.2. Different types of vessel mortgages

There are three types of vessel mortgages differentiated by the source of theircreation:

(i) created by agreement between the claimant and the debtor;(ii) created by law;

(iii) resulting from the adjudication of a court.

It is the first one, namely, that created by mutual agreement between theclaimant and the debtor, which is to be examined here.

As a matter of fact, a mortgage created by law covers situations only where thestate is a claimant for tax debts and other special credits and a limited number ofother creditors who are not worth mentioning as they are not connected withmaritime law and commercial law in general.

However, a mortgage as a consequence of the adjudication of a court shouldbe mentioned in particular. In this case, there is no mortgage created by agree-ment of the parties, but only a judgment charging a debtor to pay to the plaintiff.The latter, based on such a judgment, is entitled to register by his own election amortgage over immovable or similar assets (including vessels, as seen above) tosecure his claim.

This interim remedy has a very limited use in maritime law either due to thepre-existence of a mortgage created by agreement which is often granted inconnection with claims arising out of loan agreements or guarantee facilityagreements entered into by the shipowner and the mortgagee or due to the


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possibility of obtaining an arrest over the vessel to secure ‘maritime claims’. As amatter of fact, the arrest (even though it is not similar in nature to a mortgage)has the same interim effect to the kind of mortgage resulting from the adjudi-cation of a court.

10.3. Applicable international conventions

Portugal is a party to the 1926 Convention for the Unification of CertainRules Relating to Maritime Liens and Mortgages and is not a party to the 1967Convention on the same subject.

10.4. Requirements for the creation of a valid charge

As mentioned above, the registration of the mortgage is a legal conditionprecedent for the creation of an effective mortgage either between the mortgagorand the mortgagee or as against third parties. An unregistered mortgage is noteffective. Unregistered covenants relating to the terms and conditions or theeffectiveness of the mortgage which are not registered with the mortgage itselfmay not be invoked either between the parties or against third parties.

The date of registration of a mortgage is the relevant date to establish prioritywhen there is more than one mortgage over the vessel. The date of creation ofthe mortgage is irrelevant to priority.

If the mortgage may not be definitively registered due to the lack of anyparticular data or requirement it is not (in principle) rejected, but registration ismade on a provisional basis which is valid for six months. Within this time theapplicant must complete registration. If registration is not completed within thattime, the owner forfeits registration and it is considered as never having beenapplied for. On the other hand, if registration is completed within the six monthstime limit it is deemed to have been fully completed and it is effective for everypurpose as of the date of presentation of the initial application for registration.

11. MAIN FEATURES OF THE REGISTER

11.1. Description

11.1.1. The mortgage over a vessel registered in a separate register of thevessel which is dealt with in Section A. above. The mortgage registration iseffected only with the Registrar and not with the Harbour Master and isalways related to the vessel’s register. The registration of the mortgagerequires, in principle, that the vessel is already registered. If not, the mort-gagee is entitled to apply for the vessel’s registration simultaneously with thatof the mortgage.



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11.1.2. The certificate of registry carried on board of a Portuguese flag vesselmay or may not contain the register of mortgages and it is not a document of titlewhich may transfer title. It may not be pledged either, although the right tomortgage may be pledged. A mortgagee having a right over an immovable orsimilar asset, including a vessel, is entitled to pledge his right to mortgage whilstcarrying on being the mortgagee. As a matter of fact, under Portuguese law, areceivable is a right subject to pledge if so desired by the respective holderwishing to grant it as security for payment in favour of a third party to whothe former owes money. In sum, the mortgage itself is security over a vessel and,therefore, operates ‘in rem.’ The asset in question is the vessel. However, theright to the mortgage is a receivable operating ‘in personam’ which may bepledged without directly affecting the structure and the object of the mortgage.

11.2. Documents required for registration of mortgages

11.2.1. As stated above, the registration of a mortgage requires that thevessel is already registered, or at least registered simultaneously with themortgage registration.

For registration of the mortgage all that is required together with the paymentof the appropriate fee, is the form of mortgage duly executed in Portugal orabroad (if it is executed in Portugal it must be executed before a notary public inthe format of an ‘escritura publica’ (i.e., a notarial deed); if executed abroad thelocal legal form is accepted.

11.2.2. It should be carefully borne in mind that Portuguese law allows theprovisional registration of a mortgage simply based on a statement by the ownerauthorizing the registration of the mortgage over the vessel. Although thisprovisional registration is only valid for six months and is renewable it hasrelevant practical aspects, since it is based on a very informal document andthe effects and priority of the mortgage to be created later revert back to the timeof entering the application for provisional registration at the Registrar’s office.

11.2.3. If the vessel is still registered, then what is said in Section A. aboveabout the formalities of registering a vessel should be borne in mind.

11.3. Costs of registration

The registration of a mortgage implies the payment of a registrar fee of e135.Stamp Duty is applicable to the incorporation of mortgages at the rates of 0.04per cent per month for mortgages which secures loans or other types of finan-cing which reimbursement term does not exceed one year, 0.5 per cent formore than one year and 0.6 per cent for more than five years or on indefinite


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term. The rate applies to the value of the mortgage which is deemed to beequivalent to the value of the secured obligations.

12. TYPES OF VESSELS WHICH MAY BE MORTGAGED

Any whole vessel (not separate parts of a vessel) already in existence or underconstruction may be the object of a mortgage.

13. WHO CAN BE A MORTGAGEE?

Anyone may be a mortgagee whether an individual or a corporation.The entity must have legal existence in the country in which it has beenestablished.

14. TYPES OF OBLIGATIONS WHICH MAY BESECURED BY A MORTGAGE

It is necessary to know about the general law relating to the rights of creditorsand debtors and to the creation of security, such as laws concerning the powersof companies or their directors to give or to authorize the creation of securityand laws relating to bankruptcy and insolvency in order to determine whether amortgage is valid and enforceable.

It is also necessary to bear in mind that, under Portuguese law, a mortgage maybe created in favour of a mortgagee either by the debtor or by a third partyowning the assets concerned who is not the debtor, but intervenes to give amortgage to secure the debt of the debtor.

14.1. Existing liability for a definite sum

It is not necessary for the debt of claim to exist or be defined prior to thecreation of the mortgage and they may be future credits or credits whose exis-tence is subject to a condition not yet satisfied.

The mortgage also may relate to a revolving debt, an account current, anindefinite amount or a pre-fixed and defined amount.

14.2. Contingent liabilities and unascertained sums

In all circumstances, a mortgage may only secure a pre-established andregistered maximum amount including principal and interest. Interests securedmay not extend beyond a maximum of five years’ duration. A further mortgage



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is needed if the mortgagee requires to cover a further amount above the limit ofprincipal securing an interest exceeding five years duration.

Therefore, in the case of an account current or a indefinite amount it isrequired to establish and register the maximum amount secured.

14.3. Security for a guarantee liability

The mortgage may be created to secure a guarantee of a different or equalnature (namely to secure a pledge or another mortgage). Furthermore, themortgage and its terms and conditions are only effective between the parties(mortgagor/mortgagee) and as against third parties if and when it is dulyregistered. Unregistered covenants connected with the terms and conditionsof the mortgage which are not registered may not be invoked both betweenthe parties and as against third parties.

15. LIABILITY FOR INTEREST AND COSTS

As said above, claims for interest can be secured by a mortgage but up to amaximum of a five year period. A mortgage ranking in second priority (evenwhere between the same mortgagor and mortgagee) is necessary to secure anyinterest of over five years’ duration. Costs are also secured by a mortgage and arenot limited in their amount. The clause of the mortgage relating to interest andcosts needs to be registered.

16. PARTICULARS RECORDED AND OTHER EVIDENCEOF A MORTGAGE

16.1. In respect of a mortgage on a vessel registered in Portugal

As mentioned above, a mortgage is only effective between the mortgagor andthe mortgagee and between any of these parties and any third party if and asfrom the date and time of presentation of the application for the registration atthe Registrar’s office and only insofar as those terms and conditions that arerecorded.

There is, therefore, a broad protection of the public and unsecured presentand potential claimants against the mortgagor.

The application to register a mortgage as well as any other registrable interestin respect of a vessel may be made to a Portuguese consul who will transmit theapplication and all documentation to the Registrar concerned.

The mortgaged assets must be properly identified and detailed. The mortgagecovering all the assets of the debtor without specification asset by asset is nulland void.


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The following data are also included in the register:

(i) the type of mortgage (see above, Chapter 1.2.);(ii) the date of creation;(iii) the date and time of registration which is registered by the Registrar;(iv) the name and address of the mortgagor and mortgagee;(v) the principal, interest and costs secured, indicating a maximum

amount;(vi) any further particular clauses relating to the scope and the effectiveness

of the mortgage.

The payments and the balance due are not registerable.Once the mortgage is discharged, its registration is cancelled. The mortgage is

only be evidenced by the registration made in the Registrar’s books. He maydeliver transcripts of the register in whole or as to the part desired by the appli-cant. The register is public and available to anyone to inspect, not only throughtranscripts issued by the Registrar, but also by direct inspection of the books atthe Registrar’s office.

16.2. In respect of a mortgage on a vessel which is flagging in

Whether a vessel is registered abroad and later on is registered in Portugal, thePortuguese register will take no note of any foreign registered mortgage, which,therefore, will not be capable of being registered against the vessel in Portugal.

17. PRIORITIES

17.1. Registered mortgages

The law provides that, if there is more than one mortgage registered for thesame vessel, priority is given to a mortgage that has been registered first and notto the order in which they were created, in accordance with the principle ‘prior intempore potior in jure’. If there is more than one mortgage for which registrationhas been applied on the same date, priority is given to the application that hasbeen presented first to the Registrar.

Provisional registration of a mortgage is based on a statement by the mort-gagor authorising registration in favour of the mortgagee. This statement andregistration are made before the mortgage has been created. It is valid for sixmonths and is renewable. The priority of the prospective mortgage, once cre-ated, is ensured by provisional registration. This is, therefore, an instrument thatprotects a mortgagee against concurrent mortgagees and allows the execution ofa mortgage without the pressure of priority being given in the register to anothermortgage even where created later on.



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Priority once established may be negotiated and changed between the inter-ested parties who are free to assign its priority.

17.2. Other registered encumbrances

It is not possible to register any encumbrance on a vessel other than amortgage.

17.3. Unregistered debts and mortgages

17.3.1. Right of retention

Article 754 of the Civil Code provides that, in general, anyone in possessionof an asset who has a duty to return it to the owner and who has a claim againstthe owner is entitled to retain the asset if his claim arises out of the asset (forinstance, in respect of repairs or damage caused by the asset) while the claim isnot settled.

In particular, therefore the law establishes that the possessor of an asset isentitled to retain it until the claim has been paid.

There is no right of retention if the possession of the asset has been obtainedunlawfully or if the possessor acted in bad faith, or where the debtor (the ownerof the asset) has provided bail.

The right of retention has priority over a registered mortgage, which does notbenefit from the regime laid down in the 1926 Convention, but not over amaritime lien.

Finally, the right of retention is terminated by the redelivery of the asset evenwhere the claimant has not been paid. It is also terminated in the same way asany other claim is extinguished by payment.

17.3.2. Possessory lien

A ship reparier who has worked on a vessel is entitled to a possessory lien for aslong as he retains possession of the vessel as mentioned in 17.3.1 above. He hasalso priority over a registered mortgage to which the 1926 Convention is notapplied. If so, in the case of a vessel flying the Portuguese flag, a registeredmortgage has priority under the terms of Article 3 of the Convention. Hisright is lost if he loses possession except if this is a result of an order of acourt, for instance pursuant to an order of arrest, in which situation he doesnot lose the right of retention.

A maritime lien has priority over a possessory lien as mentioned below.


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17.3.3. Maritime liens

A mortgage created on a Portuguese vessel, as well as rights of retention, issubordinate to all maritime liens provided for in the 1926 Convention.Domestic law (the Commercial Code) also establishes, from before the timeof the 1926 Convention, maritime liens beyond those laid down in the Con-vention. Mentioned below are all the maritime liens established underPortuguese law:

(a) Those established by 1926 convention for the unification of certain rulesrelating to maritime liens and mortgages

Priority among maritime liens is determined in accordance with Articles 5 and6 of the Convention. Therefore, the claims secured by a lien and relating to thesame voyage rank in the order in which they are set out in the Convention.Claims included under the same class share concurrently and rateably in theevent of the fund available being insufficient to pay the claims in full.

The claims mentioned under items 3 and 5 of the Article 2 of the Conventionrank, in each of the two categories, in inverse order to the dates on which theycame into existence.

Claims arising from one and the same occurrence are deemed to have comeinto existence at the same date.

Finally, claims secured by a lien and attaching to the last voyage have priorityover those attaching to previous voyages. Claims arising on one and the samecontract of engagement extending over several voyages all rank with claimsattaching to the last voyage.

Mortgages created under the 1926 Convention rank after the maritime liensabove mentioned. Non-maritime liens are postponed to the mortgage, butwhether the mortgage has been created over a vessel or registered in a statesubscribing to the 1926 Convention or to which the Convention is not appliedunder Article 14, then non-maritime liens as well as the right of retention and themaritime liens provided for by domestic laws (which will be discussed below)have priority over the mortgage.

(b) Those established by domestic lawAs said before, domestic law provides for other maritime liens beyond those

established by the 1926 Convention. The maritime liens set forth by domesticlaw (Article 578 of the Commercial Code) are as follows:

(i) insurance premiums in respect of the vessel relating to the last voyage;(ii) the outstanding price of the purchase of the vessel;(iii) claims concerning the repair of the vessel and acquisition of equipment

for the vessel for the last three years;(iv) claims relating to the construction of the vessel owed to shipyard;



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(v) insurance premiums other than those concerning the last voyage;(vi) indemnity due to shippers for damage caused on cargo.

17.3.4. Non-maritime liens

A non-maritime lien (‘privilegio creditorio’) still arises under certain conditionsin favour of the state, social security and employees for taxes, payrolls andsalaries not paid by the shipowner.

17.3.5. Priorities

The rank set forth in Portuguese law in respect of a vessel flying the Portugueseflag between maritime liens established in the 1926 Convention, mortgages,non-maritime liens, maritime liens established by the Commercial Code andthe right of retention is as follows:

(i) maritime liens established by the 1926 Convention;(ii) mortgages;

(iii) non-maritime liens in favour of state, social security and employees ofthe shipowner (including seafarers and shore based workers);

(iv) maritime liens established by the Commercial Code other than thoselaid down in the 1926 Convention;

(v) right of retention.

A new Decree-Law – DL 8/2009 of 7 January – changed the domestic rankingof maritime liens by placing the credits guaranteed by mortgage or pledge abovethe ones listed in point 17.3.3.(b) above. The aim of the law maker is to create aranking of liens more favorable to banks involved in ship finance in order toattract more registrations of ships to the country, specially to the growingMadeira offshore. One must note, however, that the ranking of liens establishedin the 1926 Convention prevails over the domestic legislation as per the effect ofour constitutional rules about sources of law, meaning whenever the said con-vention applies this rule is of no effect.

18. TO WHAT PROPERTY DOES A REGISTEREDMORTGAGE ATTACH?

A mortgage attaches to the vessel and her boats, equipment and other appur-tenances as described in the mortgage form and, where not detailed, all articlesnecessary to the navigation of the vessel which were on hand at the date of themortgage or were subsequently brought on board in substitution for other sucharticles.


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A mortgage does not constitute a charge over the earnings of the vessel.However, the preferential rights of the mortgagee are maintained over the insur-ances at the same rank as in respect of the vessel. Both the mortgagor and themortgagee are able to insure the vessel in order to preserve the security.

Where the property, for any reason not attributable to the mortgagee, dis-appears or the value is reduced, the mortgagee is entitled to demand the replace-ment of reinforcement of the security by other property or security.

19. MISCELLANEOUS

19.1. Payment of the mortgage debt

If there is more than one mortgage registered on a vessel, if a prior mortgage isdischarged by repayment or other reason, the next subsequent mortgage willbecome the first mortgage and have first priority and any other subsequentlyregistered mortgage will be correspondingly advanced.

19.2. Assignment of mortgages

As to the subject matter of this chapter two different situations should bedistinguished:

(i) a mortgage may be assigned to a third party without the claim securedprovided that the third party is also a claimant of the same debtor. Themortgage will then secure the claim of the third party on the sameconditions and with the same limits as previously established withthe former mortgagee. Once the mortgage in favour of the assigneehas been registered, the payment of the debt to the assignor does notaffect the existence of the mortgage. A form of assignment is necessary.No consent of the debtor is required. However, if the owner of thevessel is a different person or entity from the debtor his consent toassign the mortgage is required; and

(ii) the rank of the mortgage may be assigned to another mortgagee whohas a mortgage on the same vessel registered after the first one. A formof assignment is necessary but there is no need for the consent either ofthe debtor or of a third party owning the vessel who has executed themortgage as security for the debtor.

19.3. Transfer of vessel

Change of ownership of a vessel without discharging any mortgage existingover her at the time of transfer of the title does not affect the mortgage and thevessel is transferred subject to the mortgage.



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If the vessel is no longer entitled to be registered in Portugal as a consequenceof its sale, then the registry of the vessel will not be closed where anyundischarged mortgage remains registered.

Under Portuguese law, it is not possible to keep an undischarged mortgageregistered in Portugal but not the vessel.

19.4. Seizure and registration

The existence and registration of mortgage is not affected by any seizure orother injunction over the vessel. The claim that has caused the seizure is rankedin its corresponding place.

20. DEREGISTRATION OF VESSEL

20.1. Transfer to another jurisdiction

Deregistration from the Portuguese register and the subsequent registration ofa vessel in another country is mentioned above in Chapter 4.

The register of a vessel may not be closed at all or be re-registered in anothercountry where there is an undischarged mortgage recorded and there is noevidence that the mortgage has been discharged or the mortgagee has consentedto it ceasing to have effect.

As said before, in accordance with the technique of the Portuguese registra-tion a record of a mortgage is always referred to a previous registration of a vesselin the books of the same Registrar, i.e., a Registrar may not register a mortgage ifthe respective vessel is not also registered in his registration books.

20.2. Transfer to another register in the same jurisdiction

This is effected through the endorsement of the ‘closed’ transcript of theregister to another registrar in Portugal with no effects on the vested rights ofthe mortgagee or other people.

20.3. Consequent upon total loss

A mortgagee has a right over the shipowner’s insurances if the vessel becomesa total or partial loss. He is entitled to claim with the same preferential right as inrespect of the vessel even when the insurance cover has not been specificallyagreed with the mortgagor.


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Incidentally, the mortgagee may agree with the mortgagor to take out itsown insurance against loss of the vessel where the mortgagee is the onlybeneficiary. In such circumstances, if the mortgagor fails to pay premiums,the mortgagee is entitled to insure the vessel and pay the premiums for theaccount of the mortgagor.

21. LIABILITY OF MORTGAGEE

21.1. In tort

A mortgagee under Portuguese law has no statutory right to take possession ofa vessel and so may not be held liable to any third party in tort as a result ofcontrolling a vessel. In case of enforcement of the mortgage, the mortgagee isonly entitled to bring an action in court. Then, the possession of the vessel willpass to a trustee appointed by the court who will not operate the vessel exceptwhere (in very rare cases) it is agreed by all the claimants against the shipownerappearing in the lawsuit and accepted by the judge. The responsibility for theoperation of the vessel should be established in the agreement.

21.2. In contract

There is nothing to add to the preceding paragraph.

21.3. As mortgagee in possession

See paragraphs 21.1 and 21.2. above.

22. ENFORCEMENT

22.1. Submission to forced execution

The lien of a preferred mortgage may be enforced under Portuguese law by asuit ‘in rem’ (which is the normal way) or otherwise by a suit ‘in personam’against the mortgagor or by a suit ‘in rem’ and a subsequent suit ‘in personam’ ifthe debt had not been satisfied in full.

The judgment may be enforced in any foreign country in which the vessel islocated pursuant to the procedure of the said country for such enforcement.

However, the ‘enforced execution’ remedy is not known in Portugal.



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D. Vessels under construction

23. REGISTRATION

23.1. Types of register

A vessel may be registered either when it is under construction or it is not yetunder construction but it is to be built. A contract in respect of substantialrepairs to the vessel which implies a change of her major characteristics (seeabove in 3.1.2.) is registerable as well.

In every case, registration is made if and when applied for by the owner or thefuture owner. One exception concerns the case where a mortgage, an attachmentordered by a court of the vessel under construction, an arrest or a similarmeasure is established over a vessel. In such a situation, the registration iseffected ‘ex officio’ by the Registrar whenever any interested party (such asthe mortgagor, of the claimant) applies for it.

23.2. The register

The object of the register of a vessel under construction or to be built is torecord the construction contract itself and not details of the vessel as the latter istechnically not yet in legal existence. The content of the register sets forth thedate of the contract and the terms in which the vessel will be built, the price ofconstruction and payment conditions.

23.3. Inspection of the register

Any person is entitled to inspect the books of the Registrar or apply for acertificate or a transcript of the sheet of the Registrar’s book where the vessel’sregister is recorded. The register of vessels in Portugal is a public record.

The same applies in respect of registration of a vessel with a Harbour Masterfrom whom a certificate may also be obtained.

23.4. Registration and stamp fees

The relevant value to calculate the stamp duty payable when executing con-struction contracts is the whole value of the vessel’s construction.


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24. TYPES OF VESSEL WHICH MAY BE REGISTERED

Any merchant vessel whatever may be registered. The construction contractfor a vessel may be registered either during the process of construction or beforeconstruction has been started. As a matter of fact and as explained above, in suchsituations it is not the vessel that is registerable but the construction contract.The vessel has no legal existence when it is at the construction stage.

25. TYPES OF RIGHTS WHICH MAY BE REGISTERED

25.1. What type of rights can be registered?

The right which is registered is the expectation of acquisition of the ownershipof a future vessel. Mortgages over the future vessel, attachment or arrest arerights that may be registered in connection with the construction contract ofa vessel.

25.2. Restrictions as to the nationality of the purchaserof the vessel under construction

There is no restriction as to the nationality of the purchaser of a vessel underconstruction.

25.3. Ownership of a vessel under construction

A vessel under construction has no legal existence until the moment theregistration with the Registrar is completed. As mentioned above, prior issueof a technical certificate by the General Inspection of Vessels Authority isrequired and also the registration with the Harbour Master.

Therefore, it is not a question of ownership of a vessel under construction, butonly the ownership of the new building which is progressively being built. Titleto a new building is normally held by the contractor (the shipbuilder) untildelivery. In one special case, however, the new building is owned by thebuyer (the future shipowner), where construction had been agreed ‘por admin-istracao directa’, namely where the employer and the contractor did not agree ona lump sum payment but the buyer agreed to pay directly the costs of thematerials (piece by piece or on a measurement basis) plus labour and othercontractor’s costs.



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26. MORTGAGES OVER VESSELS UNDER CONSTRUCTION

26.1. Types of mortgage (or other security) generally

It is possible to register a mortgage against a vessel under constructionprovided that at least the keel’s length and her approximate major measurementsand tonnage and the shipyard where she is being constructed or will beconstructed are mentioned in the written contract which creates the mortgage.Such a mortgage has the same legal nature as mortgage on a vessel already inexistence.

26.2. Documentation

The documents required for registration of a mortgage of a vessel underconstruction where executed in Portugal are only the notarial deed by whichthe mortgage is created with the agreement of both the mortgagee and themortgagor and the application directed to the Registrar.

26.3. Evidence of a duly registered mortgage

The evidence of a duly registered mortgage takes the form a certificate ofregistration issued by the Registrar based on the registration duly recorded inhis books together with the notarial deed by which mortgage was created.

The Registrar with whom the mortgage on a vessel under construction shouldbe registered is the one where the shipyard is located.

26.4. Who can legally hold a mortgage?

A mortgage of a vessel under construction may be created to secure construc-tion expenses either due to the shipbuilder or to banks that have granted finan-cial facilities.

26.5. In what way can a valid charge be created on a vessel underconstruction?

A mortgage on a vessel under construction may be created provided that thelegal requirements indicated in Chapter 26.1 are complied with and registrationis effected later on.


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26.6. Legal effects of a mortgage

The Hague Convention dated 10 April 1926 does not contain any provisionsabout mortgages of vessels under construction. However and as seen above,such a mortgage is allowed under Portuguese law.

On the other hand, Portuguese law grants a maritime lien in favour of theshipbuilder (see also 17.3.3. (b) above). This maritime lien ranks as indicated inthat paragraph.

Of course, where the new building is not yet fully constructed and seaworthy(namely whenever it is still under the control of the shipbuilder and has not yetbeen delivered to the purchaser) then the shipbuilder simultaneously holds twosecurities: a maritime lien and the right of retention.

If the shipbuilder delivers the vessel without being paid in full he takes the riskof the creation of further maritime liens on the vessel under The Hague Con-vention that rank with priority over the vessel as explained above.

The creation of further mortgages on a vessel over which a mortgage is alreadycreated when she was under construction has no priority over the latter providedthat that prior mortgage on the vessel under construction is duly registered.

26.7. To what does a registered mortgage of a vesselunder construction attach?

A registered mortgage of a vessel under construction attaches to all parts of thenew building being constructed and to all parts and equipment as they are assem-bled. The mortgage may also be created over a vessel not yet existing, but to beconstructed.To the extent that the new building isbeing constructed, the mortgagecovers the parts and equipment as they are assembled as mentioned above.

27. DEVELOPMENTS AFTER REGISTRATION OF THE MORTGAGE

27.1. Repayment of the mortgage debt

The repayment of the mortgage debt terminates the mortgage and determinesthe right of the shipowner to cancel the registration based on a discharge (‘Dis-trate’ ) issued by the mortgagee. Payment in part does not entitle the mortgagorto cancel the mortgage which is maintained in full on the vessel as if no paymenthad been made.

27.2. Assignment of mortgages

A mortgage on a vessel under construction may be assigned in the same wayas explained in Chapter 19.2. and therefore without the consent of the



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mortgagor. The mortgagee’s right to the mortgage may be pledged too asexplained above.

27.3. Change of ownership of vessel

Change of ownership of a vessel under construction has no effect on themortgage which remains valid and unchanged but only where the mortgageis duly registered prior to the change of ownership. The consent of the mort-gagee is not required for changing the ownership of a vessel. A mortgage operates‘in rem’ and not ‘in personam’.

27.4. Procedure on delivery of the vessel

In principle, it is not necessary to register the vessel under construction.Registration is only made if there is a need to register a mortgage. When thevessel is constructed the procedure concerning her registration in whole is theninitiated as explained in Chapter 23. However, the registration with the Registraris performed simply by notifying him that the vessel is completed. The originalregistration is maintained including all the records already made relating to themortgage of the vessel where such mortgage continues to constitute a chargeover the vessel.

27.5. Enforcement of mortgage of a vessel under construction

The enforcement of a mortgage of a vessel under construction has noparticular regime compatible with the method of enforcement described inChapter 22.1. A mortgage in Portuguese law does not give any right to takepossession of the vessel and only transfers to the mortgagee the right to sue theshipowner in order to force the sale of the vessel under construction.

Where the mortgagee is the shipyard (and not a bank) it is also entitled to theright of retention that gives it possession of the vessel. As mentioned in Chapter17.3.2 above, the right of retention of the shipyard may have priority over themortgage if the mortgage is not created under the 1926 Convention and so it ispaid off before a bank’s mortgage where the latter is a mortgagee.

27.6. What other security will normally be given for financing a vesselunder construction if a mortgage cannot be registered?

There is no other security that can be registered on a vessel underconstruction.


PORTUGAL

E. Madeira International Registry of Vessels (‘MAR’)

28. NATURE OF THE REGISTER

The International Vessels Registry of Madeira Islands ‘MAR’ was createdin 1989 to allow dual registration of vessels within the European Community.

Vessels registered with ‘MAR’ are subject to a set of rules which have noconnection with the Portuguese mainland as described above including:

(i) number of officers and crew;(ii) nationality of officers and crew;(iii) inspection and control of classification of vessels;(iv) social security and taxes;(v) acknowledgment by the Portuguese general law of a dual registration of

a vessel flying the Portuguese flag.

As a matter of fact, an off-shore zone was developed in Madeira in the 1980scovering not only shipping but also the banking industry and other industrialand trading activities. ‘MAR’ is a part of such ‘tax haven’ facilities.

Companies owning or operating vessels registered with ‘MAR’ must bePortuguese companies either registered in the Madeira off-shore zone or else-where. Therefore, a vessel registered with ‘MAR’ may be owned by a companyset up and registered in the Madeira off-shore zone or set up or registeredsomewhere else (such as Portuguese mainland or abroad). If it is set up andregistered in Madeira it benefits from full exemption from income tax until31 December 2011. The distribution of dividends of those companies to itsshareholders also benefits from tax exemption.

There are no exchange control restrictions concerning funds invested inMadeiran companies including the repatriation of investments and proceedsarising from winding up.

The effective management of such companies may not be located in Madeiraand may not be by Portuguese citizens.

The vessels registered with ‘MAR’ fly the Portuguese flag whether they areowned by Portuguese companies registered in the Madeira offshore zone orowned by foreign companies. They are not authorised, in principle, to carrypassengers and cargo between Madeira and Portugal mainland and do notbenefit from any facilities granted to Portuguese vessels registered outside‘MAR’ concerning exclusivity or protection in general to operate betweennational ports or providing services to State companies.

Rules indicated above on the number of officers and crew and their nation-ality are not applied to vessels registered with ‘MAR’. The same applies as toinspection and classification of vessels which are controlled by local authoritiesand dependent on ‘MAR’ administration.



MANUEL P. BARROCAS

However, there is no distinction relating to the effects of registration of mort-gages on vessels including liens to which the general Portuguese law applies asdescribed in Section B.

Finally, Portuguese labour law applies to the officers and crew employed on avessel registered with ‘MAR’.

F. Protection granted to Portuguese-flag vessels

29. SUMMARY

A law enacted in March 1991 updated the protection granted to vessels flyingthe Portuguese flag (excluding vessels registered with ‘MAR’ which do notbenefit from such facilities).

Only Portuguese vessels may load and carry:

(i) liquid fuels to supply Portugal. Vessels registered in an EU country orin an OECD country are considered similar to Portuguese flag vesselsfor this particular purpose provided that in non-EU countries whichare OECD countries have a reciprocal arrangement with Portugal;

(ii) as a general rule, the transport of passengers and cargo betweendomestic ports;

(iii) the regular transport service between the Portuguese mainland andMadeira and the Azores is reserved to Portuguese shipowners whoregularly operate such a service.


PORTUGAL



MANUEL P. BARROCAS