What do Saudi Arabia’s moves in maritime law mean?
In January 2019, the Kingdom of Saudi Arabia (the Kingdom) introduced, for the first time, a bespoke Commercial Maritime Law issued pursuant to Royal Decree no. M/33 dated 5 Rabi’ II 1440H and published it in the Official Gazette on Friday, 4 January 2019. The Maritime Law came into effect on 3 July 2019.
The Maritime Law applies to all Saudi Arabian flagged vessels and foreign vessels that call at the Kingdom’s ports and territorial waters. The Maritime Law does not, however, apply to warships and public vessels which have been allocated for non-commercial purposes.
Previously, maritime issues were dealt with by the Commercial Court Law, which was published in early 1931 and was based on the Ottoman Commercial Code. The maritime sections of the Commercial Court Law were brief and arguably not suited for modern-day shipping. As of 3 July 2019, the sections of the Commercial Court Law relating to maritime issues were repealed, as were other laws of the Kingdom that conflict with the Maritime Law. All maritime issues are now regulated by and are dealt under the Maritime Law.
Below are some of the key issues covered by the Maritime Law.
Nationality / flag
For a vessel to acquire Saudi nationality/flag, it must be:
• Registered in one of the Kingdom’s ports; and
• Wholly owned by a Saudi national or a company that is 100% owned by a Saudi national. Alternatively, if the vessel has multiple owners, the majority of the shares must be owned by a Saudi national.
The Maritime Law provides that any self-propelled vessel shall not fly the flag of the Kingdom unless it is registered in accordance with the Maritime Law and its Implanting Regulations, which are scheduled to be issued imminently.
However, the below vessels are exempt from registration.
• Vessels less than 24 meters in length.
• Fishing vessels whose tonnages does not exceed 30 metric tons and which are not more than 20 meters in length;
• Recreation and diving vessels whose tonnage does not exceed 10 metric tons and which are not more than 11 meters in length; and
• Vessels of primitive construction, sailing vessels and non-propelled marine units, lighters, barges and other floating structures that normally operate within a port.
Non-Saudi vessels are not allowed to undertake towage, pilotage, supply services and coastal transportation activities within Kingdom’s waters unless an exemption licence is obtained from the president of the Public Transport Authority (the PTA).
This provision is quite significant as it applies to all Offshore Support Vessels (OSVs), the majority of which operating in the Kingdom are not Saudi-flagged.
The impact that this provision could have on an OSV owner that is in breach of the same, or who does not obtain the exemption certificate from the president of the PTA, is potentially quite significant from both a financial and commercial perspective, including:
• The owner might be fined between SAR2,000 and SAR50,000;
• The OSV might be detained; although this is not provided for in the Maritime law; and
• The OSV might be refused clearance to leave the Kingdom’s waters.
Limitation of Liability
As per the Maritime law, “the liability of the owner of the vessel shall be limited pursuant to the limitation of liability in international maritime conventions to which Saudi Arabia has acceded.”
On 6 April 2018, the Kingdom acceded to the 1976 Convention on Limitation of Liability of Maritime Claims (1976 LLMC) and to the 1996 Protocol. Although the 1976 LLMC and the 1996 Protocol have yet to be enacted via a Royal Decree, which gives laws the status of a statue, the Maritime Law arguably gives them the force of law/status of a statue and therefore any limitation of liability should be calculated as per the 1996 Protocol.
Limitation of liability is generally not allowed under Sharia law (which is the overarching law of the Kingdom), as one of the basic principles of Sharia law is that one should compensate the other fully in respect of the harm that one has caused to the other.
The Basic Law of the Governance of the Kingdom provides:
• Article 1: “The Constitution of the Kingdom is the Quran and the Sunnah of His Prophet.”
• Article 7: “Rules in the Kingdom of Saudi Arabia draws its authority from the Quran and the Sunnah of His Prophet.”
• Article 48: “The Courts shall apply in cases brought before them the rules of the Islamic Sharia in agreement with the indications in the Quran and the Sunnah, and the laws issued by the ruler that do not contradict the Quran and the Sunnah.”
Therefore, where a law contradicts Sharia law, the court should apply Sharia law as Sharia law prevails over any other law of the Kingdom.
Accordingly, it remains to be seen if the courts of the Kingdom will apply the limitation of liability as per the 1996 Protocol, or at all. That said, the courts of the Kingdom have previously upheld limitation provisions in bills of lading on the basis that the parties are free to contract and did expressly negotiate the said provisions.
Should the Kingdom’s courts enforce the 1996 Protocol, this will see a dramatic shift in the Kingdom’s liability regime and will be a fundamental game-changer for ship owners and operators alike.
Source: Baltic Exchange