A Dutch appeal court recently partially restored the traditional tenet of Dutch maritime law and practice whereby the country's shipyards can exercise a right of retention on vessels on which they have performed work. In so doing, the appeal court set aside the controversial 2014 ruling of the Gelderland Court holding that a yard could not exercise its right of retention on vessels on which it was owed money because it had no prospect of being paid by the debtors (for further details please see "Dutch yards may have to rethink strategy on contractual protection").
The dispute involved two tankers under construction at the Markerink Yard in the Netherlands. Upon completion of construction, Rijndec Quality Control intended to transfer ownership of the vessels to two separate affiliated companies, Rijndec Trading and Rijndec Shipping. The contracts for completion of construction were signed by Rijndec Trading and Rijndec Shipping, not by Rijndec Quality Control. The project was financed by ING Bank, which held mortgages on both vessels.
After some time, it transpired that Rijndec Trading and Rijndec Shipping were no longer able to meet their financial obligations towards Markerink. The yard exercised a right of retention on the vessels and sought judgment against Rijndec Trading and Rijndec Shipping for a total of approximately €1.85 million. Soon thereafter, ING Bank and Rijndec Quality Control found a buyer for the ships and maintained that, since the yard would never be able to recover the amounts due from Rijndec Trading and Rijndec Shipping, the vessels ought to be released.
The Gelderland District Court agreed, holding that the shipyard was guilty of abusing the right of retention because it had no prospect of being paid by the debtors.
The appeal court has now ruled that the shipyard at least had a valid right of retention for custody charges against Rijndec Quality Control and ING, and that there were no grounds to assume abuse of such right. Moreover, the appeal court considered that allowing ING Bank and Rijndec Quality Control to remove the vessels from Markerink's control and sell them off irreversibly deprived Markerink of any possibility to enforce its claims, while ING Bank and Rijndec Quality were unwilling to remedy that disadvantage for the shipyard. The appeal court consequently set aside the first-instance ruling.
The appeal court (in summary proceedings) left undecided on procedural grounds the principal question of whether the shipyard would succeed in exercising a right of retention for its entire outstanding claim for work performed on the vessels. While – separately – proceedings on the merits at the Gelderland District Court are still pending against Rijndec Quality Control for claims for custody charges and unjust enrichment, it seems unlikely that the courts in this dispute will revisit the extent of the shipyard's right of retention, as the vessel has already been transferred to third-party owners.
Looking ahead, it seems that the courts will have to address in a future dispute the ambiguity surrounding the validity of retention rights on vessels for outstanding claims, which the appeal court left unresolved after setting aside the Gelderland District Court's decision.
The Gelderland District Court's decision set alarm bells ringing for Dutch shipyards which did not have claims against the actual owners of vessels. It led to fears that such shipyards, many of which are engaged in the construction of specialist vessels, could be forced to reconsider their contractual arrangements.
The appeal court has now at least preserved shipyards' right of retention on vessels for custody charges. It remains to be seen whether the courts will fully restore traditional practice by holding that a shipyard can invoke a general right of retention on the part of all interests for work performed on vessels, irrespective of whether the contractual party ordering such work is the owner of the vessel; and that the buyer at auction must pay the shipyard all amounts due before being able to take possession of the vessel, even if a ship goes to public auction.
The appeal court decision means that the Netherlands remains a jurisdiction where a shipyard can effectively hold back a vessel from owners, at least for custody charges and possibly unjust enrichment claims. This might provide some relief to the shipyards. However, the question of whether shipyards also maintain a right of retention on vessels not owned by the debtor for their entire outstanding claim in respect of work performed on the vessel remains in abeyance for the moment.
For further information on this topic please contact Haco van der Houven van Oordt or Jonathan van Blaaderen at AKD by telephone (+31 88 253 50 00) or email ([email protected] or [email protected]). The AKD website can be accessed at www.akd.nl.
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