Vessels registered in the Maritime Register of the Republic of Lithuania will no longer be treated as immovable property

As of 1 May 2023, amendments to the Law on Merchant Shipping of the Republic of Lithuania (LMC) will enter into force, including an amendment to Article 6(1), according to which ships registered in the Register of Seagoing Ships of the Republic of Lithuania will no longer be considered as immovable property and will be subject to the legal regime of movable property.

Pursuant to Article 1.98(3) of the Civil Code of the Republic of Lithuania, vessels and aircrafts provided for by law and subject to compulsory legal registration shall be treated as immovable property. As clarified in the case law (Decision of the Supreme Administrative Court of the Republic of Lithuania of 12 September 2016, admin. Case No. I-3038-535/2016), in order for a ship to be considered as immovable property, it must be: (1) expressly provided for in the specific law that the ship is to be treated as an immovable property, and (2) compulsory legal registration of such ships must be provided. Unlike the Inland Waterways Transport Code of the Republic of Lithuania or the Law on Aviation, the previous version of the LMS provided for the equation of sea-going vessels with immovable property. As indicated in the Explanatory Memorandum to the draft amendments to the LMS, such a regulation led to legal consequences which were not only not in line with global shipping practice, but also constituted one of the significant obstacles to the promotion of the registration of seagoing ships in the Register of Sea-going Ships of the Republic of Lithuania, as:

– disputes concerning rights in rem in respect of seagoing ships could only be litigated in the courts of the Republic of Lithuania (Article 31 of the Code of Civil Procedure of the Republic of Lithuania), while according to international shipping practice such disputes are usually resolved through arbitration or in the courts of countries having deep tradition of application as well as interpretation of maritime law, e.g., in the United Kingdom;

– the transfer of a seagoing ship registered in the Register of Seagoing Ships of the Republic of Lithuania should have been governed by the law of the Republic of Lithuania, whereas in accordance with international shipping practice such transactions are usually governed by English law;

– notary form of the seagoing vessel’s transfer transaction was mandatory (Article 1.74 of the Civil Code of the Republic of Lithuania), whereas according to international practice the transfer of seagoing ships is usually executed by standard forms (e.g. the Norwegian Sale Form, the Nippon Sale Form, the Singapore Ship Sale Form), and there is no necessity of the notary’s approval of such transaction.

The objective of amendments – to encourage the registration of seagoing ships in the Republic of Lithuania

Notwithstanding the fact that notary approval of the sale and purchase agreement of seagoing ships was only required for the sale of a ship registered in the Register of Seagoing Ships of the Republic of Lithuania, it is not inconceivable that the mere knowledge that the sale of a ship flying the flag of the Republic of Lithuania would require notarisation discouraged the willingness to register a seagoing ship in the Republic of Lithuania as the transaction would be difficult or impossible to conclude by notary form:

– the transaction must be notarised in Lithuanian and translated into another language;

– the foreign buyer must provide the notary with legalised documents translated into Lithuanian on the fact of its existence as a legal person, the existence of the rights of the legal person and the rights of the body representing it to conclude the transaction;

– the contract of sale and purchase of the vessel must be signed in the presence of a notary public, which is why the representative of the buyer of the vessel registered in a foreign country must physically come to the Republic of Lithuania, obtain a visa, etc.;

– it is difficult or impossible to finance the acquisition of seagoing vessels through financial institutions. The acquisition of seagoing vessels is usually financed by foreign credit institutions and the credit agreements are concluded in accordance with the terms and conditions set by the credit institutions, including the law applicable to the credit agreement and the place of dispute settlement, which is practically never the Republic of Lithuania. In the event of default on the loan, the credit institution usually has the right to take ownership of the vessel. Given that the financier is aware that, under Lithuanian law, in the event of default by the shipowner, the credit institution would be obliged to sell the ship as immovable property, what obviously reduces the number of potential buyers, it would not be inclined to finance such acquisition. Therefore, the direct financing of the acquisition of seagoing ships by a foreign financier essentially became unavailable.

All the above-mentioned complications and deviations from the international shipping practice have been abolished with the entry into force of the amendment to Article 6(1) of the LMC, according to which ships registered in the Register of Seagoing Ships of the Republic of Lithuania are considered as movable property. Transactions for the sale and purchase of such ships will no longer have to be notarised, disputes over rights in rem will not necessarily have to be litigated before the courts of the Republic of Lithuania, the parties will be free to agree on the law applicable to the transfer of such ships, etc. Mortgages on ships will no longer have to be in the form of a mortgage, but mortgages on ships created prior to the entry into force of the amendments to the LMC will be continued and terminated in accordance with the provisions of the legal acts in force at the time of the creation of such mortgages

The Lithuanian Association of Seagoing Ships believes that this amendment will contribute to an increase in the number of seagoing ships flying the flag of the Republic of Lithuania, and the Investors’ Forum believes that it will contribute to the increase in the competitiveness of the Lithuanian maritime business and the creation of new job places. Ellex do not doubt that the abolition of the classification of seagoing ships as immovable property will encourage the registration of seagoing ships in the Register of Seagoing Ships of the Republic of Lithuania.

Ship Register of Seagoing Ships of the Republic of Lithuania can be hound here.