I COMMERCIAL OVERVIEW OF THE SHIPPING INDUSTRY
The shipping industry in Paraguay has grown steadily in the past decade, mainly as a consequence of the significance that agribusiness has for the local economy and the need to transport these commodities overseas.
Paraguay’s economy is dependent on foreign trade2 – it is one of the five largest soya exporters in the world;3 in the past 20 years the major international agri-commodity companies have settled in the heart of South America4 and, with them, their shipping arms. Traditional international carriers, such as MSC, P&O Maritime, Imperial Shipping and CMA CGM, and South American shipping companies such as UABL and Hidrovias, have invested heavily and are fully operational in Paraguay. Likewise, local carriers, led by Navemar and Copanu, play their role in meeting the continuous demand for hold space for Paraguayan products.
The registered fleet size currently authorised by the Merchant Shipping Authority of Paraguay5 is of approximately 2,012 vessels, of which 1,741 are barges. From that total fleet, 90 per cent of the vessels and 80 per cent of the barges have Paraguayan flags, while the rest of the ships operating in Paraguay are registered under Argentinian, Bolivian, Brazilian and Uruguayan flags.6 The Paraguay–Paraná waterway, a system of rivers that starts in Puerto Cáceres (Brazil), passes through Bolivia, Paraguay and Argentina, and ends in Nueva Palmira (Uruguay), is the regular route used by the Paraguayan fleet.
Paraguay’s most important ports are concentrated in Asunción, Villeta, San Antonio and Encarnación,7 cities strategically located for river connections to the sea through Argentina, Uruguay and Brazil. Virtually all the cargo that leaves Paraguayan ports through the waterway in river carriers is transshipped to Argentinian, Uruguayan and – to a lesser extent – Brazilian ports, and from there transported by sea carriers to their final destinations.
With the investment of carriers, the shipbuilding industry has flourished in Paraguay in the past few years. Japanese giant Tsuneishi arrived in the country in 2012 to join local companies Astillero Chaco SA, La Barca and Astillero Aguape SA. They remain a valid alternative to Argentinian and Brazilian shipyards, and the most frequently requested by shipowners in recent times.
II GENERAL OVERVIEW OF THE LEGISLATIVE FRAMEWORK
Book III of the Code of Commerce, ‘Rights and obligations arising from navigation’, was the only one in this old Argentinian statute (1889) not repealed by the current Paraguayan Civil Code.8 It was adopted by Paraguay in 1903 and contains the legal framework for private maritime law. Both dry and wet domestic shipping is controlled by this law, which contains provisions related to ships, shipowners, charterers, captains, crew, contracts of affreightment, charterparties, bills of lading, collisions, shipwrecks, salvage, cargo claims, general average, ship mortgage and maritime liens.
The Paraguay–Paraná River Transport Agreement adopted by Law No. 269/1993 is an international agreement entered into between Argentina, Bolivia, Brazil, Paraguay and Uruguay to regulate international river transport through the most important waterway in South America. The agreement contains five additional protocols related to customs matters, navigation and safety, insurance, equal opportunities for increasing competitiveness and dispute resolution.
International carriage of goods by sea is governed by the Hamburg Rules, adopted in Paraguay by Law No. 2614/2005.
In the administrative sphere, the most important statutes are the Code of Fluvial and Maritime Navigation, adopted in Paraguay by Law No. 476/1957, and the Capitanias Rules, adopted by Law No. 928/1927.
Other key international legislation adopted by Paraguay includes the Collision Convention 1910, the CLC Convention, the Criminal Collision Convention 1952, the Brussels Convention, UNCLOS, SOLAS and the SUA.
III FORUM AND JURISDICTION
There is no admiralty court or all-encompassing special jurisdiction in Paraguay for shipping disputes, which are normally filed in the ordinary civil and commercial courts. Admiralty accidents, such as salvage, wrecks and collisions, could also lead to procedures in criminal courts to ascertain criminal liability. Further, there would normally be an open investigation to determine the administrative fault of the captain and crew before the Paraguayan coastguard (General Naval Prefecture) in the administrative court.
Domestic cargo claims – involving transport between Paraguayan ports – must be filed within a year, counted from the day on which the goods were delivered or from the day they should have been delivered. If the dispute is related to international river carriage, the time bar for initiating the claim is 18 months, whereas if the cargo claim concerns an international maritime transport, the time bar is the same as that contained in the Hamburg Rules, namely two years.
ii Arbitration and ADR
Paraguay does not have a specific maritime arbitration court, nor does it have any special procedures. The arbitration and mediation proceedings are normally directed to the Paraguayan Centre of Mediation and Arbitration, a body of the Paraguayan Chamber of Commerce,9 where specific and complex commercial disputes are resolved.
Within the legal framework of the Arbitration and Mediation Law No. 1870/2001, the centre has developed its own rules of procedure, which are far more flexible than the procedural law that regulates ordinary proceedings in the courts.
The vast majority of bills of lading and charterparties drafted by local carriers refer the resolution of disputes to the ordinary courts, which is why there is not a great deal of arbitration activity related to shipping disputes in Paraguay.
It is worth mentioning that international carriers normally prefer to litigate in foreign jurisdictions with legislation more friendly to shipowners. Hence, it is not unusual to find clauses selecting foreign courts or moving arbitration proceedings abroad. The validity of this type of clause before the Paraguayan courts has not yet been uniformly decided, but some courts have declared them null and void10 on the basis that referring the dispute to foreign courts, where the shipper or the consignee have not been in a position to negotiate the terms of the contract, is quite similar to denying justice to these claimants, and therefore they are against public policy. Time bars on starting arbitral proceedings are the same as those noted in subsection i.
iii Enforcement of foreign judgments and arbitral awards
Local courts do not impose restrictions on the enforcement of foreign judgments and arbitral awards; however, the enforcement of foreign judgments is regulated by Book III, Title IV, Chapter II of the Civil Procedural Code (Law No. 1337/1988) and the enforcement of foreign arbitral awards is governed by Chapter VIII of Law No. 1879/2002 on Arbitrage and by the New York Convention.
Applications for the enforcement of foreign judgments and arbitral awards have to be made before the civil and commercial court of first instance of the domicile of the person against whom the award is meant to be executed, or in the place in which the property of the defendant is located. The party who wants to enforce the judgment or the award has 10 years to do so,11 counting from the day of the ruling.
IV SHIPPING CONTRACTS
Local shipyards have grown significantly in the past five years, with a lot of carriers buying brand-new barges to increase their fleets as a result of the high demand for space on the Paraguay–Paraná waterway.
The contract to build a ship is neither a typical nor a nominate contract in Paraguayan law. In this sense, what the parties have specifically agreed, exercising their freedom of contract, together with the general principles of Book III of the Civil Code (which regulates the law of contracts) will rule shipbuilding contracts.
Law No. 928/1927 obliges carriers to notify and obtain permission from the General Naval Prefecture for the construction of any ship. The General Naval Prefecture is in charge of navigational safety and issues most of the statutory certificates that are needed to navigate, polices the rivers and is responsible for enforcing navigational rules.12 In that role, the General Naval Prefecture is competent to monitor the construction of a ship that is going to be incorporated into the local fleet.
ii Contracts of carriage
Paraguay has two sets of rules in force: one for international carriage of goods by sea and the other for the domestic carriage of goods by river.
Until 2005, the Hague Rules were in force in Paraguay by virtue of Law No. 1025/65. This was rather curious as Paraguay is clearly considered a cargo-owning country rather than a shipping force. In 2005, Congress adopted a radical change by approving the Hamburg Rules through Law No. 2614/2005. The Hamburg Rules, friendlier to cargo owners, are currently in force for international carriage of goods by sea. Besides the Hamburg Rules, the carriage of goods by river is governed by Book III of the Code of Commerce, which contains detailed provisions relating to contracts of carriage.
The Code of Commerce establishes a strict liability regime, with few exceptions in favour of the carrier. One could easily conclude that the legal framework of the Code of Commerce is less advantageous to the carrier than international conventions.
The carrier must transport the goods from the loading port to the port of discharge, and must discharge the goods in the same condition as they were in at the time of loading. The contract of carriage under the Code of Commerce does not envisage ‘best-effort’ obligations – namely, obligations to use diligence and to give one’s best efforts to carry out an obligation – but end results. The carrier promises a specific result and not conduct aimed at producing a result that it is not possible to assure. Hence, when the goods are not returned in the same condition – the result promised – the fault of the carrier is presumed by the courts until the latter can demonstrate cause for exemption.
The carrier is liable for any damage or loss to the cargo during transport, unless it can prove (1) an inherent flaw in the goods, (2) force majeure, or (3) the fault of the shipper. These are the only exceptions established by law in favour of the carrier. Normally, the carrier will try to argue the case through the force majeure defence; under this domestic regime, there are no exceptions covering errors in navigation or in the management of the ship.
The Code of Commerce also recognises the liability of the shipper in Articles 1,068 and 1,069. The carrier might be entitled to claim against the shipper for unpaid freight, for damage to the ship caused by the cargo, for loading dangerous or prohibited goods damaging other cargo, or, for instance, for deposit charges where the consignee fails to collect the goods. This liability is also recognised in general terms in the Civil Code.
With regard to security for the freight, Article 958 of the Code of Commerce provides that the owner is entitled to exercise a lien on freight payable on delivery, general average contributions and costs of preserving the goods. Moreover, the contract of carriage will normally contain detailed provisions entitling the owner to retain the cargo until it has been paid the sums that the lien covers, and these provisions will normally be respected by courts.
As shown, the Code of Commerce and the Hamburg Rules have significantly different regimes regarding matters, including the liability of the carrier, time bars and limitation of liability. Accordingly, it is essential to establish from the outset which law applies. In this regard, when it is proven that the damage occurred during the river leg of the journey, Paraguayan jurisprudence says that the local rules, established by the old Code of Commerce, will apply rather than the international conventions on sea carriage.13
In terms of charterparties, the Code of Commerce regulates the contract of carriage.14 Within that legal framework, the shipowner and charterer are otherwise free to negotiate their own terms.
As regards choice-of-law clauses (which usually opt for English or US law), it remains to be seen whether the Paraguayan courts will apply the legal regime established by the contract of carriage, superseding the regime established by local law. This appears to be banned by Article 1,901 of the Code of Commerce, although this interpretation is likely to be reviewed in the light of new Law No. 5,393/2015 on the Law Applicable to International Contracts.
iii Cargo claims
In the landlocked country of Paraguay, all cargo arrives in one of two ways: by sea or by river. As a consequence of the hydrological features of its rivers, seagoing ships are normally unable to navigate internal waters, which is why cargo is customarily transshipped in Argentina or Uruguay. For both means of transport, bills of lading are issued. Bills of lading can differ not only in their terms, but in the legal parties to the contract and the rules and legislation applicable. This peculiarity raises several questions relating to the identity of the carrier, title to sue and the terms of the contract of carriage.
The contractual parties to any bill of lading are the shipper, the carrier and the consignee. The only party that will normally remain unchanged in both bills of lading (ocean or river) is the consignee. The carrier will probably change, because in an ocean bill of lading, the carrier is the entity with which the shipper is contracted (ocean or sea carrier), while in a river bill of lading, the carrier is the ship that took the cargo from the transshipment port, normally known as a feeder (river carrier). As regards the shipper, in an ocean bill of lading it is the supplier of the cargo, whereas in a river bill of lading the shipper may be the ocean carrier. This is a normal scenario, which can, however, have another layer of complication if special agreements are made between carriers.
The consignee, as it normally appears in both bills of lading, is entitled to sue any of the carriers. The shipper also has title to sue; this is true under both the Hamburg Rules and the Code of Commerce. Finally, the question of who will be sued will depend on which carrier is liable, which in turn will normally depend on where the damage took place.
If the damage occurred during the river journey, the consignee prima facie will be entitled to sue the river carrier under the river bill of lading. The river carrier is only liable for this leg of the journey by virtue of the river bill of lading that it issues. The consignee might also be entitled to sue the ocean carrier, since under the ocean bill of lading, the ocean carrier undertakes to carry the cargo from the loading port to the port of discharge (Paraguay) notwithstanding the fact that, in reality, the ocean carrier only transports the goods to the transshipment port. The ocean carrier contractually promises to carry the cargo into Paraguay; in this scenario, the ocean carrier will normally have recourse against the river carrier.
If the damage took place during the sea leg, the consignee should only sue the ocean carrier, as the river carrier is not liable for the ocean leg of the journey: it neither carried out that leg of the journey nor issued a bill of lading promising to do so.
The Code of Commerce recognises the possibility of incorporating charterparty terms in the bill of lading in Article 1,029.
iv Limitation of liability
When the Hamburg Rules apply, a carrier can limit its liability in cargo claims according to Article 6. Although highly unlikely to happen in practice, the right to limit can be lost under the circumstances cited in Article 8, which describes conduct barring limitation.
Under domestic law, Paraguay has not subscribed to any of the international conventions on limitation of liability – the LLMC Convention 1976 and its 1996 Protocol, the Brussels International Convention on the Limitation of Liability of Owners of Sea-going Ships 1957 and the 1924 Brussels Limitation Convention.
In this scenario, the only option that the carrier has to limit any kind of liability when domestic rules apply is the abandonment of the ship, which is legislated under Article 880 of the Code of Commerce.
i Ship arrest
The rules that govern the procedure for arresting a ship are found in both the Code of Commerce and in the Civil Procedural Code. Recent jurisprudence has established that the general rules and requirements of injunctions and interim relief apply to the arrest of ships.15
To arrest a ship, the party that has a privileged16 or unprivileged17 credit against the ship can either file a specific claim for the sole purpose of obtaining the arrest or can initiate the principal claim on its merits.18 In any case, if the arrest is requested before the principal claim, the claimant has 10 days to initiate the claim on its merits, or the arrest will be lifted by the court, which might also grant damages in favour of the arrested ship.19
There are other general requirements that must be met to obtain an arrest order: (1) the claimant needs to prove the verisimilitude of its right (a good, arguable and accrued case); (2) the claimant needs to prove the urgency of arresting the ship (there must be a real risk of dissipation); and (3) the claimant needs to offer security to meet the costs and damages that may result if the order is granted without right. In this respect, Article 702 of the Civil Procedural Code establishes a claim for wrongful arrest when the claimant has abused or exceeded its rights in the use of the right to arrest a ship. The order granted by the court needs to be communicated to the General Naval Prefecture, the body that executes the arrest.
ii Court orders for sale of a vessel
The judicial sale of the ship has a similar legal regime to that of the judicial sale of real property22 and is regulated under Articles 475 to 494 of the Civil Procedural Code.
An unpaid creditor needs to initiate a special procedure to execute a court order that recognises its right of credit. Within that procedure, the court will issue an order to sell the ship at public auction. Before the buyer pays the price at the public auction, the debtor is entitled to release the ship by depositing the capital, interests and costs.
The Paraguay–Paraná River Transport Agreement contains, in its Second Additional Protocol, a regulation related to safety and navigation. The Protocol contains detailed provisions relating to safety standards of vessels and cargo, safety of the crew, safety of navigation on inland waters, safety rules for ports and guidelines for the prevention, reduction and control of pollution of ships and boats. The Capitanias Rules also contain, in Articles 216 to 224, regulation on the safety of vessels.
Furthermore, Paraguay has also approved SOLAS, by Law No. 2367/2004, and SUA.
ii Port state control
The General Naval Prefecture has jurisdiction over all port activities. As the river authority, it has competence to control the entry and exit of all vessels in order to monitor compliance with local laws and regulations. It also inspects docks and piers to monitor loading and discharging operations, and determines the order of entry, departure, berthing, anchoring and the placement of vessels in port.
Among its duties, the General Naval Prefecture provides public services within ports and maintains harbours and channels, keeping them clean, safe and to depth, removing any obstacles that may interrupt navigation. The Prefecture also provides assistance to assure the rights of the Treasury when the customs authorities require its policing services, executes court orders for the arrest and seizure of ships, and monitors compliance with health regulations.
iii Registration and classification
The procedure for registration of ships used to be extremely bureaucratic in Paraguay. In 2014, the government issued a new regulation aiming at speeding up registration. Currently, the process starts with the Directorate General of the Merchant Marine, which issues a decision on the proposed registration. If favourable, the opinion is then elevated for final consideration by the Ministry of Public Works and Communications, which issues the resolution incorporating the ship into the Paraguayan fleet and grants the right to use the Paraguayan flag. Once this resolution is obtained, the owner must go to the General Naval Prefecture to gain a certificate of registration and finally, with the resolution and the certificate, the owner requests the registration of the ship ownership title before the Public Records Office.
The regime for the incorporation, registration and flagging of ships is regulated by Decree No. 1,994/2014, Decree No. 2,115/2014 and by Resolution No. 1,791/2014 of the Ministry of Public Works and Communications. The regulations set forth all the requirements for incorporating newbuilds and second-hand ships, registering bareboat charters and incorporating ships under lease. Under Decree No. 4,787/2016, the government restricted the incorporation of ships under lease to a maximum of six years, limiting the use of that regime of provisory incorporation to the Paraguayan flag.
iv Environmental regulation
The additional Navigation and Safety Protocol of the Paraguay–Paraná River Transport Agreement establishes detailed rules for preventing pollution accidents. Title VII contains guidelines for the prevention, reduction and control of pollution from ships and boats and regulates the carriage of dangerous substances on the waterway. In this respect, carriers are punished for any breach of their duties related to transport and dumping and they need to strictly observe the rules relating to the discharge regimes. Likewise, the carriage of hydrocarbons, noxious liquid substances, harmful substances and dangerous goods is regulated.
Paraguay has not approved any of the IMO conventions on environmental regulation.23 MARPOL and its protocols and annexes are therefore not in force. The same is true in respect of the Intervention Convention, the OPRC Convention and the CLC Convention – none of these conventions apply in Paraguay.
v Collisions, salvage and wrecks
Paraguay has approved the Collision Convention 1910, the Collision Convention 1952 and the Criminal Collision Convention 1952.
Locally, collisions are regulated by the Code of Commerce, in Articles 1,261 to 1,273. They are also regulated by the law of tort. Typically, collisions will give rise to a cause of action in negligence. There are certain points that the claimant needs to prove to obtain a favourable judgment:
- any damages suffered by the innocent ship;
- the fault of the guilty ship in the collision;
- that the fault caused the collision; and
- that the collision caused the damage.
Liability will be imposed by the court in proportion to the fault of the ships involved; if the relative degrees of fault cannot be determined, the court will apportion fault equally. To determine the fault of the ships, the COLREGs will apply: these were approved as the official navigation rules by Article 46 of Protocol II of the Paraguay–Paraná River Transport Agreement. Disputes arising from collisions need to be filed within two years of the day of the accident.
The law of salvage is entirely contained in the Code of Commerce (Articles 1,303 to 1,311) as Paraguay is not party to the 1989 Salvage Convention. Broadly speaking, under the local regime, the party claiming a judgment for salvage will succeed as long as it proves in court that:
- the salvage was in a maritime or river situation;
- there was a recognised subject of salvage;
- the subject of salvage was in a position of danger necessitating a salvage service to preserve it from loss or damage;
- the claimant did not have a pre-existing contractual or legal duty to save the ship; and
- the salvage was successful or contributed to the success of preserving the subject from danger.
The quantum of the salvage award is calculated taking into account the promptness and nature of the service, the number of people and facilities involved in the service, and the degree of danger faced by the salvors.
Wreck removal is legislated in Articles 1,283 to 1,302 of the Code of Commerce. The General Naval Prefecture is in charge of removing any wreck and initiating the administrative proceedings for establishing the responsibility for any obstruction to navigation.
vi Passengers’ rights
The Athens Convention has not been approved by Paraguay. The law relating to the carriage of passengers by sea is restricted to Articles 1,103 to 1,119 of the Code of Commerce. The articles of the Code of Commerce are extremely outdated and inappropriate for the realities of modern transport.
vii Seafarers’ rights
The legislation that regulates seafarers’ rights is dispersed throughout the legal framework. In the international domain, Paraguay is not a signatory to any International Labour Organization conventions on maritime work. Some seafarers’ and captains’ rights are contained in the Code of Commerce and in the Fluvial Navigation Code; nevertheless, local courts continue to apply the rules of the Labour Code (Law No. 213/93) to maritime labour disputes – something that is not entirely satisfactory as the provisions of the Labour Code were not conceived to deal with the specialised nature of this work.
Paraguay has started the lengthy process of adapting its legislation to the current needs of the maritime business, which is expected to continue to expand along with the balanced economy that the country has shown in recent years. Today, 90 per cent of foreign trade in or out of Paraguay passes along its rivers, a fact that demonstrates that navigation is extremely important to the country.
The current Merchant Marine Authority and the other competent bodies are making a significant effort to restructure safety regulations to responsibly accompany the continued growth of the fleet and port activities in Paraguay, applying international safety standards to the Paraguay–Paraná Waterway, on which traffic is also expected to increase.
In the current environment of economic stability in Paraguay and with the increasingly strong presence of the agribusiness sector, it appears that local and foreign capital will continue to be invested in the maritime sector in Paraguay in the coming years.
1 Juan Pablo Palacios Velázquez is a senior associate at Palacios, Prono & Talavera.
5 Created by Law No. 429 in 1957.
6 The data was provided by Centro de Armadores Fluviales y Maritimos (CAFYM), the shipowners’ union in Paraguay.
8 Law No. 1183/1985.
10 Garantía SA de Seguros y Reaseguros v. Compañía Marítima Paraguaya SA y otros. First instance judgment of the Civil and Commercial Court of Asunción, 11th Session. SD No. 261, 15 June 1987.
11 Article 659b of the Civil Code; Articles 526b and 534 of the Civil Procedural Law; Article 48 of Law No. 1879/2002.
12 Law No. 1,158/85 organising the General Naval Prefecture; Law No. 928/1927 on the Capitanias Rules; and Law No. 476/1957, the Code of Fluvial and Maritime Navigation.
13 Garantía SA de Seguros y Reaseguros v. Compañía Marítima Paraguaya SA y otros (see also footnote 11).
14 Articles 1,018 to 1,102.
15 Nautimill SA v. Naviera Chaco SRL s/ Cobro de Guaraníes Ordinario, AI No. 77, 7 March 2013. Civil and Commercial Appeal Tribunal, Third Chamber.
16 Article 868 of the Code of Commerce. Maritime privileges are governed by Articles 1368 to 1378 of the Code of Commerce.
17 Article 869 of the Code of Commerce.
18 Article 691 of the Civil Procedural Code.
19 Article 700 of the Civil Procedural Code.
20 Article 697 of the Civil Procedural Code.
21 Article 698 of the Civil Procedural Code; and Article 870 of the Commercial Code.
22 Article 864 of the Commercial Code.