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Finders Keepers, Losers Weepers. What Happened to Ownership of Delfi?

Date of publication: 9 June 2021

Sergey Nedelko, Attorney at Law, Head of Odesa Office

Source: Ports of Ukraine

The infamous Delfi tanker had sunk near one of the central beaches of Odesa in November 2019, and only in September 2020 the vessel was raised by means and at the expense of private companies. From the beginning of this story, the incident was special in all respects. For public officers, the ship itself and the rescue operation became a real problem, for shipbuilding engineers it was an interesting puzzle, and for maritime lawyers it was another reason to discuss the legal regime of sunken property.

And therefore, on 12 May 2021, another round of the saga with the unfortunate tanker came to an end. This time, the Commercial Court of the Odesa Region had its say in case No. 916/3815/20 under the claim of the State of Ukraine, represented by the government, against the owner of the Delfi vessel on recognition of title over the sunken vessel, or more precisely, over what was left of it. The case is interesting from the point of view of the application of the provisions of Article 125 of the Merchant Shipping Code of Ukraine, which provides for the loss of ownership of the sunken property in the event that the owner violates the deadline for raising set by the Harbor Master, or if the owner does not make a statement about the intention to raise his property within a year after the incident.

For a long time, the issue of the need to adopt a new Merchant Shipping Code of Ukraine due to the obsolete nature of the norms of the current code, including Article 125, which is laid out rather superficially, has been discussed. The situation is worsened by the lack of by-laws and up-to-date judicial precedents. At the same time, the issue of sunken property also becomes problematic for the state and authorized bodies, taking into account the large number of such objects in the territorial sea and the presence of prerequisites for their increase. The key issue is which legal act should be used to record the state’s ownership of sunken property and in what order should this happen. That is why many people were looking forward to the decision of the Commercial Court.

But before proceeding to the analysis of the court’s decision, attention should be paid to the existing points of view regarding the transfer of title to the state.

Diversity of opinion

Previously, there was an opinion that a claim for recognition of title of the property raised from the  should be filed by the Sea Port Authority on the basis of the Merchant Shipping Code of Ukraine.

The alternative opinion was that the Sea Port Authority should file a claim for recognition of ownership on the basis of the so-called “acquisitive prescription” in accordance with Article 344 of the Civil Code (CC) of Ukraine, which formally provides for conscientious, open, continuous possession of sunken property as movable, for five years.

Some experts believe that the violation by the owner of the deadlines for raising the sunken property, established by the Harbor Master, is equivalent to the renunciation of ownership of the sunken vessel and it goes into the status of an ownerless thing. In this case, at the request of the local self-government body where the sunken object is located, the ownerless immovable thing is registered by the state registration body of real estate rights, which is announced in the printed media. At the end of the year thereafter, the ownerless property can be transferred to communal ownership by court decision (Article 335(2) of the Civil Code of Ukraine). Since it is the Harbor Master who carries out the state registration of sea vessels, some experts believe that the captain of the corresponding seaport should record the sunken ship and the cargo on it. The same opinion is shared, for example, in the , where the norms of the Merchant Shipping Code of Ukraine and the Civil Code in this part are very similar to ours.

Thus, the diversity of points of view does not allow us to speak unambiguously about the correctness of one or another approach. At the same time, attention should be paid to judicial practice, in which there are not so many similar cases.

What does judicial practice show?

As part of the case No. 2a-10087/09/9/0170, the administrative courts investigated the issue of the legitimacy of qualifying a sunken vessel as ownerless property.

The plot of the case is that in January 2008, “Donbas Fisherman” fishing vessel sank in the Kerch Seaport Komysh-Burun (Autonomous Republic of Crimea). The Harbor Master informed the shipowner in writing about the need to remove or destroy the sunken vessel within a month. The shipowner claimed that his representatives were not allowed to the ship to carry out works. In connection with the violation of the established deadline, the Harbor Master reported this to the tax office in Kerch, which inspected and assessed the vessel, after which it was registered as a find, recognizing the vessel as ownerless property.

In this case, the Supreme Administrative Court of Ukraine adopted a resolution dated 6 October 2014, in which it came to the conclusion that the legal nature of a mismanaged object implies the absence of any property claims against the object by third parties (owners, charterers, etc.). In this case, the ownership of the ship was confirmed by a ship’s certificate from the Maritime Transport Agency of the Republic of Georgia, which in itself eliminates the arguments of the tax authority about the ownerless status of the vessel.

The court also noted that the tax inspectorate did not provide evidence of the loss of the vessel, and therefore, it is premature to speak of the ship as a find.

In another case No. 901/3299/13 on the removal of obstacles to the use of the berth of State Enterprise Ukrainian Sea Ports Authority, the owner of the vessel claimed that he did not remove or destroy the vessel within the deadline set by the Harbor Master, as he believed that the ownership of the sunken vessel had already passed to the state for on the basis of Article 125 of the Merchant Shipping Code of Ukraine.

Reviewing this case, the Sevastopol Commercial Court of Appeal, in its decision dated January 14, 2014, referred to the norms of civil legislation, which provide for the extension of the immovable property regime to sea vessels, the rights to which are subject to state registration. Therefore, ownership of the vessel is transferred from the moment of registration of the vessel in the State Ship Register (SSR) of Ukraine.

Since the owner of the vessel was still listed as such in the SSR of Ukraine, the court came to the conclusion that there are no grounds to consider the sunken ship as state property. Thus, the court linked the transfer of ownership of the sunken vessel with its mandatory registration in the SSR of Ukraine.

Decision in the Delfi case

Based on the results of the consideration of this case, the Commercial Court of Odesa Region recognized the title of the State of Ukraine to the sunken property (the Delfi vessel) and immediately came to several conceptual conclusions, which were previously lively discussed among maritime lawyers.

Firstly, the court recognized that the proper claimant for cases seeking recognition of the state title to sunken property is the State of Ukraine represented by the Cabinet of Ministers.

Secondly, pursuant to the provisions of Article 125 of the Merchant Shipping Code of Ukraine, the shipowner’s failure to meet the deadlines for raising sunken property is formally equated to the owner’s refusal of such property, which constitutes a valid basis for termination of ownership according with Article 346 of the Civil Code of Ukraine. At the same time, it does not matter whether the owner declared his property claims against the vessel or not.

Thirdly, the vessel is subject to the legal regime of immovable property, which provides for state registration of title according to Article 182 of the Civil Code of Ukraine. Such a procedure in its meaning is the recognition of the state’s title to the vessel. However, the court held that a vessel sunk due to a maritime accident (regardless of Delfi) automatically loses the legal status of a “vessel”, so the state registration is no longer required. This conclusion seems somewhat controversial, since the vessel can maintain its special status and is considered as such not only due to its seaworthiness, but also due to the presence of valid vessel’s documents issued by the flag administration and the classification society. In the Delfi case, the vessel’s documents were actually revoked and the vessel itself, of course, was unseaworthy, despite the shipowner’s claims to the contrary.

Fourthly, according to the court, due to the vessel’s loss of its special status and the absence of the need to register it, the state can fully implement its legal obligations only by recognizing the title of the sunken property in court.

At the same time, a somewhat contradictory conclusion is seen in the court’s decision that, due to Article 125 of the Merchant Shipping Code of Ukraine of Ukraine, the state’s ownership is unconditionally recognized, but the state still has to formalize such a right procedurally by filing a claim with a court to recognize the ownership. Apparently, we are talking about those cases when the ownership is disputed or not recognized by third parties as a prerequisite for litigation.

Thus, in this case, the court used elements of various opinions and positions regarding the procedure for recognizing the state’s ownership of a sunken vessel, forming an essentially new approach.

The decision in this case has not yet entered into legal force, so it is still too early to say that this particular position will initiate the formation of modern judicial practice regarding resolution of a similar category of cases. At the same time, the proposed mechanism favorably differs from other concepts, which were actually impossible to implement in practice.