Sponsored briefing: The importance of the Greek jurisdiction and Greek law in international shipping disputes

Alexander C Dovles, partner at Saplegal – A.S. Papadimitriou & Partners Law Firm, outlines why knowledge of the Greek jurisdiction and law is often crucial in shipping disputes

Historically, Greece has always been a maritime nation, which is distinctly reflected in the modern Greek economy. Undoubtedly, Greece remains today the top ship-owning nation in the world, since the Greek shipowners with their 5,514 ships currently control approximately 21% of the global fleet.

Bearing in mind the above, one would expect that the Greek jurisdiction would have an important role in international shipping disputes, or that the Greek law would be chosen as applicable to, at least, some international shipping agreements.

Furthermore, significant efforts have been made, over the years, by the Greek state towards promoting Greece as a venue for international shipping disputes. Also, the Greek legislator quite recently, specifically in February 2023, enacted a new law on international commercial arbitration in Greece (Law 5016/2023).

Moreover, on 1 May 2023, the new Code of Private Maritime Law will enter into force, in an attempt to modernise the Greek maritime law and promote its application in international shipping agreements.

Despite these efforts, arbitration and, in general, dispute resolution in Greece for international shipping disputes remains a rarity. Additionally, the Greek law is not expected to gain popularity in international shipping contracts anytime soon, mainly due to the element of tradition as well as the significant language barrier it presents.

As it is widely known, commercial shipping disputes are resolved largely in international arbitration, with London being at the forefront, but followed by rising Asian venues, such as Singapore and Hong Kong. The London Maritime Arbitrators Association (LMAA) and the London Court of International Arbitration (LCIA) alone handle hundreds of disputes in the shipping industry each year, which make up for almost 80% of the global maritime arbitrations.

Furthermore, most shipping contracts are traditionally governed by English law.

Accordingly, many parties to an international shipping dispute tend to overlook Greek law and very often fail to promptly acquire legal advice in matters related to the application of Greek law, in cases where a Greek element is present. This is not prudent since the Greek jurisdiction and the application of Greek law come very often into play. The fact that many ship-owning and ship-management companies are operating from Greece, in conjunction with the fact that many shipowners reside and have assets in Greece, make Greek law and the Greek jurisdiction essential to several aspects of international shipping disputes, such as the enforcement of awards and court decisions, piercing the corporate veil and bankruptcy, even though the parties may have chosen English law as applicable to their agreement or they have agreed on arbitration in London.

Enforcement in Greece

The most obvious involvement of the Greek jurisdiction and of Greek law in international shipping disputes is enforcement. Any foreign arbitral award can be recognised and enforced in Greece pursuant to the 1958 New York Convention, which has been in force in Greece since 1961. Additionally, the creditor may seek to freeze assets of the debtor in Greece, by filing a relevant petition for provisional measures such as freezing assets, ship arrest in Greek ports etc. In all these cases the creditor must go through the Greek court system and Greek procedural law will be applied. However, these actions will rarely lead to a substantial recovery of the relevant debt owed by a shipping company based in Greece, since (a) most ship-owning companies have only one asset, namely a ship sailing most of the time in international waters, and (b) ship-management companies rarely have considerable assets in Greece.

Lifting the corporate veil in Greece

Therefore, the creditor of shipping companies based in Greece must seek alternative methods for collecting their debt. One option is to attempt piercing the corporate veil and to hold either the controlling shareholder of their debtor, or other affiliated companies such as sister companies, accountable for the debt.

The requirements for piercing the corporate veil have been thoroughly explained by the Greek Supreme Court (Areios Pagos) in its Plenary Decision Nr. 2/2013.

The court decided that a shareholder may be held liable for company debts in case the institution of a company’s limited liability is abused by the shareholder. The Greek Supreme Court considers the indications for such an abuse to be the following:

• a company does not have sufficient capital to conduct normal business operations and pay creditors (company undercapitalisation);
• the shareholder uses the company assets as if they were personal assets, disregarding the financial autonomy of the company (confusion of corporate and personal assets); or
• the company’s bodies (general assembly, board of directors etc) are not functioning and the company business is conducted directly by the shareholder, so that third parties perceive the shareholder as the true party in the company’s transactions.

If the court decides that the corporate veil is pierced, the shareholder becomes jointly and severally liable for the company debts with the company, ie, the debtor may still pursue the company. It should also be noted that according to Greek case law, under certain circumstances the company may be deemed liable for debts of the shareholder (reverse piercing the corporate veil) or a company may become liable for debts of its sister company, ie, a company owned by the same shareholder (horizontal piercing the corporate veil).

The Greek courts will usually determine that they have international jurisdiction for such lawsuits based either on the fact that the accused shipowner has their residence in Greece or on the fact that the primary debtor, a shipping company, has its real seat (ie, its management and control centre) in Greece, regardless of its registered seat.

Furthermore, the Greek courts will most likely apply Greek law for matters related to piercing the corporate veil against shipping companies with their real seat in Greece, since the prevailing interpretation of Art 10 of the Greek Civil Code provides that the lex societatis, ie, the law applicable to a legal person, including the matter of limited liability, is determined by the law of the real seat of the company.

The importance of the Greek jurisdiction and Greek law in this matter is apparent. Consequently, both creditors and debtors, ie, shipping companies operating in Greece, are well advised to promptly acquire a proper knowledge of Greek law, since litigation in Greece may prove crucial for the recovery of any award by a foreign arbitral tribunal or court.

Bankruptcy in Greece

Moreover, shipping companies with their real seat in Greece may be declared bankrupt in Greece, regardless of their registered seat. In such a case the Greek courts will decide on many important issues related to the bankruptcy procedure, including the appointment of a Greek bankruptcy administrator. Pursuant to both the Greek domestic law and the EU Regulation 2015/848 on insolvency proceedings, the Greek courts will have jurisdiction for all shipping companies whose centre of main interests is situated in Greece. In effect, the Greek courts will have international jurisdiction for opening bankruptcy proceedings for most of the shipping companies operating in Greece, regardless of their registered seat. Likewise, Greek law will be applied at least to the main core of bankruptcy-related matters, including the early termination of shipping agreements (see Art 7 of Regulation (EU) 2015/848).

Indicative cases

The significance of the Greek jurisdiction and Greek law is highlighted in two cases in which our law firm represented clients from the Greek shipping sector.

In the first case, a ship-owning company, with its registered seat in Cyprus but with its real seat in Greece (‘A’), concluded a ship-building contract with a Korean shipyard company (‘K’). The ship-building contract was under English law and included a clause for arbitration in London. Furthermore, A’s contractual obligations were guaranteed by ‘B’, a ship-management company, with its registered seat in Liberia but with its real seat in Greece. A and B belonged to the same group of companies, having the same directors, and ultimately belonging to the same Greek shipowner. In anticipation of a looming crisis in the shipping sector, A declared to K that it wished to negotiate the cancellation of the ship-building contract and refused to pay further instalments pursuant to the ship-building contract. K refused to negotiate and started preparing for arbitration in London. Immediately, A filed for bankruptcy in Greece, and was declared bankrupt within a couple of months. The Greek administrator of bankruptcy then sought to cancel the ship-building agreement pursuant to the provisions of Greek bankruptcy law. Simultaneously, B filed a declaration lawsuit against K in Greece, with the argument that the corporate guarantee provided to K was null and void since the guarantee was concluded (drafted, signed and delivered) in Greece and the relevant formalities of Greek law for the conclusion of the guarantee agreement had not been observed.

Taking into consideration the complexity of litigious matters that emerged, most of which would be heard before the Greek courts, K decided to settle the case with A and B, on favourable terms for the latter.

In the second case, a Japanese charterer (‘J’) sought to enforce an eight-figure compensation award, which was issued by an arbitral tribunal of the Swedish Chamber of Commerce, against a ship-management company with its registered seat in Liberia but with its real seat in Greece (‘M’). Even though M was part of a group of shipping companies based in Greece with considerable assets, which was ultimately owned by a wealthy and well-known Greek shipowner, J failed to promptly file a lawsuit in Greece for lifting the corporate veil, most probably due to a lack of adequate legal advice. On the other hand, M quickly took measures for the avoidance of claims based on the doctrine of lifting the corporate veil, by severing all its business, operational and financial ties with the affiliated group of companies and by moving its real seat of business to another jurisdiction, less friendly to the doctrine of piercing the corporate veil.

In a nutshell, it can be deduced that a proper understanding and a sound knowledge of the mechanics of Greek law and the Greek court system is a matter of utmost importance in all shipping litigation with a Greek element.