What do Saudi Arabia’s maritime law developments mean?

In January 2019, the Kingdom of Saudi Arabia (the Kingdom) introduced, for the first time, a bespoke Commercial Maritime Law issued under Royal Decree no. M/33 dated 5 Rabi’ II 1440H and published in the Official Journal on Friday January 4, 2019. The maritime law entered into force on July 3, 2019.

The maritime law applies to all vessels flying the Saudi flag and to foreign vessels calling at the ports and territorial waters of the Kingdom. Maritime law does not apply, however, to warships and public ships that have been assigned for non-commercial purposes.

Previously, maritime matters were handled by the Law on Commercial Courts, which was issued in early 1931 and was based on the Ottoman Commercial Code. The maritime sections of the Commercial Courts Act were brief and arguably unsuitable for modern shipping. As of July 3, 2019, sections of the Commercial Courts Act relating to maritime matters have been repealed, along with other laws of the Kingdom which conflict with maritime law. All maritime matters are now regulated and dealt with under maritime law.

Below are some of the main issues covered by maritime law.

Nationality / flag

For a vessel to acquire Saudi nationality/flag, it must be:

• Registered in one of the ports of the Kingdom; and
• Wholly owned by a Saudi national or a company 100% owned by a Saudi national. Alternatively, if the vessel has multiple owners, the majority of shares must be owned by a Saudi national.

Vessel registration

The Maritime Law provides that no self-propelled vessel shall fly the flag of the Kingdom unless it is registered in accordance with the Maritime Law and its Siting Regulations, which are expected to be published shortly.

However, the vessels below are exempt from registration.

• Vessels under 24 meters in length.
• Fishing vessels whose tonnage does not exceed 30 tons and whose length does not exceed 20 meters;
• Pleasure and diving boats whose tonnage does not exceed 10 tons and whose length does not exceed 11 meters; and
• Vessels of primitive construction, sailboats and unpowered marine units, lighters, barges and other floating structures that normally operate in a port.

Non-Saudi ships

Non-Saudi vessels are not permitted to engage in towing, pilotage, refueling and coastal transport activities in Saudi waters unless an exemption license is obtained from the Chairman of the Authority of Saudi Arabia. public transport (PTA).

This provision is quite significant as it applies to all Offshore Support Vessels (OSVs), the majority of which operating in the Kingdom are not under the Saudi flag.

The impact this provision could have on an OSV owner violating, or failing to obtain, the PTA President’s Exemption Certificate is potentially quite significant from both a financial and business perspective, including :

• The owner can be fined from SAR 2,000 to SAR 50,000;
• OSV could be detained; although this is not provided for in the maritime law; and
• VSO may be denied permission to leave Kingdom waters.

Limitation of Liability

According to maritime law, “the liability of the shipowner is limited in accordance with the limitation of liability in the international maritime conventions to which Saudi Arabia is a party”.

On 6 April 2018, the Kingdom acceded to the 1976 Limitation of Liability for Maritime Claims Convention (1976 LLMC) and 1996 Protocol. Although the 1976 LLMC and 1996 Protocol have not yet been enacted by Royal Decree, which gives the laws statue status, Maritime Law arguably gives them the force of law/statue status and therefore any limitation of liability should be calculated according to the Protocol of 1996.

Limitation of liability is generally not permitted under Sharia (which is the basic law of the Kingdom), because one of the fundamental principles of Sharia is that one must fully indemnify the other for the damage that one caused the other. .

The Basic Law of Kingdom Governance provides:

• Article 1: “The Constitution of the Kingdom is the Koran and the Sunnah of His Prophet.
• Article 7: “The rules of the Kingdom of Saudi Arabia derive their authority from the Koran and the Sunnah of His Prophet.
• Article 48: “The courts shall apply in the cases brought before them the rules of the Islamic sharia in accordance with the indications of the Koran and the Sunnah, and the laws issued by the sovereign which do not contradict the Koran and the Sunnah.

Therefore, when a law contradicts Sharia, the court must apply Sharia because Sharia prevails over any other law of the Kingdom.

Accordingly, it remains to be seen whether the courts of the Kingdom will apply the limitation of liability in accordance with the 1996 Protocol, or not at all. That said, courts in the Kingdom have previously upheld limitation provisions in bills of lading on the grounds that the parties are free to contract and expressly negotiated such provisions.

If the courts of the Kingdom were to apply the 1996 Protocol, it would bring about a radical change in the liability regime of the Kingdom and would be a game-changer for shipowners and operators alike.
Source: Baltic Stock Exchange