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Panama Shipping Guide 2024

Originally published in Chambers and Partners


The guide provides the latest information on port state control, marine casualties and owners' liability, cargo claims, maritime liens and ship arrests, passenger claims, ship-owners' income tax relief and the implications of environmental regulations, trade sanctions and international conflict.


1. Maritime and Shipping Legislation and Regulation


1.1 Domestic Laws Establishing the Authorities of the Maritime and Shipping Courts

Law 8 of 30 March 1982 (which created the Maritime Courts and dictates the Rules of Maritime Procedure), along with the modifications, additions and deletions adopted by Law No 11 of 1986, Law No 12 of 2009, and others, establishes a specialised maritime jurisdiction composed of two first-instance Maritime Courts, of equal standing, and a Maritime Court of Appeals with nationwide jurisdiction.


The most common maritime and shipping claims are the following.

  • Ordinary proceedings (in personam).

  • Special proceedings, regarding:

    • collision;

    • ship-owner’s limitation of liability;

    • enforcement of maritime liens (in rem);

    • enforcement of a naval mortgage;

    • creditors’ concursus;

    • abbreviated proceedings seeking summary judgment; and

    • special proceedings for enforcement of domestic and foreign decisions.

All these claims are subject to the specialised maritime jurisdiction of the Republic of Panama.


1.2 Port State Control

Port state control (PSC) inspections in Panama are carried out by technical staff of the General Directorate of Merchant Marine of the Panama Maritime Authority (PMA), which is the government entity that must guarantee compliance with the maritime conventions approved and ratified by Panama.


These inspections are carried out in accordance with the provisions of international maritime conventions, such as:

  • the International Convention for the Safety of Life at Sea, 1974 (SOLAS);

  • the International Convention for the Prevention of Pollution from Ships, 1973 (MARPOL);

  • the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978 (STCW); and

  • the International Ballast Water Management Convention (2004) (BWM) for the purposes of identifying deficiencies in ships visiting Panamanian ports.


Ships which may be rendered sub-standard under the terms of these conventions should take measures to remedy the deficiencies found, and the PMA inspectors will ensure that any such remedial measures are taken to safeguard human life and to guarantee safety and protection of the marine environment.


Panama is part of the Viña del Mar Memorandum of Agreement (the Latin American Agreement on Port State Control of Vessels) and the Tokyo Memorandum of Understanding (MOU). As such, PSC inspections are carried out following the guidelines of these two memorandums, and are also based on the guidelines established in International Maritime Organization (IMO) Resolution A.1138(31), adopted on 4 December 2019, updating the procedure for PSC inspections.


For marine casualties such as in grounding, investigations are carried out by the PMA as the flag state. In practice, these functions are not mixed with the obligations of the authority as port state. As a flag state, it is the Maritime Casualty Investigations Department of the PMA which co-ordinates casualty investigations aboard flag ships around the world as well as incidents in Panama’s jurisdictional waters.


In the case of pollution or wreck removal, the Directorate General of Ports of the PMA is the entity in charge of investigating and carrying out related actions.


1.3 Domestic Legislation Applicable to Ship Registration

Laws 55 and 57 of 6 August 2008, known as the Maritime Commerce Law and the General Merchant Marine Law, respectively, are the legislation that govern all matters related to the registration of domestic and international service vessels under the laws of the Republic of Panama.


There are two governmental institutions within the PMA in charge of the registration of vessels:

  • the Directorate General of Merchant Marine (DIGEMAR), which is in charge of all administrative matters such as the enrolment of vessels and ensuring related safety and security matters; and

  • the Directorate General of Public Registry of Property of Vessels (the “Ships Registry”), which is in charge of recording all matters related to the legal status of vessels concerning ownership and encumbrances.


1.4 Requirements for Ownership of Vessels

There are no citizenship requirements for registration of a vessel under the Panamanian register. Any person, natural or juridical, irrespective of nationality, may enrol a vessel under the Panamanian flag.


Panamanian laws allow the registration of a vessel while under construction. To that end, a certificate issued by the shipyard, describing the vessel being built, the name of the company for which the vessel is being constructed and a declaration of the intention to transfer ownership thereof, will serve as title of ownership to be registered at the Ships Registry.


1.5 Temporary Registration of Vessels

The General Merchant Marine Law of Panama allows temporary registrations, as follows.


Special Registration for Temporary Navigation

This registration allows the enrolment of a vessel for a period of up to three months for ultimate scrapping, for a delivery voyage or for any other kind of temporary navigational purpose. The interested party needs to pay a single charge of 40% of the net tonnage of the vessel plus USD150.


The vessel will be deleted by operation of law at the end of the three-month period at no cost, but the interested party may, at any moment, request that deletion by way of filing a petition thereof and effecting payment of the regular governmental deletion fees.


The registration of title of ownership or mortgages is optional for this type of registration. Nevertheless, if a mortgage is to be recorded, the registration of title must contain acknowledgement by the mortgagee that the registration of the vessel will elapse at the end of the three-month registration period.


Lay-Up Registration

This registration is valid for one renewable year and allows the registration of vessels under lay-up status, subject to certification issued by a recognised organisation (RO) or the applicable port authority where the vessel is located.


An advantage of this type of registration is that no enrolment fees apply to vessels enrolled in Panama under this registration for the first time, and they will be exempted from paying part of the applicable regular annual tonnage taxes and fees. In addition, they will be exempt from needing to have technical, safety and security certificates on board, but the respective RO should make the pertinent annotations concerning the lay-up status in the subject certificates.


Once re-activated, an inspection must be carried out by an RO to ascertain that the vessel is duly fitted in accordance with all national and international maritime laws and regulations, as a requirement for reverting to a regular international service registration.

In addition, Panamanian law allows dual bareboat-charter registrations. A ship with primary registration on a foreign registry is permitted to be registered under the laws of Panama as secondary registry, pursuant to bareboat charterparty arrangements. The inverse situation is also permitted by Panamanian law.


The system under Panamanian law results in dispersing of the features or attributes of registration. The laws of the primary registry govern the juridical status of a vessel in terms of the concept of ownership and encumbrances, while the laws of the special subordinated registry govern matters regarding the administrative and technical operation of a vessel – ie, manning, labour relations, safety and security matters.


A vessel registered in Panama under a bareboat-charter agreement will have a registration valid for a period of up to the validity of the bareboat-charter agreement; this period may be renewed as per renewals of the subject charter agreement.


A vessel registered under this special type of registration will be considered a Panamanian-registered vessel and will only be allowed to fly the Panamanian flag. Likewise, it will be subject to all regular applicable taxes, fees and duties in accordance with Panamanian law. Payment in respect of these applicable during the whole period of registration must be made in advance upon enrolment.


1.6 Registration of Mortgages

Ship mortgages are required to be registered at the Ships Registry in order to provide legal and binding effects against third parties.


A Panamanian mortgage may be executed in any language and must be notarised by way of acknowledgement of the legal capacity of the signatories and the authenticity of the signatures thereof. The notary’s signature must then be legalised by a Panamanian consul or via apostille.


Registration may be effected preliminarily via the filing of an application form containing the description of the essential terms of a mortgage. This preliminary registration is completed during the course of one business day and has full legal effect for a period of six months, within which period the interested party must file for permanent registration. Upon completion of permanent registration, the effects are retroactive up to the time and date of the preliminary registration.


Permanent registration may be effected via two alternative procedures:

  • by way of a full translation of the mortgage into the Spanish language and protocolisation before a Panamanian notary public into a public deed, which is filed for registration with the Ships Registry; or

  • if the mortgage is executed in English, it can be registered in its original English version, provided a short mortgage extract is executed in respect of the mortgage and that extract is translated into Spanish for permanent registration, together with the original mortgage and any relevant attachments in English.


1.7 Ship Ownership and Mortgages Registry

The records related to ship ownerships and mortgages kept at the Ships Registry are available on the public website of the PMA, and any third party may access these in order to obtain information about ownership titles and encumbrances registered over Panamanian vessels.


2. Marine Casualties and Owners’ Liability


2.1 International Conventions: Pollution and Wreck Removal

The following international conventions on pollution and wreck removal have been ratified by Panama and, therefore, will impact on the liability of owners and interested parties in the event of pollution and/or wreck removal:

  • the International Convention for the Prevention of Pollution from Ships (MARPOL) and annexes;

  • the International Convention on Civil Liability for Oil Pollution (CLC);

  • the International Convention on Civil Liability for Bunker Oil Pollution Damage (BUNKER);

  • the International Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter (London Convention); and

  • the Nairobi International Convention on the Removal of Wrecks.


2.2 International Conventions: Collision and Salvage

The following international conventions on collision and salvage have been ratified by Panama and, therefore, will impact on the liability of owners and interested parties in the event of collision and/or salvage:

  • the Convention on the International Regulations for Preventing Collisions at Sea, 1972 (COLREGS); and

  • the Convention on Facilitation of International Maritime Traffic (London, 1965).

In addition, Law 55 of 2008 (the “Maritime Commerce Law”) Title III Chapters I and II regulate collisions and salvage.   


2.3 1976 Convention on Limitation of Liability for Maritime Claims

Panama is not a signatory to the 1976 Convention on Limitation of Liability for Maritime Claims. Nevertheless, most of the substantive rules established in this international agreement have been incorporated into Panamanian domestic legislation, specifically in Law 8 of 1982, as amended, on maritime procedure.


Therefore, despite not being a part of the 1976 Convention on Limitation of Liability for Maritime Claims, in practice Panama follows its general principles and rules, albeit with certain modifications and deletions.


Panama has not passed into law the limits as modified by the 1996 Protocol to amend the 1976 Convention on Limitation of Liability for Maritime Claims.


2.4 Procedure and Requirements for Establishing a Limitation Fund


Constitution of the Limitation Fund

The constitution of the limitation fund for the payment of claims is subject to the following rules.

  • Any person alleged to be liable may constitute a fund with the court or other competent authority in any state in which legal proceedings are instituted in respect of claims subject to limitation.

  • The fund shall be constituted in the sum of those amounts set out in the article relating to general limits, and special articles relating to passenger claims, together with interest thereon from the date of occurrence giving rise to the liability under the date of the contribution of the fund.

  • The fund thus constituted shall be available only for the payment of claims in respect of which limitation of liability can be invoked.

  • The fund may be constituted either by depositing the sum or by producing a guarantee which is acceptable and which the court or other competent authority considers to be adequate. In Panama’s Maritime Courts, the guarantees usually accepted are cash (certificate of judicial deposit), cashier’s or certified cheques drawn against banks licensed to operate in Panama, and irrevocable payment guarantees issued by those banks.


Parties Entitled to Petition the Limitation of Liability

Law 8 of 1982 regulates parties who are recognised as having substantive legitimacy or standing to limit the liability of the claims described in said law. The rules contained therein are in essence the same rules contained in Article I of the 1976 Convention on Limitation of Liability for Maritime Claims.


In this respect, Law 8 of 1982 establishes that ship-owners and salvors have standing to limit their liability arising from the claims described under said law. The different categories of persons who have standing and are entitled to limit liability are as follows:

  • the ship-owner, understood as the registered owner of the vessel, and other parties who may be considered as owners (ie, the charterer, the manager and the operator of an ocean-going vessel);

  • the salvor of the vessel, understood as any person rendering services in direct connection with salvage operations;

  • any persons for whose actions, defaults or neglect the ship-owner or salvor is responsible may avail themselves of limitation of liability;

  • regarding in rem claims, the law establishes that the liability of a ship-owner shall include liability in an action brought against the vessel itself; and

  • any insurer of liability for claims subject to limitation in accordance with Law 8 of 1982 shall be entitled to benefits to the same extent as the assured themselves.


It should be noted that Law 8 of 1982 clearly states that the act of invoking limitation of liability shall not constitute an admission of liability.


Limitation of Liability Fund Calculation

Law 8 of 1982 establishes that the liability limits for claims (excluding the claims of passengers) will be calculated as discussed here.


In respect of claims for loss of life and personal injury, the following applies.

  • 333,000 units of account for a vessel with a tonnage not exceeding 500 tons.

  • For a vessel with a tonnage in excess of the above, the following amounts in addition to that mentioned above:

    • from 501 to 3,000 tons, 500 units of account per ton;

    • from 3,001 to 30,000 tons, 333 units of account per ton;

    • from 30,001 to 70,000 tons, 250 units of account per ton; and

    • for each ton in excess of 70,000 tons, 167 units of account.


In respect of any other claims, the following applies.

  • 167,000 units of account for a vessel with a tonnage not exceeding 500 tons.

  • For a vessel with a tonnage in excess of the above, the following amounts:

  • from 501 to 30,000 tons, 167 units of account per ton;

  • from 30,001 to 70,000 tons, 125 units of account per ton; and

  • for each ton in excess of 70,000 tons, 83 units of account.


Furthermore, claims for damage to harbour works, waterways and aids to navigation will have the priority determined by the law.


2.5 Seafarers’ Safety and Owners’ Liability

The Republic of Panama ratified the Maritime Labour Convention, 2006, by means of Law No 2 of 6 January 2009. The Convention is regulated in Panama by Executive Decree No 86 of 22 February 2013, amended by Executive Decree No 160 of 3 March 2021, and provisions for its application were also established.


Panama adopted the 2014 and 2016 Amendments to the Maritime Labour Convention, 2006 through Resolution No ADM-075-2019 of 9 May 2019, and the Convention’s 2018 Amendments by way of Resolution ADM No 095-2020 of 27 July 2020.


In February 2023, by means of Resolution ADM-038-2023, which will enter into force on 23 December 2024, Panama adopted the 2022 Amendments to the Maritime Labour Convention, 2006.


In addition, by Law No 4 of 15 May 1992, Panama approved the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978, as amended (the “1978 STCW Convention, as amended”), and, through Resolution ADM No 148-2011 of 18 November 2011, adopted the 2010 Manila Amendments to the 1978 STCW Convention and its Training Code.


3. Cargo Claims


3.1 Bills of Lading

Panama has not adopted any international conventions concerning bills of lading. However, the Maritime Commerce Law (see 1.3 Domestic Legislation Applicable to Ship Registration), which covers carriage by sea and bills of lading, adopts into domestic legislation provisions based on the Hague-Visby Rules.


3.2 Title to Sue on a Bill of Lading

Any party deemed affected may sue on a bill of lading. In particular, the Maritime Commerce Law provides that both the shipper and the carrier or effective carrier may be liable under a bill of lading.


3.3 Ship-Owners’ Liability and Limitation of Liability for Cargo Damages

The Maritime Commerce Law imposes liability for damages on the vessel in rem, regardless of the party in control.


3.4 Misdeclaration of Cargo

The Maritime Commerce Law states that a carrier can establish a claim against the shipper for misdeclaration of cargo if the goods are not properly packed or accurately described. The carrier will be indemnified on any loss resulting from poor packaging or inaccuracies in the information.


3.5 Time Bar for Filing Claims for Damaged or Lost Cargo

As established by Panama’s Code of Commerce, actions derived from land or sea transport contracts, or charterparty contracts, have a one-year time bar. Actions derived from liability in tort also have a one-year time bar, establis hed by Panama’s Civil Code. The one-year term will run from the date of the damage or the date of delivery of the cargo. This time limit cannot be extended or sustained.


4. Maritime Liens and Ship Arrests


4.1 Ship Arrests

Panama has not adopted any international conventions regarding the arrest of vessels. This matter is covered by Law 8 of 1982, as amended.


4.2 Maritime Liens

Maritime liens are set forth in the Maritime Commerce Law, and are listed as liens against the vessel, the freight and the cargo.

The following liens will have privilege over the vessel and will concur on its price in the following order:

  • any judicial costs caused in the common interest of the maritime creditors;

  • any expenses, compensation and salaries for assistance and salvage;

  • any salaries, remuneration and compensation due to the captain and crew;

  • the naval mortgage;

  • any credits in favour of the Panamanian state for fees and taxes;

  • any salaries and stipends due to stevedores and dock workers hired directly by the owner, operator or captain of the vessel to load or unload it;

  • any indemnities due for damages caused by fault or negligence;

  • any amounts owed by way of contribution in general averages;

  • any amounts owed by virtue of obligations contracted for the necessities and provisioning of the vessel;

  • any amounts taken on the bottomry of the vessel and rigging for supplies, arms and apparel, and insurance premiums;

  • any salaries of pilots and watchmen, and conservation and custody expenses of the vessel, its rigs and supplies;

  • any indemnities owed to carriers and passengers for failure to deliver the goods carried or for any damages thereto imputable to the captain or the crew; and

  • the price of the last acquisition of the vessel and any interest due.


The following liens will have privilege over the freight and will concur on its price in the following order:

  • any judicial costs caused in the common interest of creditors;

  • any expenses, indemnities and salaries for assistance and salvage;

  • any salaries, remuneration and compensation due to the captain and crew for the voyage in which the freight was earned;

  • any amounts due by way of general averages contributions;

  • bottomry bonds on freight earned;

  • insurance premiums;

  • any amounts of capital and interest owed by virtue of the obligations contracted by the captain on the freight, with the legal formalities;

  • any indemnities owed to carriers and passengers for failure to deliver the goods carried or for any damages thereto imputable to the captain or the crew; and

  • any other duly registered debt guaranteed by bottomry bond, naval mortgage or pledge on the freight.


The following liens will have privilege over the cargo and will concur on its price in the following order:

  • any judicial costs caused in the common interest of creditors;

  • any expenses, indemnities and salaries for assistance and salvage;

  • any commercial taxes or fiscal rights owed at the place of unloading;

  • any transportation and cargo expenses;

  • any leasing of storage for the things unloaded;

  • any amounts owed by general averages contributions;

  • bottomry bonds and insurance premiums;

  • any amounts of capital and interest owed by virtue of the obligations contracted by the captain on the freight, with the legal formalities; and

  • any other loan with pledge on the cargo, if the lender holds the bill of lading.


4.3 Liability in Personam for Owners or Demise Charterers

A vessel may be arrested in rem, regardless of the owner’s personal liability. Notwithstanding, the owner or the demise may be held liable in an in personam claim if the applicable law so allows.


4.4 Unpaid Bunkers

A bunker supplier may arrest a vessel in connection with unpaid bunkers. Under Panamanian law, bunker claims generally permit the arrest of a vessel, regardless of whether the supply was requested by the owner, operator or charterer. Any party affected by that debt may file for the arrest.


4.5 Arresting a Vessel

To obtain an arrest order, it is necessary to file an arrest request and complaint, with prima facie evidence of the claim. The plaintiff must also cover the court arrest and maintenance expenses. In the Panamanian jurisdiction, an arrest is available in three instances, as follows.


Physically Seizing Property Susceptible to Arrest in Order to Make Effective Privileged Maritime Liens Over That Property

If filing an in rem claim against the vessel, the Maritime Courts may order the arrest of a vessel of any nationality in Panamanian waters, in order to attain jurisdiction. It would be necessary to deposit the following before the Maritime Courts:

  • security to act without a power of attorney, which is returned in full once the power of attorney and a certificate of the legal existence of the plaintiff is filed with the court;

  • USD1,000 security for damages that the arrest may cause; and

  • USD2,500 initial maintenance fees – if the arrest is not lifted promptly, the marshal may request plaintiffs to post additional fees for maintenance, and the failure to post such fees may result in lifting of the arrest.


The plaintiff must file the evidence in respect of the applicable laws (copy of the relevant laws, legal opinions, lawyer affidavits and/or others).


Bringing Within the Jurisdiction of Panama’s Maritime Courts Cognisance of Causes Emerging Within or Outside the National Territory, as a Result of Facts, or Acts Related to Navigation, When the Defendant Is Outside Its Jurisdiction

In this case, the plaintiff may request the arrest of the vessel (regardless of its nationality or of the ship-owner’s nationality) while navigating in Panamanian waters or Panamanian ports, even if there are no other contacts with the Panamanian jurisdiction. It would be necessary to deposit the following before the Maritime Courts:

  • security to act without a power of attorney, which is returned in full once the power of attorney and a certificate of the legal existence of the plaintiff is filed with the court;

  • USD1,000 security for damages that the arrest may cause; and

  • USD2,500 initial maintenance fees.


Assuring That the Proceedings Will Not Have an Illusory Effect, and Keeping the Defendant From Transferring, Dissipating or Encumbering Properties Susceptible to Those Measures

Here the plaintiff may request the arrest of the vessel involved in the transaction that gave rise to their claim, or of any other vessel or property belonging to the defendant.

In such a case, the Maritime Courts would request security in an amount between 20% and 30% of the amount of the claim. The amounts would be affixed discretionarily by the judge. Security must be posted in cash, certified cheques issued by banks licensed to operate in Panama, or Panamanian public debt titles.

After filing the complaint and an arrest motion, as a general rule of proceedings, the following documents must be filed before the Maritime Court:

  • a power of attorney;

  • a certificate of the legal existence of the plaintiff;

  • a certificate of the legal existence of the defendant – this document will be necessary only if the claim is filed against the owner of the vessel (in personam complaint); and

  • evidence of the claim.


All foreign documents must be notarised as authentic and legalised according to the 1961 Hague Convention on the apostille (the “Apostille Convention”) or legalised before a Panamanian consulate at the place of issuance. Documents in languages other than Spanish must be translated by an official translator.


4.6 Arresting Bunkers and Freight

Law 8 of 1982, as amended, allows for arrests to be executed against bunkers and freight, under the general rules for arrest.


4.7 Sister-Ship Arrest

Sister ships or vessels owned by affiliates may be sued and arrested in rem in lieu of those on which the claim originated, when the applicable substantive law so permits. The plaintiff must file prima facie evidence demonstrating that, under the applicable substantive law, the arrest of a sister ship is viable, and that the vessel subject to the arrest is a sister ship under the applicable substantive law.


4.8 Other Ways of Obtaining Attachment Orders

Law 8 of 1982, as amended, allows a party with reason to believe that, during the time prior to a judicial recognition of their right, they will suffer imminent or irreparable danger to request from the Maritime Court the most appropriate conservatory or protective measure which will provisionally guarantee, depending on the circumstances, the effect of a judgment on the merits (ie, an injunction order). Such a measure is normally in the form of an order against the sale, transfer or mortgage of a Panamanian vessel.


Accordingly, the Maritime Court may issue an order restraining the sale of a Panamanian-registered vessel upon the filing of a complaint against the vessel or its owner with a petition accompanied with evidence of the existence, and the merits, of the claim. The plaintiff must deposit security with the court, which is fixed by the court as between USD10,000 and USD50,000.

The security must be posted in:

  • cash;

  • certified cheques issued by banks licensed to operate in Panama;

  • Panamanian public debt titles; or

  • any other guarantee agreed by the parties.


The plaintiff must file a complaint, together with security for damages and all the preliminary evidence to support the facts of the complaint. Initially, documents may be filed in fax or PDF copies with an undertaking to produce the originals within a short period of time.


Once issued, the court sends the order to the Department of Registration of Titles and Encumbrances of the Shipping Bureau, and such authority makes a note on the records of the vessel.


4.9 Releasing an Arrested Vessel

Once the arrest is executed, the defendant or any other interested party may petition the release of the arrest by posting a security which is affixed by the court to cover the amount of the claim, interest (three years), arrest expenses and legal fees. The security must be posted in;

  • cash;

  • certified cheques issued by banks licensed to operate in Panama;

  • Panamanian public debt titles; or

  • any other guarantee agreed by the parties.


The parties may agree on the amount, the nature and the conditions of the security which will be substituted for the arrested vessel, and must jointly petition the judge for the lifting of the arrest, consigning at the same time the agreed bond. The parties may agree on other types of guarantees such as letters of indemnity/letters of undertaking (LOIs/LOUs), bank letters or property and casualty insurance (P&C) letters.


If the parties do not reach an agreement as to the amount and nature of the security to be consigned, the court, on a motion by the defendant or a third party interested in lifting the arrest, shall set the amount of the security so that it covers the amount claimed in the complaint plus interest (three years), costs and expenses. This amount may not exceed the market value of the property.


Notwithstanding the foregoing, when the arrest is requested to make effective proprietary rights, or the possession and the use of the property under arrest, the arrest may not be lifted or suspended.


4.10 Procedure for the Judicial Sale of Arrested Ships

When ordering a judicial sale, the court will instruct the marshal to carry out the sale procedure. The court will appoint a surveyor to survey the vessel and determine its market value. The plaintiff must pay the surveyor’s professional fees.


The court order fixing the judicial sale dates must be published at least twice a week until the sale is completed, in national newspapers and any other specialised publications that the parties deem convenient.


Bids and counterbids will be received in writing by the marshal. On the same date, the oral bidding and counterbidding process will begin. Bids that have been submitted to the marshal will be announced and the vessel will be provisionally adjudicated to the bidder with the highest price.


The successful bidder must pay the full purchase price within three working days after the provisional adjudication of the vessel. Payment must be made in cash, or by a certified cashier’s cheque in the name of the Maritime Court. On the date of the sale, the marshal will issue a provisional adjudication certificate in favour of the successful bidder.


After the full purchase price has been paid by the successful bidder, the court will issue a statutory adjudication certificate in favour of the purchaser. This document will constitute the legal title of the vessel and will state that the vessel has been acquired in a judicial sale free from any encumbrances.


The sums collected from the judicial sale of the vessel will be consigned with the court by the marshal and will be deposited in a special account maintained by the court. The marshal must apply to the court for payment of their fees and expenses of arrest, custody and sale.


Once the sale proceeds have been paid into the court, any party who has obtained a judgment in rem against the vessel or its sale proceeds may apply to the court for determination of priorities, if necessary, and for payment of their claim.


Notice of such an application will be given by the court to all parties who have actions filed against the vessel, warning them to lodge their claims. If claimants do not reach an agreement with respect to the distribution of the sale proceeds, the court will appoint an administrator to determine the order in which to pay the privileged maritime lien holders. The naval mortgage will rank fourth in priority.


The marshal’s claim against the sale proceeds for their fees and expenses has the highest priority, and until they have been paid in full the court will always reserve sufficient funds in court for that purpose. The plaintiff will also be reimbursed for the sums that they supplied to the marshal for the arrest, custody and conservation of the vessel, before payment is made to any maritime lien holder. The order of priorities in which the sale proceeds will be paid will be determined by the applicable substantive law.


4.11 Insolvency Laws Applied by Maritime Courts

Panama enacted Law 12 of 2016 on insolvency proceedings (the “Insolvency Law”), which came into effect in January 2017. The Insolvency Law includes provisions similar to those in Chapter 11 of the United States Bankruptcy Code, creating a specialised insolvency jurisdiction before the civil courts.


Bankruptcy financial protection will be granted by the civil courts to the debtor who undergoes a reorganisation process under the Insolvency Law. During this period, no executory proceedings, executions of any kind, restitution of assets or evictions may be initiated against the debtor.


The Insolvency Law is still recent and has not been extensively tested by the courts.


4.12 Damages in the Event of Wrongful Arrest of a Vessel

Any party who by mistake, fault, negligence or bad faith seizes an asset or property that does not belong to the defendant or in contravention of a prior and express agreement between the parties (or where a party requests an arrest for a maritime lien which is inexistent or time-barred by the statute of limitations) will be responsible for the damages caused, as well as for the payment of the expenses and costs arising from that action.


5. Passenger Claims


5.1 Laws and Conventions Applicable to the Resolution of Passenger Claims

Chapter IV of the Maritime Commerce Law regulates contracts for the carriage of passengers by sea, while Chapter II of Law 8 of 1982 (the “Code of Maritime Procedure”) regulates the procedure for limiting a ship-owner’s liability.


Article 1651 of Panama’s Code of Commerce establishes a one-year time-bar provision for indemnities derived from shipping transport or charter contracts, and a time-bar provision of six months if its issuance is within the territory of the Republic of Panama.

Available limitations on liabilities in respect of a passenger’s claim include:

  • claims related to death and bodily injury which occurred on board or were directly connected to the exploitation of a vessel, or to salvage or assistance operations, and damages resulting from any of these causes;

  • claims related to damages resulting from a delay in the transportation of passengers or their luggage by sea; and

  • claims for damages different from those arising from contractual rights, caused in direct connection with the exploitation of the vessel, or with salvage or assistance operations.


Panama’s Maritime Commerce Law Article 244, on maritime liens, includes “compensation for damages caused by fault or negligence” which has been interpreted to include personal injury in a general sense.


6. Enforcement of Law and Jurisdiction and Arbitration Clauses


6.1 Enforcement of Law and Jurisdiction Clauses Stated in Bills of Lading

Law 8 of 1982, as amended, recognises the validity of the substantive law included in bills of lading. The Maritime Courts may abstain from hearing a case in which the parties have previously and expressly negotiated to submit their controversies to a court in a foreign country and have agreed to this in writing. However, pro forma or adhesion contracts (such as bills of lading) are not considered to be previously and expressly negotiated.


6.2 Enforcement of Law and Arbitration Clauses Incorporated Into a Bill of Lading

Law 8 of 1982, as amended, recognises the validity of an arbitration agreement, provided it is in writing and has been negotiated between all parties. Arbitration can be conducted pursuant to the rules chosen by a party; otherwise, Panamanian law on arbitration will govern the arbitration proceeding.


The Maritime Courts must abstain, at the request of one of the parties, from continuing to hear a claim already submitted to arbitration, as well as in cases where an arbitration clause exists. In such cases, the Maritime Courts can order the taking of appropriate measures to safeguard a party’s rights, such as the consigning of a surety bond before the competent court or a waiver of time-bar defence, if the statute of limitations has been interrupted. If an arrest or seizure has taken place, or if it is not possible to consign a bond before the competent court, the Maritime Courts can stay the main proceeding and keep the arrest or seizure in place, subject to the results of the arbitral proceeding.


6.3 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Foreign arbitral awards are recognised and enforced in Panama in accordance with:

  • the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards;

  • the 1975 Inter-American Convention on International Commercial Arbitration; or

  • any other treaty ratified by Panama on the recognition and enforcement of arbitral awards.


The petition for recognition is filed before the Fourth Chamber of the Supreme Court of Justice.


Law 131 of 2013 regulates national and international arbitration in Panama and incorporates modern international arbitration practices and principles.


6.4 Arrest of Vessels Subject to Foreign Arbitration or Jurisdiction

In practice, the Maritime Courts are likely to grant the claim if the plaintiff complies with the appropriate prima facie evidence. Notwithstanding, the Maritime Courts may abstain from hearing a case in which the parties have previously and expressly negotiated to submit their controversies to a court in a foreign country and have agreed to this in writing. However, pro forma or adhesion contracts (such as bills of lading) are not considered to be previously and expressly negotiated.


6.5 Domestic Arbitration Institutes

The Centre for Maritime Conciliation, Mediation and Arbitration of Panama (CECOMAP), founded in 2007 by the Panamanian Maritime Chamber and the Panamanian Maritime Law Association, specialises in maritime claims.


6.6 Remedies Where Proceedings Are Commenced in Breach of Foreign Jurisdiction or Arbitration Clauses

In proceedings commenced in breach of a foreign jurisdiction or arbitration clause, the defendant may raise incidents or challenges that can lead to an annulment of proceedings, such as lack of jurisdiction and lack of competence.


Arbitration jurisdiction is recognised at the constitutional level in Panama, and Law 131 of 2013 on arbitration dictates that, in disputes which include arbitration clauses, a judicial court shall decline jurisdiction in favour of the arbitral tribunal, and shall immediately forward the relevant file to the arbitral tribunal.


7. Ship-Owner’s Income Tax Relief


7.1 Ship-Owner’s Income Tax Relief

The Panamanian tax system is based on the principle of territoriality. Only income generated in the national territory is taxed, and foreign-source income is exempt.


The 2010 amendments to the Tax Code introduced provisions in relation to transportation, and include international transportation in the portion corresponding to freight, passengers, cargo and other services of which the origin or final destination is Panama as an activity that shall be considered as income obtained from sources within Panama. Notwithstanding, it is important to indicate that the amended Tax Code specifies that these activities will be exempt if the international companies have their home port in Panama.


Income obtained within Panama from the operations of ships registered abroad will also be exempt if the income obtained by Panamanian-registered vessels in that country is given a similar exemption under the principle of reciprocity. The same applies to income obtained within Panama from operations of ships registered abroad by foreign persons resident, or not, in the national territory, provided that Panamanian natural or legal entities are given similar treatment in the country of the nationality of that person.


The sale of vessels registered under the Panamanian flag and engaged in international trade shall be exempt from income tax.


8. Implications of Non-performance, the IMO 2020, Trade Sanctions and the War in Ukraine


8.1 Non-performance of a Shipping Contract

There are no major restrictions on the operations of ports aside from those biosecurity measures well known around the globe, which are carefully implemented and enforced. 


Panama has implemented protocols regarding crew changes under various modalities, such as:

  • ship-to-ship crew changes;

  • group repatriation of Panamanian crew per ship;

  • ship-to-ship repatriation with intermediate terrestrial modality;

  • Panamanian-for-Panamanian crew changes in national ports;

  • foreign-for-Panamanian crew changes in national ports;

  • embarkation and disembarkation of Panamanian crew abroad; and

  • co-ordination of charter flights for purposes of bringing to Panama crew of diverse shipping lines to achieve crew changes in Panama. 


Between March and October 2020, more than 11,000 seafarers were able to return to their homes, thanks to the efforts of the PMA in this respect.


8.2 Enforcement of the IMO 2020 Rule Relating to Limitation on the Sulphur Content of Fuel Oil

The Maritime Commerce Law includes provisions relating to force majeure, such as:

  • exempting the carrier from liability due to loss or damage to the cargo occurring from force majeure;

  • exempting the charterer for the late return of the vessel due to force majeure;

  • terminating a shipping contract without damages to the parties if, prior to sailing, the vessel is affected by force majeure;

  • suspending loading or discharge operations due to force majeure;

  • exempting the ship-owner from damages to passengers for the suspension of the voyage due to force majeure, granting passengers ticket refunds only; and

  • terminating a towage contract without damages to the parties, if the contract cannot be executed due to force majeure.


Force majeure is defined in Panama’s Civil Code as a situation produced by acts of man which was not possible to resist, including acts of authority exercised by public officials, imprisonment by enemies and similar others.


No recent rulings in which the courts have dealt with the non-performance of contractual obligations owing to the COVID-19 pandemic have been made publicly available.


8.3 Trade Sanctions

Panama is a signatory of the MARPOL Convention and implemented the IMO 2020 regulations from 1 January 2020. The PMA, through the General Directorate of Merchant Marine, is responsible for the enforcement of the sulphur content limit on vessels flying the Panamanian flag, while the General Directorate of Ports is responsible for the enforcement of the sulphur content limit on vessels coming into Panamanian ports.


Limits have been implemented by the PMA in accordance with the limit specified under MARPOL Annex VI, which is 0.50% m/m (mass by mass).


There are no known port state control enforcement actions currently taking place in Panama to enforce the sulphur content limit.


There are no known sanctions from proceedings imposed by the Panamanian authorities owing to violations of the sulphur limit or related regulations.


8.4 The War in Ukraine

The Political Constitution of the Republic of Panama sets forth that the Panamanian State will abide by international law. Moreover, as a member of the United Nations (UN), Panama must comply with all issued UN resolutions, including trade sanctions. In this respect, there are precedents for trade sanctions being implemented and enforced by the Panamanian government, though to date no legal proceedings have been initiated in Panama in this regard.


Trade sanctions related to the Russian-Ukrainian conflict have no significant impact on Panama given that the commercial bilateral exchange between Panama and said nations is very reduced (approximately 0.1% of the total international commercial relationships of Panama). Transit via the Panama Canal might suffer a reduction, but to date this has not been of significance.


It is worth pointing out that the Panama Canal does not prohibit transit of vessels on account of their nationality, due to the declared permanent neutrality of this interoceanic waterway. The Panamanian legal system currently does not provide mechanisms authorising trade activities otherwise outlawed by sanctions. A party may file administrative, judicial and constitutional challenges requesting an order to be revoked.


Panama’s judiciary has not published any information on cases relating the war in the Ukraine.


9. Additional Maritime or Shipping Issues


9.1 Other Jurisdiction-Specific Shipping and Maritime Issues

There are no jurisdiction-specific shipping and maritime issues that apply here.


Shipping Guide - Panama - 2024 - Patton Moreno & Asvat
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First published in Chambers and Partners

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