Brazilian Appeals Court Approves Nordic Trustee's Liberian Ship Mortgage

The Brazilian Superior Court of Justice granted Nordic Trustee's appeal on Nov. 16, 2017, and recognized the validity of a $530 million First Preferred Liberian Ship Mortgage over the OSX 3 in favor of Nordic Trustee. The OSX 3 is a floating production, storage and offloading (FPSO) vessel, located some 94 kilometers off the coast of Rio de Janeiro, owned by OSX 3 Leasing B.V., a Dutch corporation. OSX 3 has been under arrest by the Nordic Trustee since 2013 in Brazilian court proceedings.

The Superior Court in effect overturned lower Brazilian court rulings, which had refused to recognize or give legal effect to the Liberian Ship Mortgage because 1) the mortgage was not recorded in Brazil under Brazilian law (which provides only for recordation of mortgages on Brazilian flag vessels) and 2) Liberia is not a party to two international conventions – the 1926 Brussels Convention and the 1929 Havana Convention ­– to which Brazil is party.

The main points of reasoning raised by the Appellate Panel include 1) under the United Nations Convention on the Law of the Sea (UNCLOS), the acts of sovereignty of countries where vessels are registered must be respected, 2) consequently, it is not possible for Brazil to demand that existing mortgages on foreign flag vessels must be registered in Brazil, and 3) Brazil traditionally recognizes the validity and enforceability of mortgages on foreign flag vessels when duly registered under the laws of the vessel's flag country, as evidenced by the Brussels Convention of 1926 and by the Havana Convention of 1929 (the Bustamante Code); Brazil's adherence to UNCLOS confirms this position.   

The Brazilian Superior Court of Justice decision is a salutary support of the rule of law, and bodes well for Brazil's ability to attract foreign capital, and especially for financiers of the many hundreds of Liberian, Marshall Islands and other foreign flag vessels, whose collateral security was imperiled by the unfavorable lower court precedent.

Holland & Knight acts as global maritime and Liberian counsel for Nordic Trustee, who is also represented by Felsberg Advogados (São Paulo) and Akin Gump Strauss Hauer & Feld LLP (London).

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