By Pedro Henrique Jardim and Maria Fernanda Soares

Recent STJ decision puts an end to discussionon the validity of foreign vessels mortgagesin Brazil.

A recent decision delivered by a State Court in Brazilrecent decision delivered by a State Court in Brazil(“TJSP”) raised a lot of doubt on the maritime industry, asit dismissed a maritime mortgage constituted in Liberia onthe grounds that this country is not a party to the sametreaties regarding extraterritorial effects of mortgages andliens (the 1926 Brussels Convention and the BustamanteCode - “Treaties”) of which Brazil is a member.

The latest decision rendered by the Superior Court of Justice (“STJ”),however, put an end to the discussion, expressly recognizing the validity of the Liberian mortgage and sending a positive message to financiers ofthe maritime industry.

Brazilian bank BTG Pactual S.A. (“BTG”) filed a collection lawsuitagainst OSX 3 Leasing B.V. (“OSX”) for outstanding payments in thecontext of OSX’s operations in Brazil. FPSO OSX 3 (“FPSO”) was seized inorder to secure payment of the amounts due.

Having had access to this information, Nordic Trustee ASA (“Nordic”),acting as trustee of creditors of bonds issued by OSX in Norway,filed a motion to secure its privileged rights over the proceeds of any judicial sale of the FPSO, as secured creditor underjudicial sale of the FPSO, as secured creditor undera mortgage over the FSPSO registered in Liberia(FPSO’s country of flag). Nordic argued that themortgage was compliant with all the legal requirementsof Liberian law and, therefore, should begiven full effect in order to protect the rights of Nordic in Brazil.

The trial court, however, refused to recognize thevalidity of the Liberian mortgage in Brazil, because itwas not registered in the country. Nordic appealedto TJSP, which equally dismissed the claim.

The issues raised in the lawsuit involved (i) thelegal status of a vessel, i.e., whether it was a movableor immovable asset for the purposes of theapplication of certain conflict of law rules; (ii) thebinding effect of the Treaties over non-signatoryStates; (iii) the consequences of a vessel flying theflag of convenience State without any genuine linkthereto (flag of convenience); (iv) the existence ofan international rule of customary law according towhich mortgages instituted in compliance with thelaw of the flag State should be recognized by anyother country; and (v) whether or not the fact thatthe vessel was located in the Brazilian ExclusiveEconomic Zone (“EEZ”) could attract any especialrule of jurisdiction.

TJSP did not delve into every issue raised in thelawsuit. In fact, the court simply understood that theTreaties should only produce effects among countries which are equally party to them. Therefore, asLiberia is not a member State of either Treaty, thereshould be no obligation for Brazil to recognize aLiberian mortgage within its territory.

Nordic filed again an appeal (‘Recurso Especial’)before STJ. The entire reasoning of the decision hasonly recently been published, revealing the positionaccording to which, even though Liberia is not amember State of the Treaties, Brazil, as a party tothem, undertook to recognize the validity of anyforeign mortgage, regardless of the country of itscreation and whether or not such country is a memberthereof. In other words, no need to panic.

Pedro Henrique Jardim and Maria Fernanda Soares are lawyers at Machado Meyer Advogados

(Nordic Light - 08.07.2018)