Acquisition of a Registered Ship by a Non-Owner through Forced Auction
Stavros Theodoropoulos, Partner
A. Property Law, Formal and Substantial Publicity
The set of rules regulating legal relationships between individuals and things is called property law. One of these regulated legal relationships is ownership, the right of absolute control over property. Property law can be considered the foundational institutional framework for the economic exploitation of the natural world for the benefit and prosperity of humanity. The central principle of property law is the principle of publicity, essential for creating secure property relationships and ensuring transactions. The law must ensure the publicity of property rights to third parties, thus evaluating the economic value of the property for each person concerned.
In contrast to the concept of formal publicity, there is that of substantial publicity, aiming to safeguard justified trust in external elements prescribed by the law for determining property relationships. The law not only needs to define how property rights are formally publicized but also must protect the trust shown by parties involved in this formal publicity.
B. Formal & Substantial Publicity in Brief:
For a practical clarification, concerning the transfer/creation/abolition/alteration of ownership or other property rights, the law requires:
For immovable property, registration in the relevant registry books (registration system kept on the basis of the person and its property regarding specific region) or the land registry (registration system kept on the basis of the land/properties of a specific region) in areas where the cadastre system has been introduced. It is worth noting the ongoing transition to the land registration system, depending on cadastral progress at the national level.
For movable property, the concept of possession plays a central role. Possession is the physical control of a movable or immovable thing with the intention of having it as one’s own. Ownership is acquired through possession or, in the case of relinquishing the right, by abandoning possession.
In conclusion, formal publicity is efficiently achieved only for immovable property and ideally with greater security (substantial publicity) through the Land Registry system due to its tangible information monitoring nature. However, for movable property, the system of apparent ownership prevails due to its relatively lower economic significance, and an increased formality system is not deemed necessary.
C. Acquisition of Property from a Non-Owner
How does the institutional framework reconcile the shortcomings of the formal publicity system with the need to ensure third-party trust? This raises an ontological, self-referential question. How does the institutional framework itself ensure its stability when it seeks to impose a strict formal publicity system vulnerable to human errors? Starting with real estate, ownership is acquired derivatively, where the acquirer gains exactly the right the transferor had. The absence of ownership in the transferor renders the proprietary action (not the contractual or the cause of ownership) void (with, of course, some exceptions).
Regarding movables, the relief valve is codified in the Greek Civil Code, Article 1036, allowing acquisition of ownership by a non-owner if the acquirer was in good faith at the time of the delivery of possession.
But what is the case with regard to movable property, whose significant economic value necessitates the regulation of the establishment/transfer/termination/alteration of property rights in a manner similar to real estate?
II. Ship as a Movable Property
According to Article 984GCC, “Real estate includes land and its components. Movable are those that are not real estate.” Additionally, as per Article 1(1) of the Shipping Code (ΚΙΝΔ), “A ship, for the purposes of this law, is any vessel, with a net capacity of at least ten tons, intended to move autonomously at sea.”
Therefore, a ship is initially considered movable property.
According to Article 6 of the Shipping Code, “The transfer of ownership of a ship requires an agreement between the owner and the acquirer that the ownership is transferred to the latter for a legal reason. The agreement is made in writing and submitted for registration in the ship registry. Without the registration mentioned above, the transfer of ownership of the ship does not take place.” In other words, for a valid transfer of a ship, the agreement must be registered in a specific public register, similarily to the system of transcription/land registers for real estate.
According to Article 8 of the Shipping Code, “The provisions of Articles 1192 to 1195, 1197, and 1199 to 1204 of the Civil Code apply accordingly” meaning that provisions related to real estate transfers are applied analogously to ship transfers.
According to Articles 195 et seq. of the Shipping Code, it is not possible to pledge a ship, form of security that exists for movables. Article 204 stipulates the application of provisions regarding mortgages, security that exists for immovable properties.
According to Article 1(3) of Law 1665/1986, ships and floating structures (except for recreational, private, or professional vessels) are explicitly exempt from the definition of movables that can be the subject of financial leasing.
However, these specific provisions do not classify the ship as immovable property. The ship is still categorically considered movable, as emphasized in Decision 55/2021 of the Greek Civil Supreme Court (Areios Pagos), which states that in the absence of a specific legal provision imposing real estate law rules on ships, a ship must be deemed inherently movable.
Consequently, Article 1036 of the Civil Code regarding good faith acquisition of ownership of a movable property from a non-owner is applicable to ships, even those registered in the ship registry. The legal reasoning for the creation of the institution of good faith acquisition of a movable from a non-owner does not apply to ships due to the existence of the ship registry. However, if the ship is not registered, then the transfer is governed by common law, and Articles 1036 et seq. of the Civil Code are not impeded.
What happens in the case of inaccurate registration in the ship registry?
According to a recently formulated opinion, despite the clear provision of Article 8 of the Shipping Code (regarding the analogous application of provisions on transfers), the gradual replacement of the system of transfers and mortgages by the Cadastre Law (Law 2664/1998) creates a legal vacuum. This void should be filled by the regulations of the new law. According to Article 13(4) of Law 2664/1998, in the case of a valid acquisition by a bona fide third party, the true beneficiary has a claim for restitution of damages against the person inaccurately recorded in the Cadastre. Compensation claims under tort provisions are not excluded.
This framework establishes protection for bona fide transactions similar to that of Article 1036 of the Civil Code. It implies that the acquirer from a non-owner becomes the owner if the ship is registered in an area covered by the Cadastre system. Notably, the regulation for the transfer of a ship differs significantly from that of real estate, allowing the use of private documents (rather than notarial) for the contract and permitting the securing of a claim as a legal reason for the transfer, an option not accepted in real estate transactions.
The inability to acquire a ship from a non-owner is considered an erroneous presumption derived from real estate under the old system of transfers. To support the argument for the analogous application of Cadastre regulations, it is pointed out that the ship registry was established as a pragmatic system of publicity, distinct from the mortgage system, which is personalistic, i.e., maintaining shares of natural persons. This systematic contradiction (applying publicity rules for ships, movable property, while analogously applying personalistic regulations of the Cadastre system) does not seem to have been considered by the historical legislator. Therefore, the registration of property rights relies on each previous registration of an encumbrance. Thus, the system of formal publicity for ships appears to satisfy both formal and substantial publicity, concluding that the non-application of the rule of Article 1036 of the Civil Code ultimately creates more legal uncertainty than any benefits.
On the contrary, an argument can be formulated based on the following specific assumptions: (1) Article 6 of the Shipping Code requires transfer from an owner, while Cadastre publicity does not remedy any lack of ownership. Article 8, which stipulates the application of the existing provisions on transfers (and thus, by analogy, Cadastre provisions), cannot apply since there is no remaining field of application for it. (2) There is a significant deviation between the audit conducted by the ship registry and the official of the Cadastre office. The latter, according to Article 16 of Law 2664/1998, performs an extensive legality check of the registered act, in contrast to the ship registry, which, according to Article 37 of Law 10/17.07.1910, only verifies the external elements of the registered act. In other words, under the Cadastre, there are the necessary guarantees for the correct registration of the act – a satisfactory convergence of formal and substantial publicity.
III. Does the answer change if the transfer takes place through a forced auction?
The question gains more significance when the sale does not occur voluntarily but rather involuntarily, through a forced auction. This unique public selling procedure is regulated by Articles 992(1) and 1011 et seq. of the Greek Civil Procedure Code, similar to the auctioning of real estate. In Greek law, a forced auction serves as a derivative means of acquiring ownership. This implies that the acquirer obtains the right that the transferor (compelled to transfer) had. Therefore, a fundamental prerequisite for the transferee to acquire ownership is for the transferor to have had ownership (nemo plus iuris ad alium transferre potest quam ipse habet). Hence, the conditions for acquiring ownership through forced auction are determined by substantive law. Therefore, the concerns developed above remain unaffected by the compelled nature of the transfer.
The economic exploitation of assets becomes possible through the economically efficient and secure exchange of rights arising from each respective property. Often, this security is better achieved through the strict application of ostensibly unjust rules (acquisition from a non-owner). The presented problematic constitutes one of these cases. The acquisition of a registered ship through a forced auction introduces unique legal challenges and considerations, and the interpretation and application of relevant laws are crucial in determining the legitimacy and effectiveness of such transfer.