Transcript Proprietary Interests in Ships and Enforcement of Maritime Claims

Proprietary Interests in Ships and
Enforcement of Maritime Claims
Olena Bokareva
Conflict of Laws
Legal significance of “conflict of laws”; what exactly is it?
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private international law: civil law characterization, not international law at all; each state has its own rules of
conflict of laws (see J.G. Castel, International Law, Toronto: Butterworths, 1976 at p. 1).
One might consider that the term “international” when referring to conflict of laws (or private international law), was redundant, but most conflict texts concern themselves principally with national conflict law.
(William Tetley, International Conflict of Laws, Common, Civil and Maritime, Montreal: Blais International Shipping
Publications, 1989, Preface at p. xv.)
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English law approach: “The branch of English law known as the conflict of laws is that part of the law of England
which deals with cases having a foreign element” (Dicey and Morris, The Conflict of Laws 12th. Edition, 1993 at p.
3; see also D.R. Thomas, Maritime Liens, British Shipping Laws, Vol. 14, London: Stevens & Sons, 1980 at p. 307; see
also Tetley, supra,)
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“conflict of laws” interchangeably used with the expression “choice of law” which is defined as follows:
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[T]he body of law by which the court where the action is maintained determines or chooses which law to apply where a diversity
exists between the applicable law of the court’s state (the forum state) and the applicable law of another jurisdiction connected
with the controversy. (John A. Yogis, Canadian Law Dictionary, Barron’s Educational Series, New York, 1983, at p. 46.)
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“conflict of laws” means comparative law and vice versa:
Comparative law and conflict of laws are inextricably tied together... one must know and compare the law
of at least two jurisdictions before resolving any conflict which may exist between those laws. (Tetley, supra, at p.
xvi.)
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The central question emanating from a conflict of law situation is – “What is the proper law to be applied by the
court” (See PK Mukherjee, “The Law of Maritime Liens and Conflict of Laws”, JIML 9[2003]6, at p. 546
Principles of conflict of laws
Substance vs. Procedure
• The distinction between substance and procedure is one of “notorious difficulty”. (Thomas, supra,
at p 320).
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As a general rule substantive matter is governed by the lex causae; procedural matter is subject to
lex fori
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The rule is stated by Cheshire and North as follows:
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“One of the eternal truths of every system of private international law is that a distinction must be made
between substance and procedure, between right and remedy. The substantive rights of the parties to an
action may be governed by a foreign law, but all matters appertaining to procedure are governed exclusively
by the lex fori.”
The distinction between right and remedy is akin to the distinction between substance and
procedure. Right is substance, remedy is procedure; but such distinction is not exactly a model of
clarity.
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“The difficulty in applying this Rule lies in discriminating between rules of procedure and rules of
substance.” (Dicey and Morris, supra, at p. 170 as cited in Tetley, supra, at p. 49)
Modified version of Substance vs.
Procedure
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Professor Tetley is of the view that
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“[T]he substance/procedure dichotomy should be discarded, and that it be replaced, if a distinction is
necessary, by the distinction between substance and ancillaries on the one hand and formalities of the
forum court on the other.” (Tetley, supra, at p. 47)
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Substantive matters are subject to their own proper law even if it is foreign law.
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Substance is defined as the legal relationships (contracts and torts/delicts) which have a proper law
of their own which is usually not that of the forum. (Tetley, ibid, at p. 48)
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Procedure is form; in the present context these are formalities of the forum which include the
conduct of trial and are administrative in character. Examples are the method by which a writ is
drawn up and served, times and places of court sittings, conditions for civil jury trials, process by
which witnesses are examined and testimony is admitted and processes regarding such matters as
attachments, saisie conservatoire, in rem writs, mareva injunctions and giving of security in
execution of judgments. (Tetley, ibid, at p. 45, 65 and 66). All these matters are subject to the lex
fori.
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The US Restatement Second, 1969 does not attempt to distinguish between substance and
procedure but defines procedure as the law with which the forum state has the most significant
relationship. In effect forum formalities are distinguished from procedure. (Tetley, ibid, at p. 51-52)
Modified version of Substance vs.
Procedure (cont.)
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Ancillaries, although have been traditionally considered as procedural matters have a proper law of their own
which may be a foreign law or the lex fori, but are usually the law of the subject matter to which they are ancillary.
(Tetley, ibid, at p. 60). Examples of ancillaries are time limitations, presumptions, cross defences, rules of evidence,
burdens of proof. (Tetley, ibid, at p. 48 and 60)
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Probative value of evidence is an ancillary matter which has its own proper law.
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In the opinion of Prof. Tetley, the Arrest Convention 1952 and the global Limitation of Liability conventions of
1924, 1957 and 1976 attempt to address the above issues in the following manner.
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The Arrest Convention appears to reflect a proper understanding of procedure as consisting of the formalities of the forum
court. See for example, Art. 6.2, Art. 4, Art. 5 and Art. 7.2 & 7.3.
The three limitation conventions generally deal with the substance vs. court formality distinction as well as the classic substance
vs. procedure dichotomy. (Tetley, ibid, at p. 67)
Because the substance/procedure distinction potentially results in a pro lex fori bias, and not all procedural
matters are necessarily of the lex fori, the distinction, if one is to be made should be substance and ancillaries on
the one hand and formalities of the forum court on the other. (Tetley, ibid, at p. 67). In every case the proper law
of each legal relationship (contract or tort/delict) and of each ancillary should be determined individually.
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“The forum court should only apply the lex fori, if it is the proper law of the legal relationship or ancillary, or in the case of a
genuine formality of the forum court system.” (Tetley, ibid, at p. 68).
Lex causae and lex fori
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The substantive lex causae is usually either a matter of contract or tort/delict, i.e., a claim may be
one that is ex delicto or ex contractu.
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“[W]here the claim is tortious in character, the notion of lex causae is particularised to the lex loci
delicti commissi. In cases of groundings and oil spills, both of which are maritime torts, prima facie
the lex loci delicti commissi will apply unless there is a convention that is applicable which provides
otherwise. Thus if a grounding or stranding occurs within the territorial seas of a coastal state, the
law of the coastal state will apply. There is no special convention that governs this subject matter.
However, if the grounding led to an oil spill, convention law would apply ...” (See Mukherjee, supra,
at p. 549; See also the cases of The Mary Moxham, (1876), 1 P.D. 107 and The Waziristan, [1953] 2
Lloyds Rep. 361 mentioned at that page.)
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When torts are committed on board a ship, if the ship is on the high seas the flag state law will
apply in the case of a tort; if the ship is located within a maritime zone of a littoral state the notion
of “internal and external consequences” will feature in the determination of what is the proper law.
The predominance of flag state law in matters solely of internal economy is exemplified in the
leading case of Lauritzen v. Larsen [(1953), 345, U.S. 571]. (Mukherjee, ibid, at p. 549-550).
Lex causae and lex fori (cont.)
• Where a matter is ex contractu there are four options that come into play.
First, there may be a choice of law clause that governs the contract in
question. Commercial maritime contracts such as charterparties, bills of
lading, mortgages and ship sale/purchase contract usually contain a choice
of law clause; as well the place of arbitration or litigation in the case of a
dispute is expressly provided. Secondly, if there is no choice of law clause
the intention of the parties may be implied from the contract. The third
option is the flag state law where nothing is stated in the contract. The
fourth option is the application of lex loci contractus. However, this
general rule has its inherent flaws. It does not, for example, take into
account the place of performance of the contract, or of payment, or the
nationality or residential status of the parties. (Mukherjee, ibid, at p. 550;
see in particular the footnotes at that page that cross refer to Tetley text).
• All matters of procedure or remedy are subject to the lex fori. (But see
discussion above).
Closest and most real connection
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This notion is also referred to as the “centre of gravity” or “contacts” approach. (See Yogis, supra, at p. 46).
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Prof. Tetley is a leading proponent of this notion.
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The “proper law of the contract” is defined by Westlake as “the law of the country with which the contract has its
most real connection.”
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In Boissevain v. Weil, [1949] 1 K.B. 482 at p. 490-491 C.A “... the proper law of the contract ... depends not so much
on the place where it is made, nor even on the intention of the parties, or on the place where it is to be performed,
but on the place with which it has the most substantial connection.
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Morris refers to “proper law of the tort” as “... the law which on policy grounds, seems to have the most significant
connection with the chain of acts and consequences in the particular situation before us”.
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Dicey and Morris refers to “closest and most real connection” in contract and “the most significant relationship” in
tort. (See Tetley, supra, at p. 10 and 11).
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According to Prof. Tetley, “The concept of “the most significant connection” or “the closest and most real
connection”, principally the work of Morris in contract and tort, is, in my view, the greatest single contribution
ever to the theory and practice of conflict law.”
Forum non conveniens
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Prof. Tetley promotes consistency of methodology as the most desirable approach to solving
conflicts problems. (Tetley, supra, p. 37-38). In his proposed methodology he rejects, inter alia, the
distinction based on procedure and substance and on right and remedy, and emphasizes forum non
conveniens as a possible final step in the methodology through which problems of incongruity can
be cleared up. (Tetley, ibid, p. 43).
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The doctrine of forum non conveniens features largely in collision cases in the maritime context.
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The leading case is The Abedin Dever, [1984] 1 Lloyds Rep. 339. In this case the plaintiff’s ship Las
Mercedes (LM) under Cuban flag and the defendant’s vessel Abedin Dever (AD) collided in the
Bosphorus. Plaintiffs issued a writ in England which was served on a sister ship of AD alleging
defendants were a fault and claiming collision damage. Defendants applied for a stay of
proceedings on the ground that Turkey was a more convenient forum for the trial of the action. At
trial Sheen J. found for the defendants. Plaintiffs appeal was upheld by the Court of Appeal. The
House of Lords reversed the appeal decision and reinstated the decision of the trial court. In
essence the House of Lords endorsed the doctrine of forum non conveniens in favour of the
defendants on the basis that Turkey was the country with which the matter litigated had the closest
connections, and it was the appropriate forum from the point of view of convenience and expense.
In this case for the first time the term forum non conveniens was used. The House of Lords
expanded and refined the legal position expounded by the House in the Atlantic Star [1974] A.C.
436 and MacShannon v. Rockware Glass Limited [1978] A.C. 975.
Forum non conveniens (cont.)
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In Spiliada Maritime Corp. v. Cansulex Limited [1987] A.C. 460, the House of Lords summarized the
English law position on the doctrine of forum non conveniens and stated a number of rules.
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Through this development it is well established that forum non conveniens has replaced the old
doctrine of lis alibi pendens through the doctrine of forum non conveniens.
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In the European Union, the Brussels and Lugano Conventions and EC Council Regulation No.
44/2001 rely more on the lis alibi pendens doctrine and apply the Spiliada rules narrowly.
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The doctrine of forum non conveniens is viewed with suspicion by the civil lawyers. In their view the
application of this rule does not provide certainty and predictability and can lead to arbitrary
decisions.
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The English law position considers lis alibi pendens as mechanistic and without the flexibility
inherent in the doctrine of forum non conveniens.
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Lis alibi pendens is akin to the “running shoes doctrine” which favours the party who institutes the
legal action first.
International conventions
• According to Prof. Tetley, hand in hand with the closest and most
real connection as a theoretical concept or principle of conflict law,
international conventions and national legislations have contributed
immensely to the resolution of conflicts of laws. He refers
particularly the Rome Convention on the Law Applicable to
Contractual Obligations, 1980 (80/934 EEC in force since April
1991); and as of 1994, the date of publication of Professor Tetley’s
text, 32 Conventions were open for ratification by the Hague
conference on private international law of which 21 were in force at
the time. (See Tetley, supra, at p. 27-34). Note that these figures
have changed since.
• Prof. Tetley also refers to national legislation of a number of
countries and to the continued role of legal scholars and
commentators.
Ship Mortgage
• The notion of the ship mortgage is rooted in the ancient
practices of bottomry and respondentia, meaning
respectively, a pledging by the owner of the ship’s hull
(bottom) and its cargo.
• In Europe evidence of the practice of bottomry and
respondentia is found in Roman law (lex maritima) and
earlier in Greek law of the 4th century BC.
• It is also notable that these practices prevailed in the Asian
continent even earlier in time which is evident from the
Babylonian Code of Hamurabi (1500 – 3000 BC) and in the
Hindu Code of Manu Samhita (900 BC)
General Principles
• In maritime law, a “mortgage” or “hypotheque” is a
charge or encumbrance on maritime property, in
favour of the lender of monies or other valuable
consideration advanced to the owner of the maritime
property as a loan, for which the said property is a
security.
• Instrument creating such security for loan is also
known as a “mortgage” - statutory definition.
• The precursor of the mortgage is the notion of
bottomry and respondentia meaning the pledging of
the ship or the freight and cargo respectively.
General Principles
• The meaning of the word mortgage is a dead pledge. The significance of a
“dead pledge” was that under a bottomry or respondentia arrangement
the pledgor was not obliged to repay the loan if the ship sank. In that
sense the pledgee was also an insurer of the security.
• The bottomry bond is very close to the civil law hypotheque.
• Terminology:
– Lender, known as “mortgagee” acquires a “proprietary interest”.
– Borrower, known as “mortgagor” retains “equity of redemption”
• A ship or a share therein may be the subject of a mortgage, this is a
statutory provision
General Principles
• As collateral security, the mortgagee may take in addition
– an assignment of a charter;
– an assignment of shipowner's insurance policies;
– guarantees or other forms of collateral security such as
debentures
• (The Panglobal Friendship, [1978] 1 Lloyd’s Rep. 368)
• Since mortgagor remains owner, mortgagee incurs no
liability towards third parties.
General Principles
• In English law, however, upon the execution of a
mortgage traditionally all the rights of the mortgagor
passed to the mortgagee including possession of the
security subject to the doctrine of the equity of
redemption of the mortgagor.
• By contrast in bottomry, possession remained with the
owner/pledgor.
• An important distinction between common and civil
law in this respect is that in the latter system there is
no transfer of ownership; the creation of a mortgage is
simply a security transaction.
Statutory Mortgage
• Under English law while the concept of the
bottomry bond has been retained even though it
is virtually obsolete in common law terms, it is
said that English mortgage law does not derive
from Roman law but is a creation of the common
law. (Gauci, p. 158)
• In the common law system
– A mortgage registered in accordance with statutory
provisions is a “legal” statutory mortgage.
– Only a “registered” ship or a share therein may be the
subject of a statutory mortgage.
Statutory Mortgage
• An equitable mortgage is one which is not a legal
statutory mortgage. Mortgagee acquires only an
equitable interest.
– Registrar has statutory duty to register or record
mortgages in the temporal order in which they are
produced to him.
– Notwithstanding any express, implied or constructive
notice, priority ranking of mortgages is according to date
and time of registration (or recording) - Statutory
provision.
– See: The Ioannis Daskalelis, [1974] 1 Lloyd’s Rep. (S.C.C.)
The Pickanninny [1960] 1 Lloyd’s Rep. 533
Statutory Mortgage
– Registered mortgage is not affected by any act of bankruptcy
committed by mortgagor after date of registration of the mortgage;
– Mortgagee has preferred claim over other creditors of bankrupt.
• Prior to execution, mortgagor must disclose in writing to
mortgagee, existence of prior mortgage, lien or other liability of
which he is aware.
• Mortgage Discharge to be registered by Registrar upon production
of receipt by mortgagor - Statutory requirement. Mortgage may
be transferred or transmitted in accordance with statutory
provisions.
Statutory Mortgage
• Mortgage instruments must comply with statutory
forms. Usually of two types:
– Where mortgage is to secure a specified principal sum and
interest; (separate forms for individuals and corporations) ,
– Where mortgage is to secure a current account. (This is like
a “line of credit” with a maximum upper limit which is
usually a certain percentage of the appraised value of the
ship).
– Note: In the civil law system, in most jurisdictions a ship
mortgage is created through registration. There is no
concept of an equitable mortgage.
The Mortgage Contract
• Statutory form of Mortgage contains very few terms. The contract is
therefore drawn up in the form of a “Deed of Covenants” or a “Collateral
Deed” .
• Usually mortgagor must take out insurance and pay premiums; contract
should contain express provision (The Basildon, [1967] 2 Lloyd ‘s Rep. 134.
Mortgagee has” insurable interest” and can therefore insure the security.
See The Maira, [1985] 1 Lloyd’s Rep. 300.
• Right of Mortgagee to re-possess and sell the ship upon payment default
by mortgagor. (inherent right).
• (Fletcher and Campbell v. City Marine Finance, [1968] 2 Lloyd’s Rep. 520.
• Note: Mortgagee also has a statutory right to sell the ship, or share
therein, but only after obtaining concurrence of all prior mortgagees, or
pursuant to a court order.
The Mortgage Contract
Terms in Statutory form of mortgage: Name and particulars of ship:
• Names of mortgagor and mortgagee;
• Principal sum or upper limit if account current;
• Rate of interest and maturity date
• Description of security, i.e. all or number of shares and “boats and
appurtenances”.
• Note: “Appurtenances” includes all equipment necessary for the
vessel’s functioning, existing on board at the time of execution of
the mortgage. “Things belonging to the ship and necessary for her
use”.
• (The Humorous, The Mabel Vera, [1933] 45 Ll.L.Rep.51)
Priority Notices
• In situations where the lender/mortgagee is in a
jurisdiction other than that of the Flag State, he may
lose his temporal priority position to a local lender
because in the ordinary course he would not be able to
register his mortgage immediately upon execution of
the mortgage contract. In such situations, an agent of
the foreign lender may issue a “priority notice” to the
Registrar, reserving his temporal position in the
mortgage registry in advance of the execution of the
mortgage. Any local or other mortgagee who may
appear before the Registrar in the interim period would
then rank in a lower position.
Mortgagee’s Rights in the common
law system
• Inherent right to repossess and sell, if mortgagor
defaults. Usually right is stipulated in Deed.
• Statutory power of sale
– Note: Requirement to obtain concurrence of all prior
mortgagees
• Right of foreclosure - procedure by which mortgagee
may extinguish the mortgagor’s right of redemption
and become absolute owner. This is not a statutory but
a common law right. Mortgagee asks court for a
“foreclosure Order Nisi” Tuck v. The Viking Prince,
[1974] AMC 921
Mortgagee’s Rights in the common
law system
• Action in rem. - Mortgage is in the nature of a
maritime lien and therefore is a right in rem
exercisable by an action in rem. The vessel can be
arrested and a judicial sale may ensue.
Mortgagee may receive the proceeds as the
Court sees fit.
• Note: Mortgagee entitled to freight being earned
(but not past freight due but unpaid) and
continue to work the vessel.
Mortgagor’s Rights in the common
law system
• Right to sell - A competent court may enforce an unsatisfied
registered mortgage against new owner, even if registry is “closed”
in respect of the ship.
• If judicial sale, purchaser is entitled to encumbrance - free title.
Therefore mortgagee is only entitled to proceeds of sale (The Acrux,
[1962] 1 Lloyd’s Rep. 405)
• Right of redemption
– Right vests in mortgagor, even after mortgage has expired, payment in
full is due, and mortgagee has rightfully taken possession of the
security.
– Right is extinguished once mortgagee has sold the vessel to realize his
security.
– Wrongful refusal by mortgagee to allow mortgagor to exercise his right
of redemption may result in liability for damages (Fletcher Case, supra)
Mortgagor’s Liability
• Mortgagor is liable if he places the security in danger or
jeopardy.
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failure to insure;
mortgagor’s activities inconsistent with sufficiency of security;
allowing security to become unreasonably encumbered;
leasing out vessel under a speculative charter-party.
• Cases: The Manor, [1907] P. 339 (C.A.) ; Law Guarantee And
Trust Society v. Russian Bank for Foreign Trade, [1905] 1
K.B. 815 (C.A.); The Myrta, [1977] 2 Lloyd’s Rep. 243
Mortgagee Protection Devices
• Prohibition on registration of a subsequent mortgage
without the prior written consent of the previous
mortgagee(s).
• Prohibition on transfer of ownership by the owner or
termination of registration by the owner without prior
written consent of mortgagee(s).
• These prohibitions are imposed by statutes on the registrar
of mortgages.
• Where no such prohibitions exist an unsatisfied registered
mortgage survives the deregistration of a ship (including
expulsion of the ship by the state of registry) and can be
enforced in the jurisdiction of the ship’s registry.
Mortgagee Protection Devices
• Mortgages under Bareboat Charter
– Registration When the flag state of a ship changes
under a bareboat charter registration device, all
rights pertaining to the proprietary interest in the
ship including ownership and mortgages remain
subject to the bareboat-out flag state. (See article
16 of the 1993 L&M Convention)
Civil Law Hypotheque
• A ship hypotheque in the civil law system can be based on an
unilateral declaration by the shipowner or a contract between him
and the provider of credit.
• A hypotheque is always a written instrument which must be
certified by a notary public or executed in the form of a notarial
deed.
• The instrument must include the name of the ship and the names
of the shipowner and creditor and their respective domiciles and
nationality. It must also include the tonnage and port of registry
and the amount secured by the hypotheque.
• In some civil law states a hypotheque executed elsewhere cannot
be enforced in that state unless it has been executed in accordance
with the laws of that state.
Civil Law Hypotheque
• As a result of this sometimes the holder of a hypotheque may be
unable to enforce his security for a long time until the vessel
reaches “an enforcement friendly port”.
• This problem can be circumvented if the hypotheque is executed in
the form a notarial deed which provides for a promise by the owner
of the security to pay at a specified time a specified sum of money.
• In a number of states such as France, Italy and Spain hypotheque
may be executed on a ship under construction.
• In some civil law states such as Malta and Italy a hypotheque comes
into existence only by virtue of registration. There is no concept of
contractual rights or notion of an equitable mortgage in the
common law system.
Civil Law Hypotheque
• In other countries such as Argentina, France and Spain registration
is required only for the validation of the hypotheque; in other
words a hypotheque may have a stand alone status even though it
is not valid for enforcement purposes.
• In many civil law countries such has Argentina, Italy and Spain a
hypotheque is registered in the ship’s register but in France there
are special registers under Customs Administrations (CA) where
hypotheques are registered.
• It is the CA of the district where the ship is registered which holds
the special registers for hypotheques.
• Application for registration may be made by the shipowner or the
creditor/lender and must be accompanied by a certified copy of the
hypotheque.
Civil Law Hypotheque
• In many countries in addition to registration, a hypotheque
must be endorsed on the ships documentation.
• In some countries the priority of hypotheques is according
to date and time of registration (Argentina, Italy and Spain)
as with respect to mortgages in common law jurisdictions;
in others (France), hypotheques registered on the same day
rank pari passu.
• In several civil law countries the registration of a
hypotheque may lapse if not renewed according to the
national legislation (Argentina – 3 years, France – 10 years,
Italy – 20 years).
Comparison between Mortgage and
Hypotheque
• The common denominator is that the purpose of both
is to provide security in the form of maritime property
against a loan or other credit.
• In both systems they can be created by contractual
arrangement; indeed in the common law system that is
the only way.
• However, in the civil law system a hypotheque can be
created by the unilateral declaration of the shipowner.
• In some civil law jurisdictions they can arise by
operation of law which then requires registration and
entry in the ship’s documentation.
Comparison between Mortgage and
Hypotheque
• In other civil law jurisdictions a ship mortgage can only be created
through registration.
• In common law jurisdictions there is the concept of the equitable
mortgage which can be enforced by virtue of the contract.
However, registration affords the mortgage a higher priority over an
equitable mortgage which collectively rank lower than maritime
liens but higher than statutory rights in rem.
• In a hypotheque the terms of the loan may be included in the
instrument itself.
• In a common law ship mortgage there must be a statutory form
which does not include the terms of the mortgage. These are
contained in a deed of covenants which is the contractual
instrument.
Comparison between Mortgage and
Hypotheque
• There is no special statutory form required for a
hypotheque; it simply needs to be created through a
written instrument bearing the shipowner’s
(borrower’s) signature witnessed by a Notary Public. In
the alternative, it can be created by a notarial deed.
• Under common law there is the notion of an unpaid
mortgagee’s right to take possession of the ship by
operation of law which puts him in the position of a
“mortgagee in possession”. This right is also available
under a statutory power of sale.
• There is no such right or power under a hypotheque.
Maritime Liens: Basic Characteristics
(a) A Species of Maritime Claims
which by virtue of statute or operation of law has the status of “maritime liens” or
“creances privilegiees ”. Characterized by other names. e.g. Japan - “preferential
rights of ship's creditors”; Netherlands - “preferential debts against ships”.
(b) Charge or Encumbrance against Maritime Property (Res)
proprietary interest similar to mortgage or hypotheque.
“maritime property” judicially defined as comprising ship, cargo, freight. Only
particular res can be encumbranced.
(c) Accrues from Moment the Event Triggering the Claim Occurred
arises in respect of service rendered to or damage done by maritime property
(ship).
ex-contractu (wages lien); ex-delicto (collision lien); quasi ex-contractu (salvage
lien).
Maritime Liens Basic Characteristics
(d) Travels with Res Secretively and Unconditionally
unique attribute; attached to res, unaffected by change of ownership or possession. No notice or
registration required for it to subsist.
indelibility: in practice, not entirely true
(i) time limitations by statute or convention
(ii) equitable doctrine of laches: to exercise due diligence in execution of lien, especially where rights of
third parties involved.
Note: Distinction between common law lien, equitable lien and maritime lien.
(e) Inverse Order Ranking
(applicable to salvage liens)
unique trait; underlying rationale:
(i) “beneficial service” theory - it is to the exertion of a claimant later in time that the res is preserved
for the benefit of one whose claim accrued earlier. e.g. salvage claim, inter se or vis-à-vis other
classes of maritime liens.
(ii) “proprietary interest” theory - prior lien holder is part owner with attendant responsibility for
protecting interest against risk of subsequent liens.
All above are universally recognized but substantial differences remain in treatment of maritime liens
under various legal systems.
Lack of Uniformity in Recognition and
Ranking
• (a) Uniformity prevails in that maritime liens invariably rank ahead of all
other categories of claims, except that, in some jurisdictions, claims are
ranked according to priority but there is no indication as to which claims
are maritime liens (e.g. Peru). (See Tetley text)
• (b) Categorization or status of particular type of claim may vary, e.g., the
necessaries claim: U.S. - maritime lien; France - privilege; UK and Canada statutory right in rem. Therefore priority rankings are different.
• (c) Private International Law: Cheshire & North
– (i) Difference between “substance” and “procedure” is one of notorious
difficulty - Professor Thomas
– (ii) Substantive matters governed by lex causae, i.e., ex contractu - lex loci
contractus; ex delicto - lex loci delicti commissi
– (iii) Procedural matters - lex fori.
• No controversy that distribution of a fund is remedial and therefore
procedural, i.e. lex fori. In the same vein priority ranking is a remedial/
procedural matter and therefore, is subject to the lex fori.
Lack of Uniformity in Recognition and
Ranking
(d) Recognition of a Claim as a Maritime Lien
• English law – Maritime lien is treated as a remedy only (i.e., procedural matter): Leading case The
Halcyon Isle where Lord Diplock held that the maritime lien is an inchoate right, virtually dormant
until crystallization. His Lordship thus held that not only the ranking of the claim but also the
determination of the right itself is a matter for the lex fori.
• European Continental view expressed by Professor Tetley: Maritime lien is a substantive secured
right peculiar to the lex maritima operating as a privilege under the civil law and the lex mercatoria
which has no equivalent in the common law.
• Canadian view – Leading case The Ioannis Daskalelis, [1974] 1 Lloyds Rep. 174, where the Supreme
Court of Canada held that the status of a claim as to whether or not it is a maritime lien is subject
to the lex causae but the priority ranking is according to the lex fori. This case involved an American
necessaries claim and a ship mortgage registered in Greece.
• United States view – Maritime lien is a substantive right rather than a procedure. In essence the
view is the same as in Canada and continental Europe.
A number of common law and hybrid system countries have declined to follow the Halcyon Isle
decision.
Lack of Uniformity in Recognition and
Ranking
(e) Inconsistency in English case law
•
The Bold Buccleugh (1851), Moo. P.C. 267 at p. 284. – Sir John Jervis acknowledged the origin of maritime lien being
in the civil law but declined to endorse it as a substantive right as in the civil law.
•
The Milford (1858), Swab 362. – Dr. Lushington held that the construction of an American master’s wages contract
would be governed by the lex loci contractus but determination of rights and ranking would be governed by lex fori.
•
The Tagus, [1903] P. 44. - Phillimore J, applied the lex fori in relation to a wages claim of an Argentinean master.
Held UK statute (MSA 1894) was being construed which applied to UK as well as foreign ships (per Dr. Lushington)
•
The Colorado (1923), P. 113. - Priority contest between English necessaries man and French mortgagee. Court of
Appeal applied French law to determine the nature of the mortgagees claim and concluded that the hypotheque in
France had the same status as an English maritime lien. Ranking was according to lex fori.
•
The Tolten, [1946] P. 135. - Scott LJ held that a creditor’s lien was “indubitably a rule of substantive law in
admiralty”.
•
The Halcyon Isle, [1980] 2 Lloyds Rep. 325 (PC). - A British ship repaired in an American shipyard was subsequently
arrested in Singapore by a British mortgagee. (See above).
Lack of Uniformity in Recognition and
Ranking
(f) Ranking of claims in English Law
• maritime liens;
• possessory liens;
• mortgages;
• statutory rights in rem;
(g) Paramount Priority Claims (Thomas); Special Legislative Rights (Tetley)
• custodia legis
• admiralty marshal’s costs
• court costs
• statutory dues
•
•
•
•
(h) International Conventions
1926 Convention
1967 Convention
1993 Convention
Enforcement of the maritime lien
• Maritime liens can be enforced through
–
–
–
–
–
action-in-rem;
arrest
saisie conservatoire;
attachment;
mareva injunction (anti-suit injunctions)
• Crystallization by instituting action in rem - Sir John
Jervis held in the The Bold Buccleugh that a maritime
lien had to be “carried into effect by legal process”, i.e.,
by an action in rem.
Enforcement of the maritime lien
• Under a proceeding in rem the encumbranced res may be arrested
and subsequently sold by the admiralty court. The right to proceed
in rem is confirmed by s. 20 of the Supreme Court Act, 1981. In The
Tolten, Scott LJ described the role of the admiralty court as an
“executive function of arresting and selling the ship so as to give a
clear title to the purchaser and thereby enforcing distribution of the
proceeds amongst the lien creditors in accordance with their several
priorities and subject thereto rateably”.
• Arrest, however, is unnecessary to found jurisdiction for the
purposes of enforcing a maritime lien although in practice arrest
gives the claimant a security in the form of a prejudgment remedy.
Provided a writ in rem is properly served it is sufficient
notwithstanding that an arrest warrant may have remained
unexecuted.
Maritime Liens
Summary and Conclusion
•
In summary, the following points seem to emerge from the foregoing discussion:
•
the substantive law as to the nature of a given maritime claim is not the same in all
jurisdictions; in particular, there are fundamental differences in the civil law and
common law perceptions of the nature of a maritime lien;
•
there are some significant differences in the laws of different jurisdictions with
regard to the categorization of a given type of claim, e.g., the necessaries claim;
•
priority rankings as between categories of claims are different in different
jurisdictions;
•
in some jurisdictions, whether or not a particular claim has the status of a
maritime lien is not discernible as priority ranking in the relevant legislation is not
based on any categorization of claims.
Arrest of ships
• Ship arrest is the most common way in which maritime
claims are enforced worldwide.
• Arrest law is both substantive as well as procedural and in
that respect the procedures vary from one jurisdiction to
another although there are some common denominators.
• Arrest of ships in maritime law is purely a civil matter, i.e., it
falls within the domain of private law as distinguished from
detention under regulatory conventions such as SOLAS and
MARPOL which fall under public law.
• The substantive law of ship arrest is mainly governed by the
1952 Arrest Convention to which over 70 states are parties.
Arrest of ships
• There are several jurisdictions that follow the
convention law partially through their domestic
legislation but are not parties to the Convention.
• An attempt to reform the 1952 Convention and make
the law compatible with the 1993 Liens and Mortgages
Convention was carried out through the 1999 Arrest
Convention.
• It is doubtful that the 1999 Convention will completely
replace the 1952 regime globally although some of the
Scandinavian countries (Denmark and Norway) have
recently become parties to the 1999 Convention.
Arrest of ships
• Principal features of arrest law Ship arrest is a form of pre trial remedy.
• Arrest provides security for a maritime claim and can only be exercised
through judicial intervention in both civil law as well as common law
jurisdictions.
• In common law jurisdictions, however, arrest is a way to found jurisdiction
for the prosecution of a maritime claim. For example in the UK a ship can
only be arrested for a claim listed in section 20(2) of the Supreme Court
Act (SCA), 1981.
• By contrast in civil law jurisdictions the only purpose of arresting a ship is
to afford the claimant a security for his claim.
• Under the 1952 Convention a ship can only be arrested for a claim listed
under article 1, paragraph 1 a) to q).
• This list is virtually the same as the list in the SCA 1981, the predecessor of
which was enacted in 1956 to give effect to the 1952 Convention.
Arrest of ships
Salient features of the 1952 Arrest Convention
• Article 1, paragraph 2, provides a definition of “arrest” which means
“the detention of a ship by judicial process to secure a maritime
claim.”
• Notably the definition does not include seizure of a ship for
execution of a judgment. In many jurisdictions a writ of execution
or writ of fieri facias is the mechanism through which this is done.
• Under article 2 a ship of one state party may be arrested in state
party for a listed maritime claim but no other claim.
• Under this article there is no restriction on application of domestic
laws relating to arrest or detention of ships by public authorities.
Arrest of ships
Salient features of the 1952 Arrest Convention
• Article 3 provides for the so called sister ship arrest which means that
either the particular ship in respect of which a maritime claim arose can
be arrested or another ship owned by the same owner.
• Under paragraph 4, where the ship is under a demise charter and a claim
arises for which the charterer is liable another ship owned by that
charterer may be arrested as a sister ship by the claimant. In such a
situation no other ship of the owner may be arrested.
• Pursuant to the last sentence in paragraph 4 the provisions of that
paragraph are made applicable to any case where a person other than the
registered owner is liable in respect of a maritime claim relating to that
ship.
• This means that the provisions of paragraph 4 are not necessarily limited
to demise charterers but may equally apply to voyage or time charterers
Arrest of ships
Salient features of the 1952 Arrest Convention
• Under paragraph 4, where the ship is under a demise charter and a
claim arises for which the charterer is liable another ship owned by
that charterer may be arrested as a sister ship by the claimant. In
such a situation no other ship of the owner may be arrested.
• Pursuant to the last sentence in paragraph 4 the provisions of that
paragraph are made applicable to any case where a person other
than the registered owner is liable in respect of a maritime claim
relating to that ship.
• This means that the provisions of paragraph 4 are not necessarily
limited to demise charterers but may equally apply to voyage or
time charterers.
Arrest of ships
Salient features of the 1952 Arrest Convention
• Under article 4 arrest is permissible under the
authority of an appropriate judicial authority
in a state party.
• Under article 5 the arrested ship may be
released upon the posting of a sufficient bail
or other security.
Mareva Injunction: Concept and
Origin
• Mechanism to preserve the rights of a
creditor.
• Similar to Attachment, Arrest and Saisie
Conservatoire, but distinguishable.
• Arguably origin found in the Admiralty
Attachment and Foreign Attachment of 17th
/18th century; derived from Roman law.
Mareva Injunction: Modern Historical
Establishment
• Lister v. Stubbs (1890). Old law prohibited granting of pre-judgment
security to plaintiff.
• Nippon Yusen Kaisha v. Karageorgis (1975). First argued ex parte in CA
under s. 45 of the Supreme Court of Judicature (Consolidation) Act 1925.
Injunction granted by Lord Denning M.R.
• Mareva Cia Naviera SA v. International Bulkcarriers (1975).At trial (ex
parte) Donaldson J. refused to follow Karageorgis in view of Lister v. Stubbs
but granted injunction for a limited period pending appeal hearing. On
appeal Lord Denning M.R. granted application under s. 45 and created the
Mareva injunction.
• Rasu Maritima SA v. Petramina (1977) . First inter partes case before Lord
Denning CA.
• The Siskina (1979). Lord Diplock in HL endorsed the validity of the Mareva
injunction.
• Third Chandris Shipping Corp. v. Unimarine SA (The Genie)
Mareva Injunction: Characteristics
• Pre judgment remedy ancillary to in personam
action to prevent removal or dissipation of assets
from jurisdiction by defendant.
• Equitable remedy, extraordinary remedy,
discretionary and interlocutory.
• No legal, equitable or other proprietary interest.
• No seizure of assets.
• Assets particularized but not specified.
Denning Guidelines in The Genie
• Full and frank disclosure of material facts by plaintiff.
• Statement of particulars and grounds of claim and
amount.
• Plaintiff must show defendants have assets in
jurisdiction (bank account).
• The plaintiff must show that there is a risk of assets
being removed or dissipated before judgment.
• Plaintiff must give undertaking in damages for failure
supported by bond or other security.
Other criteria
• Plaintiff must have substantive cause of action.
• Plaintiff must have good arguable case; beyond a prima
facie case.
• Claim must not be frivolous or vexatious.
• Being an injunction the balance of convenience test must
be satisfied.
• Defendant need not be resident or domiciled in the
jurisdiction (The Siskina). Prior to this case only residents
and domiciles were subject to the Mareva order.
• The Mareva injunction is now consolidated through s. 37(3)
of the Supreme Court Act 1981.
Attachment
• In 18th century England there were two types of attachments. The
admiralty attachment: A decree of attachment of defendants goods and
chattels added to the writ in personam if defendant not found in the
jurisdiction.
• Foreign attachment by virtue of the charters of cities such as London and
Dublin applicable to persons not in those cities whose assets were in the
possession of a third party within the jurisdiction
• The admiralty attachment unlike the foreign attachment applied to all
assets of the defendant.
• The issue of a writ in personam was accompanied by an arrest of the
defendant incidental to which a decree for the attachment for his goods
was available.
Attachment
• As the arrest of the defendant fell into decline and
disappeared over time, the attachment of his goods
became common place; eventually by the beginning of
the 19th century the attachment fell into disuse until it
surfaced in 1975 in the form of the Mareva injunction
(view of Tetley).
• According to Professor Tetley the admiralty attachment
has been continuously retained in the US.
• The saisie conservatoire of France is very similar to the
admiralty attachment of England and US.
Saisie conservatoire
• The saisie conservatoire or conservatory attachment of
France means seizure of the defendant’s assets for the
purpose of conserving it.
• Ship arrest in France is subject to this single procedure
of saisie conservatoire consisting of two regimes.
• First regime governs arrest of seagoing ships under the
1952 Arrest Convention of state parties to that
convention including French seagoing ships if there is
an international factor involved.
Saisie conservatoire
• The second regime is a residuary regime governing
arrest of ships of non state parties to the 1952
Convention and French ships in a French port by a
French resident. Under this regime the general law of
France applies.
• Ships under the first regime can only be arrested for
maritime claims listed in the 1952 Convention.
• Ships under the second regime can be arrested for any
claim, maritime or otherwise.
• Where shipowner is personally liable for the claim,
sister ship arrest is possible under both regimes.
Saisie conservatoire
• Where charterer is liable, under the first regime the
offending ship or a ship owned by the charterer may be
arrested; under the second regime only the charterer’s ship
may be arrested.
• Under the first regime only one ship may be arrested; no
such constraint exists under the second regime.
• Saisie conservatoire may be granted once the claim appears
to be founded in its principle.
• There is no need to establish fault but petitioner must show
“ a commencement of proof” of fault on the part of the
defendant and that a claim for damages would normally
ensue.
Saisie conservatoire
• The petitioner must show that there is an
element of urgency, i.e., there is danger of losing
the possibility of recovery.
• There are several similarities between the saisie
conservatoire and the US requirement for prejudgment arrest and the Denning guidelines for
Mareva injunction.
• Thus saisie conservatoire contains several
features of the common law arrest in rem and the
admiralty attachment.
Saisie conservatoire
• Whereas under the common law a ship arrest is
of dual purpose, namely to found the court’s
jurisdiction for the issue of a writ in rem and
provision of pre-judgment security, in the civil law
ship arrest serves only the latter part.
• In France there are no writs in rem or writs in
personam but only “the action” to which may be
added the saisie conservatoire to prevent the
defendant debtor from removing or dissipating
his assets.