Proprietary Interests in Ships and Enforcement of Maritime Claims

1. ProprietaryInterests in Ships and Enforcement of Maritime Claims Olena Bokareva

2. Conflict of Laws Legal significance of “conflict of laws”; what exactly is it? • 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 inter- national 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.) • 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,) • “conflict of laws” interchangeably used with the expression “choice of law” which is defined as follows: • [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.) • “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.) • 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

3. Principles of conflict of laws Substance vs. Procedure • The distinction between substance and procedure is one of “notorious difficulty”. (Thomas, supra, at p 320). • As a general rule substantive matter is governed by the lexcausae; procedural matter is subject to lexfori • The rule is stated by Cheshire and North as follows: • “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 lexfori.” • 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. • “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)

4. Modified version of Substance vs. Procedure • Professor Tetley is of the view that • “[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) • Substantive matters are subject to their own proper law even if it is foreign law. • 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) • 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, marevainjunctions and giving of security in execution of judgments. (Tetley, ibid, at p. 45, 65 and 66). All these matters are subject to the lexfori. • 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)

5. Modified version of Substance vs. Procedure (cont.) • Ancillaries, although have been traditionally considered as procedural matters have a proper law of their own which may be a foreign law or the lexfori, 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) • Probative value of evidence is an ancillary matter which has its own proper law. • 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. • 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 lexfori bias, and not all procedural matters are necessarily of the lexfori, 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. • “The forum court should only apply the lexfori, 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).

6. Lexcausae and lexfori • The substantive lexcausaeis usually either a matter of contract or tort/delict, i.e., a claim may be one that is ex delicto or ex contractu. • “[W]here the claim is tortious in character, the notion of lexcausaeis particularised to the lex loci delicticommissi. In cases of groundings and oil spills, both of which are maritime torts, prima facie the lex loci delicticommissiwill 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.) • 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).

7. Lexcausae and lexfori (cont.) • Where a matter is ex contractuthere 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 lexfori. (But see discussion above).

8. Closest and most real connection • This notion is also referred to as the “centre of gravity” or “contacts” approach. (See Yogis, supra, at p. 46). • Prof. Tetley is a leading proponent of this notion. • 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.” • 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. • 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”. • 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). • 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.”

9. Forum non conveniens • 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). • The doctrine of forum non conveniensfeatures largely in collision cases in the maritime context. • The leading case is The AbedinDever, [1984] 1 Lloyds Rep. 339. In this case the plaintiff’s ship Las Mercedes (LM) under Cuban flag and the defendant’s vessel AbedinDever(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.

10. Forum non conveniens (cont.) • 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. • Through this development it is well established that forum non convenienshas replaced the old doctrine of lis alibi pendens through the doctrine of forum non conveniens. • 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. • 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. • The English law position considers lis alibi pendens as mechanistic and without the flexibility inherent in the doctrine of forum non conveniens. • Lis alibi pendens is akin to the “running shoes doctrine” which favours the party who institutes the legal action first.

11. 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.

12. 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 (lexmaritima) 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)

13. 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.

14. 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

15. 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.

16. 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.

17. 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.

18. 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 IoannisDaskalelis, [1974] 1 Lloyd’s Rep. (S.C.C.) The Pickanninny [1960] 1 Lloyd’s Rep. 533

19. 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.

20. 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.

21. 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.

22. 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)

23. 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.

24. 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

25. 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.

26. 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)

27. Mortgagor’s Liability • Mortgagor is liable if he places the security in danger or jeopardy. • 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

28. 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.

29. 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)

30. 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.

31. 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.

32. 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.

33. 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 paripassu. • 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).

34. 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.

35. 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.

36. 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.

37. 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 “creancesprivilegiees ”. 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).

38. 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.

39. 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 lexcausae, i.e., ex contractu - lex loci contractus; ex delicto - lex loci delicticommissi • (iii) Procedural matters - lexfori. • No controversy that distribution of a fund is remedial and therefore procedural, i.e. lexfori. In the same vein priority ranking is a remedial/ procedural matter and therefore, is subject to the lexfori.

40. 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 lexfori. • European Continental view expressed by Professor Tetley: Maritime lien is a substantive secured right peculiar to the lexmaritima operating as a privilege under the civil law and the lexmercatoria which has no equivalent in the common law. • Canadian view – Leading case The IoannisDaskalelis, [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 lexcausae but the priority ranking is according to the lexfori. 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.

41. 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 lexfori. • The Tagus, [1903] P. 44. - Phillimore J, applied the lexfori 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 lexfori. • 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).

42. 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) • custodialegis • admiralty marshal’s costs • court costs • statutory dues • (h) International Conventions • 1926 Convention • 1967 Convention • 1993 Convention

43. 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.

44. 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.

45. 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.

46. 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.

47. 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.

48. 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.

49. 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 fierifacias 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.

50. 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