Lloyd's Maritime and Commercial Law Quarterly
U.S. COURT’S CHOICE OF LAW FAVOURS SHIP MORTGAGE
The Ziya S
As ships traverse the oceans, there is always some concern that the financing of vessels and related maritime transactions will be respected in places other than their port of origin. This raises a question over the choice of which nation’s law is to be applied in any such controversy. Recently, an American appeals court held that the traditional choice of law analysis may be pre-empted by an existing statutory scheme of the host nation, in this case the United States law of maritime liens. In that case, The Ziya S,1 a bulk carrier ship flying the Turkish flag, was operated by Sonmez Denizcilik Ve Ticaret A.S., a Turkish company with its primary place of business in Istanbul. The vessel was owned by Northwest Shipping Corp., a Panamanian entity. Oil Shipping (Bunkering) B.V., a Dutch concern, had previously supplied bunkers to the Ziya S on three occasions in late 1991 and early 1992. When Sonmez neglected to remit payment, Oil Shipping filed suit against the ship and her operator.
The same day that Oil Shipping filed its complaint, the U.S. District Court in Philadelphia issued a warrant for the vessel’s arrest, pursuant to Rule C of the federal rules for admiralty claims.2
The U.S. Marshal seized the Ziya S upon its arrival in that city’s port. He thereafter sold the vessel at public auction for $1.82 million, the proceeds being paid into the registry of the U.S. court. Pursuant to the consent of the parties, the clerk of the court dispersed funds to pay certain minor undisputed costs and liens and, most significantly, $1.35 million to the Royal Bank of Scotland Plc, in partial satisfaction of its preferred ship mortgage registered and recorded in Panama. Others also claimed against the vessel. Baytur Trading S.A., a Swiss corporation principally engaged in the sale of marine fuels, sought recovery of over $85,000 for three fuel deliveries made to the vessel at Iskenderun, Turkey in the fall of 1991.
Baytur argued that, under a choice of law analysis, Turkish law should control, given the vessel’s registry and the nationality of its operator. Thus, Turkish law, allegedly giving priority to Baytur’s maritime lien, would insist upon payment for the fuels ahead of the Royal Bank’s mortgage. The federal District Court held that no analysis was needed of which nation’s law should control, because Congress has
1. Oil Shipping (Bunkering) B. V. v. Sonmez Denizcilik Ve Ticaret A.S. (The Ziya S) (1993) 10 F. 3d 1015
2. See Federal Rules of Civil Procedure, Supplemental Rules for Certain Admiralty and Maritime Claims, Rule C(1)(A) (an arrest may be brought in any federal District Court to enforce any maritime lien).
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