World Bunkering > News > Autumn 2009 > Legal eagle

US maritime lien may apply in Canada

The Canadian Federal Court of Appeal rendered a decision with regard to maritime liens on December 12, 2008, over an unpaid bunker bill in the United States. The decision confirmed that Canadian courts will recognise valid foreign maritime liens even if Canadian maritime law would not have granted that party a lien in the same circumstances. It also reiterated that a foreign maritime lien will receive the same ranking as a Canadian maritime lien (ahead of a registered ship mortgage).

In this particular case, reported in the January Mari-Times Law Alert issued by the firm of Borden Ladner Gervais LLP in Montreal in a two to one decision, the Federal Court of Appeal enforced a maritime lien in favour of three suppliers of bunker fuel to the vessel Lanner. None of the suppliers were incorporated or based in the US. The bunker fuel was supplied in Canada, Spain, Trinidad and Singapore. The vessel was registered in Liberia and the registered owners were also based in that country. The vessel’s base of operation and the vessel manager’s country of residence was Greece. However, each of the supply contracts contained a choice of law clause incorporating the law of the United States. The ship was arrested in Canada by the respondent banks, which held valid registered ship mortgages against the vessel, and it was sold in a judicial sale. The litigation arose out of the competing claims of the suppliers and the banks for the proceeds of that sale.

What was novel in this case is that the Court held that unless there is a compelling reason not to do so, a valid choice of law clause in a supply contract which incorporates the law of the United States (where suppliers enjoy a maritime lien) is sufficient to give the supplier the benefit of a maritime lien under US law which will be recognised in Canada.

In other words, even if the supplier is non-American, the ship is not flagged in the US and the supplies were not furnished in the US, save for exceptional circumstances, the choice of law clause incorporating US law will be sufficient to give the supplier the benefit of a maritime lien which will outrank a ship mortgage under Canadian priorities ranking. The Federal Court of Appeal did leave open the possibility that there may be circumstances where, despite the choice of law clause, the supply of the bunkers has such a strong connection to another specific jurisdiction that the general rule will be displaced. In dissent, Justice Pelletier felt that the law in the US was not settled. He concluded that some circuits in the US will give a foreign supplier the benefit of a maritime lien on the basis of a choice of law clause, while others would not.

Abandonment rules revised

Proposed amendments to existing legislation will make shipowners liable for the abandonment of crew following bankruptcy through the introduction of compulsory insurance to cover crew repatriation. Writing in the London P&I Club’s 2009 Annual Report, John Lyras, chairman of The London P&I Club, says that, as originally proposed, the government initiatives, including compulsory insurance, would effectively transfer the cost of caring for crew from “less responsible owners to those who take their obligations more seriously”.

He adds that the compulsory insurance would effectively be designed to cover a credit risk: “a type of risk transfer that has always been very difficult to price properly and fairly.” Pointing out that The London P&I Club, together with other members of the International Group, felt it would be inappropriate for clubs to insure and certify cover against uncontrolled obligations incurred prior to abandonment, Mr Lyras says: “It was reassuring to hear from the most recent International Labour Organisation and IMO joint meeting in Geneva that pre-abandonment liabilities to be insured and guaranteed would be limited to those accrued during the final four months of employment. It was more reassuring to learn that the guarantor would be subrogated to the rights of the abandoned crew.”