Of mortgages and registration
IRELAND has witnessed an increasing number of judicial decisions in recent years of considerable interest to maritime lawyers. These encompass a wide range of issues.
Mortgage priority and ship arrest
Under Section 52 of the Mercantile Marine Act 1955, mortgages over Irish registered vessels rank in priority in accordance with the date and time of registration and not the date of creation. This distinction has often proved crucial when a lending institution has been tardy in registering its mortgage. It is subsequently unable to enforce its security where a charge created after its own, but registered prior to it, stands first in line.
This is now well-established law. Certain decisions of the superior courts have recently expanded the law in relation to establishing priority between mortgages and other claims. In the case of the Motorkov (unreported), the plaintiffs were mortgagees of a British registered vessel who obtained judgment of £4m against the vessel.
Before they could force a sale pursuant to their judgment, the admiralty marshal did so, for the paltry figure of £200,000. The marshal's expenses were paid out of the proceeds of sale. In the meantime, the operating agents had obtained judgment for £100,000 for services rendered and purchase of supplies.
The court was asked to consider who had priority - the mortgagee, the marshal, or the operating agents. It set out a priority template for the payment of sums due pursuant to a ship arrest, as follows:
- Admiralty marshal expenses
- Plaintiff's cost of arrest
- Sale costs
- Maritime liens (crew wages, collision damage, salvage)
- Registered mortgages
- Unregistered mortgages
- Possessory liens.
Even though this case was settled over ten years ago, it is still good law and has been followed a number of times since. Prospective mortgagees ae advised to be fully aware of the order of priorities before financing a venture.
New government initiatives
The Irish government recently announced a new policy initiative to boost vessel registration and financing in Ireland. The Irish Financial Services Centre (IFSC) was a runaway success in attracting capital to the country and generating income and employment through an ingenious series of tax breaks and initiatives. The government hopes to repeat this earlier success by creating a fiscal infrastructure which will make Ireland attractive as a centre for maritime activity.
By European standards, Ireland's register is very small and getting smaller. In 1987 there were 75 vessels on the Irish register, a figure which now stands at just 43. As world shipping grows, The Irish Maritime Development Office (IMDO) hopes to capitalise on opportunities which present themselves, namely the acquisition and operation of shipping tonnage and the financing of new and second hand vessels.
Recent forecasts suggest that there will be major growth in world shipping over the next fifteen years, with much of the world's shipping tonnage due to be replaced over the same period of time. Related services such as insurance, ship servicing, brokerage, manning, chartering and maritime legal services are also likely to expand.
The desire to increase Irish shipping is mirrored within the European Union, where world tonnage under member state flags has dropped from 35 per cent in 1975 to twelve per cent today. This is despite the fact that thirty per cent of the world's fleet is still owned or financially controlled by EU countries (Irish government figures). Hopes are high that this new Irish initiative, apart from boosting the industry within Ireland, will be copied throughout the EU.
When a ship is not a ship
An interesting topic recently came before the supreme court, on appeal from the high court.
The Von Rocks was a back-hoe dredger with no capacity for propulsion. When in use it constituted a rigid dredging platform secured to the seabed by substantial hydraulic legs The dredger had no bow, stern or anchors. When under tow it was unmanned and had no form of steering mechanism.
The case initially came before the high court on a motion brought by the defendant owner of the dredger. The owner was seeking to set aside a warrant of arrest on the ingenious basis that the dredger was not a ship for the purposes of the Jurisdiction of Courts (Maritime Convention) Act 1989, and that accordingly the high court had no jurisdiction to order its arrest.
In the high court, relief was granted to the plaintiffs. On appeal to the supreme court, it was held that, for a ship to be a ship, the 'craft' under consideration must not merely be capable of traversing the surface of the water but must spend a reasonably significant part of its operative life in such movement. It need not necessarily have any form of self-propulsion or steering mechanism. One imagines that a vlcc would not suffer from such a crisis of identity.
Article 22 Brussels Convention - Stay on proceedings
This is an issue close to the heart of every admiralty lawyer who institutes proceedings in one jurisdiction only to discover that a court in another country claims jurisdiction. This matter was recently litigated in the Irish courts in the case of the Turquoise Bleu. A vessel was arrested in Antwerp and proceedings were subsequently brought in Ireland in an attempt to force the sale of the cargo. The court held that the Belgian court was seized of the matter first and the Irish proceedings were stayed. On appeal, the high court decision was upheld.
Such judicial and governmental developments make Ireland an exciting place for maritime lawyers. Long may it continue.
Let US in
What lies behind the erosion of US participation in the actual business of shipping?
"We'd like to be part of the world shipping community once again," lamented Emery Harper at the tenth annual ship finance forum in New York earlier this year. Harper, president of New York-based Harper Consultants Inc, took a stroll down memory lane, tracing the developments of the past few decades and the erosion of US participation in the "actual business of shipping".
Starting in the 1960s, said Harper, embracing was the hot topic - not the flower-power type, but rather the gradual embrace of foreign shipping by US tax laws. This was coupled with the introduction of the Interest Equalisation Tax in the same decade. The former resulted in the migration of the Greek expatriates from New York to London, and the latter meant that the lending facilities were hot on their heels, also heading east.
Harper reflected that the introduction of the Tax Reform Act in 1986 created a major disincentive for US investment in foreign-flag shipping. "This US union-inspired legislation," he said, "effectively served as another disconnection between those in the US and the foreign-flag shipping industry".
The current decade, characterised by environmental awareness, sa the birth of OPA 90. This put "monetary values on environmental damage", said Harper, posing the question, 'How much is the environment really worth?" This increase in environmental concern was also reflected in the development of port state control or, as Harper would rather it was styled, port state detention.
Harper also believes the 1999 arrest convention has sorely failed to reflect the revolution over the past thirty years in terms of the law of commercial instruments and the enforcement of security interests - something which could have been avoided if there had been a more "forceful and knowledgeable American presence during the period of review" prior to the conference.
One hot topic for debate at the ship finance forum was the role of lawyers in techniques for raising money in the shipping industry. Harper said, "The lawyers' opinion is, in effect, a list of technical legal matters to be investigated and dealt with as part of a ship loan transaction," including authorisation, execution, and delivery of documents. He believes the recourse of shipping to the public market has expanded lawyers' areas of responsibility beyond these traditional items.
Harper concluded his pocket review of recent shipping history by asking, "Is there, in all of this, any kind of leadership which might be attributed to the United States?"
The answer - unspoken - is 'No'.