Marine Oil Trading Ltd. v. Motor Tanker Paros

• Decision Date: 14 May 2003
• Docket Number: No. Civ.A. 2:02CV800.,Civ.A. 2:02CV800.
• Court: U.S. District Court — Eastern District of Virginia
• Parties: MARINE OIL TRADING LIMITED, Plaintiff, v. MOTOR TANKER PAROS, Her Engines, Tackle, Appurtenances, Furniture, Cargo, etc., in rem, and Chemex, Ltd. Nevis, in personam, Defendants.

287 F.Supp.2d 638

MARINE OIL TRADING LIMITED, Plaintiff, v. MOTOR TANKER PAROS, Her Engines, Tackle, Appurtenances, Furniture, Cargo, etc., in rem, and Chemex, Ltd. Nevis, in personam, Defendants.

No. Civ.A. 2:02CV800.

United States District Court, E.D. Virginia, Norfolk Division.

May 14, 2003.

John David Padgett, Lee Allen Handford, McGuire Woods LLP, Norfolk, VA, for plaintiff.

Geoffrey Footner Birkhead, Vandeventer Black LLP, Norfolk, VA, for Defendants.

ORDER AND OPINION

FRIEDMAN, District Judge.

This matter is before the court on defendant Erin Shipping's motion to dismiss, filed on behalf of the M/T PAROS, and the plaintiff's motion for default judgment. After examination of the briefs and record, this court determines oral argument is unnecessary because the facts and legal arguments are adequately presented, and the decisional process would not be significantly aided by oral argument. The defendant's motion to dismiss is GRANTED, and the plaintiff's motion for default judgment is DENIED.

I. Factual and Procedural Background

This action arises from a breach of contract. The plaintiff, Marine Oil Trading Limited, is a British corporation that supplied fuel bunkers to the PAROS. The PAROS is owned by defendant Erin Shipping, a Maltese corporation. The plaintiff supplied the bunkers to the charterer of the PAROS, Chemex Ltd. Nevis, a St. Kitts and Nevis corporation, while it called on ports in Spain and Egypt. Marine Oil alleges that Chemex has not paid for the bunkers. The PAROS was arrested in this district, and this arrest represents the only contact with the United States regarding this dispute. The plaintiff has sued the ship, in rem, and a number of defendants, in personam. Most of these defendants have been voluntarily dismissed, leaving the PAROS and Chemex as the only remaining defendants. Marine Oil has filed a motion for default judgment against Chemex, which has not filed an answer.

In its motion to dismiss, Erin Shipping claims that the contract is governed by choice of law and forum terms that deprive this court of jurisdiction.¹ Erin claims that any contractual disputes were to be litigated in the English High Court according to English law. Jurisdiction in this court was premised on the vessel's seizure which was justified by the existence of a maritime lien on the vessel. This lien arises under American law by virtue of the contract between Chemex and the plaintiff. According to Erin Shipping, there is no such lien available under English law based on the facts of this case. Consequently, if English law applied, there could be no lien and nothing to support the vessel's seizure in an American port; therefore, the court would have to dismiss the case for lack of jurisdiction. The issue, then, is whether the plaintiff possesses a maritime lien on the PAROS that would permit the arrest of the vessel and the instant in rem proceeding against it. The court must decide what law to apply, English or American, to ascertain the existence of the maritime lien.

The arrest of the ship and the instant in rem proceeding were accomplished pursuant to Supplemental Rule C of the Federal Rules of Civil Procedure. Rule C allows an action in rem to be brought if there exists a maritime lien or where a federal statute specifically permits an action in rem. See Fed.R.Civ.P. Supp. R. C(1)(a) and (1)(b). Rule C is a means of enforcing certain rights and without such a right, either a valid maritime lien or a statutory right, a plaintiff cannot proceed in rem. The parties agree that in the absence of a maritime lien, the court has no jurisdiction and the PAROS should be dismissed.

II. Analysis

A. Maritime Liens

A maritime lien is a security interest in a vessel that "developed as a necessary incident of the operation of vessels." Silver Star Ents. v. SARAMACCA MV, 82 F.3d 666, 668 (5^th Cir.1996). The maritime lien "arises in favor of the creditor by operation of law ... and grants the creditor the right to appropriate the vessel, have it sold, and be repaid the debt from the proceeds." Id. A maritime lien can arise even when the owner of the ship is not a party to the contract, and it passes with the ship when it is sold, even if the new owner is unaware of the existence of the lien. See William Tetley, Maritime Liens and Claims 59-60 (2d ed.1998). Because it is such a powerful right, the law of most nations construes the lien narrowly and confines its applicability to a narrow set of contexts. Contrary to most nations, American law takes a very broad view of maritime liens.

In particular, under American law, a lien arises to secure creditors who provide "necessaries" — "supplies, repairs and equipment (and in some jurisdictions other goods and services) ordered on the credit of the ship and which are generally beneficial to the ship...." Id. at 551. The maritime lien for necessaries arose in order to allow a ship on a voyage to obtain supplies in a foreign port while it was out of touch with its owners. Prior to modern systems of communication, like the telephone, the supplier had no way of relying on the credit of the shipowner—not knowing anything about that owner. Consequently the ship itself was used as credit for the supplies given, allowing the ship to complete its voyage. See id. at 617. This situation no longer exists, as modern technology permits a supplier to check on the shipowner or the ship charterer to determine if credit should be extended. Perhaps owing in part to this fact, the 1967 Liens & Mortgages Convention abolished the lien for necessaries. See id. at 552.

Today, under the law of most nations including the United Kingdom, a claim for necessaries gives rise only to a statutory right in rem. The United States and France are the two exceptions, both providing for a maritime lien. See id. at 551; 46 U.S.C. § 31301(4). Necessaries include fuel bunkers; therefore, the plaintiff may have a maritime lien on the vessel and a right to arrest the vessel and proceed in rem if American law is controlling.² See First Marine Distribs., Inc. v. M/V MARYLOU, II, 1996 WL 870726 (D.Md. Sept.30, 1996) (unpublished). The defendant asserts, however, that the contract governing the transaction at issue provides for the application of English law, which does not recognize a maritime lien under the facts of the case.

B. The Contract Terms

The defendant relies on a clause in the relevant contract (the MOBCO contract)³ that states in pertinent part: "The Agreement shall be governed by and construed in accordance with English law and the parties submit to the jurisdiction of the English High Court of Justice." Pl's. Ex. 3 at 25. This sentence clearly chooses the law and forum that will govern any disputes arising under the contract. Such contractual choice of forum and choice of law provisions are presumptively valid and should be given full effect. See Ryan-Walsh, Inc. v. M/V OCEAN TRADER, 930 F.Supp. 210, 219 (D.Md.1996); Sembawang Shipyard, Ltd. v. Charger, Inc., 955 F.2d 983, 986 (5^th Cir.1992); M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972) (discussing choice of forum). Neither party has attempted to contest the validity of this contract provision and the court assumes that it is enforceable. The issue before the court consists only of its interpretation, not its validity. According to the defendant, the quoted language clearly evinces an intent to be governed by English law alone. The defendant points to a number of cases where courts have held that similar choice of law terms mandated applying foreign law. See, e.g., Sembawang Shipyard, 955 F.2d at 986 (noting "any dispute" arising from transaction would be governed by Singapore law).

Of course, the analysis does not end with this provision as it is qualified by the sentence that follows, which the defendant did not mention in its initial brief. The contractual clause containing the choice of law and forum also states that "[n]othing in this clause, shall, however, preclude the Company, in the event of a breach of the Agreement by the Customer, from taking any such action or actions as it shall in its absolute discretion consider necessary to enforce, safeguard or secure its rights under the Agreement in any Court or Tribunal or any state or country." Pl's. Ex. 3 at 25. The plaintiff argues that this statement serves as an exception to both the choice of law and choice of forum in the sentence it precedes, rendering the choice of law and forum permissive. In other words, the plaintiff may choose to pursue litigation in any forum and under any governing law it chooses. The defendant counters that this sentence acts as an exception to the choice of forum only, not the choice of law. As a result, while the plaintiff might be able to bring an action in a forum other than the English High Court, English law still controls.

In addition to the contract's choice of law and forum and the exception to it, the plaintiff notes the existence of a separate "Liens" provision in the contract providing that a lien is created over the vessel for the price of the product supplied.⁴ See Pl's. Ex. 3 at 12. The plaintiff argues that to give meaning to this term of the contract, the court must conclude that the parties intended to apply American law if the occasion arose.

C. The Relevant Case Law

In support of its contention, the plaintiff relies on Liverpool and London Steamship Prot. and Indem. Assoc. v. QUEEN OF LEMAN MV, 296 F.3d 350 (5^th Cir.2002), which concerned contractual provisions similar to the instant ones. Rather than having a single relevant blanket choice of law provision like those occurring in cases the defendant cites, the contract in QUEEN OF LEMAN contained three relevant provisions analogous to the three at issue in this case. First, there was a blanket choice of law term, like the choice of law/forum provision in the MOBCO contract. Second, there was an exception to this term, as there is in ...