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Enforcement of a foreign vessel’s mortgage before the Israeli Courts, and highlights of Israeli Admiralty jurisdiction

S. Friedman & Co., Advocates
One Matam Towers, M.T.M. Scientific Industries Center,
Haifa 31905, Israel
Tel.:  972-4-8546701
Fax.:  972-4-8546688
E-mail: amirc@friedman.co.il
web: www.friedman.co.il

A brief historical background is required in order to better understand the present principles of the Israeli Admiralty jurisdiction.  Prior to the establishment of the State of Israel (in 1948), during the period of the British Mandate, the Supreme Court of Palestine was established by the provisions of the Palestine Order in Council of 1922, in terms of powers set out in the Foreign Jurisdiction Act of 1890. Thereafter, following the Palestine Admiralty Jurisdiction Order of 1937, which was enacted under the powers of the Colonial Courts of Admiralty Act of 1890, it was ruled that the Supreme Court of Palestine shall be the Admiralty Court and shall exercise Admiralty jurisdiction.

The Palestine Admiralty Court applied the admiralty law adopted by the English High Court of Admiralty in 1890, and therefore statutes enacted in England following 1890 did not apply in Palestine.  The Admiralty Court had  thus  the same jurisdiction as that exercised in admiralty matters by the High Court of Justice in England in 1890, subject to any enactments by the local legislative authority, and could exercise such jurisdiction in the same manner and to the full  extent as the High Court in England.

Upon the establishment of the State of Israel, and following the Law and Administration Ordinance enacted at that time by the Provisional Council of State, it was ruled that the law which existed in Palestine on 14th May 1948 shall remain in force and that the law courts existing in the territory of the State shall continue to function within the scope of the powers conferred upon them by law.  In 1952 in terms of the Israeli Maritime Court Law, it was provided that all the powers and procedures of the Supreme Court, in its capacity as a Court of Admiralty, shall be vested in the District Court of Haifa, which shall act as the Maritime or Admiralty Court (the “Court”).

Thus, basically, the Admiralty law and practice in the State of Israel are still based on the provisions of the British Admiralty Court Acts of 1840 and 1861 and the rules of procedure as set out in the Vice Admiralty Rules of 1883.  Accordingly, the above laws and procedures will govern the proceedings for enforcement of a foreign vessel’s mortgage before the Court.

The Court has the exclusive and full jurisdiction to admit and deal with all claims and causes of action of any person in respect of any mortgage on a ship or vessel, and to decide in any suit instituted by any such person in respect of any such claims or causes of action, subject to the said ship or vessel being under arrest by process issuing from the Court, or the proceeds (from the sale thereof) having been so arrested.

The consequences of this conditional jurisdiction are that the commencement of “in rem” proceedings based on a claim in respect of a mortgage over a foreign flag vessel requires the ship or vessel to have been arrested by another third party based on a different cause of action in respect of which the Court has jurisdiction (such as, for instance, claims for necessaries supplied, for damage to imported cargo, damage done by the ship, wages due to a seaman, etc.).  Similarly, the jurisdiction of the Court over claims for building, equipping or repairing of a ship is also subject to the ship or proceeds thereof being under arrest by the Court.

A question arises as to the applicability of the Israeli Shipping (Vessels) Law of 1960 (the “Shipping Law”), which deals with mortgages over Israeli registered vessels, to foreign vessels.  The Shipping Law determines, inter alia, the rank of priority of 8 causes of action secured by a maritime lien.  The applicability of the Shipping Law to foreign vessels has been debated in Israel for some years and is of great importance when attempting to enforce a foreign vessel’s mortgage before the Court.  This issue was brought (on appeal) before the Israeli Supreme Court in 1990 in A.C. 352/87 Griffin Corporation v. Koor Trade Ltd. et al (the “NADIA S”) within the framework of a claim for the enforcement of a mortgage over a foreign vessel and various other claims of creditors of the vessel which were allegedly secured by a maritime lien.  The vessel had been originally arrested by the crew to secure their in rem claim for unpaid wages and thereafter various other creditors obtained additional arrest orders to secure their alleged maritime liens.  The vessel was auctioned by the Court and as the proceeds could not satisfy all the claims, the question which was debated was the validity of the various alleged maritime liens and their order of preference and priority in conjunction with the validity of the mortgage.

The Israel Supreme Court ruled (by majority) that the validity and existence of a maritime lien will be determined by the “lex causae” governing the merits of the claim in the same manner as the validity of the mortgage.  The rank, priority and preference of the liens, being classified as being of procedural nature, will be determined by the law of the forum (in accordance with the principles of the rules of choice of private international law).

It follows from this ruling that Chapter 4 of the Shipping Law, which determines the liens and their rank of priority vis-à-vis a mortgage, will apply (for the purpose of determining the rank of priority) also to a foreign vessel and to a claim for the enforcement of a mortgage registered on a foreign vessel, despite the reference in the Shipping Law to a mortgage over an Israeli registered vessel only.

In light of the ruling in the “NADIA S” case (application of Chapter 4 of the Shipping Law as to the rank of priorities), the jurisdiction of the Court to enforce a foreign mortgage over a foreign vessel, would appear not to be subject to the pre-condition of the Admiralty Court Acts that the ship or vessel must be under arrest prior to institution of in rem proceeding for the enforcement of the mortgage.

According to the Shipping Law, a charge to secure a mortgage debt shall take precedence over any other charge except for a limited list of charges enjoying a first lien on the vessel, which are in summary as follows:

(1)    the expenses incurred in order to bring about the sale of a vessel
(2)    port dues and similar fees
(3)    expenses of guarding and maintenance of the vessel from the day of her entry to the last port to the day of her sale
(4)    crew wages and other payments claimed by the crew
(5)    salvage claims
(6)    compensation for the death or bodily injury of passengers in the vessel
(7)    compensation for damage resulting from collision at sea or from other navigational accident.
(8)    payments in connection with supplies or services provided to the vessel.

Notwithstanding the foregoing, the Shipping Law provides that the only lien which has no priority over a mortgage is that under (8) above.

Usually, it will be in the mortgagee’s interest to appoint a receiver on its behalf in order to safeguard the vessel’s interests against the claims of other creditors whose rank of priority supersedes that of the mortgagee.  This will probably be the case when the action is uncontested by vessel’s owners and this option is granted by virtue of the Vice Admiralty Rules allowing any person who is interested in the action though not named in the writ of summons to join  either as plaintiff or as defendant, subject to the Court’s terms and instructions.

Finally, it is to be noted that the Court may either before or after final judgment order that the vessel under arrest of the Court be appraised, or be sold with or without appraisal, by public auction or by private contract, and if the vessel is deteriorating in value, the Court may order it to be sold forthwith and the sale proceeds shall serve as substitute security for the claim, pending judgment.