Trans-Tec Asia v. M/V Harmony Container

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DMC/SandT/08/11
Trans-Tec Asia v. M/V "Harmony Container"
United States of America: United States Court of Appeals for the Ninth Circuit: Judges M. M. McKeown, A. Kozinski, A. W. Tashima, 2008 U.S. App. LEXIS 5143: March 11, 2008
SHIPPING: CONTRACT FOR SUPPLY OF BUNKERS: CHOICE OF US LAW AS PROPER LAW: CONTRACT PROVIDED MARITIME LIEN FOR NECESSARIES: BUNKERS SUPPLIED ABROAD BY AND TO NON-US PARTIES: WHETHER CONTRACTUAL MARITIME LIEN ENFORCEABLE
Summary
In this opinion, the United States Court of Appeals for the Ninth Circuit held that U.S. courts would recognize and enforce maritime liens for bunkers (or other necessaries) against a vessel in rem if the supplier of necessaries’ standard terms and conditions contained a choice of U.S. law clause, even if the supplier provided supplies to foreign vessels in foreign ports under contracts between foreign interests

DMC Category Rating: Developed

Case note submitted by LeRoy Lambert, an attorney with the firm Blank Rome LLP, in New York. Blank Rome are International Contributors to the website for the United States.

Facts and Procedural History
Under the statutory law of the United States, a supplier of "necessaries" (such as bunkers) to a vessel obtains a maritime lien against a vessel in rem for the value of the "necessaries" it provides to it. The lien arises even if the bunkers are ordered by a time charterer and even though the time charter prohibits the time charterer from creating a lien against the vessel. The law in the United States is thus quite different from the law in other common law jurisdictions and many civil law jurisdictions.

In the instant case, the shipowner was Malaysian, the vessel’s flag was Malaysian, the time charterer (Kien Hung) was Taiwanese, the vessel was in a liner service between ports in North and South America and Asia, the bunker supplier (Trans-Tec Asia) was Singaporean, and the bunkers were supplied in Busan, Korea.

The relevant clause in the bunker supply contract read:

"Seller shall be entitled to assert its lien or attachment in any country where it finds the vessel. Each Transaction shall be governed by the laws of the United States and the State of Florida, without reference to any conflict of laws rules. The laws of the United States shall apply with respect to the existence of a maritime lien, regardless of the country in which Seller takes legal action."

Kien Hung went bankrupt and did not pay Trans-Tec Asia. Trans-Tec Asia threatened to arrest the vessel in Long Beach, California, and received security in lieu of arrest. Trans-Tec Asia and the vessel owner then contested the issue whether Trans-Tec Asia had a U.S. law lien against the vessel in these circumstances. The district court found, inter alia, that no lien existed, and an appeal followed.

The Court of Appeals Decision
The Ninth Circuit Court of Appeals acknowledged that there was "tension" in the existing appellate and district court decisions involving the application of U.S. choice of law clauses and struck the following path to decide such issues going forward.

First, the Court considered which country’s law controlled the issue of contract formation. Here, it concluded Malaysian law controlled.

Second, the Court asked whether the U.S. choice of law clause was enforceable under Malaysian law. The Court concluded that a court in Malaysia would enforce the U.S. choice of law clause as a term of the contract.

The Court moved to a third inquiry, whether and how to give effect to the U.S. choice of law clause. The Court stated that choice of law provisions are now favored in the United States, M/S "Bremen" v. Zapata Off-Shore Co., 407 U.S. 1 (1972), and saw no reason not to apply the clause here. The Court then had little difficulty applying U.S. law to find that the bunkers supplied in this case gave rise to a lien against the vessel in rem. The Court rejected various arguments by the vessel owner that the Court should not apply U.S. law "extraterritorially."

Comment
Since the 1972 decision in Bremen, U.S. courts have enforced choice of foreign forum and law clauses as well as foreign arbitration clauses with increasing frequency and in a variety of contexts to send cases to foreign tribunals when otherwise jurisdiction and venue would be proper in the U.S. It should therefore not be a surprise that a U.S. court has now decided that non-U.S. parties are free to choose U.S. law and that their choice to do so will be enforced under the same standards as the choice of a foreign forum or law would be.

The Ninth Circuit decision, of course, does not mean that courts in other countries would enforce the U.S. choice of law clause to allow an arrest which otherwise would not be possible under that country’s law. So, a bunker supplier may have difficulty enforcing the clause in other countries if the vessel does not call at the U.S.

Also, the Ninth Circuit decision is not binding on courts under the jurisdiction of other courts of appeal on the U.S. East and Gulf Coasts, but such courts will certainly consider the Ninth Circuit decision as persuasive authority if a similar case is presented to them.

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