Federal Business Development Bank v SS Thorfinn [1989] FMSC 8; 4 FSM Intrm. 057 (Truk 1989) (30 May 1989)

4 FSM Intrm. 57 (Truk 1989)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION

FSM CIVIL CASE NO. 1989-1016

FEDERAL BUSINESS DEVELOPMENT BANK

Plaintiff

V

S/S THORFINN, together with her engines, machinery,
tackle equipment, and appurtenances, IN REM,
SEAWARD HOLDINGS Ltd.,
AND SEAWARD HOLDINGS (MICRONESIA) Ltd., IN PERSONAM
Defendants

BEFORE: Richard H. Benson, Associate Justice, FSM Supreme Court

APPEARANCES: For the Plaintiff: Traylor Mercer;
For the Defendant: R. Barrie Michelsen

OPINION: May 30, 1989

HEADNOTES

Admiralty; Jurisdiction - National Law
The FSM Supreme Court's grant of original and exclusive jurisdiction in admiralty and maritime cases implies the adoption of admiralty or maritime cases as of the drafting and adoption of the FSM Constitution. Federal Business Dev. Bank v. S.S. Thorfinn, 4 FSM Intrm. 57, 59 (Truk 1989).

Admiralty; Common Law
United States statutes regarding ships' mortgages will not be adopted as the common law of the Federated States of Micronesia, because their purposes are not applicable to the FSM and because their changing nature and complexity are not conducive to forming the basis of the common law of this nation. Federal Business Dev. Bank v. S.S. Thorfinn, 4 FSM Intrm. 57, 59-60 (Truk 1989).

Admiralty
The enforcement of ships' mortgages does not come within the admiralty jurisdiction of the FSM Supreme Court. Federal Business Dev. Bank v. S.S. Thorfinn, 4 FSM Intrm. 57, 60(Truk 1989).

COURT'S OPINION

On May 26, 1989 the arrest of the vessel was vacated for lack of jurisdiction. This memorandum sets out the reasons for that action.

Alleging the admiralty jurisdiction of this court, the plaintiff commenced this action on May 17, 1989 to enforce the collection of two delinquent loans which are secured by mortgages over the defendant vessel. On May 17, 1989, on the ex parte application of the plaintiff, an order of arrest was issued. The vessel was arrested on May 18, 1989.

The defendants opposed the arrest, and the matter come before the court on May 24, 1989 for hearing. Each party appeared by counsel and supported oral argument with written memorandum.

The issue presented is whether this action on ship's mortgage came within the admiralty jurisdiction of this court. I conclude that it does not.

The burden is upon the one who invokes the jurisdiction of the court to establish that the court does have the jurisdiction invoked. Neimes v. Maeda Constr. Co., 1 FSM Intrm. 47 (Truk 1981).

The plaintiff acknowledges that the Constitution of the Federated States of Micronesia is patterned after the Constitution of the United States, that U.S. cases up until the drafting and adoption of the FSM Constitution are pertinent in interpreting the Constitution of the FSM, Lonno v. Trust Territory, 1 FSM Intrm. 53 (Kos. 1982), and that the Supreme Court of the United States had held that a ship's mortgage was not a maritime lien which could be enforced in rem in admiralty. Bogart v. The John Jay, 58 U.S. (17 How.) 399 (1854).

The plaintiff contends however that The John Jay decision has long been the subject of criticism, that conditions have so changed in the world since that time that the decision is no longer persuasive authority, and that statutes in the United Kingdom, Canada and the United States which recognize ship mortgage as maritime liens enforceable in admiralty, together with the International Convention for Unification of Certain Rules Relating to Maritime Liens and Mortgages drafted in 1926 create an international common law which this court should follow.

This court has original and exclusive jurisdiction in admiralty or maritime cases. FSM Const. art. XI, sec. 6(a). This grant of jurisdiction implies the adoption of admiralty or maritime law as of the drafting and adoption of the FSM Constitution. Cf. Shiffahartagesellschaft Leonhardt v. A. Bottacchi, [1985] USCA11 1493; 773 F.2d 1528, 1531 (11th Cir. 1985) (jurisdiction over existing maritime law by adoption of the Constitution of the United States).

In the United States, as has been stated, ship mortgages were not within admiralty jurisdiction. The John Jay[1854] USSC 49; , 58 U.S. 399. The same rule prevailed in the United Kingdom. Tetley, Maritime Liens and Claims, 205 (1st ed. 1985).

Statutes in the United Kingdom, the United States, and many other countries see The Thomas Barlum[1934] USSC 140; , 293 U.S. 21, 55 S. Ct. 31, 79 L. Ed. 176, 189 (1934), now provide for admiralty jurisdiction over ship mortgages which meet certain requirements of content, are limited to particular vessels and which are registered in accordance with the statutes.

In 1920 the passage of the Ship Mortgage Act in the United States granted certain mortgages preferred status enforceable in admiralty. 46 U.S.C. 911, et seq. The purpose of the act was to provide security to those financing the American shipping industry. The Thomas Barlum, 79 L. Ed. at 183; Merchants & Marine Bank v. The T. E. Welles, [1961] USCA5 172; 289 F.2d 188, 193-94 (5th Cir. 1961).

The Ship Mortgage Act of 1920 is "complex statutory scheme," Mobil Marine Sales Ltd. v. M/V Prodromos, 775 F.2d 85, 88 (3d Cir. 1985)], having "minute requirements," The Thomas Barlum, 79 L. Ed. at 183.

The Acts's provisions have been amended. For instance 46 U.S.C. 951 was amended in 1954 "to provide a remedy in U.S. courts for American holders of foreign ship mortgages." Mobil Marine, 775 F.2d at 90. It appears that only by virtue of this amendment could the present case have been brought in court of the United States.

There are two main reasons why these concededly widespread statutes cannot be adopted as the common law for this court in this case.

First, the purpose of their adoption is to give security to the financial institutions of the enacting country. In the Federated States of Micronesia there does not exists, so far as the court knows, a shipping industry financed here and requiring the protection of admiralty. The case also involves a foreign corporation's action against a foreign vessel, a circumstance not within the original purpose of the various acts.

Secondly, I am persuaded that it is not wise to adopt this statutory scheme as common law. However salutary these statutes may be, their changing nature and complexity are not conducive to forming the basis of the common law of this nation. See Bank of Guam v. Island Hardware Inc., [1986] FMSC 22; 2 FSM Intrm. 281, 287-88 (Pon. 1986) (refusal of the court to adopt the Uniform Commercial Code as the common law of the Federated States of Micronesia).
Only one aspect of the Acts would need to be adopted to achieve what the plaintiff seeks: that ship mortgages are within admiralty jurisdiction. I decline to exercise such selectivity.

Concerning the International Convention for the Unification of Certain Rules Relating to Maritime Liens and Mortgages: this does not directly alter the common law view of admiralty jurisdiction. Its purpose is stated in Article I,

“Mortgages, hypothecations, and other similar charges upon vessels, duly effected in accordance with the law of the contracting State to which the vessel belongs, and registered in a public register either at the port of the vessel's registry of [sic] at a central office, shall be regarded as valid and respected in all the other contracting countries.”

Thus the absence of a statute in the Federated States of Micronesia for the registration of mortgages deprives the Convention of persuasive force, since its purpose is to establish reciprocal recognition.

The Convention is also of limited force because it has not achieved uniformity, and an effort has been made to draft the Convention which might achieve greater success. G. Gilmore & C. Black, The Law of Admiralty 691 n.235A (2d ed. 1975).

For the reasons stated I concluded that the enforcement of the two mortgages in this case does not come within the admiralty jurisdiction of the court. The order of arrest and the warrant of arrest issued May 17, 1989 were accordingly vacated on May 26, 1989.

So ordered the 30th day of May, 1989.