JP Morgan Chase & Co v. Seastream Shipping Inc. on  Dispute over Ship Mortgage

[Basic Facts]

On June 19, 1997, JPMorgan Chase & Co (hereinafter referred to as “JP Morgan Chase”) and five borrowers including Seastream Shipping Inc. (hereinafter referred to as “Seastream Company”) entered into a loan agreement, which stipulated that JPMorgan Chase shoud provide a loan of 35 million USD to the five borrowers. On June 27 of the same year, JPMorgan Chase and Seastream Company signed a warranty deed, which stipulated that “M.T.Mariner” owned by Seastream Company should be mortgaged to JPMorgan Chase to establish the primary senior mortgage for the loan of 35 million USD, and both parties handled the mortgage registration formalities at the place of the registrar of the Bahamian vessel in London. On July 7, 1999, JPMorgan Chase and Maritime International Inc. entered into an overdraft loan agreement at a value of 2 million USD and Seastream Company consented to assume joint and several liability for repayment of the said overdraft loan. On July 18, 2000, both parties entered into another warranty deed, in which “M.T.Mariner” was mortgaged and registered again for the overdraft loan of 2 million USD. On March 14, 2002, JPMorgan Chase filed a petition for the arrest of “M.T.Mariner” with the Guangzhou Maritime Court on the ground that Seastream Company was in arrears of the mortgage loan principals and interest of 7,323,377.26 USD. Afterwards, the Court entered a ruling to arrest the vessel. On March 22, JPMorgan Chase instituted a lawsuit in the Guangzhou Maritime Court. Upon petition of JPMorgan Chase, “M.T.Mariner” was auctioned according to the law and was purchased by JPMorgan Chase at the price of 5.94 million USD.

[Outcome]

After a hearing, the Guangzhou Maritime Court held that: The loan agreement involved was legal and valid. The flag state of the vessel under mortgage in this case was the Bahamas. In accordance with the provisions of Article 271 of the Maritime Law of the People's Republic of China, the law of the flag state, namely, the Bahamas Merchant Shipping Act should apply in resolving disputes over vessel mortgage in this case. The two records of vessel mortgage registration under “M.T.Mariner” involved did not violate the provisions on vessel mortgage in the Bahamas Merchant Shipping Act and were valid mortgage registration. On July 25, 2002, the Court entered a judgment that Seastream Company should repay JPMorgan Chase the loan, the overdraft loan, and the interest thereof as well as relevant costs, and JPMorgan Chase was entitled to the vessel mortgage of “M.T.Mariner” and was entitled to claim priority in compensation from the auction proceeds of the vessel.

[Implications]
This case was a model case concerning dispute over mortgage of a foreign-related vessel. “M.T.Mariner” involved was a large oil tanker, both the plaintiff and the defendants were foreign parties, and the case facts occurred overseas; however, the plaintiff JPMorgan Chase voluntarily chose to arrest the vessel and institute proceedings in China. The maritime court proactively acertained the provisions of the Bahamas Merchant Shipping Act according to the law, applied such foreign law accurately, and entered a just and fair judgment , which were widely acclaimed in the international shipping industry. The judgment of this case was of guiding significance from the perspectives of the acertainment and application of foreign law and the application of law to a foreign-related civil relation. The three step jurisprudence of “foreign elements—jurisdiction—application of law” observed in the hearing of this case has become a basic patern for the hearing of foreign-related civil or commercial cases in China, and was of great significance in regulating the judicial practice of foreign-related civil and commercial cases.