## Facts

- The M/V *Ziya S* was a bulk-carrier chartered by Sonmez Denizcilik Ve Ticaret A.S. (Sonmez), a Turkish shipping company.
- The vessel’s owner, Northwest, granted a mortgage on the vessel to The Royal Bank of Scotland plc (Royal Bank).
- Sonmez guaranteed Northwest’s obligations under the mortgage.
- Sonmez contracted with multiple suppliers to provision the *Ziya S*, including Oil Shipping B.V. and Baytur Trading S.A. (Baytur).
- Baytur supplied the vessel with multiple deliveries of fuel in Turkey and asserted a maritime lien arising from those deliveries.
- Sonmez failed to pay the suppliers, and Northwest and Sonmez later defaulted on the mortgage.
- When the *Ziya S* entered a United States port, Oil Shipping filed an admiralty complaint in federal district court against Sonmez and the vessel in rem.
- The vessel was arrested; Royal Bank and Baytur intervened to assert their respective claims against the sale proceeds.
- The *Ziya S* was sold by judicial sale, but the proceeds were insufficient to pay all claims.
- After an initial distribution of proceeds, the district court ruled that the Ship Mortgage Act governed priority among the remaining claims and entered summary judgment that Royal Bank’s mortgage had priority over Baytur’s claim.
- Baytur appealed, arguing that Turkish law should determine priority and would rank Baytur’s fuel lien ahead of Royal Bank’s mortgage.

## Issues

1. In a U.S. admiralty action involving arrest and judicial sale of a vessel, does the Ship Mortgage Act control the priority between a preferred ship mortgage and a foreign supplier’s lien claim, rather than applying foreign priority rules?
2. If the Ship Mortgage Act controls, does Royal Bank’s preferred mortgage have priority over Baytur’s claim for unpaid fuel supplied in Turkey?

## Decision

- The Third Circuit affirmed the district court’s summary judgment for Royal Bank.
- The court held that the Ship Mortgage Act supplies the governing priority rules for distribution of proceeds from a judicial sale in a U.S. admiralty court when a preferred ship mortgage is at issue.
- Applying the Act’s priority scheme, Royal Bank’s preferred mortgage was entitled to priority over Baytur’s claim, even if Turkish law would have ranked Baytur’s claim ahead of the mortgage.

## Legal Principles

- When a vessel is arrested and sold in a U.S. admiralty proceeding, the Ship Mortgage Act governs priority between a preferred ship mortgage and competing lien claims asserted against the sale proceeds.
- In that setting, a U.S. court distributing proceeds applies the Ship Mortgage Act’s statutory ranking rules rather than foreign priority rules that would reorder the claims.
- A qualifying preferred ship mortgage is paid ahead of many competing claims, including certain foreign necessaries-type claims, when proceeds are distributed after a U.S. judicial sale.

## Conclusion

The Third Circuit held that the Ship Mortgage Act governed the priority dispute following the U.S. arrest and judicial sale of the *Ziya S*, and it affirmed summary judgment that Royal Bank’s preferred mortgage ranked ahead of Baytur’s unpaid fuel claim notwithstanding Baytur’s argument for Turkish priority law.


Oil Shipping B.V. v. Sonmez Denizcilik Ve Ticaret A.S.; the Ziya S, 10 F.3d 1015, 1994 AMC 892 (1993)