ADVICE TO COPENHAGEN MARITIME BANK REGARDING LIBERIAN FLAG CRUISE VESSEL ARRESTED IN NEW YORK

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1 ADVICE TO COPENHAGEN MARITIME BANK REGARDING LIBERIAN FLAG CRUISE VESSEL ARRESTED IN NEW YORK Presented at The International Maritime Law Conference International Bar Association Section on Business Law Maritime and Transport Law Committee Dubai, UAE, 6-7 March 2006 Lennard K. Rambusch Mr. Rambusch is a partner in the New York office of Holland & Knight LLP where he practices maritime and commercial law. He is a graduate of the University of Toronto and Columbia University School of Law, earned an MBA at New York University Graduate School of Business Administration and is a proctor in admiralty. He served on active duty in the United States Coast Guard and is a Captain in the U.S. Coast Guard Reserve (Ret.). From , he served as Chairman of the IBA's Committee on Maritime and Transport Law (Committee A). He has authored a chapter on Arrest of Vessels in the United States in the Maritime Law Handbook (Kluwers) and a chapter on International Maritime Workouts in the Business Workouts Manual (Warren, Gorham & Lamont). Holland & Knight LLP

2 CONFIDENTIAL ADVICE TO COPENHAGEN MARITIME BANK REGARDING LIBERIAN FLAG CRUISE VESSEL ARRESTED IN NEW YORK Lennard K. Rambusch Partner, Holland & Knight LLP, New York PRIORITIES IN THE U.S. This vessel has been arrested by American Ship Repairers, a U.S. corporation, for repairs carried out on the vessel in the United States. A claim for repairs carried out in the U.S. would have priority over the first preferred mortgage on the Liberian flag vessel. 46 U.S.C et seq. The order of priorities in U.S. admiralty courts is as follows: 1. Expenses of justice (marshal fees and expenses reasonably incurred to maintain vessel while under arrest) including fees and expenses of court approved substitute custodian. 2. Preferred maritime liens, which are maritime liens arising before a preferred mortgage was filed or arising out of a maritime tort, general average, or salvage or for wages of the crew of the vessel 3. A valid preferred mortgage on a U.S. flag ship or a preferred mortgage on a foreign vessel whose mortgage has been guaranteed under Title XI of the Merchant Marine Act of The claims of suppliers who furnished necessaries, repairs and the like to the vessel in the United States 5. A valid preferred mortgage on a foreign flag ship 6. Claims of suppliers who furnished necessaries, repairs and the like abroad, and claims relating to cargo 7. Non-maritime claims Holland & Knight LLP - 1

3 DEALING WITH THE ARREST The first order of business is to quickly study the repair claim to determine whether it is legitimate or inflated in any way. Owners should assist the bank with this evaluation. Owners/Owners' P&I club should be encouraged to settle the claim and obtain the vessel's release from arrest. If the claim can't be settled promptly, then security should be given (perhaps by owner's P&I club) in order to secure release of the vessel. I would expect that the claim is not large as vessel operators make every effort to repair vessels outside the United States because repair costs in the United States are expensive. The cost of repairs performed outside the U.S. would be subordinate to the mortgage. Accordingly, the basic strategy would be to settle the case promptly or to give security and obtain release of the vessel. If the bank (and not owner) is required to settle the claim, it should take an assignment of the claim. There is some leverage in negotiating the settlement with American Ship Repairers as an arresting creditor is required to advance substantial monies to the U.S. marshal and, particularly, to a substitute keeper to maintain the vessel and arrange for security guards and to keep the U.S. marshal/substitute custodian deeper in funds while the vessel is under arrest. Assuming the claim cannot be settled or for some reason the vessel is not released against security, or if it appears that Dubai Shipping will inevitably collapse, then the mortgagee should consider intervening into the action to protect its interests or moving the vessel to a more favorable jurisdiction. ATTACHMENT UNDER RULE B Attachment of funds in connection with a lawsuit may be possible under Admiralty Rule B 1 provided the defendant cannot be "found within the district," i.e., has no office, agent or place of business within the geographical jurisdiction of a particular United States district court. Rule B can be used for two purposes: (1) to obtain jurisdiction over a defendant in a maritime claim, or (2) to obtain security for a maritime claim. A plaintiff can commence a Rule B proceeding without giving notice to the defendant and can obtain a court order ex parte to seize the defendant's assets within the jurisdiction in which that proceeding has been commenced. In that case, the defendant only gets notice after its assets have been attached. Since 2002, federal courts in New York have issued rulings that make the seizure of electronic fund transfers much easier. 2 Therefore, if a defendant transacts business in U.S. dollars anywhere in the world, all funds that "clear" through New York banks are subject to seizure. While the state of the law is not totally settled, these asset seizures are subject to a post-seizure hearing at which the attachment can be challenged by the defendant. Rule B attachments Holland & Knight LLP - 2

4 generally have been upheld, although courts lately have made a showing of "necessity" for the attachment a condition to allowing the attachment to remain in place. In this case, as the vessel is already within the jurisdiction of the court and as the claimant already has security by reason of the arrest, there is no basis and clearly no necessity for an attachment. The attachment remedy would not be available. That is not to say that attorneys for American Ship Repairs would not try to attach, which of course would interrupt the transmission of funds to Copenhagen via the New York clearing bank. Just to be safe, I would recommend to the bank that, if possible, it should arrange with Dubai Shipping for funds to be remitted in such a way as not to be cleared through New York. # _v1 Holland & Knight LLP - 3

5 1 SUPPLEMENTAL RULES FOR CERTAIN ADMIRALTY AND MARITIME CLAIMS 2 CF Winter Storm Shipping Ltd. v. TPI 310 F. 3 rd 263 (2d Cir. 2002) Holland & Knight LLP - i

TRADITION. INNOVATION. SUCCESS.

TRADITION. INNOVATION. SUCCESS. Dial In: 1 (866) 640-4044 Participation Code: 969427 VESSEL FINANCING AND ENFORCING MARITIME CLAIMS Paul N. Vance & Leon H. Rittenberg III September 20, 2011 Please note