Crescent Petroleum, Ltd. vs. M/V "Lok Maheshwari"

P.D. No. 1521 (Ship Mortgage Decree of 1978) does not create a maritime lien in favor of a foreign supplier furnishing supplies to a foreign vessel in a foreign port, as the decree was enacted primarily to protect Filipino suppliers and develop the domestic shipping industry; where the existence of a maritime lien depends on foreign law, the party claiming the lien bears the burden of pleading and proving that foreign law, and failure to do so constitutes failure to establish a cause of action.

M/V "Lok Maheshwari" is an oceangoing vessel of Indian registry owned by Shipping Corporation of India (SCI), a corporation principally owned by the Government of India. SCI time-chartered the vessel to Halla Merchant Marine Co. Ltd. (Halla), a South Korean company, which sub-chartered it to Transmar Shipping, Inc. (Transmar), a Canadian corporation. Transmar further sub-chartered the vessel to Portserv Limited (Portserv), also a Canadian corporation. Petitioner Crescent Petroleum, Ltd. (Crescent) is a Canadian corporation engaged in selling petroleum and oil products for oceangoing vessels. P.D. No. 1521, the Ship Mortgage Decree of 1978, governs maritime liens in the Philippines and was patterned closely after the U.S. Ship Mortgage Act of 1920 and the Liberian Maritime Law relating to preferred mortgages; Sections 21, 22, and 23 of P.D. No. 1521 are identical to Subsections P, Q, and R of the U.S. Ship Mortgage Act, which is part of the Federal Maritime Lien Act.

M/V "Lok Maheshwari" (the Vessel) is an oceangoing vessel of Indian registry owned by respondent Shipping Corporation of India (SCI), a corporation principally owned by the Government of India. SCI time-chartered the Vessel to Halla Merchant Marine Co. Ltd. (Halla), a South Korean company, which in turn sub-chartered it through a time charter to Transmar Shipping, Inc. (Transmar), a Canadian corporation. Transmar further sub-chartered the Vessel to Portserv Limited (Portserv), also a Canadian corporation. Petitioner Crescent Petroleum, Ltd. (Crescent) is a Canadian corporation engaged in the business of selling petroleum and oil products for the use and operation of oceangoing vessels.

On or about November 1, 1995, Portserv requested Crescent to deliver marine fuel oils (bunker fuels) to the Vessel. Crescent granted and confirmed the request through a facsimile advice dated November 2, 1995. As security for payment, Crescent received two checks in the amounts of US$100,000.00 and US$200,000.00. Crescent then contracted with its supplier, Marine Petrobulk Limited (Marine Petrobulk), another Canadian corporation, for the physical delivery of the bunker fuels to the Vessel.

On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels — amounting to US$103,544.00 inclusive of barging and demurrage charges — to the Vessel at the port of Pioneer Grain, Vancouver, Canada. The Chief Engineer Officer of the Vessel duly acknowledged and received the delivery receipt. Marine Petrobulk issued an invoice to Crescent for US$101,400.00, and Crescent issued a check for the same amount in favor of Marine Petrobulk, which was duly encashed.

Having paid Marine Petrobulk, Crescent issued a revised invoice dated November 21, 1995 to "Portserv Limited, and/or the Master, and/or Owners, and/or Operators, and/or Charterers of M/V 'Lok Maheshwari'" in the amount of US$103,544.00, with instruction to remit the amount on or before December 1, 1995. The period lapsed and several demands were made, but no payment was received. The two checks issued to Crescent as security were dishonored for insufficiency of funds. As a consequence, Crescent incurred additional expenses of US$8,572.61 for interest, tracking fees, and legal fees.

On May 2, 1996, while the Vessel was docked at the port of Cebu City, Crescent filed before the RTC of Cebu City an action for a sum of money with prayer for a temporary restraining order and writ of preliminary attachment against the Vessel, SCI, Portserv, and/or Transmar. The trial court issued a writ of attachment on May 3, 1996, which was later discharged upon approval of a counter-bond. Respondents were declared in default for failing to file their answers, and Crescent presented its evidence ex parte. On July 25, 1996, the trial court rendered judgment ordering respondents to pay jointly and solidarily the outstanding obligation, interest, attorney's fees, and litigation expenses. Respondents Vessel and SCI appealed to the Court of Appeals, submitting copies of the charter parties, the Bunker Fuel Agreement containing a New York choice-of-law stipulation, and copies of U.S. and Canadian cases. The Court of Appeals reversed the RTC decision and dismissed the case for want of jurisdiction on the ground of forum non conveniens.

• Applicability of P.D. No. 1521: Petitioner contended that Sections 21, 22, and 23 of P.D. No. 1521 apply to both domestic and foreign vessels, as well as domestic and foreign suppliers, the use of the term "any person" in Section 21 implying that the law is not restricted to domestic suppliers.
• Place of Supply Irrelevant: Petitioner argued that the law does not indicate that the supplies or necessaries must be furnished in the Philippines in order to give petitioner the right to seek enforcement of the lien with a Philippine court.
• Jurisdiction of Philippine Courts: Petitioner maintained that Philippine courts have jurisdiction over a foreign vessel found inside Philippine waters for the enforcement of a maritime lien, and that the RTC acquired jurisdiction over the subject matter, the res, and the persons of the parties.
• Forum Non Conveniens: Petitioner argued that the principle of forum non conveniens is inapplicable to the instant case.
• Arbitration Clause: Petitioner submitted that the arbitration clause in the contract was not rigid or inflexible but expressly allowed petitioner to enforce its maritime lien in Philippine courts provided the vessel was in the Philippines.
• New York Law Inapplicable: Petitioner contended that the law of the state of New York is inapplicable as the same had not been properly pleaded and proved.
• Processual Presumption: Petitioner argued that even if foreign law applies, since the same was not properly pleaded and proved, such foreign law must be presumed to be the same as Philippine law pursuant to the doctrine of processual presumption.
• Legal Capacity: Petitioner maintained that it has legal capacity to sue before Philippine courts as it is suing upon an isolated business transaction.
• Solidary Liability: Petitioner argued that respondents should be held jointly and solidarily liable.

• Inapplicability of P.D. No. 1521 to Foreign Suppliers: Respondents maintained that Section 21 of P.D. No. 1521 does not apply to a foreign supplier like petitioner, as the provision refers only to a situation where the person furnishing the supplies is situated inside the territory of the Philippines and not where the necessaries were furnished in a foreign jurisdiction like Canada.
• Charter Party Provisions: Respondents pointed out that Portserv was a time charterer and that the time charters between SCI and Halla, and between Halla and Transmar, contain a clause stating that "the Charterers shall provide and pay for all the fuel except as otherwise agreed," militating against petitioner's position that Portserv was authorized to contract for supplies upon the credit of the vessel.
• Choice of Law: Respondents submitted a copy of Part II of the Bunker Fuel Agreement containing a stipulation that New York law governs the "construction, validity and performance" of the contract, along with certified copies of the Commercial Instruments and Maritime Lien Act of the United States and U.S. and Canadian case law to support their defense.

• Maritime Lien under P.D. No. 1521: Whether P.D. No. 1521 (Ship Mortgage Decree of 1978) creates a maritime lien in favor of a foreign supplier furnishing supplies to a foreign vessel in a foreign port.
• Choice of Law: Whether Philippine law or foreign law (Canadian law) governs the determination of whether a maritime lien exists in this case.
• Cause of Action: Whether petitioner established a cause of action for the enforcement of a maritime lien.
• Processual Presumption: Whether the doctrine of processual presumption applies to save petitioner's claim.
• Forum Non Conveniens: Whether the principle of forum non conveniens applies to bar the action.

• Maritime Lien under P.D. No. 1521: No. P.D. No. 1521 was enacted primarily to protect Filipino suppliers and develop the domestic shipping industry, and does not create a maritime lien from a contract for supplies between foreign entities delivered in a foreign port.
• Choice of Law: Canadian law governs. Canada has the most significant interest in the dispute, being the place of contracting, negotiation, performance, and domicile of the injured party and the sub-charterer who placed the orders.
• Cause of Action: No. Petitioner failed to establish a cause of action by erroneously claiming a maritime lien under Philippine law instead of proving that a maritime lien exists under Canadian law, which it never pleaded or proved.
• Processual Presumption: No. Even presuming Canadian law to be the same as Philippine law, the requisites for a maritime lien under P.D. No. 1521 were not satisfied because the supplies were ordered by a sub-charterer, not the master or any person authorized to bind the vessel.
• Forum Non Conveniens: Unnecessary to discuss, the case being dismissible on other grounds.

• Maritime Lien under P.D. No. 1521: The Court examined the purpose and legislative history of P.D. No. 1521, which was enacted "to accelerate the growth and development of the shipping industry" and "to extend the benefits accorded to overseas shipping under Presidential Decree No. 214 to domestic shipping." Because Sections 21, 22, and 23 are identical to Subsections P, Q, and R of the U.S. Ship Mortgage Act of 1920, U.S. jurisprudence was found relevant. Applying the Lauritzen-Romero-Rhoditis multi-contact test, only one of seven factors — the law of the forum — pointed to Philippine law; all others were foreign (Canada as place of the wrongful act, domicile of the injured, and place of contract; India as the law of the flag and allegiance of the defendant shipowner). Balancing these interests, the Philippine court had no interest outweighing those of Canada or India. Under the Restatement (Second) of Conflicts of Law factors, P.D. No. 1521 was inapplicable because, like the Federal Maritime Lien Act, it was enacted primarily to protect Filipino suppliers and was not intended to create a lien from a contract between foreign entities delivered in a foreign port. Applying it would not promote the public policy behind the law and would encourage forum shopping. Moreover, the parties could not have intended the laws of a remote country like the Philippines to determine the creation of a lien by the mere accident of the Vessel's presence in Philippine territory.

• Choice of Law: Canada has the most significant interest in the dispute: the injured party is a Canadian corporation, the sub-charterer which placed the orders is Canadian, the entity which physically delivered the bunker fuels is in Canada, the place of contracting and negotiation is in Canada, and the supplies were delivered in Canada. The arbitration clause stipulating New York law governs only the "construction, validity and performance" of the contract and is merely a factor in the choice-of-law analysis, not conclusive, because the lien arose by operation of law and not by contract — the shipowner was not a party to the contract under which the goods were supplied.

• Cause of Action: A party whose cause of action depends upon foreign law has the burden of proving that foreign law, which is treated as a question of fact to be properly pleaded and proved. Petitioner's insistence on enforcing a maritime lien depended on the existence of a maritime lien under the proper law. By erroneously claiming a maritime lien under Philippine law instead of proving that one exists under Canadian law, petitioner failed to establish a cause of action.

• Processual Presumption: Even applying the doctrine of processual presumption — presuming Canadian law to be the same as Philippine law — the result would be the same. The requisites for a maritime lien on necessaries under P.D. No. 1521 are: (1) the necessaries must have been furnished to and for the benefit of the vessel; (2) the necessaries must have been necessary for the continuation of the voyage; (3) credit must have been extended to the vessel; (4) there must be necessity for the extension of credit; and (5) the necessaries must be ordered by persons authorized to contract on behalf of the vessel. None of these were established: benefit to the vessel was not proven because the sub-charterer Portserv, not the master, placed the orders; there was no proof the marine products were necessary for continuation of the voyage; credit was not extended to the vessel, as evidenced by the two checks issued as security prior to delivery and the charter party clause requiring charterers to provide and pay for fuel; there was no proof of necessity of credit; and Portserv, a sub-charterer under a time charter, is not a person to whom management of the vessel has been entrusted under Section 22, since in a time charter the owner retains possession and control through the master and crew who remain his employees.

• Forum Non Conveniens: A discussion on forum non conveniens was deemed unnecessary, the case being dismissible on the ground that petitioner failed to establish a cause of action.

• Maritime Lien for Necessaries under P.D. No. 1521 — Under Sections 21, 22, and 23 of the Ship Mortgage Decree of 1978, a maritime lien arises when any person furnishes repairs, supplies, towage, use of dry dock or maritime railway, or other necessaries to any vessel upon the order of the owner or a person authorized by the owner. The requisites are: (1) the necessaries must have been furnished to and for the benefit of the vessel; (2) the necessaries must have been necessary for the continuation of the voyage; (3) credit must have been extended to the vessel; (4) there must be necessity for the extension of credit; and (5) the necessaries must be ordered by persons authorized to contract on behalf of the vessel — the managing owner, ship's husband, master, or any person to whom the management of the vessel at the port of supply is entrusted. The Court held that none of these requisites were satisfied where a sub-charterer under a time charter ordered the supplies, because a time charterer does not have management of the vessel entrusted to it.

• Choice of Law in Maritime Lien Cases — The existence of a maritime lien for supplies furnished to a vessel in a foreign port depends on the law of the country where the supplies were furnished, which must be pleaded and proved. The Lauritzen-Romero-Rhoditis multi-contact test provides seven factors: (1) place of the wrongful act; (2) law of the flag; (3) allegiance or domicile of the injured; (4) allegiance of the defendant shipowner; (5) place of contract; (6) inaccessibility of foreign forum; and (7) law of the forum. The Restatement (Second) of Conflicts of Law factors include: (a) place of contracting; (b) place of negotiation; (c) place of performance; (d) location of the subject matter; and (e) domicile, residence, nationality, place of incorporation and place of business of the parties. The Court applied both frameworks to conclude that Canadian law governed, as Canada had the most significant interest.

• Processual Presumption — When foreign law is not properly pleaded and proved, it is presumed to be the same as Philippine law. However, even under this presumption, the claim must still fail if the requisites of the applicable Philippine law are not satisfied by the evidence on record.

• Burden of Proving Foreign Law — A party whose cause of action or defense depends upon foreign law has the burden of proving that foreign law. Foreign law is treated as a question of fact to be properly pleaded and proved. Failure to prove the foreign law on which a claim depends constitutes failure to establish a cause of action.

• American Rule on Admiralty Jurisdiction — Whether a contract is maritime depends not on the place where the contract is made and executed (the locational test), but on the nature and subject matter of the contract, having reference to maritime service and transactions (the subject matter test). A contract for furnishing supplies to a vessel is maritime and within admiralty jurisdiction.

• "P.D. No. 1521 or the Ship Mortgage Decree of 1978 is inapplicable following the factors under Restatement (Second) of Conflict of Laws. Like the Federal Maritime Lien Act of the U.S., P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted primarily to protect Filipino suppliers and was not intended to create a lien from a contract for supplies between foreign entities delivered in a foreign port." — This passage articulates the core ratio decidendi: the Ship Mortgage Decree's protective purpose is limited to Filipino suppliers and does not extend to foreign suppliers furnishing supplies in foreign ports.

• "Opening up our courts to foreign suppliers by granting them a maritime lien under our laws even if they are not entitled to a maritime lien under their laws will encourage forum shopping." — This states the public policy rationale against extending P.D. No. 1521 to foreign suppliers, grounding the holding in concerns of judicial efficiency and comity.

• "It is well-settled that a party whose cause of action or defense depends upon a foreign law has the burden of proving the foreign law. Such foreign law is treated as a question of fact to be properly pleaded and proved." — This is the canonical formulation of the doctrine on burden of proving foreign law, frequently cited in Philippine conflict of laws jurisprudence.

• "when the parties entered into a contract for supplies in Canada, they could not have intended the laws of a remote country like the Philippines to determine the creation of a lien by the mere accident of the Vessel's being in Philippine territory." — This passage captures the reasonable expectations principle underlying the choice-of-law analysis, emphasizing that the fortuitous presence of a vessel in Philippine waters cannot retroactively subject a foreign supply contract to Philippine maritime lien law.

• International Harvester Company of the Philippines vs. Aragon, G.R. No. L-2372, August 26, 1949 — Followed. The Court relied on this case for the adoption of the American rule (subject matter test) over the English rule (locational test) in determining whether a contract is maritime, holding that a contract for furnishing supplies to a vessel is maritime and within admiralty jurisdiction.

• Lauritzen vs. Larsen, 345 U.S. 571 (1953) — Followed. A U.S. Supreme Court case establishing the multiple-contact test for choice of law in maritime cases, listing seven factors. The Court applied this test and found that only one factor (law of the forum) pointed to Philippine law.

• Romero vs. International Terminal Operating Co., 358 U.S. 354 (1959) — Followed. Extended the Lauritzen factors to all matters arising under maritime law in general, not just Jones Act personal injury claims.

• Hellenic Lines, Ltd. vs. Rhoditis, 398 U.S. 306 (1970) — Followed. Held that the Lauritzen test is not mechanical, that the list of seven factors was not exhaustive, and that the shipowner's base of operations is another factor of importance.

• Gulf Trading and Transportation Co. vs. The Vessel Hoegh Shield, 658 F.2d 363 (1981) — Followed. Applied the Restatement (Second) of Conflicts of Law factors to a maritime lien claim, holding that the initial choice of law determination is significantly affected by the statutory policies surrounding a maritime lien and that the Federal Maritime Lien Act's primary concern is protecting American suppliers.

• Swedish Telecom Radio vs. M/V Discovery I, 712 F. Supp. 1542 (1988) — Followed. Refused to apply the Federal Maritime Lien Act to create a maritime lien for goods and services supplied by foreign companies in foreign ports, confirming that the Act's primary concern is the protection of American suppliers.

• Forsythe International U.K., Ltd. vs. M/V Ruth Venture, 633 F. Supp. 74 (1985) — Followed. Applied the Lauritzen/Rhoditis factors in a balancing analysis for a maritime lien claim by a British corporation for bunkers furnished in South Africa, holding that English law applied and, because English law disallowed a lien for bunkers, there was no lien.

• Litonjua Shipping Inc. vs. National Seamen Board, G.R. No. 51910, August 10, 1989 — Followed. Cited for the definition of a time charter as a contract for the use of a vessel for a specified period wherein the owner retains possession and control through the master and crew who remain his employees, establishing that a time charterer is not entrusted with management of the vessel.

• Sections 21, 22, and 23, Presidential Decree No. 1521 (Ship Mortgage Decree of 1978) — Section 21 provides that any person furnishing repairs, supplies, towage, use of dry dock or maritime railway, or other necessaries to any vessel, whether foreign or domestic, upon the order of the owner or a person authorized by the owner, shall have a maritime lien enforceable by suit in rem. Section 22 enumerates persons presumed to have authority to procure necessaries: the managing owner, ship's husband, master, or any person to whom the management of the vessel at the port of supply is entrusted. Section 23 provides that such officers and agents include those appointed by a charterer, but no lien is conferred when the furnisher knew or should have known that the person ordering the supplies was without authority to bind the vessel. The Court held these provisions inapplicable because they were enacted to protect Filipino suppliers, not foreign suppliers furnishing supplies in foreign ports, and because the requisites were not satisfied on the facts.

• Batas Pambansa Bilang 129, as amended by Republic Act No. 7691 — Grants RTCs exclusive original jurisdiction over all actions in admiralty and maritime where the demand or claim exceeds ₱200,000 (or ₱400,000 in Metro Manila). The Court acknowledged this jurisdictional basis but held that jurisdiction over the subject matter does not resolve whether a maritime lien exists under the proper law.

• Articles 579, 580, and 584, Code of Commerce — Article 580 provides the substantive law on liens against vessels; Article 584 provides the procedural law for enforcing such liens. The Court noted that under these provisions, any vessel — even a foreign vessel — found in any Philippine port may be attached and sold to enforce liens, but where no lien is created by law or contract, the only remedy is attachment under Rule 57 of the Rules of Court.

Ma. Alicia Austria-Martinez, Romeo J. Callejo, Sr., Dante O. Tinga (on leave), and Minita V. Chico-Nazario concurred in the decision. No separate concurring opinions were written.