The appellant, Banco de Crédito Industrial SA, had granted a ship construction loan to Naviera Astur Galaica SA, and had executed a mortgage over the ship Pontedeume. Scandia Shipping Agencies Ltd (Scandia) arrested the vessel, claiming a maritime lien for the supply of fuel oil to it (see Naviera Astur Galaica v Scandia Shipping Agencies Ltd SA STS 13577/1990 (CMI1697)). The appellant argued that its claim should be preferred over that of Scandia. The Courts below held that Scandia's maritime lien ranked ahead of the appellant's mortgage claim.

The appellant appealed to the Supreme Court.

Held: Appeal dismissed.

The appellant denounces an infraction of arts 2.5, 3, and 4 of the MLM Convention 1926, on the basis that, once the Pontedeume was released from arrest through the payment of ESP 9,299,864 made by the appellant with the character of a 'guarantee' that gave rise to the cancellation of the arrest, none of the creditors in litigation would hold any special privilege over the deposited guarantee amount, and therefore 'the preference under discussion cannot be elucidated in the light of the Convention'. However, the bond by virtue of which the arrest and detention of the ship was lifted, is nothing other than a bond that guarantees the fulfilment of obligations by means of a cash deposit, and is consequently of an accessory nature to the main obligations. The surety by virtue of which the arrest was lifted is a substitute for the ship itself, not in addition to it. For all these reasons, it is indisputable that, when analysing the ranking of claims, the issue must be resolved by determining the best right between the mortgagee and the fuel supplier.

The appellant further argues the non-application of the MLM Convention 1926 to non-signatory States. As Canada did not participate in this Convention, the appellant contends that Scandia cannot avail itself of its regulations. However, as stated in the judgment under appeal, even though Canada is not a signatory to the Convention, art 14 of the Convention provides: 'The provisions of this Convention shall be applied in each Contracting State in cases in which the vessel to which the claim relates belongs to a Contracting State as well as in any other cases provided for by the national laws.' This means that, when any of the relevant parties is of foreign nationality, the provisions of the Convention will nonetheless be applied, solely and exclusively by reason of the fact that the ship in question belongs to one of the contracting States. It must be taken into account that the Convention responds to the practical convenience of unifying the variety of legislative provisions of the various States (in general) in terms of the number and range of maritime liens that had meant a weakening of the ship mortgage; reasons that motivated the North American delegation at the Brussels Conference of 1926 to propose certain restrictions that were accepted by the countries that decided to conclude the agreement, in essence that its provisions would be applied in each Contracting State when the encumbered vessel belonged to a Contracting State. In other words, the sole condition is that the encumbered vessel belongs to a State that is a signatory to the Convention. The fact that the Convention will apply regardless of the nationality of the ship's creditor is corroborated by the second para of art 14: 'Nevertheless the principle formulated in the preceding paragraph does not affect the right of the Contracting States not to apply the provisions of this Convention in favour of the nationals of a noncontracting State.' In other words, the general principle is that the Convention is applied by a contracting State to parties from non-contracting States; however, a signatory State is allowed, as an exception, to provide for non-application of the Convention in relation to those who belong to a non-contracting State. As the Court of first instance rightly said: 'The Spanish State has not made use of such a right, which entails a reservation that obviously never falls to the Courts in each specific case.'

Finally, the appellant's argument that the matter should be governed by national law rather than the MLM Convention 1926 must be rejected, given the international nature of the matter under consideration.