Swiss bank Handelfinanz CCF, now HSBC Guyerzeller (the bank), opened an account with Donilda Shipping, a company registered in Panama and backed by Italian interests. By deed of 11 November 1991, the bank granted Donilda Shipping a loan for USD 3,000,000 for the acquisition of the Florenz. The loan was secured by a first ranking ship mortgage on the Florenz, flying the Panamanian flag.

Donilda Shipping decided in 2001 to abandon the Florenz and its crew at the port of Sète. The bank was authorised by order of the President of the Commercial Court of Sète to have the vessel arrested. The vessel was subsequently ordered to be sold by the Montpellier Tribunal de Grande Instance on 19 December 2001. On 11 January 2002, the bank brought proceedings against Donilda Shipping and its Italian directors in the Commercial Court of Sète for USD 4,762,042 due on the loan. On 10 May 2005, the Commercial Court, applying Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, declared itself incompetent to hear the matter because of a choice of forum clause in favour of the courts of Naples, Italy. The bank appealed.

Held: Appeal upheld. Decision reversed.

The bank's claim for payment was issued on the merits, following the authorisation given to arrest the ship Florenz. It was up to the bank to initiate an action on the merits, within a period of one month, on pain of forfeiture of the seizure.

The jurisdiction of the Court seised of the merits, in the context of a protective seizure of a ship, is provided for by art 7 of the Arrest Convention 1952, according to which the Courts of the country in which the arrest was made shall have jurisdiction to determine the case upon its merits if the domestic law of the country in which the arrest is made gives jurisdiction to such Courts. The jurisdiction of the French courts, therefore, as the courts of the State which authorised the seizure of the vessel, clearly results from this provision. The argument that the Convention concerns only protective procedures is unfounded. The proceedings on the merits are an integral part thereof, and the Convention enacts the rules of jurisdiction which govern proceedings on the merits. Jurisdiction is assessed at the time the action is brought, and is not modified by subsequent events.

Consequently, the Commercial Court of Sète is competent to hear the matter, and the decision must be reversed. The case will be returned to this Court, to be judged on the merits.