Introduction to Maritime Law: Maritime Liens and Arrests under US Law

MARITIME PRIVILEGES

What is a maritime lien?

A maritime lien is a non-possession interest in a ship that gives the lien holder the right to sue in rem against property. In the United States, maritime privileges are based on the fiction of a “personified” ship. Under this legal fiction, a vessel is considered a separate and distinct legal person from its owner or operator and can be held liable for torts and contractual obligations. A person claiming to have a maritime lien on a vessel may sue in rem against the ship and ask the court to order the seizure of the ship to secure his claim.

Maritime privileges arise automatically. Although the parties may waive or waive the right to a maritime lien by contract or otherwise, they cannot agree to confer a maritime lien where the law does not provide for it. Maritime liens are governed by the Commercial Instruments and Maritime Liens Act (“CIMLA”) and general maritime law.

Classes of maritime privileges

Most maritime liens arise from torts, contracts, or particular maritime services such as salvage or towage. Maritime claims giving rise to maritime liens include the following claims:

  • The wages of sailors
  • Rescue operations
  • Offenses arising from general maritime law
  • General average claims
  • Preferred ship mortgages
  • Supplies, repairs and other necessities provided to a vessel
  • Towing, docking, piloting and securing
  • Claims for Damage or Loss of Cargo
  • Carrier claims for unpaid freight
  • Violation of party charters

Ships Mortgage Act

The Ship Mortgage Act was first enacted in 1920 and has since been recodified and incorporated into CIMLA. Under the Ship Mortgage Act, a lien mortgage is “a lien on the mortgaged ship for the amount of the outstanding mortgage debt secured by the ship.”

In order to qualify as a Preferred Vessel Mortgage, CIMLA sets out certain requirements.

Duly deposited vessel mortgages are enforceable against third parties from the time they are deposited. By perfecting a lien on a vessel, the lender creates a maritime lien against the vessel, enforceable by an action in rem. Preferred mortgage liens on the ship take priority over all claims against the ship except custodia legis Privileged maritime charges and privileges.

Maritime liens that arise before a mortgage on a privileged store or have privileged status because they result from a tort – such as a collision – take priority over mortgages on a privileged ship. Privileged maritime liens are defined by CIMLA as follows: 1) arising before a lien mortgage is filed under CIMLA, 2) for damage resulting from maritime tort, 3) for the wages of a stevedore, 4) for seaman’s wages, 5) for general average, or 6) for salvage (including contract salvage).

Required

CIMLA defines “necessaries” as “the repairs, supplies, towing and securitization of a drydock or marine railway.” The term “necessary” has been broadly defined by the courts to encompass all goods or services that are reasonably necessary for the business in which the vessel is engaged. Necessary items may include fuel and lubricating oil, insurance, handling services, piloting, food, repairs, radar and equipment, but also taxi fares for crew members , linens for a dinner cruise ship or play equipment for a cruise ship – really anything that keeps the ship running and allows the ship to perform its function.

For a maritime lien to arise in favor of a supplier of necessary goods, the necessary goods must be furnished “by order of the owner or of a person authorized by the owner”. This is critical – a common ground that is often raised to challenge a maritime lien focuses on whether the underlying good or service was in fact supplied at the order of the owner or a person authorized by the owner.

Termination of maritime privileges

Maritime liens can be extinguished in several ways:

  • Waiver: Maritime liens may be waived by agreement or by implication. Courts will require clear evidence of intent to waive the lien in favor of another security.
  • Laches: A maritime lien is extinguished when a lien holder has unreasonably delayed asserting his lien to the detriment of the other party.
  • Complete and total destruction of the res.
  • Payment of debt.
  • Judicial sale of the ship by a federal court sitting in Admiralty.

ARREST AND SEIZURE

Arrest is an essential step in enforcing a maritime lien. It also has the important result of giving the plaintiff security for his claim. Unlike many other countries, the United States is not a signatory to any international ship arrest conventions. Actions involving arrests and seizures of vessels are governed by the Admiralty Supplementary Rules of Federal Rules of Civil Procedure. Rules B and C are the rules for maritime seizure and arrest, respectively, and Rule E governs the process for each.

Maritime connection according to rule B

Although similar to an arrest in that property is seized and may ultimately be sold, maritime seizure is practically very different. While a maritime lien is required for a seizure, a maritime seizure is based on a in person Claim. A maritime seizure requires the vessel to be present in the jurisdiction, while a maritime seizure allows the assets of a party to be seized if that party is not present in the jurisdiction.

Attachment is a procedure designed to 1) provide security and 2) establish in person jurisdiction of a defendant up to the amount of security obtained. In seeking seizure, a plaintiff must assert a “maritime claim”. The adjoining property, however, needs not to be maritime.

Maritime Arrest under Rule C

Since ships are constantly moving from port to port, the ability to make an arrest quickly and on a ex parte the base is important. Under Rule C, a plaintiff must show a lien that can be exercised on a ship or other property in rem who is in the district at the time the arrest warrant is served.

The requirements for an arrest action under Rule C include the filing of a verified complaint, which means it includes a written verification, under penalty of perjury, attesting to the truth of the statements contained therein. The arresting party will also file a memorandum of law setting out the reasons why the warrant should be issued and may also file motions to allow the vessel to continue cargo operations and for a replacement custodian.

Alternate goalkeeper

The US Marshals are the law enforcement arm which signifies the warrant on the ship. Generally, marshals will not remain on the ship while the is under arrest. Instead, the applicant will request that an alternate keeper remain with the ship on behalf of the marshals. This appointment is conditional upon the Deputy Custodian accepting responsibility and liability during the appointment and the Applicant agreeing to release the Marshal from liability.

Note

If the ship is not released within 14 days of the execution of the warrant, the applicant must give public notice of the arrest in accordance with rule C(4). If the arresting party is a mortgagee, they must also provide written notice to all known lien holders.

Intervention

Any party with a claim against the vessel may request to intervene in the proceedings, regardless of who initiated the boarding. The vessel will be considered seized by all intervening parties and all will then share the costs and benefits of the seizure. If the claim is successful, the parties are compensated out of the proceeds of the sale or the bond deposited, in order of privilege priority.

Security and Liberation

Where property is seized under Rules B and C, it may be released on the posting of adequate security. The parties will usually agree on the amount and type of security, although the court may also order the posting of security. Adequate security can take different forms, including bank guarantee, bond, insurance company bond and cash bond. The most common form is a P&I Club Letter of Commitment (“LOU”), which is issued in lieu of a bond. Wording is important both when writing and receiving a LOU. Some key elements to include in a LOU include:

  • Description of incident
  • Defined and reasonable guarantee amount
  • Law and jurisdiction clause
  • “Interest and costs included”
  • Subject to final judgment or agreement between the parties with the consent of the P&I Club
  • Issued without prejudice to liability
  • Consideration of not stopping/re-stopping as wide as possible
  • Member’s defenses, including limitation rights, are not waived

If the shipowner does not promptly offer to post security, the arresting party may apply for an order for the temporary sale of the ship. The arresting party must demonstrate that (a) the vessel is subject to deterioration, (b) the cost of maintaining the vessel is excessive, or (c) the owner’s delay in posting security was unreasonable.

Counter security

Under Rule E(7), a defendant who has provided security to the plaintiff is entitled to seek a counter-security for any counterclaim arising out of the same transaction or event as the principal claim. The court has the discretion to order the posting of a counter-collateral and, if so, in what amount.

Wrongful arrest

The standard for wrongful arrest is very high. An arrest can only be considered abusive if it was made in bad faith, maliciously or with gross negligence. Damages for wrongful arrest include attorneys’ fees, costs, and any damages directly attributable to the seizure, including lost profits. A claim for wrongful arrest has been found not to arise from the “same transaction or event” as the claim on which the arrest or seizure is based, so a party cannot require a counter-collateral for a claim wrongful arrest under rule E (7) .