Maritime lien

 In common law, a lien is right of creditor to retain properties of his debtor until the debt is paid. Maritime lien is a privileged claim on a ship for services rendered to HER, or injuries caused by HER. It is a proprietary lien on the “res” which is the ship. She has a legal personality of her own in Law. The lien may include her cargo, freight and even proceeds of her sale.  Ship is treated as wrongdoer, not the owner, because debt, loss, damage or harm is caused by HER and SHE has to make good the debt or loss.

Admiralty action IN REM arises under Admiralty Jurisdiction as an adequate and secure way for claimants to claim compensation. Claimants take advantage of action in rem, as against action in personam, because it is easy and convenient to institute because the ship is within jurisdiction. It is more difficult, in an action in personam, to summon the defendant via writ outside the jurisdiction. Also, processes to find the right ship owner, are very complicated and time consuming due to complex and inconsistent ship registration in different countries especially flags of convenience. But the ship is in THAT jurisdiction. If owner does not provide compensation, the court may sell the ship to get satisfaction for the claim.

Maritime lien attaches when cause of action arises and is not eliminated even by change of ownership in good faith and even by change of flag and registry. Article 8 of Maritime Liens Convention clarifies this.  Some maritime liens are commonly recognised in most countries.  But Definitions and criteria are different under different jurisdictions. For example, bunker suppliers are protected in USA and many other countries but there is no maritime lien in the hands of a bunker supplier in UK. Lien is discharged by payment of the claim, waiver, laches, foreclosure, and sale or destruction of the res that is the ship.

lawzmagazine.comLaches is a form of estoppel for delay. If a person fails to arrest the ship within a reasonable time, it may result in lapse of the original claim. Time of delay is determined on case-by-cause basis but is now regulated to one year under Marititme Liens convention, from the date the claim arose. Idea is that holder must show diligence to exercise lien. An International judicial sale in rem removes attachment of the lien. New owner will get clear title to the ship. Destruction of the res results in extinction of the lien. But partial destruction does not  extinguish it. It will continue to be attached to remaining part of the ship.

“Proper law” may mean which territorial law is to govern the contract. It defines obligations of contracting parties, determines whether the contract is legal and valid, and affects conditions of discharge.

Selection of “proper law” to adjudicate a marine contract is a difficult task in Admiralty Jurisdiction because question of whether enforcement of maritime lien is allowed by international law may turn on interpretation of law of the country where litigation takes place. Thus question is over priority of law where lien was created as opposed to law, where the court is exercising jurisdiction.

Under Federal Maritime Liens Act, courts in USA always protect Americans. If relevant factors direct to select international law, the case may be dismissed on grounds of  ‘forum non convenient’. If choice is to apply US law, the court will retain jurisdiction and protect Americans, not foreigners. An Australian Federal Court, which had to decide priorities among various claims against a vessel, has held that a BANK’S mortgage over a vessel does not include bunker fuel or lubricating oil in the ship because these cannot be considered physical parts of the ship.

MV Mawashi Al Gasseem, was arrested by OW Bunker Trading Company, for non payment of monies due to it, for supply of bunkers to the vessel. The ship was sold for about US$5.75 million and unused bunker fuel and lubricating oil on board were sold for about $ 535000/-, under court orders. Bank of Kuwait and the Middle East, claimed ALL remaining proceeds in both the funds, as mortgagee of the ship, after Bunker supplier was fully paid for fuel it supplied to the vessel. Court held on August 3 2007, that the bank, as mortgagee, was entitled to  payment of all money for which the ship was sold, after covering costs of Admiralty Marshall and original arresting party, plus wages of Master officers and crew. But Bank was not entitled to about $ 60000/- that was left over after bunker supplier was fully paid, as this did not enjoy priority above other unsecured creditors. In this case, wording of mortgage document provided that security would include ‘all parts’ of the vessel, including its ‘components’ and ‘all appendages and annexes’ that may be found after conclusion of the mortgage. Federal Court held that  question of whether fuel oil was included as security in a ship mortgage was a matter of construction of words of the mortgage and that the words ‘component’, ‘appendage’ and ‘annexe’ imply a feature of being a physical part of or of being physically attached to a ship, and do not extend to bunker fuel in their natural meaning.

If there are more than one liens on the same ship and her value is not adequate, a higher ranked lien holder is paid FULLY first, and then the next ranked lien holder. Also ranking is according to priority. But rules pertaining to ranking and Laws applicable to Maritime Liens, are not uniform. In some countries wages of crew take priority, in others Salvage takes first place because unless the ship was saved, all liens would have died with her because a Maritime Lien is against the ship herself and is extinguished with her demise. Also, liens arising from Tort rank higher over liens arising out of contract even if they accrued earlier.

Art.4 of International Convention on Maritime Liens 1993, which came into force on Sept 5, 2004,  lists Maritime Liens in order of priority, which include:-

  1. a) Wages of Master officers and crew .
  2. b) Claims for loss of life or personal injury.
  3. c) Claims for Salvage reward
  4. d) Claims for Port, Canal and Pilotage Dues.
  5. e) Claims in Tort for physical loss or damage.

Under Articles 2 and 5, Martgages and or hypotheques which are registered against a ship, are enforceable in accordance with Law of the flag State, but Maritime Liens listed in Article 4 take priority and follow the vessel not withstanding any change of ownership or of registration or of  Flag. Under this convention, in case funds available from value of a ship are not enough to meet all her liabilities  wages of Master officers and crew, and claims for loss of life and personal injury rank equally with each other, and share, in proportion to each other’s claim. Only then, entitlement of other maritime lien holders is considered. Thus restitution is in order of priorities as listed above, unless other priorities are accepted by LOCAL laws.

In above cited recent Australian case, the court has taken cognizance of priority of Maritime liens and has held that wages of Master officers and crew take priority. Apparently there were no other Maritime liens against the ship as otherwise those liens would have been satisfied first before the Mortgagee could be paid out of the value of the ship.

The court rightly pointed out that these days bunker fuel is more commonly the property of charterers, not the ship, because under most TIME charter parties, charterer provides fuel to the ship he has chartered. In such a case,  property in the fuel vests with the fuel supplier till he is paid by the charterer and after THAT it vests in the Charterer and NOT in the ship or her owner. It is for THIS reason that Masters of ships on time charter, always endorse the bunker receipt, ” for and on behalf of Time Charterers,” lest they create a Maritime Lien on the ship in the hands of a bunker supplier.

As against this case, in an earlier Australian case reported in the press in 1996, owners tried to establish that mobile equipments placed on board to assist loading and discharging operations, are NOT part of the ship. Therefore these should not be subjected to arrest along with the ship to enforce a Maritime Lien. It was held by the Supreme Court of New South Wales that such equipment being owned by owners, voluntarily placed on board, on ship’s buisiness became part of the ship and is also subject to arrest.

Article 5 of this convention provides that  maritime liens securing claims for reward for salvage of the vessel shall rank in inverse order of the time when claims secured thereby accrued. Such claims shall be deemed to have accrued on the date on which each salvage operation was terminated. Article 9 restricts time available to a claimant of not more than one year. In case of ships personnel it is from date of discharge of the crew from the ship or when the claim arose

A possessory lien is applicable to goods carried by the ship. It entitles the ship to retain cargoes as security for payment of freight if shippers fail to pay in time.

Capt. A K Bansal,

L.L.B. (Hons) London,

Master Mariner, Bar at Law

3 thoughts on “Maritime lien”

  1. BhARTI says:

    News is accurate ,nice

  2. Deempal says:

    Good article

  3. Yatin says:

    Well…….

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