The ability of admiralty courts to adjust to technological changes in shipping is illustrated in the recent Itel Containers case (1991 WL 262104). In Itel, New York’s Southern District Court created a novel approach for allocating damages in container leasing lien cases.
This new method may now enable the international marine container leasing industry to effectively assert maritime liens against shipping companies that owe charges on container leasing contracts. Until now, this has been extremely difficult to accomplish.
To appreciate the significance of the Itel case (now on appeal), it is necessary to understand the subject of maritime liens. A maritime lien is a security device that creates a property right in a vessel in favor of the creditor for a maritime debt or claim.
The creditor has a right in admiralty law to have a vessel arrested and sold to satisfy the debt or claim. The lien is non-consensual and need not be recorded. It follows the vessel throughout the world and may be enforced against a good faith purchaser of the ship.
A maritime lien allows ships to keep moving in commerce, while preventing them from sailing away from their monetary obligations.
The Federal Maritime Lien Act was enacted by Congress to encourage private investment in the maritime industry. It provides that “any person furnishing repairs, supplies . . . or other “necessaries’ to any vessel …shall have a maritime lien on the vessel.” Under the Act, the word “necessaries” means supplies and services furnished to the vessel that are reasonably needed for the shipping venture.
The background of the Itel case is found in two previous opinions (668 F. Supp. 225 and 725 F.Supp 1303). The plaintiffs were suppliers of maritime containers and chassis to shipping company fleets. They entered into container leasing agreements with a shipping company that subsequently closed its operations.
Plaintiffs commenced admiralty actions for monies owned on container lease agreements. They asserted and enforced maritime liens by arresting a certain number of vessels in the company’s containership fleet.
The defendant shipping company argued against the liens because the claims included monies owned for periods that the containers were not used as “necessaries” aboard the ships. The court rejected the argument and held that the containers were necessary for the operation of a modern containership, even for periods when the equipment was idle ashore.
It found that the shipping line needed as many as three times the number of containers that it ships could carry in order to operate at maximum efficiency.
The container lessors argued that in order to make their liens worth anything, there must be a means to quantify the liability of each arrested vessel. The court solved the problem by applying a percentage of the shipowner’s obligations to the container lessors based upon the ratio between the container capacity of the vessel under arrest and the container capacity of the shipping company’s entire fleet.
The court apportioned the plaintiffs’ liens according to the ships’ 20-foot equivalent units (TEU), which are internationally recognized measures of container capacity. The total TEU of the entire fleet was divided into the TEU of each arrested vessel in order to determine the percentage of the fleet’s liability attributed to each arrested vessel.
It remains to be seen if other federal courts will follow this simple approach that is based upon the container lessor’s records. This method eliminates the need to rely upon shipping company’s records that are often not available when the company goes out of business. This novel apportionment method may become the future security blanket for the container leasing industry.