SHIPPING INDUSTRY PREFERS ARBITRATION IN SETTLING DISPUTES

A maritime lien is a unique security device recognized only in admiralty law. It creates a non-possessory property interest in a ship or its cargo in favor of the creditor for a maritime debt or claim. The creditor may have the vessel arrested in an admiralty action and sold to satisfy the claim.

The lien is non-consensual and need not be recorded. It arises the moment the debt or maritime tort occurs. The lien follows the vessel throughout the world and may be enforced against a good faith purchaser of the ship.

This indelible debt may be enforced only by an admiralty judicial sale. The sale frees the ship of all liens and the purchaser gains good title against the world. The lien also may be extinguished by waiver, estoppel, laches, statutory time-bars, destruction of the vessel or payment of the debt.

Liens are ranked by class and time. Generally the last claim within a class to accrue is the first to be paid. Class priority ranges from seaman’s wages to contract liens for necessaries.
The purpose of the contract lien is to enable a vessel to obtain necessary supplies or repairs by giving a temporary pledge of the vessel until payment can be made or formal security posted. Liens allow ships to continue trading, while preventing them from sailing away from 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 . . . shall have a maritime lien on the vessel.” Under the Act, “necessaries” means supplies and services furnished to the vessel that are reasonably needed for the shipping venture.

Legal issues involving maritime liens are often complex and fact specific. The recent Ferromet case (5 F.3d 902) in the 5th Circuit Court of Appeals illustrates the point.

Your Money or Your Ship
In Ferromet, a bunker supplier agreed to furnish fuel to a time-chartered vessel. The bunker sale was made on the credit of the ship. However, the supplier was not aware that the charter party between the shipowner and charterer prohibited the later from incurring vessel liens.

The bunker supplier directed its barge contractor to fuel the vessel. After bunkering, the contractor received a stamped receipt stating the shipowner would not guarantee payment for the oil. The contractor immediately notified the supplier. The supplier was concerned that acceptance of the receipt might destroy its maritime lien by waiver or estoppel.

The supplier then instructed the barge to remain attached to the ship until the stamp was canceled, payment was made or the fuel was pumped back into the barge. All options were refused and a three-day stand-off followed . Finally the charterer paid and then sued the supplier for breach of contract and tort.

The trial judge found the facts “novel in the annals of reported maritime case law, though they had the ring of the Old West.” He then granted summary judgment in the charterer’s favor by holding that no facts could justify the vigilante style self-help actions of the supplier.

Appeals Court Backs the Creditor
The appeals court reversed and remanded the case to determine additional facts. If the charterer failed to give notice of its lack of authority to incur liens before the fuel was delivered and tried to get the barge contractor to accept the bunker receipt that threatened the maritime lien, then the charterer wrongfully interfered with the supplier’s right to security. Furthermore, the supplier would have acted reasonably in ordering the barge to wait alongside the vessel.

The Ferromet case suggests that time charterers having no authority to incur liens on vessels, must advise suppliers of this fact before delivery, otherwise, the liens will stand.


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