The Nuts and Bolts of Maritime Liens (Part One)
A maritime lien gives a provider of fuel, repair services etc. an automatic lien on the ship to which the the services were provided. The lien allows the provider to seize the ship and sell it in satisfaction of the lien and the costs of sale. By “automatic” I mean the lien exists the moment the fuel is pumped, the ship is repaired etc. If the boat sells the day after I pump the fuel, I can go to the new owner and demand payment, even if the buyer didn’t know about the lien or the fuel.
Similar liens exist in other industries. For example, all states have statutes giving a contractor who installs a roof, sods a lawn or repairs a furnace a “mechanic’s lien” on the real estate. Aircraft mechanics, watchmakers, warehouseman, haycutters, even providers of stallion stud services, all may enjoy the benefit of a state statutory lien in the thing repaired, the goods stored, the hay cut, the foal thrown. A major difference between a federal maritime lien and these state liens is that under federal maritime law the lien does not have to be recorded anywhere, although it is usually a good idea to publish it with the Coast Guard, and there is no strict timeline for suing to enforce the lien – but don’t wait too long or a court might decide you forfeited the lien by delay.
Most states with a seafaring tradition have both federal and state maritime lien law. The state law is found in the statutes. The federal law of maritime liens is found in the “general maritime law”, which is the court opinions, and also in Title 46 United States Code Sections 31301 – 31343, the Commercial Instruments and Maritime Liens Act.
Using the federal law to get paid on a maritime lien is expensive. The process is fairly complex and the lienholder has to go to Federal District Court, a very serious place where the lawyer’s meter ticks right along. Doing the same thing under state law is generally cheap, as such things go. If you are just getting rid of an abandoned vessel and trying to recover your storage fees, you may not even have to go to court. So why would anyone use the federal law?
Here’s the problem, which I am going to follow with a suggestion. The federal Commercial Instruments and Maritime Lien Act says expressly that it, not any conflicting state law, controls. (Title 46 USC Section 31307.) It’s therefore likely that if a shipowner ever went to Federal District Court to challenge a boatyard’s use of state law to seize and sell his documented boat, the boatowner would win. I assume the sale would be undone, and just possibly the yard would face liability for “conversion”, or civil theft.
Does that mean a boatyard should never use the state law process to, for example, cheaply and efficiently get an abandoned boat out of the yard? Does the yard really have to make it a federal case? First, if it’s not a federally documented vessel I would put my concerns aside and proceed under state law. But even if the vessel is documented, I suggest that if the vessel has modest value, and if the yard has no reason to believe the boat owner will put up a stink, the state process can be used with small risk. Despite the controlling federal law, the Coast Guard will accept the transfer of title to the new owner if the lien was correctly foreclosed upon under state law.
Let’s get back to vessel liens. What gives a person a vessel lien? A vessel lien must reflect the provision of “necessaries” to the ship. Necessaries are those goods and services necessary to keep the ship in navigation. Fuel, provisions, repairs, wharfage, and insurance premiums are all necessaries, and there are many other examples. By illustration, brokerage commissions are not necessaries, because the commissions are not necessary to keep the ship operating.
If the ship is arrested and sold at auction, or if it is refinanced or just sold in the market, the liens get paid, newest first. That means if the ship does not sell for enough to pay all the liens, the newest lien is first paid, then the second newest, and so on, until the money runs out.
In shoreside liens (for example, a mechanics lien for a home repair) the order is reversed, with the oldest lien getting paid first. The newest-first priority reflects the policy of keeping the ship in navigation by offering good security to, for example, a shipyard which is considering whether to do work based on the credit of the ship. The rule also assumes that the newest creditor provides a benefit to the older creditors by keeping the ship operating, giving it a chance to work off earlier liens.
The liens listed above are all “contractual liens”, incurred deliberately by the ship. If the ship has a Preferred Vessel Mortgage, a creature of federal statute, the Preferred Vessel Mortgage gets paid ahead of any contractual liens incurred after the mortgage was recorded. Just about any loan to a ship is secured by a Preferred Vessel Mortgage, or should be if the bank was on the ball and used the right magic words.
Salvage awards, crew wages, stevedoring, liens stemming from the death or injury of a sailor, and collision liens are also necessaries, but they get special priority - they get paid ahead of even an earlier-recorded Preferred Vessel Mortgage. Each of these liens reflects a public policy favoring the lien.
Finally, if the ship is arrested and sold to pay liens, the costs of court and costs of sale get priority over all liens.
Next month I’ll cover how to give notice that you have a lien, how to find out about other liens, and how to get paid on a lien.
Nicholas Walsh is an admiralty attorney with a national practice. His office is in Portland, Maine, and he may be reached at 207-772-2191, or email@example.com.