No Cash, No Splash? Maritime Liens Part Two

You are a shipyard and have performed expensive repairs on a fishing boat or yacht. The owner isn't too happy about the bill and may even dispute some of it, and he's threatening to sue if you don't give him the boat.

Do you have to deliver the boat? Is "No cash, no splash" good law?

Federal law and Maine law give different results here. Maine law gives a shipyard a "possessory lien" on the ship. A possessory lien allows the yard to keep the ship until the yard bill is paid. If payment is not made, the yard can go to Maine Superior Court with a complaint against the boat, setting forth the claim and asking that the court order the Sheriff to sell the boat in satisfaction of the yard bill. (This remedy is found in Title 10 of the Maine Statutes, beginning at Section 4001.) As a practical matter, the owner of the ship would probably also be a defendant, on an action for the owner's failure to pay the amount due under the contract. This remedy works only on a state registered vessel, however.

Federal law is murkier. The law of maritime liens exists to encourage maritime commerce. So that a damaged ship will remain in commerce, and because a reasonable shipyard might not repair the ship merely on the promise of payment, unless the parties agree otherwise the ship itself automatically becomes security for the repair bill. That way even if the yard bill can't be paid same day, the ship can get fixed and get going. Obviously the law of possessory liens runs counter to that rationale, for a ship chained to the pier isn't in commerce. I know of one case in which the shipyard was held civilly liable when, after a payment dispute arose, the yard refused to release a barge it had repaired. It's not a local case, and the facts were hard, but that was the holding.

Here's some bottom line. First, if the boat you repaired is state registered, you are probably safe in asserting a possessory lien under Maine law, and holding the boat until full payment. In theory the federal courts and federal maritime lien law could get involved, but in fact the risk is low.

Second, keep in mind that the law of maritime liens applies only to boats that are in navigation. Now, a ship hauled for repairs is considered still in navigation, unless it's opened up, out of service for an extended period, and essentially decommissioned, a dead ship. But a new ship that has never been launched, or which has been launched but not yet delivered, is not in navigation, and admiralty lien law does not apply. That means commercial law, including Maine's law of possessory liens, controls the case. This is true even if the boat has already been documented with the Coast Guard.

Suppose you supply electronics or an engine to a ship that is not yet commissioned: You have no maritime lien.

Third, have a written contract. A signed contract stating that the boat doesn't get released until full payment is made will trump a claim that no cash, no splash is counter to law. Any yard doing repair work should have a work order, signed by the customer and detailing the work to be done, the cost, terms of payment including no cash, no splash if applicable, and providing for the yard to get its collection costs if it has to enforce payment. There are many other useful terms in any good yard contract, any one of which could one day save your business, but these terms are the barest minimum. Some Maine tradesmen don't seem to like written contracts, which is great for the lawyers who get hired to sort out cloudy commercial disputes. My opinion: A clear, readable contract, concisely setting forth the rights and obligations of the yard and the owner, tells the customer that you are a good businessman or woman. It's a selling point.

Let's turn briefly to noticing your lien. Although it is not necessary to record notice of a maritime lien, it's a good idea to do so, for two reasons. First, if the lien is recorded you stand a much better chance of getting paid if the boat sells, is foreclosed upon, or if a new mortgage issues on the boat. Second, if you don't record the lien you may be exposed to the claim that you waived the lien because you relied for payment on some other security. (By the way, don't ever tell the shipowner that you agree not to assert a vessel lien, unless you mean it.)

Liens on Maine registered vessels are recorded with the Maine Secretary of State, UCC division (624-7736). Liens on documented vessels are recorded with the Coast Guard's National Vessel Documentation Center (800-799-8362). The Coast Guard is particular about the required form of lien notice, and you may want to consult a lawyer before filing, at least the first time or two. Please keep in mind that a notice of lien recorded with the Coast Guard expires after three years. The lien survives, but re-recording is appropriate.

I understand that this topic is complicated. Even the courts have failed to give clear guidance in some areas. And there are aspects of the law of maritime liens, important aspects, that I have not even mentioned. So use this article as guidance, but if important money is at stake, you really do want to talk to a lawyer who does this stuff or is a fast learner.

Nicholas Walsh is a maritime attorney in Portland, Maine. He may be reached at 207-772-2191, or [email protected].