Maritime law has many unique features. At its core, the fact that the boats or vessels can travel long distances while incurring significant debts or liabilities. This fact makes it necessary to have the ability to secure payment from the vessel itself.
Because of this, a person owed money from a vessel owner often has an automatic lien against the vessel to secure payment. As discussed below, these liens secure payment for all types of obligations including wages, injury claims, and contractual debts.
Another unique feature of maritime law is that a vessel can be sued in an “in rem” proceeding. In rem simply means that you can sue the boat directly rather than the named owner of the vessel.
When suing a vessel in rem, the plaintiff can arrest the vessel to force the owner to put up security to guarantee payment of the debt. Arresting a vessel entails obtaining a warrant from a federal judge instructing the U.S. Marshalls to take the vessel into custody until payment of a debt can be secured or the dispute over the vessel is resolved.
Although the interplay between maritime liens, in rem actions, and arrests is complex, the overall concept is simple. Boats and vessels are able to travel from place-to-place incurring significant debts while being difficult to track down to recover payment.
Maritime liens and vessel arrests are a way of encouraging maritime commerce by using the vessel as security for payment and ensuring that employees and others are able to recover money needed for unpaid wages and compensation for injuries.
Understanding Maritime Liens
Similar to liens placed on real property, maritime law recognizes that certain types of liens are placed on vessels. Many of these liens occur naturally when a debt or obligation is created. Other maritime liens are created by agreement or through filing.
Some liens are considered to be preferred and have priority of liens that are not preferred. Examples of preferred maritime liens include:
- Seaman wages: A seaman or ship employee who is not paid his wages are automatically secured by the ship. Wages are paid before any other debt.
- Maintenance and cure: A seaman injured on a vessel is entitled to maintenance and cure consisting of medical expenses and the cost of room and board. This has priority over most creditor claims.
- Salvage claims are given preferred lien status because the salvor’s actions enable the vessel to continue operations and prevent it from peril.
- Personal injury damages to passengers, seamen, longshoremen, and others can be secured through an in rem action against the vessel to ensure adequate security is placed to cover damages.
- Damages to cargo and other property including other vessels, piers, docks, and more can be secured by the vessel through an in rem action.
- Ship suppliers of necessaries who file a lien with the U.S. Coast Guard have a preferred lien against the vessel. This is paid before a preferred ship mortgage if the lien is filed first. Necessaries include costs to run the ship including repairs, fuel, dockage, pilotage, and towage.
- First Preferred Ship Mortgage filed with the U.S. Coast Guard.
There are also non-preferred maritime liens that rank in lower priority. These liens include:
- Contract liens for necessaries provided after the First Preferred Mortgage has been perfected.
- Tax liens.
- Non-maritime liens under State Law.
- Forfeitures to the U.S. Government.
Priority of Maritime Liens
Like all other forms of secured debt, maritime liens may rank in priority. This means that if the vessel has to be sold to collect a debt, your lien interest may or may not come first depending on priority. As discussed above, there are preferred liens, which are paid first when a lien is foreclosed on.
Of the preferred liens, seamen wages and seamen injury compensation claims rank first. The thought is that seamen tend to be particularly vulnerable. This is followed by salvage claims and other personal injury or property damage claims.
Finally, ship mortgages are considered to have priority over other non-preferred liens.
Reasons for Vessel Arrests
There are essentially two reasons why a vessel arrest may be necessary. The most common is to secure payment on a lien someone has against the vessel. This could be for a contractual obligation, wages, injury compensation, or other reason giving rise to a lien.
While someone could always personally sue a vessel owner for damages, the reality is the vessel represents a tangible asset that has real value. A person or a business may not have liquid assets to pay a debt. A vessel owner is more likely to pay a debt or obligation (or at least provide security for a disputed debt) if the vessel is arrested.
When a vessel is arrested the owner will normally provide security so the vessel can be released and continue to be used. This security may be in the form of a bond or other valuable security including a letter of undertaking issued by a P&I club.
The second reason a vessel may need to be arrested is because it is wrongfully possessed by another party. There are several situations where this could occur.
For example, a charterer of the vessel may not return it in a timely manner and the owner may need to repossess it through an arrest. Likewise, a financial institution may need to repossess a vessel because a loan is being foreclosed on. In other situations, the vessel may have been stolen or is being possessed under false pretenses.
Process for Arresting a Vessel
The first step in arresting a vessel is filing a complaint in federal court requesting that the Court issue a warrant for the vessel’s arrest.
Normally, if there is a risk that the boat or vessel will soon depart the area, the Court will hear the request and issue the warrant within a few days. Once the warrant is issued, a fee will need to be paid to the U.S. Marshal to execute the arrest warrant and take possession of the vessel.
Once the vessel is arrested, several different things can happen. Most commonly, the vessel owner will move for the Court to allow it to post bond or furnish some other security to secure payment of the plaintiff’s claims so that the boat can continue to be operated.
The vessel arrest is only one feature of the legal action. Once the vessel is arrested, the plaintiff will need to continue to pursue his action in court. Once the legal action is terminated, the vessel should be released to its rightful owner unless it needs to be sold to pay a judgment.
Important Protection for Injured Seamen and Passengers
Some vessel owners have the appearance of being financially secure. For example, the owner may be a public company or has significant assets giving the impression that any judgment or obligation will be paid. However, other vessel owners are not so secure.
There may be a history or reputation of financial problems. The business may not be properly insured or the owner has gone to significant lengths to avoid financial obligations. You may just get the sense that something isn’t right.
Seamen, injured workers and passengers tend to have priority against a vessel owner over other types of claims and may need to use the vessel to secure payment of what is owed to them.
If you are concerned that a vessel owner is unable to pay you, you should consider your legal options including hiring a qualified maritime attorney to arrest the vessel and pursue your claims for you. At a minimum, it will place the vessel owner in a position of having to come up with a bond or other security needed to ensure that you are paid at the conclusion of your case.
The interplay between maritime liens and vessel arrests is a key facet of maritime law. It is important for everything from contractual claims, wage claims, and injury compensation.
If you have a maritime law issue that you need assistance with, contact Johns Law Group, PLLC to schedule a consultation.