Steve Block, Foster Pepper PLLC, USA
Holding Vessels Liable for their Owners’ Debt: a Couple Illustrative Cases
The venerable maritime law concept that vessels are “folks” responsible and liable for their own debts is centuries old, at least in its earliest forms. It was historically expedient, if not essential, given the transient nature of the shipping business. Who would want to ship freight with, be employed by, finance, or otherwise do business with a vessel owner located in a distant place if there was no recourse against it save tracking it down and suing it heavens knows where?
Briefly, the right to have a vessel “arrested” and named as a defendant in a lawsuit (typically, but not always, concurrently with its owner) follows a plaintiff’s assertion of a maritime lien on the vessel. Maritime liens arise based on a pecking order of variety of debts a vessel owner might incur with respect to its vessel, with seamen’s wages typically at the top. If you have a maritime lien on a vessel, you frequently get its owner’s full attention by grabbing its vessel when it’s in your neighborhood, and pursuing recovery against it “in rem” in a legal proceeding. The owners can typically regain access to their ships by posting adequate security into the registry of the court, but the claimant remains secure.
Volumes have been written about the law and its process. Numerous procedural details can complicate the process. Cases addressing various circumstances come out periodically, further defining maritime liens, actions against vessels in rem , and the parties’ rights and exposures. Recently, the U.S. Court of Appeals for the Eleventh Circuit ruled, or should we say restated, that hey, the vessel does indeed to have something to do with a claimant’s alleged loss for a maritime lien to attach. Maritime liens arise based on maritime torts, but just because a tort was committed by a vessel owner doesn’t mean the vessel was involved to the extent it can be held liable. In this instance, warehouseman Destin, who happened to be the principal of an entity that owned a vessel, allegedly absconded with 3,800 bags of David Middleton’s beans. [N1] Middelton’s legwork apparently revealed that Destin loaded the beans onto his company’s vessel, the M/V GLORY SKY I, and took them to Haiti.
When Destin defaulted on Middelton’s ensuing lawsuit in the Southern District of Florida, he named GLORY SKY I as a defendant and had the federal marshal dispatched to seize the vessel when it was docked in the Miami River. Reviewing the circumstances, the district court found no maritime lien on GLORY SKY I, and dismissed the claim. On appeal, the Eleventh Circuit agreed.
Middleton alleged the tort of conversion, one maritime law recognizes, which is basically an unauthorized taking of another’s property for one’s own use. Clearly a conversion occurred, but unfortunately for Middleton, the tort was completed before it ever crossed GLORY SKY I’s rail. The fact the vessel was used during “Part II” of a theft doesn’t mean Middleton can declare it was instrumental in the tort against him. In other words, once Destin converted Middleton’s property, the deed was done, so the tort was not of the maritime variety that could lead to a maritime lien. A vessel can be liable for a maritime tort only if its owner committed one, and that just wasn’t the case here. The fact Middleton demanded return of his property after it was loaded on the vessel doesn’t mean beans, as “demand” is not an element of the tort of conversion.
Unlike most other countries, such as Singapore, the U.S. will enforce maritime liens against vessels in favor of suppliers to vessels of “necessaries,” typically fuel, equipment and repairs, whom vessel owners fail to pay (there’s a special U.S. statute at 46 USC §31342 for this). The U.S. District Court for the Eastern District of Louisiana recently took a look at a choice of law issue as it governs a bunkers supplier’s claim to a maritime lien.
[N2] World Fuel Services Singapore (WFS) supplied oil to the M/V BULK JULIANA at the Port of Singapore subject to the supplier’s terms and conditions, which provided that “the General Maritime Law of the United States” governs disputes. The vessel is Panama flagged, but beneficially owned by a U.S. company.
When the vessel owner didn’t pay up, and the BULK JULIANA ventured into the Port of New Orleans, WFS brought suit and had the vessel arrested. The vessel owner urged that no maritime lien for necessaries existed, as the contract clause was limited to application of the U.S. General Maritime Law, and didn’t specify U.S. statutory law (which would include 46 USC §31342). The court didn’t agree, and enforced a maritime lien.
The court first addressed the give-me-a-break issue of what WFS intended by the clause, i.e., that everyone understood, or should have, that it encompassed U.S. maritime statutes. The court then turned to an analysis of general conflict of law principles as summarized by Restatement (2d) of Conflicts of Law (Section 6), and concluded relevant policy considerations fall squarely in favor of applying U.S. law. The Fifth Circuit Court of Appeals adopted this approach in a 1981 decision addressing a lien claimed on the vessel HOEGH SHIELD. Specifically, the “Hoegh Shield factors” are aimed at promoting maritime commerce by giving weight to the relevant needs of an international system; policies of the forum and other interested states; including those under the particular field of law; protection of justified expectations and predictability; uniformity; and ease of application. The court concluded, especially in light of the governing contract, that a maritime lien for necessaries as provided by U.S. law should apply.
When the stakes are as large as they can be with respect to vessel arrest, parties not surprisingly resort to creative theories. This has engendered a healthy body of case law defining the particularities of maritime liens and rights to bring suit against vessels in rem . While some consider the fiction of vessels being entities responsible for their own misdeeds to be antiquated, it remains a significant feature of maritime commerce and law governing it around the globe.
Notes:
[N1] Middleton v. M/V GLORY SKY I , et al., 2014 WL 2198524 (11th Cir. 2014);
[N2] World Fuel Services Singapore v. M/V BULK JULIANA , 2014 WL 2719252 (E.D. La. 2014)