Articles Tagged with “Maritime Lien”

Given the current economic climate, more and more companies are filing Chapter 11 in an attempt to shed debt. We receive many calls from vessel suppliers inquiring whether the yacht’s or ship’s owner filing of Chapter 11 has any impact upon their right to enforce a maritime lien and arrest the vessel. The answer is no!

United_States_Bankruptcy_Court_Seal.pngMaritime law gives a person or company who supplies “necessaries” to a vessel the right to have an admiralty court seize and sell the vessel, its earned freight and cargo to satisfy any unpaid invoices. This right is commonly known as a maritime lien right. Maritime lien rights are given a higher priority under the law since its purpose is to encourage necessary services to ships whose operators are unable to make contemporaneous payments.

Given the nature of maritime liens, courts have found the bankruptcy code has no impact upon the right to enforce a maritime lien against a vessel even though the owner filed Chapter 11. In fact, courts have held that maritime lien rights can arise in favor of a company supplying necessaries to a vessel during the time the owner is operating under Chapter 11. It is important to note that even though Chapter 11 proceedings have no impact upon maritime lien rights against the vessel, if the vessel is sold at a Marshal auction and the proceeds of the sale do not fully cover the unpaid invoices, the remainder of the debt owed may be discharged by the Bankruptcy court.

We are often asked by our clients who refurbish yachts whether they can include a clause in their contracts which gives them a maritime lien for attorney fees paid in association with bringing a lawsuit to collect unpaid invoices. Unfortunately, the answer is no. However, maritime law does provide a remedy.

Contract.jpgMaritime liens are statutory. This means the Maritime Lien Act gives people who provide goods and services to yachts, ships and other vessels certain protections. This includes the ability to arrest the ship in order to secure payment on outstanding invoices. However, nowhere in the Maritime Lien Act does Congress give a maritime lien for attorney fees. As such, courts hold that a person cannot have a lien against the vessel for attorney fees even if the owner agreed to such a lien in a contract. However, this does not preclude a contractor from putting a clause in the contract whereby the owner agrees to be personally liable for attorney fees should a lawyer need to be hired to collect the debt.

Often times a maritime collection lawsuit has two defendants: (1) the yacht; and, (2) the yacht owner. The claim against the yacht is for the foreclosure of a maritime lien. This claim is for the amount of the unpaid invoices plus certain court costs allowed by law and prejudgment interest. The claim against the owner is for breach of contract. This claim is also for the amount of unpaid invoices, certain taxable costs provided by law, prejudgment interest plus anything else the contract may provide. If the contract is written properly, these additional damages can include costs (normally not allowed by pure operation of law) as well as attorney fees paid in the course of pursuing the collection lawsuit. As such, though the contractor cannot create a maritime lien for attorney fees he still can recoup his attorney fees against the yacht owner.