Maritime liens have been developed as a means of allowing ship’s creditors to claim an interest in the ship itself to secure their claims. Maritime liens were necessary to permit the growth of maritime trade. Without maritime liens, all business would necessarily have to be on a cash basis. If cash is unavailable, a ship master might not be able to obtain the vital supplies or services needed. Without maritime liens, suppliers and service providers would be at risk of going unpaid.
Maritime lien by itself is valueless without a means of enforcing maritime lien. Mechanism for enforcing a maritime lien is the process of maritime arrest. Under maritime arrest process, maritime lien holder begins proceeding against the ship itself (in rem). If shipowner does not promptly satisfy the maritime lien, maritime lienholder can have the ship sold by the court, and use the proceeds to satisfy the claim. How a maritime lien holder actually accomplishes a maritime arrest.
Maritime Ship Arrest is the procedure for enforcing a maritime lien by bringing a lawsuit against a ship itself (in rem). When a ship is placed under arrest, ship is put under the control of that maritime nation’s district court that issued the warrant of arrest. Ship cannot be moved, cannot unload cargo and certainly cannot depart without a court order permitting the operation.
Maritime lien is a property right in a ship or cargo that is created by operation of maritime law on the basis of certain traditional maritime claims such as:
- Claims for seaman’s wages
- Claims based on collisions or other maritime torts
- Claims for salvage
- Claims for providing necessaries to a ship (procurement)
Notoriously, shipowners might be hard to identify, locate and bring under a court’s jurisdiction. Maritime arrest process gives maritime claimants a relatively fast and powerful way to compel shipowners to answer their claims. In order to receive an Order for Maritime Arrest, a person with a maritime lien against a ship applies to the admiralty court in whose jurisdiction the ship is located by filing a complaint against ship itself (in rem). Ship is the defendant in maritime lien case.
Complaint in Limitation (Petition for Limitation) must be verified as true by the claimant, not just by the lawyer, so that it can serve as a sort of affidavit. Complaint must set out enough facts so that the court can determine that claim is well-founded and that claimant has an apparent bona fide (in good faith, without fraud or deceit) right to a maritime lien against the ship. Complaint is accompanied by papers seeking an Order of Arrest, in which the judge will order authorities to go out and arrest ship and a prepared Warrant of Arrest against the ship for the judge to sign. In United States, a district court with an active admiralty caseload may have a duty judge available to sign the Order of Arrest and Warrant of Arrest.
Shipowner does not have the right to argue against the signing of the Order of Arrest. Usually, shipowner does not even know about complaint until after ship is actually arrested. Process for submitting the complaint, request for Order of Arrest and other papers is ex parte (proceeding where one of the involved parties is not present) or even aware of the submission. Maritime lien and arrest process is ex parte. Hence, complaint must be verified and supported by materials showing the existence of the maritime lien.
Generally, claimants usually prefer no-notice arrests, because advance notice could allow the shipowner to find an alternate port. In some cases, claimant might advise the shipowner of its intention to arrest his ship, in the hopes that shipowner will satisfy the claim beforehand.
When judge signs the order for maritime arrest, the next step is to take the order and supporting documents, such as:
- Copy of the Complaint
- Actual Warrant of Arrest (all in multiple copies)
Depending on the port of arrest, supporting documents are taken to authorities like sheriff, marshals or port police. Authorities can serve the Warrant of Arrest and make the actual arrest of the ship.
Claimant will need to tell the authorities when and where the ship is expected to arrive, so that the authorities can be ready. If ship will be coming alongside a dock, authorities will usually arrive just before the ship docks. If ship will be going to anchorage, then claimant will need to make launch service arrangements for authorities. When the ship arrives, authorities (sheriff, marshals) will go on board with the Customs and Immigration officials who will meet the ship. Authorities will give a copy of the papers to the ship’s master and will post a copy of the Warrant of Arrest in the pilothouse of the ship and also on the gangway. After that post, the ship is under arrest. A ship under arrest cannot move without the permission of the court.
When a ship is controlled by the court, a court order is required for any movement of the ship. Furthermore, to monitor and watch over the ship, court will appoint a custodian. In Singapore, the court will appoint the Sheriff as the custodians of the ship. In United States, the court will appoint the United States Marshals as the custodians of the ship. Authorities (Marshals, Sheriff, Port Police) have many other tasks to perform, so authorities will typically hire watchmen to monitor the ship under arrest. On the other hand, due to the expenses of engaging watchmen can be significant, a claimant will usually file a motion with the court to appoint a substitute custodian. In cases involving commercial ships, the claimant may ask that the ship’s master be appointed as substitute custodian. It may seem counterintuitive to ask ship’s master under arrest to watch over the ship on behalf of the opposing party. But, appointing ship’s master usually benefits both shipowner and claimant, by keeping the custody costs down and ship’s master is usually the best person for the job.
Pleadings Checklist for Maritime Arrest and Garnishment:
- Cover Letter to Clerk of Court
- Civil Cover Sheet
- Filing Fee
- Verified Complaint signed by the claimant
- Documents supporting establishment of maritime lien
- Affidavit of Counsel
- Request for Order of Arrest
- Draft Order of Arrest against the Ship
- Warrant of Arrest
- Authorities (Marshals, Sheriff, Port Police) Process Fee
- Authorities (Marshals, Sheriff, Port Police) Service Process Receipt
- Directions to the ship and arrangements if ship at anchor
- Motion to Appoint Substitute Custodian
- Order Appointing Substitute Custodian
- At least six (6) copies of all documents
In United States, laws and rules for a maritime arrest proceeding are set out in:
- Federal Rules of Civil Procedure
- Supplemental Rules for Certain Admiralty and Maritime Claims
- Asset Forfeiture Actions, Rules C and E
Furthermore, many courts with an active admiralty docket may have Local Admiralty Rules that govern the maritime arrest procedures.
After a ship is arrested, claimants (persons claiming an ownership interest in the ship) must make an appearance. If claimants (persons claiming an ownership interest in the ship) wish, their appearance to defend against the maritime arrest may be a limited appearance. Limited appearance means that claimants are not deemed to have appeared for any other purpose or any other case, unless they have been personally served with process in the other case.
Ship owners have a right to a prompt court hearing to challenge the arrest. At court hearing, claimant who caused the arrest of ship has the burden to show why the arrest should not be vacated. Claimants (persons claiming an ownership interest in the ship) must show the existence of the maritime lien. Hearing is not the trial and the burden on the claimant is not a heavy one. Burden is only to make a prima facie showing of a right to the maritime lien. If court finds that the complaint and supporting documents set out a valid maritime lien, should be sufficient to sustain the maritime arrest. At court hearing, if the claimant cannot show a valid maritime lien against ship, arrest is quashed (voided). A claimant (person claiming an ownership interest in the ship) can be liable for arresting a ship if the arrest is vacated at the court hearing. If arrest is vacated, shipowner has right to seek damages for a wrongful arrest. Under maritime law, damages for the wrongful arrest of a ship are only granted if the court finds that the person claiming the maritime lien acted with bad faith, malice or gross negligence. If claimant acted in good faith reliance on the advice of legal counsel, that is enough to defeat a claim of bad faith.
Agreement to Release Ship
If ship arrest is sustained, ship might not remain in limbo until the end of case. If ship owner is not successful at the post-arrest hearing or decides that hearing would be futile (unavailing, useless), shipowner can still get his ship released from arrest by posting a bond. Shipowner can enter into a Letter of Undertaking (LOU) with claimant (persons claiming an ownership interest in the ship). Besides, shipowner can provide some other form of security. In some cases, where the parties do not enter into Letter of Undertaking (LOU) or otherwise agree upon security for the ship and ship is incurring costs that would exceed the value of the ship, maritime court may order ship sold prior to trial and will then hold the proceeds in substitution for the ship.
Letter of Undertaking (LOU) is an agreement between shipowner’s insurer (Protection and Indemnity Club) and claimants (persons claiming an ownership interest in the ship). By signing Letter of Undertaking (LOU), claimant agrees to release the ship from arrest, in consideration for which shipowner agrees to submit to the jurisdiction of maritime court that issued Warrant of Arrest and to pay any judgment ordered by the court. Furthermore, shipowner’s insurer (Protection and Indemnity Club) agrees that it will ensure that the judgment is paid. Once a Letter of Undertaking (LOU) is agreed to and signed by the parties, Letter of Undertaking (LOU) becomes a substitute for the arrested ship, and the ship is permitted to go on its way. Usually, Letter of Undertaking (LOU) benefit both parties, because Letter of Undertaking (LOU) avoids the costs that would otherwise be incurred by holding a ship in custody, such as dockage, fuel, guards etc. Letter of Undertaking (LOU) permits the ship to continue to operate, earning revenues that could be used to pay the claim.
A maritime arrest case, a complaint in rem against the ship itself, proceeds similarly to any other federal case. Shipowners arrange attorneys to represent the ship and parties (claimant and shipowner) follow the customary steps in litigation of discovery, motions and trial. The most crucial difference is that in an in rem case, all other persons with maritime lien claims against the ship must come forward and join in the lawsuit against the ship or risk losing their liens. Once all parties with a claim against the ship have appeared in the case, judge sets a schedule for the trial to determine which claims are payable and which claims should be denied.
If judge ultimately finds against the ship in favor of one or more claims, shipowner will have to pay the claims or the ship will be sold. If ship is sold, proceeds will be distributed to maritime lien holders based on the priority of their respective maritime liens.
When ship is sold by the court in a judicial sale, proceeds are allocated based upon priorities. First priority is given to the costs of keeping the ship in the custody of the court. Afterwards, maritime liens are settled based upon their respective priority. Priority of different types of maritime liens are set out by statute as follows:
- Seaman’s wages
- Tort Claim
- General Average (GA)
- Preferred Ship Mortgage
- Necessaries, Supplies, Repairs, etc. provided
- Cargo damage
- Unpaid freight
- Contract claims (breach of charter-party)
When claimants have maritime liens in the same category, later lien usually prevails over the earlier lien. Maritime lien holder of the earlier lien could have enforced that lien before the second lien was created. Because, maritime lien is a right in the ship, later lien is a right against all claimants with a prior right in the ship, including earlier lienholders as well as the owners. In order to determine which liens were created first, courts typically consider liens that accrue during a single voyage to have occurred at the same time. When liens of the same category occur on the same voyage, courts will usually allocate the proceeds pro rata, on the basis of the proven claims.
If a party with a maritime lien claim against a ship decides not to join in the action and the ship is ultimately sold, person’s maritime lien is extinguished. Claimant may still have a claim against the shipowner, but the right to arrest the ship to enforce a maritime lien will be gone.
International Ship Arrest
Generally, maritime nations have similar procedures for ship arrest, enforce a maritime lien and to sell ships through judicial auctions. Details for such procedures will necessarily vary from country to country. Certain maritime nations may not recognize maritime liens that would be recognized in the United States. Certain claims that may not support a maritime lien under foreign law may still permit a maritime attachment which can be similar to maritime arrest.
Prudent buyer who is interested in buying a ship from a foreign judicial sale is to ensure that the Order of Sale expressly states that it extinguishes prior maritime liens and to obtain a legal opinion from a qualified attorney from the relevant jurisdiction that the judicial sale was conducted by a court of competent admiralty or maritime jurisdiction. Furthermore, ship sale was conducted in accordance with the relevant local law for the judicial sale of ships and that ship was sold free and clear of all prior maritime liens. If prior maritime lien holder later attempts to enforce the old lien by arresting the ship, buyer should be able to have the ship released promptly upon producing the Order of Sale and the legal opinion.