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	Here is a paper on liens and attachment that I presented at the 2001 ASBA/BIMCO Conference ASBA / BIMCO Agency Seminar Strategies for Survival - Time for a Rethink Orlando, Florida - November 8 and 9, 2001 Topic - Agents' Options for Recovery: Maritime Liens and Attachment By Jeffrey A. Weiss I. Introduction Ship's agents play a vital role in international shipping and trade. They prepare cargo documents, solicit cargoes, assist with vessel clearance, attend to crewmember's needs, among numerous other functions. In addition, they routinely pay for services and supplies that allow vessels to continue trading and maintain tight sailing schedules. In this paper, I will describe how a ship's agent can use special procedures that are made available under the maritime laws of the United States to collect unpaid agency fees and / or disbursements. Specifically, Rule C Maritime Arrest and Rule B Maritime Attachment (Rule C and Rule B of the Federal Supplemental Rules for Certain Admiralty Claims). Maritime arrest and maritime attachment are powerful procedures. In most cases, a vessel (or certain other types of property) may be arrested by a creditor without notice to the shipowner. This gives the unpaid agent a considerable advantage because the shipowner must post bond or some other form of security to release the vessel. The dispute will then be settled, or if necessary, proceed to litigation. However, the agent proceeds to litigation in a secured manner, making it much easier to collect on a judgment once obtained. It is also noteworthy that the ability to arrest a vessel in the United States does not require the claimant to demonstrate the merits of the underlying claim, or that a judgment, if obtained against the vessel's owner, will not be satisfied. In addition, the affect of the arrest on a third party's property or interest, such as a cargo owner or charterer, is not relevant for purposes of determining whether an arrest will be allowed. In essence, the unpaid creditor can shoot first and have all questions resolved later. However, these procedures can be expensive. As explained below, there are legal, court, U.S. Marshall, and related fees involved. Therefore, the question always arises as to whether the procedures that I will describe will be cost effective in any given case. This paper will also look at a statute and select cases concerning arrest and attachment. Lastly, I will briefly examine similar remedies available under the laws of other nations. I hope that this paper will answer questions that agents might have pertaining to the practical use of these powerful legal weapons. II. What is a maritime lien and how is a maritime lien created under United States law? A maritime lien is a type of property right. In this paper, I shall primarily address maritime liens against a vessel. However, liens against other types of maritime property can arise, such as a lien against cargo or freight. Thus, by way of example, a maritime lien is a property right of a non owner of a vessel, giving the lienholder the right to have the vessel sold and the proceeds distributed to the lienholder to satisfy an in rem (against the property) debt. It can arise, by way of further example, because of unpaid agency fees or disbursements made on behalf of the vessel that have not been reimbursed. A maritime lien is the essential requirement to bring an in rem claim against a vessel. What constitutes a maritime lien, and who may have one, is defined by federal statutes and case law. The most commonly recognized maritime liens in the United States are: 1. a cargo interest's lien against a vessel for cargo damage caused by the vessel 2. a property owner's lien for shore structure damage caused by a vessel 3. a seaman's lien for personal injury or death caused by a vessel 4. a shipowner's lien against another vessel for damage caused by the other vessel due to a collision 5. a bank's preferred ship mortgage lien 6. a seaman's or master's lien for unpaid wages 7. a salvor's lien for unpaid salvage services 8. a cargo interest's lien for general average contributions payable by a vessel 9. a charterer's lien for a breach of charter party by the shipowner 10. a supplier's lien for the costs of supplies, services, and other necessaries furnished to a vessel Of course, the last item is the one most relevant for the ship?s agent, and will be discussed in greater detail later on. Many advantages arise when a creditor has a maritime lien and makes an in rem claim. As described previously, the arrest of the vessel usually results in the posting of security in favor of the claimant. This will serve as security for the claim. In addition, there are instances when the vessel is liable in rem even though the shipowner is not personally liable or responsible for the unpaid debt. A classic example is when a supplier provides goods and services to the vessel at the request of the time charterer and remains unpaid. The supplier has a maritime lien against the vessel even though the ship's owner is not liable personally to the supplier. In practice, this results in a form of strict liability upon the shipowner, although such liability is limited to the value of the ship for the goods and services provided. The vessel itself is liable for the debt. It is worth noting that a lien against the vessel survives the sale of the vessel by one shipowner to another shipowner in the ordinary course of business. The buyer of the vessel takes the ship with all liens attached. Thus, an unpaid supplier can arrest the vessel (in support of its efforts to collect the unpaid debt) even if the shipowner has sold the vessel to another shipowner. This is why the in rem concept has given rise to the personification of the ship fiction. The ship is a legal person, liable for the unpaid debt, even though her current owner is not. III. How is the Maritime Lien Enforced in the United States? In the United States, enforcing a maritime lien by arresting a vessel is relatively simple. Once the vessel is arrested, the creditor's claim must be paid, or if the claim is contested, security must be posted by the shipowner or its insurer. If security is not posted, the vessel can be sold under the supervision of the Court. The proceeds of the sale will satisfy outstanding claims against the vessel. The procedure for enforcement of a maritime lien in the United States is roughly as follows: 1. the lien is enforced by the filing of a claim in rem against the vessel. The claim is commenced by the filing of a legal complaint against the vessel in the United States District Court in which the ship is found, or is soon to be expected. The complaint will allege that the vessel to be arrested is currently within the judicial district, or will be during the pendency of the lawsuit; that the claim is being filed based upon a maritime lien; the circumstances giving rise to the maritime lien; the amount of damages suffered by the claimant and the relief sought; and a description of the vessel with reasonable particularity. The court-filing fee is $150. 2. The U.S. Court will issue a warrant for the arrest of the vessel in which the United States Marshal is ordered to arrest the vessel. The Court may require that the claimant deposit costs with the Court for any costs or expenses that might ultimately be awarded against the claimant. It is noteworthy that an arrest that was wrongfully caused, or done in bad faith, subjects the arresting party to liability and damages. 3. The claimant will also have to make an advance deposit with the U.S. Marshall to defray the anticipated costs of keeping the vessel while under arrest. For example, the U.S. Marshall's Office in New Orleans recently advised me that a $10,000 deposit must be made with the Marshall's office. Expenses to be expected include a guard at $15. per hour, launch service at $143. per trip, and premiums for insurance ($19. per day for vessels up to $2,000,000 in value and $24. per day for vessels $3,000,000 to $5,000,000 in value). Of course, there are legal fees to be expected for the drafting and filing of court documents. 4. Legal process is served by affixing a copy of the arrest warrant on the vessel and by serving the Master or other person in charge with the complaint. Once the warrant of arrest is served, the vessel cannot depart the jurisdiction without first obtaining a court order. However, under rare circumstances, such as a huge storm, the vessel may be released from custody for her safety. The vessel will be allowed to move within the waters of the Court's jurisdiction with Court approval. For example, the vessel may be moved to a layberth or an anchorage to reduce expenses. 5. Time is of the essence in arresting a vessel. Once the ship departs the jurisdiction of the Court, the Court is divested of its in rem jurisdiction. 6. Certain vessels are immune from arrest under United States law. For example, under the United States Foreign Sovereign Immunities Act, a vessel owned by a foreign government may not be arrested. To enjoy this immunity, the vessel need not be owned directly by the government, but may be owned by a separate corporation run by the government. This is not to say that the government / shipowner cannot be sued for an unpaid debt. However, the vessel cannot be arrested like a private commercial vessel. 7. Under U.S law, a maritime lien can only be foreclosed against the vessel to which the lien relates. Sister ship arrests are not permitted under U.S. Law. This is unlike other nations that allow for sister ship type arrests. However, as explained below, U.S. law does provide for another means of seizing assets of a company (on a prejudgment basis) other then the offending ship. 8. The shipowner and / or its insurers may post bond or other form of security to release the vessel. This is deposited with the Court and now acts as a substitute for the vessel. The claimant's liens are now transferred to the security posted. In the absence of fraud or misrepresentation, the release of a vessel upon the posting of security discharges the lien against the vessel. Therefore, the nature of the security accepted by the claimant should be first class. Routinely, the claimant accepts a letter of undertaking issued by the shipowner's P and I insurer (Club letter). However, the claimant is not obligated to accept such security and can require a bond or other form of security approved by the Court. In addition, the P and I Clubs are not obligated to post such a letter on behalf of their insured. However, they will do this routinely, especially for their better members. 9. The vessel owner may also ask the Court for an order requiring the claimant to post security for any counterclaims the shipowner or the vessel may have. 10. Routinely, the claimant obtains the Court's approval to appoint a substitute custodian for the vessel. The substitute custodian will take custody of the vessel after the arrest (relieving the U.S. Marshal's office) and hold the vessel until it is released by the Court. The custodian insures that the vessel is safely kept and properly maintained while in custody. The custodial fees assessed by a substitute custodian should be less then those imposed by the U.S. Marshall. 11. The rules provide for a prompt post arrest hearing. The post arrest hearing is not intended to resolve the underlying claim, but only to make a determination of whether there were reasonable grounds for the issuing of an arrest warrant. If none existed, the vessel will be released. 12. The post arrest hearing is important for U.S. Constitutional due process considerations. Please remember that vessel arrest is routinely applied for on an ex parte basis. The shipowner is not represented before the Court when the arrest warrant is issued. The shipowner may first learn about the arrest after it happens. U.S. law frowns upon the seizure of property without a judicial hearing. A prompt post arrest hearing (for example within three days after arrest) is normally scheduled to address due process / fairness concerns. 13. In the event that the vessel is not released by bonding or other form of security, notice / publication of the arrest is required by the Court. Other claimants may intervene in the lawsuit and file their claims against the vessel. 14. If the claimant obtains a judgment against the property, and no security has been posted, the Court will order the sale of the vessel at a public auction. Under special circumstances, the Court may order the sale of the vessel prior to judgment (interlocutory sale), with the proceeds being paid into the Court pending resolution of the dispute. This may occur, for example, where the costs of detaining the property is excessive or disproportionate to the value of the claim. Please note that the buyer at the Marshall's sale takes the vessel with clear title, free and clear of all claims and liens (unlike the buyer of a vessel in the ordinary course of business between shipowners). The United States Marshall is entitled to an auction fee, for example, 3% of the first $1,000 realized by the sale and ½% in excess of $1,000, up to a maximum of $50,000. 15. Funds generated by the vessel's sale will be distributed to the claimants based upon the priority of each claimant's lien as established by law. Regretfully, maritime contract liens, such as liens for agency fees, have a very low ranking in terms of lien priority. These fall below liens for crew wages, salvage and general average, torts, among others. The lien will also often fall below that of a bank / mortgagee. IV. Are Ship's Agents Afforded the Opportunity to Lien on a Vessel The answer is yes (and no) depending upon the circumstances. Courts in the United States have historically had difficulties with the question of whether an agent who advances money on behalf of a ship can assert a maritime lien against the vessel and have her arrested. This dates back to an old Supreme Court decision Miniturn v.Maynard, 58 U.S. 477 (1855). In that case, the U.S. Supreme Court held that an agency contract falls outside of the federal court's admiralty jurisdiction with the result that no maritime lien arises out of unpaid agency disbursements or fees. In Miniturn, a ship's agent had sued for the balance of money due him for disbursements made for ship's business. The Supreme Court affirmed the lower court's denial of a lien. The Court held that an agency contract was per se not a maritime contract for purposes of creating a maritime lien. The Court balanced the interests of a potentially innocent shipowner with those of an innocent yet unpaid agent. The Court was unwilling to extend the generous protections of a lien to an agent. This was the law in the United States for some time. This question, that is, whether an agent has a maritime lien for unpaid fees or disbursements, was revisited in the famous U.S. Supreme Court case Exxon Corp. v. Central Gulf Lines, Inc. Here are the facts of that case. Central Gulf Lines owned a vessel called the Hooper. The Hooper was chartered to Waterman Steamship Co. Exxon was Waterman?s worldwide supplier of fuel oil. Exxon would supply its own fuels to Waterman?s vessels in ports at which Exxon maintained a supply. In ports where Exxon did not have its own fuel, Exxon would arrange for a local supplier to bunker the vessel. Exxon would pay the local supplier and then invoice Waterman. In essence, Exxon's contractual obligation with Waterman was to provide Waterman's vessels with fuel oil, sometimes as a seller, and sometimes as Waterman's agent. Exxon had arranged for 4,000 tons of fuel to be supplied to the Hooper by an independent local supplier, Arabian Marine. Exxon paid for the fuel and then invoiced Waterman. Waterman went bankrupt shortly thereafter. Exxon realized that its chances of collecting from Waterman were nil. Exxon, seeking to recover the funds advanced on Waterman's behalf, asserted a maritime lien against the vessel Hooper and commenced a lawsuit in rem. The lower Courts relied upon the longstanding Miniturn rule and held that agency contracts do not create admiralty jurisdiction, nor the right to proceed in rem against a vessel. Exxon appealed. The U.S. Supreme Court reversed 140 years of judicial precedent and held that agency contracts are not automatically excluded from admiralty jurisdiction. The Court further ruled that an analysis needs to be made on a case-by-case basis of the services underlying the agency agreement before a determination could be made as to the existence of a maritime lien. The Court stated: "The proposition for which Miniturn stands- a per se bar of agency contracts from admiralty (jurisdiction) ill serves the purpose of the grant of admiralty jurisdiction. As noted, admiralty jurisdiction is designed to protect maritime commerce. There is nothing in the nature of an agency relationship that necessarily excludes such relationships from the realm of maritime commerce.Rather then apply a rule excluding all or certain agency contracts from the realm of admiralty, lower courts should look to the subject matter of the agency contact to determine whether the services performed under the contact are maritime in nature.?" Thus, according to the Court in the Exxon Corp. v. Central Gulf Lines case, agency contracts could fall within admiralty jurisdiction, provided that the services performed under such contracts were maritime in nature. So the rule today requires Courts to look carefully at the services performed under the agency agreement. It is the character of the agent's work that is determinative of whether a maritime lien exists. I will suggest that a maritime lien now clearly arises under U.S. law for the work routinely performed by a port agent, such as arranging and supervising dockage and pilotage, arranging for tug assistance, cargo discharge, and the many other important functions requiring day-to-day agency attendance. However, this is to be compared to services which a court might consider to be preliminary to maritime contracts, which would not be within the court's admiralty jurisdiction and would therefore not provide the protections of a maritime lien. For example, this would include commissions for booking cargo. V. What is the Commercial Instruments and Maritime Lien Act and a Necessary? Within The Meaning Of That Act? The Commercial Instruments and Maritime Lien Act is a U.S. federal statute. From the agent's perspective, important sections of the Act include: Section 31301: Definitions -In this chapter necessaries includes repairs, supplies , towage, and the use of a dry-dock or marine railway. Section 31341. Persons presumed to have authority to procure necessaries (a) the following persons are presumed to have authority to procure necessaries for a vessel (1) the owner (2) the master (3) a person entrusted with the management of the vessel at the port of supply; or (4) an officer or agent appointed by (A) the owner; (B) a charterer; (C) an owner pro hac vice, or (D) an agreed buyer in possession of the vessel. Section 31342. Establishing Maritime Liens. A person providing necessaries to a vessel (except a public vessel) on the order of a person listed in Section 31341 or a person authorized by the owner 1. has a maritime lien on the vessel; 2. may bring a civil action in rem to enforce the lien; 3. is not required to allege or prove in the action that credit was given to the vessel. Under this Act, a person providing necessaries to a vessel upon the order of an authorized person has a lien against the vessel. The term necessaries includes by statute vessel repairs, supplies, towage and drydocks. Courts have expanded the definition of the term to include pilotage, provisions for crew and passengers, wharfage, surveyor services, crew transportation, bunkers, and many other items. The supplier of necessaries has a maritime lien against the vessel. Necessaries can also include the services of an agent, for example the services of a husbanding agent, as we now understand from the Exxon Corp. v. Central Gulf Lines decision described above. An agent should also be aware that the statute creates a lien in favor of a third party supplier when the agent procures necessaries on behalf of the vessel, whether under the authority of the ship's owner, charterer, owner pro hac vice, or an agreed buyer in lawful possession. VI. What Other Remedies Are Available to An Unpaid Agent under U.S. Law? Arrest is one of two main prejudgment remedies afforded under the U.S. maritime law. The other is a Rule B attachment. There are many similarities between Rule C arrest described above and Rule B attachment. In both cases a ship may be seized and sold to satisfy the claimant?s claim. However, there are differences. A Rule B attachment must be in conjunction with a claim made personally against the shipowner. As stated above, in the in rem arrest procedure, since the ship itself is personified as a defendant, there is no requirement for an allegation of personal liability against the ship's owner. Thus, you cannot obtain a Rule B attachment of a vessel unless the ship's owner is also responsible for the unpaid debt. Furthermore, it is necessary under Rule B proceedings that the defendant (for example, the shipowning company) cannot be ?found? within the judicial district in which the Rule B proceedings are brought. By contrast a claimant may sue a ship in rem even if the ship is located in a port in which the defendant company has a presence (such as an office). The main advantage, however, to Rule B is that it extends to any assets of a prospective defendant. In practice, the property subject to Rule B attachment includes a vessel, freights, commercial bank deposits, proceeds of a letter of credit, and other tangible or intangible property. Typically, the Rule B attachment will be used when a creditor remains unpaid and the creditor somehow learns of the presence of the debtor's assets, such as a bank account, within the judicial district. The claimant commences a lawsuit in the judicial district in which the debtor's property is located and applies to the Court for an order of attachment. If the attachment is ordered and the assets successfully attached, the claimant has created a fund which guarantees payment if the claim is indeed successful. If the attachment is unsuccessful because of the claimant's poor timing, or inability to actually locat assets, the matter proceeds like any other lawsuit, and in an unsecured manner. This means that any award granted by the Court against the defendant shipowner may very well not be enforceable. Let me give you an example of its use. Let us say that an agent is owed fees and disbursements from a defaulting shipowner. It is discovered that the shipowner (which is domiciled overseas and has no meaningful contacts with the judicial district that New Orleans is located in ) has assets in the port of New Orleans (by way of example, a bank account, or freight in the hands of a third party that is soon to be paid to the shipowner). The agent / claimant may file a complaint against the shipowning company in the judicial district in which the assets are located and seek a Rule B order of attachment. If the property is indeed attached, it will serve as security for the claim, and if necessary, can be used to satisfy the unpaid debt. VII. What About the Law in Other Countries? There are many different remedies available under the laws of other nations should it become necessary to attempt a debt collection overseas. Here is a brief overview. A. Mareva Injunctions English law, recognized in Canada, Australia, and other nations, provides for a preliminary injunction against a defendant that prohibits the removal or transferal of assets, including ships and cargoes, so they will be available to pay an eventual judgment. This is called a Mareva Injunction, which takes its name from an English Court of Appeal decision in 1975. The effectiveness of the Mareva Injunction lies in the fact that the defendant and other third parties are notified that they will be in contempt of Court if they do not comply with the terms of the injunction, which typically prevents the defendant from disposing or dissipating assets that could be used to satisfy a judgment. The remedy is available at the discretion of the Court. Typically, the claimant must demonstrate that it has a good and arguable substantive claim; that assets of the defendant are readily identifiable; and there is risk that the defendant's assets will be dissipated and any judgment or award may go unsatisfied. The remedy can also be expensive. In addition to legal fees, the claimant must typically give the defendant an undertaking to indemnify him if it is demonstrated that the injunction was granted without just cause. In addition, the plaintiff often has to indemnify third parties (such as banks) against losses or expense incurred in complying with the injunction. Nevertheless, the remedy can assist a claimant in obtaining funds to satisfy a prospective court judgment. Such a remedy does not exist under U.S. law, although as explained above, U.S. law does provide for its own special procedures. B. Vessel Arrest Under The Laws of Other Nations The 1952 Brussels Arrest of Seagoing Ships Convention applies to the arrest of a vessel flying the flag of a nation that is signatory to the Convention, and arrested within the jurisdiction of a signatory nation. In addition, it provides that ships of non-contracting states may be arrested in the jurisdiction of a contracting state for any of the Convention's maritime claims, and any other claim for which arrest is permitted by the domestic law of the contacting state. Many nations are parties to the convention. The U.S. is not. Under the Convention, the arresting party needs to allege a maritime claim against the shipowner as set forth in Article One of the Convention. Maritime claims which may give rise to the arrest of a vessel flying the flag of a contracting state under the Convention includes, but is not limited to, collision, salvage, general average, construction or repair of ship, any agreement relating to the use or hire of a ship including by charter party, or relating to the carriage of goods in any ship, and loss of life or personal injury. The Convention states that : "A claimant may arrest either the particular ship in respect of which a maritime claim arose, or any other ship which is owned by the person who was, at the time when the maritime claim arose. Ships shall be deemed to be in the same ownership when all shares therein are owned by the same person or persons?" Thus, the Convention provides for the arrest of the ship in respect of which the claim arose or (unless a charterer or other person is liable on the claim) another ship owned by the owner of the ship of which the claim arose. If the charterer, and not the owner, is liable in respect of the claim, the offending chartered ship or another ship owned by the charterer may be arrested. In other words, under the Convention, the ability to arrest a sister ship of the offending vessel is more available, so long as it can be demonstrated by the claimant that the vessel causing the cargo loss, and the sister vessel to be arrested, is or was under the same ownership. That is often a difficult burden for the party seeking to arrest a sister vessel. In addition, enforcement of this provision has been interpreted differently from nation to nation. For example, under U.K. practice, it was held that the registered owner of the ship in which the claims arose, must also be owner of the shares of the ship that is to be arrested. This is, of course, the value and purpose behind a shipowner operating a group of vessels as a series of single shipowning companies. However, courts may also look to the beneficial ownership when determining whether the arrest of a sister ship is allowed. Beneficial ownership of ships in maritime law normally refers to the ownership of a party who is not the legal owner (registered owner) of the vessel, but who stands behind that legal owner and has rights over the vessel. This could include a parent corporation or a holding company. Of course, many fleets of ships operate within large shipowning groups, owned and controlled by the same parent corporation or holding company, but with each vessel in the fleet legally owned and registered in the name of a separate one ship company. None of the companies is the registered owner of any other vessel in the fleet, but all have the same beneficial owner for sister ship arrest purposes. Under the theory of beneficial ownership, it is easier for the claimant to cut through the protection of a single ship corporation Other nations may apply wider standards for determining when a vessel, other then the vessel causing the loss, can be arrested. For example, South Africa provides for liberal arrest and it is sufficient to show that the ship to be arrested is an associated ship of the vessel that caused the loss (an associated vessel is a vessel which is not strictly under the ownership of the debtor). To make an arrest, it is sufficient to establish connections between the two vessels or shipowning companies concerned, and those connections could relate to or involve the shareholders, directors, common managers, etc. As you can see, there is an international lack of uniformity of maritime law. In addition, the maritime law of the United States is very different from the maritime law of other nations with respect to maritime liens and vessel arrest. For example, other nations recognize fewer liens then do the United States. However, the ability to arrest in many nations can arise even without the existence of a maritime lien. Other problems may arise out of the lack of legal uniformity. U.S. vessels may be arrested in foreign jurisdictions on grounds not recognized under U.S. law. Similarly, a foreign vessel arrested in the United States may claim that foreign law applies in order to avoid arrest. However, the latter issue will not ordinarily affect an agent or other supplier of goods and services in the United States, so long as the goods and services were supplied in the United States to a vessel calling upon a U.S. port. U.S. maritime law will apply and the agent?s ability to arrest or attach will be governed accordingly. VIII. Conclusion Do the procedures described above guarantee payment to an unpaid creditor? Of course not. Sometimes a ship cannot be located. Owners have been known to change the vessel's ownership, name, flag, colors, etc. in order to avoid arrest. Second, the vessel has to be caught in a jurisdiction in which one of the procedures described can be pursued. Third, it can be expensive. Lastly, the vessel may have so many liens against her that insufficient funds will be available upon her sale to satisfy your claim. Nevertheless, Rule C arrest and Rule B attachment, or one of the remedies made available under foreign law, are routinely used successfully for purposes of collecting an unpaid debt. ________________ Jeffrey A. Weiss is the Director of the Graduate School of International Transportation Management at the State University of New York, Maritime College. He teaches courses in charter party practice, maritime law, commercial transactions, marine insurance, and their related areas. He is also an attorney in private practice and concentrates in maritime and commercial law. Previously, Mr. Weiss worked for ocean carriers in both shoreside operations and as a deck officer. Mr. Weiss also teaches internet-based distance learning courses on behalf of ASBA (USA). Phone (516) 671-7038 Fax (516) 671-7078 Email: sealaw@msn.com