Maritime Liens - Risks and Protection Strategies for Ship Buyers

by Stuart Plotnek, Managing Associate, CJC

A maritime lien is a powerful legal claim that allows creditors to arrest a vessel, regardless of ownership changes, unless the sale is conducted via judicial auction. Buyers of vessels must be acutely aware that maritime liens can survive a sale, even if purchased in good faith without prior knowledge of the claim. The consequences of failing to address such claims can result in financial losses, operational delays, and even the  loss of the vessel.

Maritime Liens Under English Law

English law recognises only a limited number of maritime liens, in contrast to other jurisdictions that extend lien rights more broadly. The primary maritime liens under English law include claims related to:

- Damage done by a vessel;

- Salvage;

- Wages of masters and seamen;

- Master's disbursements.

Notably, mortgages are not considered maritime liens under English law. However, the challenge for buyers arises when purchasing vessels that operate in jurisdictions with broader lien recognition. Understanding the distinction between statutory liens and maritime liens is crucial to preventing unexpected legal complications.

International Variations in Maritime Lien Recognition

Jurisdictions such as the United States have expansive interpretations of maritime liens under the Federal Maritime Lien Act, which grants lien status for any person providing "necessaries" to a vessel. This term includes repairs, supplies (including bunkers), towage, drydock facilities, pilotage, and stevedore services. The broad definition means that suppliers and service providers may place liens on vessels with relative ease.

The International Convention on Maritime Liens and Mortgages (1993) provides a standard framework adopted by several countries, recognising lien status for claims related to:

- Crew wages and employment-related sums;

- Loss of life or personal injury claims;

- Salvage services;

- Port and pilotage dues;

- Torts resulting in physical damage caused by vessel operations.

Buyers must consider whether the vessel’s previous trading history may have exposed it to potential liens under these provisions.

Key Considerations for Buyers

Maritime liens take precedence over registered mortgages and charges, remaining attached to the vessel despite ownership or flag changes unless discharged through judicial sale. Buyers must be aware that the enforcement of maritime liens depends largely on the ports a vessel calls at and the applicable jurisdictional laws.

Furthermore, buyers should acknowledge that maritime liens may arise without formal notice, creating additional uncertainty and risk when purchasing a vessel. Thus, engaging maritime legal specialists to assess potential liabilities is essential.

Limitation periods apply to maritime liens, typically extinguished unless the vessel is arrested or seized before expiration. The commencement of the limitation period aligns with the arising of the secured claims. However, these time frames vary significantly by jurisdiction, further complicating enforcement and due diligence.

Protecting Against Maritime Liens: Due Diligence Strategies

Given the complexities surrounding maritime liens, buyers should adopt proactive measures to mitigate risks before taking delivery of a vessel. Key protective steps include:

1. Vessel Register Searches:

- Conduct thorough searches for mortgages, charges, and encumbrances.

- Ensure that sellers provide a certificate of no registered encumbrances, ideally dated on the delivery date.

- Recognise that hidden maritime liens will not be revealed through standard registry searches.

2. Maritime Lien Insurance:

- Consider purchasing insurance to cover potential lien claims.

- Ensure compliance with underwriting requirements such as pre-delivery writ searches.

- Disclose any high-risk factors, such as distressed sales, to insurers.

3. Corporate Security Interest Searches:

- Check company registers for undisclosed security interests, such as unregistered mortgages.

4. Casualty and Trading History Checks:

- Review casualty records and vessel logbooks for at least two years.

- Identify any potential unpaid creditors from previous operations.

- Investigate whether the vessel has been involved in incidents that could give rise to liens.

5. Writ Searches in Relevant Jurisdictions:

- Search for pending legal proceedings that could result in claims.

- Utilise services from P&I clubs that offer jurisdictional writ searches.

- Consider legal assistance to verify any outstanding writs or potential liabilities.

6. Supplier Verification:

- Request details of bunker suppliers to confirm outstanding payments.

- Assess previous trading patterns to identify potential creditors.

- Liaise with previous owners or operators to uncover undisclosed liabilities.

7. Legal and Financial Advice:

- Engage maritime legal experts to analyse the potential risks and jurisdictional challenges.

- Seek financial advice to ensure sufficient reserves are available in case of unforeseen claims.

- Negotiate warranties and indemnities within the purchase agreement to provide additional protection.

Practical Challenges in Identifying Maritime Liens

One of the most significant challenges in dealing with maritime liens is the difficulty in identifying their existence before an attempt to arrest the vessel is made. Unlike registered encumbrances, maritime liens do not appear on public registers, meaning they can remain undisclosed until enforcement action is taken. Even obtaining undertakings or indemnities from the seller may not provide adequate protection if the seller lacks the financial strength to satisfy any outstanding claims.

Additionally, the risk of inheriting undisclosed liens increases when acquiring vessels in distressed sales, where financial pressures may have led to unpaid debts or neglected operational expenses.

Conclusion

Maritime liens present significant risks to ship buyers, and their enforcement can have far-reaching financial implications. As such, a comprehensive due diligence process is essential to identify potential claims and mitigate exposure. Buyers are advised to combine registry searches, insurance coverage, and legal advice to safeguard their interests effectively. By taking proactive measures, they can navigate the complexities of maritime liens and ensure smooth vessel transactions.

In a dynamic maritime industry, understanding the legal landscape surrounding maritime liens is crucial. Buyers who conduct thorough due diligence and leverage expert advice will be better positioned to avoid costly surprises and ensure the smooth operation of their newly acquired assets.

■ Contact: JLA Media Ltd www.j-l-a.com