09/13/2013

Basic Overview - Maritime Liens and Rank

By David Bohonnon, Bohonnon Law Firm, LLC

A maritime lien, with the exception of a preferred ships mortgage, is a secret lien that arises by operation of law automatically and gives the lienholder a property right in maritime property (for example, vessels) and the right to foreclose the lien in admiralty. It is not created consensually and there is no requirement that a maritime lien be recorded or otherwise perfected by any filing. A preferred ships mortgage, on the other hand, is a maritime lien that is created consensually, must comply with the requirements of Title 46 of the United States Code and must be recorded at the National Vessel Documentation Center. If a vessel is eligible for federal documentation, the preferred ships mortgage offers the best achievable protection to a lender requiring collateral to secure a debtor’s obligations. That protection is not absolute, however, and certain classes of maritime liens, “preferred maritime liens”, rank ahead of a preferred ships mortgage.

Generally, competing maritime lien claims are first ranked according to class. The classes are, from highest priority to lowest, the following:

1. Expenses of justice during custodia legis—expenses arising from the care and operation of the ship while it is in the custody of the Court through the U.S. Marshal (not regarded as a lien, but given priority).
2. Seamen's liens (including those of the Master) for wages, maintenance and cure; and wages of longshoremen directly employed by the vessel.
3. Salvage and general average liens.
4. Tort liens, including personal injuries. 
5. Preferred ship mortgage liens (U.S. flag vessels).
6. Liens for necessaries under 46 U.S.C. §§ 31301(4), 31341 and 31342
7. State—created liens of maritime nature.
8. Maritime liens for penalties and forfeiture for violation of Federal Statutes.
9. Perfected non-maritime liens, including tax liens.
10. Attachment liens in causes of action within the admiralty and maritime jurisdiction (foreign attachment).
11. Maritime liens in bankruptcy. See United States. v. One (1) 254 Ft. Freighter, M/V Andoria, 570 F. Supp. 413 (E.D. La. 1983).

The rules governing ranking of maritime liens were originally entirely created by the common law of the federal courts. Later legislation has modified, but not replaced, common law ranking rules. See 46 U.S.C. § 31301 (5) (defining preferred maritime liens as a maritime lien on a vessel that arose before recording of a ships mortgage or items 2 through 4 on the ranking list); See also USC § 31326 which provides:

“the preferred mortgage lien, including a preferred mortgage lien on a foreign vessel whose mortgage has been guaranteed under chapter 537 of this title, has priority over all claims against the vessel (except for expenses and fees allowed by the court, costs imposed by the court, and preferred maritime liens)....”

Accordingly, four categories of maritime liens rank higher than a preferred ships mortgage and liens which are “non-maritime” (see item 9 above) rank behind a preferred ships mortgage. Item 9 includes liens arising under the Uniform Commercial Code, vessel mortgages that do not fulfill the qualifications of a preferred ship mortgage under the Ship Mortgage Act, and federal tax liens as well.

It is essential for parties involved with the transaction of vessels, both new and used to have a thorough understanding of claims and/or competing claims of interests for vessels in commerce. The above gives you a very basic outline of classes and ranking of maritime claims of lien. We have a broad base of knowledge and experience representing brokers, lenders, builders, retailers and owners of vessels domestically and internationally, and would be pleased to assist you and your group with any maritime lien issues.

David M. Bohonnon is a managing partner in the New Haven based Bohonnon Law Firm which practices extensively in Marine and Aviation Law as well as tax matters. Member: American Bar Association; Connecticut Bar Association, Tax Section Executive Committee; Maritime Law Association (Proctor), (Chairman Subcommittee on Yacht Financing 2007-2013); American Bar Association (Chair for Recreational Marine Finance 2011-2013); Recreational Boating and Marine Lending Network; National Marine Banker Association; Yacht Brokers Association of America (YBAA) affiliate, Florida Yacht Brokers Association (FYBA) Affiliate Member; Advisor Connecticut Law Revision Commission (2011-2012).