To lien or not to lien

In a recent case the US Court of Appeals for the Fourth Circuit considered whether a supplier of necessaries had a valid maritime lien despite a “no lien” clause and stamp.

In World Fuel Servs. Trading, DMCC v. Hebei Prince Shipping Co., 783 F.3d 507 (Fourth Cir. 2015), a bunker supplier arrested the Hebei Prince, while she was anchored at the port of Norfolk, Virginia, for unpaid bunkers provided to the vessel in the United Arab Emirates.

The bunker order confirmation identified the bunker supplier as the ‘seller’ and the charterer, the owner and operator of the vessel as the ‘buyer’. The confirmation also included language that: “Any disclaimer stamps placed by vsl on the bunker will have no effect and do not waive the seller’s lien.” The charterer due to financial problems failed to pay for the bunkers. Therefore, the supplier arrested the vessel and demanded that the vessel owner payed the outstanding amount.

When the arrest was initially challenged by the vessel owner, the District Court held that the supplier had a valid maritime lien under the US Federal Maritime Lien Act (FMLA) since proper notice of a US Choice of Law provision was given to the charterer and to the vessel owner, and the “no-lien” disclaimer, which was stamped on the bunker delivery received by the vessel’s chief engineer after the fuel had been supplied, was not enforceable against the supplier.

It should be noted that, under the FMLA, a supplier of necessaries that received instruction to deliver necessaries to the vessel – in this case bunkers – from a party that is authorised to bind the vessel – in this case the vessel’s charterer – is entitled to a maritime lien on the vessel. Once a lien has been created, the supplier can arrest the vessel transiting in any US port as security for a claim – in this case the amount owed by the charterer to the supplier for the bunker supply. This is even in absence of any other connections to the United States, such as in this case, where the bunker supply and the contract negotiation for such supply took place in foreign countries between foreign entities.

The ruling

On appeal, the Fourth Circuit confirmed, among other things that: firstly, the US choice of law provision contained in the supplier’s general terms and conditions, which were referenced in the order confirmation and delivery receipt, was sufficiently noticed and enforceable; secondly, no objection was made to the bunker confirmation language protecting the supplier’s lien; thirdly, the supplier had never been provided notice of the “no lien” clause in the charterparty for the vessel; fourthly, the “no lien” stamp was added to the bunker receipt after delivery and not in advance (e.g., when the bunkers were ordered); and fifthly, the supplier was not required to engage in self-help (i.e., retrieve the bunkers) after receiving the “no lien” stamp on the receipt.

World Fuel Servs. Trading, DMCC v. Hebei Prince Shipping Co. emphasises that proper notice of contractual provisions is essential. Thus, all players in the maritime industry must pay particular attention to how they incorporate, reference, and give notice of the various terms and conditions that are part of their maritime contracts, as their respective rights and liabilities can be greatly affected for the better or for the worst.

This article is courtesy of Montgomery McCracken, a multidisciplinary law firm with more than 120 attorneys in offices in Pennsylvania, New York, New Jersey and Delaware. For more information go to http://www.mmwr.com. Kaspar Kielland is an associate with the firm and can be contacted on +1 212-551-7732 or kkielland@mmwr.com.