No Cash, No Splash?

Maritime Liens, Part Two

by Nicholas Walsh, PA

You are a shipyard and have performed expensive repairs on a fishing boat or yacht. The owner isn’t too happy about the bill and disputes some of it, and he’s threatening to sue if you don’t give him the boat.

Do you have to deliver the boat? Is “No cash, no splash” good law?

Maine law gives a mechanic something called a “possessory lien.” In theory, the possessory lien allows the yard to keep the ship until the yard bill is paid. If payment is not made, the yard can go to Maine Superior Court with a complaint against the boat, setting forth the claim and asking that the court order the sheriff to sell the boat in satisfaction of the yard bill. As a practical matter, the owner of the ship would probably also be a defendant, on an action for the owner’s failure to pay the amount due under the contract.

Sounds great, but there’s a big problem: Federal maritime law controls over state law, and a shipyard using Maine’s possessory lien law to hold a ship is exposed to legal trouble. The law of maritime liens exists to encourage maritime commerce. So that a damaged ship will remain in commerce, and because a reasonable shipyard might not repair the ship merely on the promise of payment, unless the parties agree otherwise the ship itself automatically becomes security for the repair bill. That way even if the yard bill can’t be paid the same day, the ship can get fixed and get going.

Obviously the law of possessory liens runs counter to that rationale, for a ship chained to the pier isn’t in commerce. I know of one case in which the shipyard was held civilly liable when, after a payment dispute arose, the yard refused to release a barge it had repaired. It’s not a local case, and the facts were hard, but that was the holding. It’s the law.

So what do you do if the owner shows up and demands you turn over the boat, without having paid in full? Local practice allows the shipyard to refuse to deliver the ship long enough for the yard to get to federal court and bring an action to foreclose on the vessel lien, a matter of a few business days, even overnight if necessary. The court action will include a motion for the marshal to arrest the ship. The motion will also provide for the yard to be appointed “substitute custodian” of the ship, allowing the yard to hold the ship until the matter is settled or adjudicated, and providing for the cost of storage to be assessed against the ship.

If you don’t have a written contract allowing you to hold the ship until payment has been made, a federal arrest is the only legal way to hold the ship. But a signed contract stating that the ship doesn’t get released until full payment is made will trump a claim that ‘no cash, no splash’ is counter to law, and you won’t have to go to court.

Any yard doing repair work should have a work order, signed by the customer and detailing the work to be done, the cost, terms of payment ‘no cash, no splash’ if applicable, and providing for the yard to get its collection costs if it has to enforce payment. There are many other useful terms in any good yard contract, any one of which could one day save your business, but these terms are the barest minimum.

Some Maine tradesmen don’t seem to like written contracts, which is great for the lawyers who get hired to sort out murky commercial disputes. My opinion: A clear, readable contract, concisely setting forth the rights and obligations of the yard and the owner, tells the customer that you are a good businessman or woman. It’s a selling point.

Let’s turn briefly to noticing your lien. Although it is not necessary to record notice of a maritime lien, it’s a good idea to do so, for two reasons. First, if the lien is recorded you stand a much better chance of getting paid if the boat sells, is foreclosed upon, or if a new mortgage issues on the boat. Second, if you don’t record the lien you may be exposed to the claim that you waived the lien because you relied for payment on some other security. (By the way, don’t ever tell the shipowner that you agree not to assert a vessel lien, unless you mean it.)

Liens on Maine registered vessels are recorded with the Maine Secretary of State, UCC Division (624-7736). Liens on state-registered vessels from outside Maine are recorded in the state of registration. Liens on documented vessels are recorded with the Coast Guard’s National Vessel Documentation Center (800-799-8362). The Coast Guard is particular about the required form of lien notice, and you may want to consult a lawyer before filing, at least the first time or two. Please keep in mind that a notice of lien recorded with the Coast Guard expires after three years. The lien survives, but re-recording is appropriate.

Finally, keep in mind that the law of maritime liens applies only to ships in navigation. A ship hauled for repairs is considered still in navigation, unless it’s opened up, out of service for an extended period, and essentially decommissioned, a dead ship. But a new ship that has never been launched, or which has been launched but not yet delivered, is not in navigation, and admiralty lien law does not apply. That means commercial law, including Maine’s law of possessory liens, controls the case. This is true even if the boat has already been documented with the Coast Guard.

I understand this topic is complicated. In some areas even the courts have failed to give clear guidance. And there are aspects of the law of maritime liens, important aspects, that I have not mentioned. So use this article as guidance, but if important money is at stake, you really do want to talk to a lawyer who does this stuff or is a fast learner.

Nicholas Walsh is an admiralty attorney with an office in Portland, Maine. He may be reached at 207-772-2191, or nwalsh@gwi.net.