Maritime liens: understanding these priority guarantees on ships

In the wake of the maritime mortgage, another category of guarantees specific to the naval world plays an essential role: maritime liens. Less well known to the general public, they are no less formidable for the creditors who benefit from them. Unlike mortgages, which arise from a contract, liens are granted directly by law to certain claims deemed particularly worthy of protection.

Why did maritime law introduce these specific priority rights, which are sometimes even superior to those of a registered mortgage? Historically, at a time when mortgages on ships did not exist or were difficult to enforce, liens were the main means of securing the credit needed for maritime shipping. They guaranteed those who provided services or goods essential to the preservation of the ship or the success of the voyage. Even today, they protect creditors who often did not have the opportunity to negotiate another form of security. But what exactly are preferential claims? How do these guarantees work, and what is their real scope? This article sets out to demystify maritime liens.

What is a maritime lien?

A maritime lien is a right granted by law to a creditor to be paid in preference to other creditors on the sale price of the vessel. It is a form of legal security that exists independently of any agreement between the parties. Its fundamental characteristic is that it is a real right encumbering the vessel. This means that it confers on its holder not only a preferential right (to be paid before others), but also a resale right (to be able to seize the vessel even if it has been sold to a third party). This is a major difference from common law liens on movable property, which often come up against the rule that "in the case of movable property, possession is equivalent to title".

This real right character is so marked that we sometimes speak of a "real" claim attached to the ship itself. The underlying idea is that the ship, as it were, is personally liable for certain debts arising from its operation, regardless of who the contractual debtor is (the owner, the non-owner operator, or even a charterer). Thus, a supplier who has contracted with a charterer may, if his claim is privileged, exercise his right over the ship belonging to the owner, even though the latter is not his direct debtor. The Court of Cassation has clearly distinguished this right in rem (on the thing, the ship) of the right in personam (against the person of the debtor). This is a highly original feature of maritime law.

The history of maritime privileges in France dates back to the Ordonnance de la Marine of 1681 and was codified in the Code de Commerce of 1807. The initial system was very broad but limited in time (often to the last voyage). The arrival of the maritime mortgage led to a rethink of this system. The Brussels International Convention of 1926, ratified by France, sought to harmonise and above all to limit the number of liens taking precedence over mortgages. The French law of 3 January 1967 was largely inspired by it, distinguishing between two main categories: first-ranking liens, which take precedence over mortgages, and second-ranking liens, which come after them. Despite efforts at harmonisation (the 1993 Geneva Convention, which has not yet been ratified), there are still differences between national laws, particularly between the Romano-Germanic approach (liens linked to the nature of the claim) and the Anglo-Saxon approach (liens for those who cannot obtain other security).

These differences make the question of the applicable law complex in an international context. Which law determines whether a claim is preferential? Which law governs the classification of competing privileges? Recent French case law seems to be moving towards a cumulative application: the claim must be considered preferential both by the law governing it (for example, the law of the supply contract) and by the law of the place where the vessel is seized (lex rei sitae). On the other hand, the law of the forum (lex fori), i.e. the law of the court organising the sale, logically takes precedence for the classification of the various creditors when the sale price is distributed.

Another important feature of maritime liens is that they are often hidden: they are not published in any register. A potential buyer or mortgagee cannot therefore know with any certainty, simply by consulting the public, which liens might encumber the vessel. However, this opacity is tempered by their very limited lifespan, as we shall see.

Which receivables benefit from a first ranking lien?

The law of 3 January 1967 (article 31) establishes a restrictive and precise list of claims that benefit from a first ranking lien. These are the only claims that take precedence over maritime mortgages, regardless of their registration rank. These claims are considered essential to maritime life or resulting from risks inherent to it. They are listed below:

1. Legal costs incurred in securing the sale of the vessel and the distribution of its price Seizure costs: These are costs incurred in the common interest of all creditors to realise the pledge constituted by the vessel (seizure costs, costs of custody during the procedure, costs of the sale itself). These costs are deducted first from the price obtained.
2. Tonnage or port dues, other public taxes of the same kind, pilotage charges, custody and storage charges since the ship entered the last port. These are claims relating to the vessel's port of call. They include taxes due to the port authority, specific taxes, pilots' salaries (whose intervention is often compulsory), as well as the costs necessary to keep the ship in good condition during its stay in the port. last port before seizure. Case law sometimes interprets "custody and preservation costs" broadly, and may include "port risk" insurance premiums or even certain costs associated with keeping the crew on board during a forced immobilisation. Costs incurred in ports previous do not benefit from this specific privilege (they could possibly fall under the 6th privilege).
3. Claims arising from the contract of employment of the captain, crew and other persons hired on board This is the privilege of seafarers. It guarantees their wages, as well as related compensation (holiday pay, redundancy pay, repatriation costs), and the compulsory social security contributions owed by the shipowner to the relevant bodies (such as ENIM in France). However, late payment penalties for late payment of these contributions are not covered by the lien.
4. Remuneration due for salvage and assistance, and the ship's contribution to general average This privilege guarantees those who have contributed to saving the ship or cargo from peril at sea. It covers compensation owed to salvors or assistants, as well as sums owed by the shipowner as a contribution to general average (when sacrifices - for example, throwing part of the cargo overboard - have been made for the common salvation of the expedition). The basis is clear: these creditors have preserved the pledge of the other creditors.
5. Compensation for collision or other shipping accidents, for damage to port engineering structures, for personal injury to passengers and crew, for loss of or damage to cargo or luggage. This lien covers a wide range of tort or contractual claims arising from the operation of the ship. It covers the victims of shipping accidents (collision between ships, collision with a quay, etc.), injured passengers and the owners of goods damaged or lost during transport. The justification for this is less obvious than for the previous ones; it is partly historical and linked to the idea that these victims were often unable to negotiate a prior guarantee.
6. Claims arising from contracts entered into or operations carried out by the master outside the home port, by virtue of his legal powers, for the real needs of preserving the ship or continuing the voyage. Captain's lien: This is the so-called "captain's lien", although it actually benefits suppliers or lenders. It guarantees debts contracted by the captain (acting within the scope of his legal powers) when he is away from his home port, in order to meet his needs. real and urgent: essential repairs, purchase of fuel, supplies needed to continue the voyage. The 1969 law extended this privilege to similar contracts entered into by the ship's agent or consignee, thereby recognising changes in commercial practice. However, the contract must have been entered into for the purposes of of the vessel and not for the charterer's personal account, for example.

These six categories make up the closed circle of first-class maritime privileges.

Are there any other privileges (second rank)?

Yes, the 1967 law (article 33) specifies that creditors may also invoke the privileges provided for by ordinary law (Civil Code or special laws). However, and this is a key difference, these so-called "second-ranking" or "ordinary" liens only take precedence in the following casesafter registered maritime mortgages.

What are these liens? The most frequently invoked is undoubtedly the lien of the preserver of the thing (provided for in the Civil Code), when expenses have been incurred to preserve the vessel (which would not fall within the specific categories of article 31). However, case law is restrictive: it must be proven that the expenditure was necessary for the conservation the vessel itself, and not simply useful to its operation. The lien of the seller of unpaid furniture (for example, for equipment delivered but not paid for, which has not been incorporated) may also be invoked.

General tax liens (those that do not correspond to the specific taxes referred to in article 31-2°) are also considered to be second-tier liens in maritime matters, even if tax law sometimes gives them a higher priority under ordinary law. The specific nature of maritime law prevails here.

Finally, there is the special case of a creditor pledging equipment (1951 Act, now part of the Commercial Code). As we saw earlier, if this equipment is incorporated into the ship, the pledge cannot be used against the mortgagee, nor does it constitute a lien taking precedence over the mortgage.

The hierarchy is therefore clear: First-ranking liens > Maritime mortgages > Second-ranking liens > Unsecured creditors. For a a thorough understanding of maritime mortgages and their position in the pecking orderFor more information, see our dedicated article.

How are maritime privileges exercised?

Knowing the existence and ranking of a lien is one thing, but knowing in concrete terms how the creditor can exercise it is quite another.

The basis for privilege

What does the lien cover? Article 31 of the 1967 Act states that the lien relates to :

• The ship Like the mortgage, this involves the building itself and its accessories (equipment, fittings, etc.).
• Freight for the trip This is an important difference from a mortgage. Freight represents the earnings from the shipment. However, the lien can only be exercised over freight if it is still owed by the shipper or if it is still in the hands of the shipowner's master or agent. Once paid to the shipowner and paid into his account, it merges into his general assets and the lien is extinguished. The fare paid by passengers is treated as freight.
• Ship's accessories and freight acquired since the start of the voyage This mainly concerns compensation in lieu of the vessel or freight: compensation due from a liable third party for unrepaired material damage to the vessel or for loss of freight; compensation due for general average; remuneration for assistance or salvage (after deduction of the share due to the crew).

On the other hand, insurance indemnities (which are the preferential pledge of mortgage creditors) and public subsidies are not considered to be accessories to the ship or freight and are therefore not included in the basis for liens.

One notable exception concerns the lien of seafarers (article 31-3°): to guarantee their wages and related claims, their lien covers all freight due for all the journeys made during their contract of employment, and not only on the freight of the journey where the claim arose.

The rights of preferred creditors

The lien essentially confers a preferential right and, in the case of first-ranking liens, a resale right.

Le preferential right allows the creditor to have the vessel seized and to be paid in priority from the sale price. Seizure is possible even if the vessel does not belong to the direct debtor of the preferred creditor (as in the case of chartering). The classification of first ranking preferential creditors is complex:

• First, we classify by voyage: claims from the last voyage take precedence over those from previous voyages (an incentive to act quickly). Exception: crew salaries covering several voyages are all allocated to the last voyage.
• Then, within the same voyage, we follow the numerical order of article 31 (legal costs before port taxes, etc.).
• Lastly, for claims with the same number (for example, several suppliers covered by the 6th lien), they compete on a mark-to-marc basis (proportional distribution if the price is insufficient). Exceptions: for assistance/rescue claims (no. 4) and claims for ship's needs (no. 6), claims are classified in the following order reverse their date of birth (most recent first), to encourage those who intervene last to save or maintain the vessel.

Le resale right (article 39 of the 1967 law) is reserved for first ranking liens only. It allows the creditor to follow the vessel in whichever hands it passes and to seize it even after it has been sold to a third party buyer. This is a very powerful right but, as we shall see, it is limited in time.

How long do maritime privileges last?

Maritime liens are powerful but ephemeral rights. Their extinction is governed by specific rules, in addition to the common causes of extinction of obligations (payment, prescription of the principal claim, etc.).

Firstly, they are extinguished by the judicial sale of the ship. Whether the sale takes place in France or abroad (subject to recognition of the foreign judgment), it has the effect of "purging" the liens: the buyer receives the ship free of these charges, and the preferential creditors must assert their rights to the sale price. Confiscation of the vessel by a public authority (for example, for a customs offence) also extinguishes liens, which can be very prejudicial to creditors. Similarly, the establishment of a liability limitation fund by the shipowner extinguishes liens (except for certain claims such as crew or salvage claims).

Secondly, and this is crucial, first ranking liens are extinguished by the expiry of a very short period of time, generally considered to be a lapse period (not subject to the interruptions or suspensions of ordinary law, save in exceptional circumstances). This period is :

• One year for most privileges (legal costs, taxes, salaries, assistance, boarding, etc.).
• Six months only for claims for supplies or repairs contracted by the master or agent for the actual needs of the ship (lien no. 6).

The starting point of this period varies according to the nature of the claim (end of the assistance operations, day of the damage, expected delivery date of the goods, origin of the claim for supplies, due date for other cases). It is important to note that this period concerns the lien himselfand not the underlying claim. Once the lien has been extinguished by the passage of time, the creditor loses his priority and his right to follow, but he can still claim his claim on an unsecured basis if it is not itself time-barred according to its own rules.

To interrupt this short period, it is not enough to send a formal notice or summon the debtor to pay. It requires an act directed against the vessel itself, typically a seizure (protective or enforcement).

Lastly, the resale right attached to first-ranking liens specifically lapses two months after publication of the deed of voluntary transfer of ownership (amicable sale). Once this very short period has elapsed after the sale has been advertised, the purchaser is protected from legal action by prior preferential creditors of whom he or she may not have been aware.

Maritime liens are complex but essential legal tools for many players in the maritime world. Whether you are a creditor seeking to secure what is owed to you or a shipowner faced with these claims, expert analysis is essential. Contact our firm to assess your rights and obligations and benefit from the expertise of our maritime security lawyers.

Sources

• Law no. 67-5 of 3 January 1967 on the status of ships and other sea-going vessels (articles 31 to 42).
• Law no. 69-8 of 3 January 1969 on shipping and maritime sales.
• Civil Code (general principles of liens).
• Brussels Convention of 10 April 1926 for the unification of certain rules relating to maritime liens and mortgages.