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MARITIME
PRACTICE & PROCEDURE
ARREST OF VESSEL
Arrest of a vessel is part of the process by which an Admiralty Court gains jurisdiction over
the subject matter of a law suit. These lawsuits are known as "in rem" actions meaning that
the action is again a "thing" rather than a person.
Generally, the vessel, itself, is responsible for payment of liens, mortgages or any other
maritime lien that may arise. When the owner encumbers a vessel with a First Preferred
Ship's Mortgage, it is the ship that guarantees payment rather than the owner. However,
the owner may separately contract by a personal promise to pay or other type of guarantee
to be personally liable.
An arrest of a vessel is the prerequisite for the court to establish jurisdiction. If the vessel
cannot be seized, the court may have no right over the vessel. Arrest is the physical
process by which, in case of the United States, a U.S. Marshal goes aboard the vessel and
physically takes charge of it. The Notice of Arrest must be posted on the vessel, a copy
given to the master or person in charge, as well as to the owner. Also, notice must be
published in a newspaper authorized to publish legal notices. Actual notice must be given
to all other lien holders who claim an interest in the vessel.
Once seized, the court, through the marshal's service or substitute custodian, maintains
possession of the vessel and the owner loses all control. To avoid this situation and its
effect on commerce, the court will allow the owner to post a bond or other suitable
security. Once the security is accepted, the vessel is returned to the owner and the
litigation continues with the security as the subject of execution of judgement.
Letters of undertaking, are stipulations by the owner or his insurance company to appear
and defend any claim that is made, just as if the vessel had been arrested. If a judgment is
entered, the owner or the insurer must pay the judgement. This amounts to stipulated
jurisdiction for the admiralty court and prevents the disruption of the owner's business
during the litigation.
Once the marshal has seized a vessel, he is obligated to preserve the vessel and its
equipment. Generally, the custodian of a seized vessel should not interfere with the
conduct of cargo and other operations normal to a vessel in berth unless directed so by
court order. In the United States, the "Manual for United States Marshals" sets forth the
obligations and duties for the marshal and how he should perform them.
It is important to realize that the Marshal does not put hull insurance on a seized vessel. It
is necessary for the owner or the Plaintiff to place adequate Port Risk Insurance on the
vessel to protect their interest against loss.
If a vessel is not released by the posting of security, the court may order an interlocutory
sale. An interlocutory sale, means a sale prior to the completion of the litigation and the
entering of a judgment. As a general rule the sale will not be allowed for four months.
The rules provide for sale if the arrested property is perishable, liable to deterioration, of
if the cost of keeping it is excessive or disproportionate.
Regardless as whether the sale is interlocutory or a judgment sale, the purchaser at the
auction does not have any right in the vessel, until the sale is confirmed by the court. If a
higher bid is received within three days by the court, the court has the option of voiding
the auction and ordering a new sale. Once confirmation is received, the buyer receives
title which extinguishes all other liens and provided him with a clear title. An "in rem"
action resolves claims of all of the world against the vessel and no lien for past debts can
be created or asserted.
The proceeds of the sale are paid into the court and are used to satisfy any expenses
incurred by the keeping of the vessel and fees to the marshal. The balance is paid to the
claimants and any balance left over is paid to the owner. If the sums received are not
sufficient to pay all claims, the claimants pay proportionately to the shortfall.
Unless the claimant/plaintiff who seized the vessel acts in bad faith, the owner of the vessel
may not recover damages due to the arrest or for loss of profits.
A vessel sold at a marshal's sale to foreclose on a preferred ship's mortgage or maritime
lien does not, as a result of the sale, become qualified as a "U.S. built" for the purpose of
the Jones Act, requiring vessels trading between U.S. ports to be U.S. built. However, if
the vessel is forfeited to the U.S. Government as a drug, customs or other "seizure", then
when purchased from a marshal's sale, will become "U.S. built" for all purposes.
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