A lesson in admiralty law was provided by the U.S. Court of Appeals for the Fifth Circuit when it ruled that a maritime lien for breach of a charter party attaches when the vessel is placed at the charterer's disposal. In the instant case, a vessel owner entered into a time charter and accordingly delivered the vessel. The vessel was then sold to a third party (subject to the time charter) and the new owner obtained a mortgage loan on the vessel. The bank providing the loan duly recorded its preferred ship mortgage
. Soon thereafter, the new owner breached the time charter and then defaulted on the mortgage. Both the bank and the charterer sought to recoup their losses by having the vessel sold, but the proceeds were not expected to cover both claims. Therefore, the priority of the two liens became paramount. The bank asserted that its lien took precedence as its preferred ship mortgage was recorded before the time charter was breached. The court held that the maritime lien for a charter attaches when the vessel is placed at the disposal of the charterer, even though it remains inchoate until a breach arises. Thus, since the charter commenced prior to the vessel sale, the charterer's lien prevailed over the preferred ship mortgage.
Source: HK Law