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14 January 2015
The Maritime Code states that a maritime lien becomes time barred one year from the date when the secured claim arose, unless the vessel is arrested and the arrest leads to a forced sale. A recent Supreme Court decision shed light on the level of activity that is required from a creditor after an arrest has been secured in order to maintain a maritime lien.
This update describes the legal characteristics of maritime liens and how to prevent a maritime lien from becoming time-barred.
The provisions that govern maritime liens on ships are found in Chapter 3 of the Maritime Code. To a large extent the code mirrors the corresponding provisions of the International Convention for the Unification of Certain Rules Relating to Maritime Liens and Mortgages 1967.
Section 51 of the Maritime Code contains five categories of claim that entitle a creditor to a maritime lien against a ship, provided that these claims arise out of the operation of the ship in question. The five categories are:
A maritime lien comes into existence simultaneously with the claim it secures, by operation of law. It is not necessary for the creditor to take any further action in order to obtain or perfect its lien. Consequently, it is not required – or even possible – to register a maritime lien in the Norwegian ship register pursuant to Norwegian law.
The five categories of claim secured by maritime liens are also regarded as "maritime claims" under Section 92 of the Maritime Code, and as such may give the creditor a right to arrest the ship. Claims secured by maritime liens (as opposed to the maritime claims only) entitle the creditor to arrest the vessel without having to substantiate that there also is a justifiable cause for arrest – typically that the debtor is trying to avoid enforcement of the claim.
Maritime liens have priority over all other encumbrances on a vessel, meaning that the legislature has put these creditors in a favourable position compared to creditors with other types of security (eg, ordinary mortgages and a repair yard's right to retain a vessel). To balance this favourable position, and to ensure that claims secured by maritime liens do not accumulate over time, maritime liens are temporary, with a relatively short limitation period. Further, while it is possible to obtain security by arrest of the vessel, maritime liens do not permit a creditor to move directly to enforcement of a claim. Rather, it must first obtain a court judgment for the claim, and preferably also a judgment granting the creditor the right to commence forced sale of the vessel.
Section 55 of the Maritime Code states that the one-year limitation period for a maritime lien starts to run when the claim comes into existence. In most cases this moment is fairly simple to identify. Most of the case law on this point deals with the question of when a claim for crew wages come into existence, and the Supreme Court has held that time starts running from when the wages are due for payment and not the subsequent point in time when a final judgment for the wage claim is rendered.
The limitation period is one year. The onus is on the creditor arresting the vessel to enforce the claim within this period. Neither the date of filing the arrest application nor the date of the arrest award are valid dates of enforcement: the Maritime Code clearly states that the arrest must both have been granted by the court and served on board the vessel within the limitation period. In addition, the arrest must ultimately lead to a forced sale of the vessel.
Up until this year with respect to this additional criterion, it was uncertain how actively the creditor had to pursue a forced sale to prevent the maritime lien from becoming time barred. The available legal sources have suggested that the forced sale would need to take place 'without undue delay' after the vessel was arrested. However, a Supreme Court decision of January 28 2014 clarified this issue.(1) The Supreme Court stated that the criterion that the arrest lead to a forced sale does not in itself require the creditor to take any particular action following the arrest, but as the maritime lien itself does not provide basis for enforcement, it will need to be replaced by a court decision which orders a forced sale or, alternatively, permits an execution lien to be registered against the vessel.
The Supreme Court further concluded that a maritime lien remains valid as long as the arrest is maintained. Consequently, a maritime lien will become time barred when the arrest is lifted or otherwise expires, if the claim secured by the maritime lien is more than one-year old. A creditor should therefore pay attention to Section 33-10 of the Civil Procedure Act, which sets out when an arrest expires or is otherwise regarded as lifted – and in particular the following instructions, which could be easy to miss:
For further information on this topic please contact Øyvind Axe, Hågen Hansen or Oddbjørn Slinning at Wikborg Rein by telephone (+47 22 82 75 00), fax (+47 22 82 75 01) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Wikborg Rein website can be accessed at www.wr.no.
(1) Vegsund Slip v crew on board MV Sveafjell (Rt 2014 s 48). Vegsund Slip AS won the case before the Supreme Court, successfully arguing that the crew's claim secured by a maritime lien had been repealed, as the crew did not seek to obtain an execution lien in a timely manner as required under the Civil Procedure Act.
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