RMI Focus: Marshall Islands Law Permits A Broader “Duty of Inquiry” Defense for Vessel Owners Facing Necessaries Lien Claims

RMI Focus: Marshall Islands Law Permits A Broader “Duty of Inquiry” Defense for Vessel Owners Facing Necessaries Lien Claims

In the Maritime Act, the Republic of the Marshall Islands (“RMI”) has adopted the “non-statutory general maritime law of the United States” as the general maritime law of the Republic.  That creates an important measure of predictability and stability for many marine financing transactions and other matters governed by RMI law, but it is important to keep in mind that the RMI remains a sovereign state that came into being in 1979, with its own constitution, and a parliament called the Nitijela. As such, the RMI has its own body of legislation which contains important variations from U.S. law.

One example is provided by the laws authorizing a maritime lien for necessaries.  Both the U.S. Commercial Instruments & Maritime Lien Act, 46 U.S.C. § 31301 et seq., and Section 319 of the RMI Maritime Act provide that a person providing necessaries to a vessel on the order of the owner or a person authorized by the owner will have a maritime lien.  But Section 319(3) of the RMI Maritime Act, which is absent from the U.S. law, provides that no lien will arise “when the furnisher knew, or by exercise of reasonable diligence could have ascertained, that because of the terms of a charter party, agreement for sale of the vessel, or for any other reason, the person ordering necessaries was without authority to bind the vessel therefor.”  This provides a vessel owner with a potential defense that the would-be lien holder could have ascertained by due diligence that a charterer was not authorized to bind the vessel to a lien by virtue of a “no lien” clause contained in an applicable charterparty agreement.

Prior to 1971, the U.S. lien statute contained a nearly identical provision. Courts found that this provision imposed a “duty of inquiry” on suppliers to ascertain the authority of the individual ordering suppliers for a ship to incur liens on the vessel, and routinely denied liens to suppliers where such charterparty clauses existed.  See, e.g., Dampskibsselskabet Dannebrog v. Signal Oil & Gas Co., 310 U.S. 268, 275 (1940) (“When…the charter party, with knowledge of which the material-man is charged, prohibits the creation of a lien for supplies ordered by the charterer or the charterer’s representative, no lien will attach.”); United States v. Carver, 260 U.S. 482, 489 (1923) (denying lien claim in light of supplier’s duty of inquiry).

In 1971, the U.S. Congress removed the U.S. law corollary to Section 319(3) of the Maritime Act, and thereby eliminated the “duty of inquiry” imposed on suppliers to examine charter parties for “no lien” clauses.  But the RMI did not follow suit.  In fact, Section 319(3) was enacted by the RMI some twenty years after the U.S. removed the “duty of inquiry” from its maritime lien law.  In an appropriate case, then, vessel owners may have a potential defense and could look to pre-1971 U.S. lien law for persuasive authority in the absence of an RMI decision on point.

If you have any questions about the matters addressed in this article, please reach out to Bruce G. Paulsen (212-574-1533), Brian P. Maloney (212-574-1448) or your primary attorney in Seward & Kissel’s Maritime Litigation or Maritime & Transportation groups.

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New York Office

One Battery Park Plaza
New York, NY 10004

Phone (212) 574-1200
Fax (212) 480-8421

Washington, D.C. Office

901 K Street, NW
Washington, DC 20001

Phone (202) 737-8833
Fax (212) 480-8421

Contact Us

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