As the global economic recession grows, so does the number of vessel arrests by maritime creditors. We highlight below four trends observed in the vessel arrest cases that are multiplying in the U.S. Some of these trends are tied to the particularities of the COVID-19 recession. Others resurface at every economic downturn. It is particularly important for preferred ship mortgagees to be aware, and beware, of these trends.
First, vendors may be more willing to move to arrest vessels during these uncertain times. For example, a New York marina has arrested multiple vessels docked on its premises for non-payment of its fees. This development is significant because the claims of some vendors may take priority over preferred mortgages. Under U.S. law, maritime liens for necessaries provided to vessels in the U.S. take priority over foreign (i.e., non-U.S. flag) ship mortgages. Maritime liens for necessaries provided outside the U.S. are generally subordinate to preferred mortgages, but the priority of preferred mortgage liens is subject to certain exceptions that are not always well delineated. Whether the arrester’s claims are subordinate or not, it is critical for the mortgagee to intervene in the arrest action. Otherwise, the mortgagee could lose its mortgage lien as a result of the action, without receiving any portion of the proceeds of the sale of the vessel. However, timely intervention can be challenging, especially because the arrester is not always required to notify the mortgagee. Publication of a notice of arrest in a local newspaper may constitute sufficient notice under U.S. law. Prudent lienholders thus maintain a close watch on the trading patterns of vessels, and, if a vessel remains in a port for a longer time than usual, monitor court dockets to be ready to intervene and preserve their claims.
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