Maritime lien for bunkers

In UK Club’s Quarterly Case Review (Addax Energy SA v MV Yasa H Mullah, No. 18-2438 (4th Circuit, January 22nd, 2021)) Addax Energy SA filed an in rem action in the US District Court Eastern District of Virginia against bulk carrier Yasa H Mulla.

Addax had entered into a fuel supply agreement with the charterer of the vessel. When the charterer failed to pay the amount due, Addax filed the action against the vessel to enforce a maritime lien under the Commercial Instruments and Maritime Lien Act (CIMLA), 46 USC 31301 et seq, and the Supplemental Admiralty Rule C.

The vessel asserted that Addax’s right to a maritime lien was extinguished when Addax settled its breach of contract claim regarding the fuel supply agreement with the charterer in a separate proceeding.

The district court granted summary judgment to Addax, concluding that the maritime lien arose by operation of law and was unaffected by Addax’s settlement agreement with the charterer.

The vessel appealed. Its primary argument was lack of admiralty jurisdiction because the settlement agreement between Addax and charterer was a non-maritime contract that superseded the underlying fuel contract.  The vessel contended that the district court should have credited the value of another claim (Cargill claim) against the lien, improperly awarded Addax custodia legis expenses, and violated the vessel’s due process rights by denying the vessel a prompt hearing under the admiralty rules.

In the Judgement, the Fourth Court affirmed the District’s Court’s judgment and concluded that the settlement agreement did not extinguish Addax’s right to a maritime lien, and that Addax was entitled to enforce that right in the district court. The Court also rejected the vessel’s arguments regarding the value of the lien, the expenses awarded to Addax, and the vessel’s due process rights.

The Court held that the CIMLA created Addax’s right to a maritime lien. It said that Addax’s and the charterer’s later decision to renegotiate their obligations with respect to the fuel supply contract (by virtue of a settlement) did not affect Addax’s right to pursue its statutory in rem claim, except to preclude Addax from obtaining a double recovery on the debt.

Accordingly the Court concluded that the district court correctly held that Addax’s settlement of its in personam claim with the charterer did not extinguish Addax’s right under the CIMLA to pursue a separate in rem claim against the vessel for the remaining amount due on the fuel contract.

On the Cargill claim, the vessel contended that the amount of Addax’s lien should be reduced by at least $100,000, the value of charterer’s claim against third-party Cargill International, which the charterers assigned to Addax as part of the settlement agreement.

The Court held that district court correctly declined to credit the value of the Cargill claim, which was a component part of the settlement agreement, toward the amount of the lien.

The Court also found no support for bulk carrier Yasa H Mullah’s contention for improperly awarding Addax custodia legis expenses.

Finally, the Court held that the district court did not violate the vessel’s due process rights or improperly deprive the vessel of a hearing under Rule E(4)(f).

UK Club noted that this case highlighted the CIMLA and where the right to a maritime lien derives from in the United States. It also showed that resolving a matter in personam did not extinguish the right to in rem action. The Club warned that its members needed to be aware that the risk of an in rem action against a vessel existed even if it appears that a settlement has resolved a dispute.—spring/article-2/