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Marine & Energy News Alert: Fifth Circuit Holds Breach of Vessel Management Agreements Does Not Result in Maritime Lien

August 05, 2015

The U.S. Fifth Circuit Court of Appeal recently held that the breach of a vessel management agreement did not give rise to a maritime lien. The consolidated matter captioned Comar Marine LLC v. Raider Marine Logistics, LLC, et al. arose out of contract disputes between Comar Marine, LLC (“Comar”) and four vessel-owning LLCs. Comar sued the vessel-owning LLCs for breach of contract when the vessel-owning LLCs prematurely terminated the vessel management agreement. Two lenders also provided the financing for the vessel purchase intervened in the lawsuit to protect their preferred ship mortgages.

Comar (vessel manager) sued to recover nearly $1,500,000 in expenses and termination fees. Comar sought and secured arrests of the vessels on the grounds that its claim for necessities and termination fees gave rise to maritime liens. The parties stipulated that the vessel management agreements were maritime contracts. The Court noted though that maritime liens are “stricti juris and will not be extended by construction, analogy or inference.” Comar argued that the management agreements were analogous to, or the equivalent of, bareboat charters and therefore sufficient to confer a maritime lien.

The district court granted summary judgment for the lenders, and after a bench trial ruled that Comar (the vessel manager) did not have a valid maritime lien against the vessels, and that Comar wrongfully arrested the vessels. Comar appealed.

The Fifth Circuit determined that the management agreements at issue in the case were not the equivalent of bareboat charters because (Comar) did not pay the vessel’s expenses, including insurance, and did not owe the Owners a periodic payment independent of whether the vessels were used. Instead, the owners paid Comar a management fee and reimbursed Comar for the vessel expenses. Finally, the Court concluded that the services performed by Comar were primarily for the benefit of the owners, dissimilar from a bareboat charter where the services on the vessel are primarily for the charterer’s benefit.

The Fifth Circuit cited the U.S. Supreme Court in holding that “[m]aritime liens are not established by the agreement of the parties...but they result from the nature and object of the contract. They are consequences attached by law to certain contracts, and are independent of any agreement between the parties that such liens exist.”

The cases are Comar Marine Corp. v. Raider Marine Logistics LLC, Conqueror Marine Logistics LLC et al. v. Comar Marine LLC, Comar Marine Corp. v. Raider Marine Logistics LLC et al., and Conqueror Marine Logistics LLC et al. v. Comar Marine LLC, consolidated into case no. 13-30156 in the U.S. Court of Appeals for the Fifth Circuit.