Lloyd's Maritime and Commercial Law Quarterly
AN IMPERFECT STORM: FIFTH CIRCUIT DENIES SEAMEN’S LIENS AGAINST VESSEL SALE PROCEEDS
Bank of Scotland
v. Sabay
From our nation’s beginnings, the brave men (and women) who have ventured to sea have been regarded as special and traditional wards of the admiralty courts. As such, they have always been accorded special privileges and procedural devices in respect of collecting wages owed to them for their services. In modern law, the maritime title of the federal code has specifically provided that a seaman possesses a preferred maritime lien for wages. By and large, such preference successfully trumps many other debts owed to other maritime creditors. The purpose of this legislation is to preserve the special rights of those who go down to the sea in ships, and who are often the ones least able to mount a successful action to collect their back wages in a court of law. Nonetheless, can the special status enjoyed by seamen with regard to collecting unpaid wages overcome all obstacles and all other competing claims? The answer to that question was heretobefore unclear. However, a prestigious federal appeals court has now answered that question in the negative.
Ruling on a matter on apparent first impression, the United States Court of Appeals for the Fifth Circuit has unequivocally stated that, in Bank of Scotland
v. Sabay,
1
a seaman’s preferred maritime lien for “penalty” wages cannot be enforced against the proceeds from the sale of the vessel on which he served, when those proceeds are less that the indebtedness secured by a preferred ship mortgage for the vessel. In 1996, the Bank of Scotland loaned some $15 million to Golden Lines Shipping Inc., the owner of the m.v. Maria S.J.
and the m.v. Nina S.
Among other things, the loan documentation required that Golden Lines pay the wages of its crews on a regular basis. As is customary in the maritime industry, the loan to the shipowner was secured by a preferred ship mortgage. In the spring of 1997, the Maria
was plying its trade along the Mississippi River in Louisiana. Unfortunately its seamen complained about being unpaid, and sought legal advice. Their counsel entered into negotiations, and a settlement was reached without further litigation. As part of the settlement, the shipowner stipulated that, if it did not promptly pay the wages owed the seamen at its next port of call (Houston, Texas), then the seamen would be entitled to penalty wages, pursuant to statute.2
Unfortunately, Golden Lines failed to pay the wages in Houston. In late April, 1998, the shipowner defaulted on the loan secured by the vessels, and the seamen brought an action for unpaid wages in a Louisiana State Court. The State Court issued a writ of attachment, and the Maria
was taken into the custody of the local sheriff.
However, a few days before, the Bank of Scotland (the “Bank”) had filed a complaint in Federal Court seeking to foreclose its mortgage against the Maria
. A federal warrant for the arrest of the vessel was subsequently issued and served. The seamen’s action for the wages was consolidated with the Bank’s foreclosure action in the Federal Court. Thereafter, the seamen filed a complaint in intervention in the Bank’s foreclosure proceeding, seeking to enforce maritime liens against the vessel for unpaid wages, and
1. (2000) 211 F. 3d 261; 2000 US App. LEXIS 8462 (5th Cir.).
2. 46 U.S.C., s. 10313 (penalty wages).
CASE AND COMMENT
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