Repairer’s lien are very powerful, but often misunderstood legal tools available to repairers of vessels and marine machinery. The vast majority of repairers do not, in my experience, understand and implement their lien rights effectively, and as a result lose many of the advantages the law intended them to have. One of these rights, for example, is the ability to seize and sell a vessel or machinery, without court involvement, in order to satisfy the repairer’s bill. In this Legal Net, we will refresh marine repairers on the law of liens under the B.C. Repairers Lien Act, and explain the most common mistakes that lead to repairers watching their customer’s ship sail (or machinery leave their yard) without their bill being paid. On the flip side, of course, owners of vessels and machinery are well advised to appreciate the content of this article in order to protect their respective interests.
Before the B.C. Repairers Lien Act existed, marine repairers could rely on their maritime law rights as possessory lienholders. A possessory lien is, among other things, the right of a repairer to keep possession of the item they worked on until they are paid. The claim of a repairer with a possessory lien has priority to payment over most other people who are owed money by the owner. Importantly, this priority was lost if the repairer gave up possession of the item (unless possession was lost due to theft or fraud). The difficulty with keeping possession of the vessel or machinery, of course, was that it often made it difficult for the owner to generate the money necessary to pay the bill. Standoffs were not uncommon: a repairer would hold the vessel/machinery until the bill was paid, and the owner could not pay the bill without use of his property. Generally, this type of dilemma was bad for everyone’s business, including the repairer’s goodwill amongst other customers to whom the owner complained.
The B.C. Repairers Lien Act provides a solution to this dilemma by giving special legislated rights to repairers to keep the priority their possessory lien gave them, while giving up possession of the vessel, if specific procedures are followed. If the procedures are not followed closely, the right to a repairer’s lien, and the right to seize and sell without court involvement, is lost. The must-knows of this procedure are as follows.
Obtain a Signed Acknowledgment of the Bill (the most common oversight by repairers) – The repairer may give up possession of the vessel/machinery without (any or all of) the bill being paid, and not lose their lien, provided the owner signs an “invoice or other statement of account” acknowledging they are aware of the outstanding amount. The owner does not have to agree the amount claimed is actually owed, only acknowledge the repairer claims that it is owed. For example, the owner may argue the bill is too high, or the work was not done correctly or as directed; this dispute need not be resolved before possession is given up, but an acknowledgment of the demand must be signed. If the owner wishes, the acknowledgement may be signed with a written statement that the bill is “disputed” or “under protest”, but the acknowledgement is still valid for the purposes of preserving the repairer’s lien. The Act requires the acknowledgment be “signed”, so an email, text, voicemail or verbal acknowledgment will likely not suffice. The bottom line is: get a signed acknowledgement of the bill, or do not give up possession, even if the owner says: “I’ll send a cheque in the mail” or “I’ll call you later today with my credit card number”. Prudent vessel/machinery owners would ask the repairer to give up possession of their property without signing such an acknowledgment; because if they do, the repairer’s lien would be lost.
Register the Lien Within 21 days of Giving Up Possession – After the owner provides acknowledgment of the debt and the repairer gives up possession of the vessel/machinery, the repairer’s lien continues to exist for 21 days. Before the 21 days expires, the repairer must register the lien in the Personal Property Registry (unless the bill has been paid), which is a public registry of debts secured against personal property (that is, any property other than land). If the lien is not registered within 21 days, it is lost. The lien is best registered by a lawyer, or other person trained in registering liens, because mistakes in the lien particulars can result in the lien being invalid. The cost of registering a lien in most cases should be less than $300. While the lien can be registered without such information, the birth date of the debtor and the serial number of the vessel/machinery can help ensure the lien registration is valid (repairers should obtain this information when the owner signs the acknowledgment of the bill before giving up possession).
Seize within 180 Days of Registration, and Sell – provided the repairer has obtained a signed acknowledgment of their bill, registered their lien, and at least 90 days has passed since payment on the bill was due, the repairer can (without suing in court) seize and sell the vessel to recover their debt. If the repairer has not released the property from their possession, there is, of course, no need to seize it, and the repairer can proceed with advertising (the Act provides the procedure for advertising) and an auction. If the repairer does not have possession, the seizure occurs by the repairer contacting a court bailiff licensed by the B.C. Attorney General; authorized bailiffs can be found on the internet. The bailiff should ask for proof of registration of the lien. The bailiff will seize the vessel/machinery and advertise and conduct an auction of the property in order to pay the repairer’s bill and the seizure expenses. The bailiff will typically require a deposit for their fees. In some circumstances, the value of the vessel/machinery sold will not cover the repairer’s bill and seizure/sale expenses, in which case, the repairer is best off not releasing the property in the first place (in other words, if the bill is close to the total value of the property, resist giving up possession without being paid at least most of the bill). If the sale proceeds exceed the amount of the repairer’s bill and the seizure/bailiff expenses, the excess must be returned to the owner.
Storage Costs – One additional point that is often overlooked by both repairers and owners is that once a repairer asserts a lien, they may not include in the amount of the lien the cost of storing the property. If a repairer includes these charges and sells the property (although the owner proposes to pay all of the bill except for the storage costs), the repairer may expose themselves to a penalty assessed by the court for a wrongful sale. The exception to the rule that storage costs may not be included in a repairers lien claim is if there is a written contract between the repairer and owner that allows such costs to be part of the lien. Prudent repairers will include such a term in their work order form.
Seizure under a Repairer’s Lien v. Arrest – Lastly, I am often asked what the difference is between an arrest, and a lien as described above. The arrest of a vessel is merely a procedural right (in a court action) to prevent the owner of a vessel from moving the vessel. It does not give the repairer’s claim any special rights or priority like a possessory/repairer’s lien does. An arrest does not allow the repairer to sell the vessel without a court order (whereas a repairer’s lien does). While an arrest does not stop the owner from selling their vessel, practically speaking, no buyer will buy a vessel they cannot move. The arrest ensures the vessel remains in one place so that when the repairer sues the owner and obtains a judgment, the vessel is available to sell. However, simply because the repairer can ask the court to sell the vessel does not mean they are first in the line of creditors (there may be other claimants with higher priority, such as salvage liens, port authorities, or other repairers with prior registered liens). Importantly, if a repairer arrests a vessel that is in their possession, it destroys their lien and therefore their priority – so, never arrest a vessel you already have possession of.
Darren Williams is a founding partner of League and Williams and practices in the areas of Marine Law, Personal Injury and Estates Disputes serving clients from across British Columbia. Darren can be reached for question or comment at dwilliams@leaguelaw.com or 250-888-0002.
