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“Property” of Defendant under Admiralty Rule B

Admiralty Rule B refers to tangible or intangible personal property in the hands of a garnishee. Rule B(1)(a). However, the Rule does not define these terms and it is up to Court to decide on a case by case basis, usually on an expansive basis. Cases have included:

  1. real property
  2. goods/merchandise
  3. credits
  4. un-matured or partially-matured debts
  5. charterer’s obligation to pay charter hire
  6. monies in bank accounts
  7. certain contingent interests, such as a defendant’s interest in an arbitration award

The expansive view of tangible or intangible property has been confirmed by U.S. courts. See World Fuel Services v. SE Shipping Lines (Rule B does not identify specific legal interest in property a defendant must have before it is subject to seizure; in prior ruling, Court concluded defendant had a right of possession, a legal interest, in the bunkers); Aifos Trade SA v. Midgulf International Ltd. (evidence showed at time of attachment defendant retained at least some legal interest in attached funds); HBC Hamburg Bulk Carriers GMBH & Co. v. Proteinas y Oleicos S.A. de C.V. (in context of competing interests, nothing in Rule requires that property attached be exclusive property of defendant).

Question: can a charterer’s interest in the use of a vessel be attachable under Rule B?

In Kingston Dry Dock Co. v. Lake Champlain Transp. Co., the attachment of vessels was based on a conditional buyer’s possession of the vessels and “equitable” interest in them despite the fact title to the vessels remained technically with the conditional seller until such time as the vessels were paid for in full. Thus, the conditional buyer who had possession, but not title, had an attachable interest in the vessels.

But in McGahern v. Koppers Coal Co., the existence of a bareboat charter did not permit attachment of the vessel itself. A bareboat charterer may be treated as owner pro hac vice, but this merely confers a right to possession of the vessel not the equivalent of title and does not subject the vessel to the general debts of the charterer. Court distinguished between an attachment of the vessel itself, and attachment of the bareboat charterer’s interest in the vessel (which it did not decide, since the issue before it was limited to attempted attachment of the vessel).

In Applewhaite v. S.S. Sunprincess, in dicta, the Court said a time-charterer’s interest in a vessel would not be attachable, because the only asset available for judicial sale would be the contract rights arising out of the charter, and the nature of a charter agreement is a manifestation of intent of the parties that it not be assignable. But this statement may no longer be valid due to sub-let clauses in form charter parties.

In Interpool Limited v. Char Yigh Marine (Panama) S.A., the 9th Circuit held a vessel could be attached to secure a claim against a time charterer, where the charter in question was not a true lease with a reversionary ownership interest, but a disguised security interest in connection with purchase of the vessel. Applying commercial law under the UCC relating to leases of equipment and machinery, the Court stated that if a document purporting to be a lease was in fact part of a security arrangement, the ‘lessor’ did not have a reversionary ownership interest in the subject of the ‘lease’ and that the ‘lessee’ was viewed as owner.

Answer: Where a charterer has a right to purchase the vessel at the end of the charter period, this may be sufficient to establish an attachable interest in the vessel under Kingston Dry Dock and Interpool.

Federal courts are permitted to adopt state law precedent (see New York state law in Jaldhi), such as the UCC in Interpool. Under New York law, for example, a lessee’s interest in an automobile has been found to be seizable. See Gleich v. Rose. Going forward, a claimant may be so bold as to file a Rule B based on a charterer’s interest in the use of a vessel.

Article written by:
Neil Klein