Skip to main content

  • AddRemove
  • Build a Report 
In Brief

P&I Priority Over a Ship Mortgage: Meet the New Crew Claimants

7 September 2016
Mayer Brown JSM In Brief

Amendments to the Maritime Labour Convention designed to address crew abandonment will shortly come into force.

Cases of vessel and crew abandonment are increasingly in the headlines, as freight rates sink to levels that can fail to cover shipowners' operating expenses.

Traditionally, the mortgagee bank would come to the crew's relief, paying outstanding wages and arranging repatriation. This was not so much altruism as recognition that the crew wages claim already had priority over the mortgage, and the fact that a sale of the vessel would not proceed with a striking crew on board who refused to deliver up possession. However, this solution to crew abandonment depended on there being a mortgagee willing to take swift action and a local legal system with the rule of law which enabled enforcement of the parties' rights. On occasion, the mortgagee's ability to intervene could also be impeded by the "automatic stay" resulting from a filing under Chapter 11 or similar bankruptcy protection laws.

To address the issue of abandonment of seafarers, amendments to the Maritime Labour Convention (MLC) will enter into force in January 2017. The amendments will be implemented in Hong Kong through the Merchant Shipping (Seafarers) (Working and Living Conditions) Regulation (L.N. 69 of 2016) (the "Regulation"). Section 59 (1) of the Regulation provides that:

"(1) A financial security must be in force in respect of a ship to ensure that any seafarer employed to work on board the ship is provided with assistance when the seafarer is abandoned."

Having adopted paragraph 9 of Standard A2.5.2 of the MLC (s. 59(2)(b)), the Regulation requires that the financial security, which will be provided by the P&I Club, must be sufficient to cover (i) outstanding wages and other entitlements due from the shipowner to the seafarer, limited to four months; (ii) the cost of repatriation; and (iii) the essential needs of the seafarer.

Standard A2.5.2 of the MLC paragraph 12 (adopted in the Regulation by s.59(2)(b)) further provides that the insurer shall, up to the amount it has paid in accordance with the applicable law, "acquire by subrogation, assignment or otherwise, the rights which the seafarer would have enjoyed".

In common law jurisdictions such as Hong Kong, it may be necessary for the P&I Club to obtain the court's approval of the payments and also the insurer's subrogation to the crew's rights. This would ensure that the P&I Club will receive the priority conferred by the crew's maritime lien.

In future shipping bankruptcies, it is likely that the P&I Club will bring subrogated crew claims against the vessel and its court sale proceeds, being the only remaining source of reimbursement. Mortgagees and others interested in the proceeds may need to verify the underlying crew claims to ensure that the new arrangements are not the subject of abuse.

The Build a Report feature requires the use of cookies to function properly.  Cookies are small text files that are placed on your computer by websites that you visit. They are widely used in order to make websites work, or work more efficiently.  If you do not accept cookies, this function will not work.  For more information please see our Privacy Policy

You have no pages selected. Please select pages to email then resubmit.