No Claim for “Financial Unseaworthiness” When Passengers Never Board Vessel


This case arose in a bankruptcy proceeding.  A creditor had pre-paid a substantial sum for cruises on a vessel.  The vessel owner and operator filed bankruptcy before the cruises took place, and the creditor sought return of the deposits by asserting a tort claim for “financial unseaworthiness,” which is a “hybrid” tort and contract claim.  “The elements of the tort of financial unseaworthiness [are] (1) a duty to provide a seaworthy vessel, (2) foreseeable termination or interruption of the intended voyage due to the financial condition of the vessel’s owners, (3) actual termination or interruption resulting from the financial condition, and (4) damages, commonly the loss of prepaid freight.”

The creditor asserted this claim in the hope of obtaining a preferred maritime lien that would be superior to a preferred ship mortgage under the Ship Mortgage Act, 46 U.S.C. § § 31301-43.

The bankruptcy court rejected the creditor’s claim, and granted the debtor summary judgment, on several bases.  First, the creditor did not establish the “locality” element of admiralty jurisdiction because the passengers never boarded the vessel, and therefore, the alleged tort did not occur on navigable water.  Second, and most important, the tort claim failed for the same reason — passenger (or cargo) boarding is an essential element of the claim.

Third, and again for the same reason, the court held that, even if the creditor had a valid claim, no maritime lien arose.  There is a policy reason for requiring actual boarding before a maritime lien arises: “No lien arises in admiralty except in connection with some visible occurrence relating to the vessel or cargo or to a person injured. This is necessary in order that innocent parties dealing with the vessel may not be the losers by secret liens, the existence of which they have no possibility of detecting by any relation to any visible fact” (quoting The S.L. Watson, 118 F. 945, 952 (1st Cir. 1902); Osaka Shosen Kaisha v. Pacific Export Lumber Co., 260 U.S. 490 (1923)).

In re Ocean Club Services, LLC, 355 B.R. 886 (Bankr. S.D. Fla. 2006).



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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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