Contributed By Seward & Kissel LLP
The United States has no separate federal ‘maritime finance law’ other than the Ship Mortgage Act. The United States does, however, have various incentive programmes at the federal level related to maritime projects and the maritime industry (discussed further in 1.6 Constitution of Maritime Finance Authority), while individual states and localities may adopt incentive programmes specific to the particular states, cities or projects.
The United States also has the Jones Act, which sets out requirements for cabotage trade and certain other requirements for US-flag vessels and their ownership. The Jones Act incentivises US shipbuilding and the maintenance of a US-owned fleet by, among other things, generally requiring US-citizen ownership of US-flag vessels and that vessels used for cabotage trade be constructed within the United States.
Eligibility for any particular incentive programme will vary and may depend on the particular project type and, in some cases, location. The availability of incentives also depends upon the allocation of funds by the United States Congress or specific approvals from state or local government.
At the United States federal level, the primary incentive programmes for maritime projects are as follows:
The Maritime Security Program (MSP) – the United States subsidises certain militarily useful, privately owned US-flag vessels. Shipowners participating in the MSP receive annual subsidies in exchange for an agreement to make the vessels available to the United States government in times of war or national emergency. There are currently 60 vessels participating in the MSP.
Cargo preferences – the United States supports demand for US-flag vessels through legislation requiring that said vessels be used for the transport of all or a significant percentage of military and other government cargoes. These may include food aid and shipments arising from loans and guarantees from the United States Export Import Bank. Vessels which participate in the MSP are also eligible to carry these preferential cargoes.
The Title XI Federal Ship Financing Program – the United States incentivises the construction, rebuilding or reconditioning of certain vessels in the United States by providing debt repayment guarantees through the Federal Ship Financing Program. As of February 2019, the available subsidy was USD32 million, which is sufficient for issuing approximately USD504 million in debt repayment guarantees.
The Capital Construction Fund (CCF) programme and the Capital Reserve Fund (CRF) programme – the United States operates the CCF and the CRF to allow US-flag ship-owners and operators to defer federal income taxes on certain amounts placed into a CCF or CRF.
The CCF programme allows taxpayers to defer federal income taxes on certain funds placed into an account to be used for the construction, rebuilding or acquisition of eligible vessels built in the United States.
The CRF programme is similarly used to incentivise the construction, rebuilding or acquisition of vessels built in the United States, and permits US-flag ship-owners to defer the gains related to the sale or loss of a vessel if the proceeds are used for the construction, rebuilding or acquisition of an eligible vessel.
Accelerated cost recovery – to the extent that a ship-owner earns taxable income in the United States, US-flag vessels are subject to the accelerated cost-recovery system rules, which allow owners to depreciate the vessels faster than ordinary straight-line depreciation for tax purposes.
There may also be state or local incentives available for maritime projects, particularly those involving significant job creation.
States and localities in the United States may incentivise projects with preferential tax treatment or other incentives. The preferential tax treatment might cover state or local income taxes payable in connection with a particular project or with a project located in a particular city or state. As the eligibility and application procedures for these state and local projects vary between jurisdictions, legal advice should be sought in connection with any potential state or local incentive programmes.
The incentive programmes have varying application or procedural requirements. Applications for incentive projects should be reviewed individually. Tax advice should be sought when considering any of the available tax incentives.
The United States Maritime Administration (MARAD) administers the MSP, cargo preference, CCF and CRF programmes (except with regards to fisheries), and the Title XI Federal Ship Financing Program.
Funding of the United States federal incentive programmes, including the MSP and the Title XI Federal Ship Financing Program, depends on appropriations from the United States Congress and may be increased or decreased from year to year depending on political and budgetary priorities.
The United States is not a party to LLMC 76.
The United States applies the Limitation of Liability Act, which allows vessel-owners, under certain circumstances, to limit liability to the value of the vessel and pending freight, where the loss occurred without the privity of knowledge of the owner.
One important difference between the Limitation of Liability Act and LLMC 76 is the universe of parties eligible for limited liability. United States law allows only owners and owners pro hac vice of a vessel to commence a proceeding for limitation under Rule F of the Federal Rules of Civil Procedure, Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (the Supplemental Rules).
Conversely, LLMC 76 is broader and applies to vessel owners as well as salvors charterers, managers and operators of sea-going ships, and any claims against Masters and members of crew against any person “for whose act, neglect or default the ship-owner or salvor is responsible”.
The statute of limitations for the Limitation of Liability Act is six months and runs from the time the vessel-owner receives written notice of the claim. The written notice must inform the owner of the details of the incident and that the owner appeared to be responsible for the damage in question.
The Limitation of Liability Act applies to a variety of claims, including personal injuries, fire, collisions, allisions, sinking, salvage and lost cargo.
The Limitation of Liability Act does not apply to certain claims, including exempt seaman’s wages under the Fair Labor Standards Act (FLSA), claims arising under the Oil Pollution Act of 1991, preferred ship mortgages and claims for an injured seaman’s maintenance and cure benefits.
There is no provision akin to Article No 4 of LLMC 76 in the Limitation of Liability Act.
Liability is limited to the value of the vessel and pending freight where the loss occurred without the privity of knowledge of the owner.
Limitation can be broken if the loss occurred with the privity or knowledge of the owner. In practice, owners and their vessels are in constant contact and it is conceivable that a court could find that privity or knowledge existed at the time of the loss. Moreover, privity in cases of personal injury and death for certain sea-going vessels can be imputed to the vessel-owner based on the knowledge of the vessel’s superintendent or managing agent at or before the beginning of the voyage.
Under Supplemental Rule F(1), a limitation fund can be secured by:
There is no explicit guidance indicating whether P&I Club LOUs are acceptable as guarantees to constitute a limitation fund.
Once the limitation proceeding commences, the court orders a stay of all claims and proceedings against the owner or the owner’s property with respect to the matter in question pursuant to Rule F(3).
The federal courts have admiralty jurisdiction and are the venue for judicial sales in admiralty. Vessel arrest and attachment proceedings are governed by the Supplemental Rules. In general, the owner has the right to appear and challenge the arrest, but if the arrest is found to be valid and the owner does not post alternative security (such as a P&I insurer’s LOU), the vessel will ultimately be sold. The vessel (or other arrested property) may also be sold at an interlocutory sale if it is subject to deterioration, is excessively expensive to keep, or there is unreasonable delay in securing release of the property.
The statutory procedure for vessel sales is set out in 28 USC §§ 2001 and 2004. The statute requires that notice of a hearing ordering a private sale must be made to interested parties by publication or otherwise, as directed by the court. The terms of a private sale must be published in one or more newspapers of general circulation at least ten days before the sale.
Local rules of the particular federal district court or the local US Marshals Service office may set out more specific notice requirements and procedures for public or private sales. Claimants may seek for the sale order to include use of a Sale & Purchase Broker to promote the sale, the cost of which is generally considered an administrative expense of the sale.
The statute does not require appraisals for public sales. The claimant may, however, make provision for a written vessel valuation and survey as part of the sale order. Before confirmation of a private sale, the court must appoint three disinterested appraisers. The property may not be sold at a private sale for less than two thirds of the appraised value.
There is no statutory requirement for multiple rounds in a judicial sale proceeding. Typically, auctions are conducted by the marshal by open outcry bidding.
The sale order will set a minimum bid.
The Marshals office manages the sale. The auction is by open outcry. Bidding increments may be set in the sale order. Local court rules or Marshals office procedures may set the requirements for payment of a percentage of the purchase price to be paid at the time of sale, with the balance due shortly thereafter. The court’s sale order may set other requirements.
A prospective bidder in a public judicial sale is not required to make an appearance in the judicial sale proceeding with an attorney. In a private sale, the putative purchaser would almost certainly wish to do so.
A bidder at public sale must meet the requirements set out in the sale order, which may include citizenship requirements, and be prepared to submit the necessary payment at the time of sale in the form required by the Marshal.
The time to pay the balance of the sale price may be set by local rule or the Marshals office, and identified in the sale order.
Creditors may credit bid against the vessel in a post-judgment sale. Credit bids are not permitted or are limited in interlocutory sales.
Although it happens rarely, the sale can be approved even if the winning bid does not cover arrest expenses, as the claimant will have provided the Marshals Service with security for such expenses.
Although it happens rarely, the sale can be approved even if the winning bid does not cover arrest expenses, as the claimant will have provided the Marshals Service with security for those expenses.
The COGSA applies to cargo claims.
Under COGSA, a vessel is liable in rem for carrying cargo and ratifying a bill of lading. A carrier may limit its liability to USD500 per package or customary freight unit. COGSA applies ‘tackle to tackle’.
The definition of ‘contract of carriage’ under COGSA encompasses “contracts of carriage covered by a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea”.
The shipper and the carrier are parties to a carriage of goods by sea contract.
Cargo claims are frequently brought by shippers and their insurers. A real party in interest may bring a suit under a bill of lading.
The vessel may be sued in rem for a cargo claim and a vessel-owner may be sued if it is the contractual carrier.
‘Carrier’ includes the vessel-owner or charterer that enters into a contract of carriage with the shipper.
The vessel may be sued in rem for a cargo claim. However, the vessel-owner may not be liable under COGSA if it is not the contractual carrier.
US maritime law provides a right in rem against the vessel.
COGSA applies to contracts for carriage of goods by sea.
Himalaya clauses are strictly construed against the carrier and its third-party beneficiaries.
There are 17 excepted causes of cargo damage shielding ocean carriers from liability under COGSA, including the ‘peril of sea’ defence.
A carrier may limit its liability to USD500 per package or customary freight unit.
The Fifth Circuit Court of Appeals has elucidated that there are four stages to burden shifting under COGSA:
(a) it exercised due diligence to prevent loss or damage to the cargo; or
(b) that the loss or damage was the result of one of COGSA’s statutory exceptions;
Formal notice of a claim is not required under COGSA. However, notice within three days of delivery is required with respect to damage to the cargo where this damage is ‘not apparent’.
COGSA follows a one-year statute of limitations.
Parties may extend the time to file suit against a COGSA carrier.
Forum selection, arbitration and choice of law clauses are enforced if they are properly incorporated into the bill of lading.
Marine accidents occurring in navigable waters are covered under US federal maritime law, state law and statutory law.
In the United States, the term ‘navigable waters’ refers to waters that are designated as navigable by law or are in fact navigable. The term is significant as an element in determining whether certain claims fall under state law, federal maritime law or statutory law.
Federal pilotage regulations promulgated by the United States Coast Guard (USCG) require certain vessels operating coastwise, on the Great lakes or otherwise within United States territorial waters to be piloted by a pilot or, in some circumstances, a qualified crew-member. State laws govern pilotage of foreign vessels in ports and other waters in the state.
There is no general regime in the United States for ship-owner recovery against a governmental authority for damages arising from a marine accident in waterways. Ship-owner recovery for damages will be governed by the statutes detailed below.
The National Transportation Safety Board (NTSB) and the USCG share jurisdiction over investigation of maritime accidents. Pursuant to a Memorandum of Understanding (MOU) between the two organisations, the NTSB has the right to elect to lead investigations of accidents that threatened high loss of life or substantial property damage. ‘Major accidents’ are broadly defined as involving:
The USCG must be notified by the owner, agent, Master, operator or person in charge of a vessel that is involved in a maritime casualty. The USCG investigates such incidents, unless deemed a major accident.
The NTSB may investigate major accidents. Pursuant to the MOU, where the NTSB elects to take the lead on an investigation, the USCG’s Office of Investigations & Casualty Analysis participates as a ‘party’ to the investigation.
The USCG conducts four types of investigations, depending on the severity of the maritime casualty:
The USCG also has the authority to convene a Marine Board of Investigation (Marine Board) for significant maritime casualties. In these proceedings, the Marine Board may take sworn testimony and compel production of documents and evidence. The Marine Board may issue findings and take corrective actions as a result of these hearings. These investigations are not intended to impose civil or criminal liability.
The NTSB may hold a public hearing on an accident to gather sworn testimony from witnesses on issues identified by the NTSB during a major transportation accident investigation. An investigatory hearing is for fact-finding only, and no analysis of the causes of the accident are discussed.
Subsequently, the NTSB may issue its findings on the probable cause of the accident and promulgate recommendations to prevent similar accidents. However, the NTSB has no legal authority to implement or impose its recommendations. Rather, these recommendations are implemented by regulators at either the federal or state level, or by individual transportation companies.
Maritime-related claims against the US federal government, as to which the federal government has waived sovereign immunity, may arise under the Suits in Admiralty Act (SIAA), the Public Vessels Act (PVA), the Federal Tort Claims Act (FTCA), the Tucker Act and the Contract Disputes Act (CDA). Claims arising in foreign countries may be governed by treaties. The interplay of these acts and their jurisdictional scope and requirements in any given circumstance may be complicated.
The SIAA covers all admiralty claims against the US government or any corporation wholly owned by the US (which might, for example, include cargo claims), with the exception of certain claims involving a ‘public vessel of the United States’ (for example, USCG vessels or US warships).
The PVA covers admiralty claims for damages caused by the public vessel or its crew as well as towage or salvage of the vessel. Public vessels and cargo are not subject to seizure.
The FTCA applies to tort claims, and the Tucker Act and CDA to contract disputes, not sounding in admiralty.
In general, non-admiralty claims for damage or loss caused by the negligence or wrongful act of a US government employee acting in the scope of his or her employment fall under the FTCA. FTCA claims arising from USCG action may be submitted to the USCG Legal Service Command. Similar submissions may be made to other federal government agencies under the FTCA. State tort claims laws will govern claims against state agencies.
Claims under the CDA must be presented to the contracting agency within six years.
Claims under the Federal Tort Claims Act should be presented within two years. The limitations period may be subject to equitable tolling in appropriate circumstances. State law will determine time-bars for claims against state agencies.
Given the complexity of the statutory regimes governing maritime-related claims against governmental agencies, few general rules can be stated and the availability of damages should be evaluated on a case-by-case basis.
As with 5.11 Types of Damage Claimable, given the complexity of the statutory regimes, the availability of damages should be considered on a case-by-case basis.
As with 5.11 Types of Damage Claimable and 5.12 Unrecoverable Damages, given the complexity of the statutory regimes, whether or not a given event or circumstances gives rise to a claim against the authority should be evaluated on a case-by-case basis.
Claims under the SIAA or PVA may be brought in the US District Court where the plaintiff resides or where the vessel or cargo may be found, though cases may be transferred to other districts.
Claims under the CDA can be appealed to federal court within 120 days of the agency ruling. The court to which an appeal is taken may depend on the nature of the claim; claims concerning maritime contracts are appealed to the federal district courts while appeals of non-maritime claims are generally taken to the Court of Appeals for the Federal Circuit.
After claim submission under the FTCA, the agency has six months to respond to the claim, which it may deny or admit in whole or in part. Claims may be settled in the administrative process. A claimant may file a judicial claim upon the agency’s ruling, or after six months have elapsed from submission.
The time-bar for filing a judicial claim under the CDA is 120 days from the agency’s ruling.
The limitations period under the Tucker Act is six years.
The limitations period under the SIAA and PVA is two years.
Under the FTCA, a claimant has six months from the agency’s determination in which to file a lawsuit on the claim. The time does not begin to run until the agency issues its ruling, even if the agency does not issue its determination within six months. Claims under the FTCA may be subject to equitable tolling. Because the time-bars under the FTCA and SIAA/PVA are different, careful consideration should be given to the timing of initiation of court action.
As noted above, claims under the SIAA or PVA may be brought in the US District Court where the plaintiff resides or where the vessel or cargo may be found, though cases may be transferred to other districts.
The Court of Federal Claims and the Court of Appeals for the Federal Circuit have jurisdiction over claims under the Tucker Act in excess of USD10,000 and non-maritime CDA claims. The US District Courts and the Court of Federal Claims have concurrent jurisdiction over Tucker Act claims below USD10,000.
The United States District Court for the district where the claimant resides or where the event occurred has jurisdiction to hear claims concerning agency rulings under the FTCA.