744 F.2d 461
1985 A.M.C. 2630
CARDINAL SHIPPING CORPORATION, Plaintiff-Appellant Cross Appellee,
v.
M/S SEISHO MARU, her engines, tackle, etc., Defendant-Appellee,
Aizawa Kaiun K.K., Claimant-Defendant Cross-Appellant.
The GOVERNMENT OF the REPUBLIC OF INDONESIA and Bandan
Urusan Logistik, Plaintiffs-Appellants Cross Appellees,
v.
M/V GLAFKOS, her engines, tackle, apparel, furniture, etc.,
in rem, et al., Defendants-Appellees,
Glafkos Shipping Co., Ltd., Defendant-Appellee Cross Appellant.
Nos. 83-2338, 83-3030.
United States Court of Appeals,
Fifth Circuit.
Oct. 22, 1984.
Leach & Paysse, Philip A. Fant, New Orleans, La., Delson & Gordon, Daniel J. O'Callaghan, New York City, for plaintiffs-appellants cross appellees in No. 83-3030.
James J. Sentner, Jr., Houston, Tex., for amicus curiae, Haight, Gardner, et al. in No. 83-3030.
Chaffe, McCall, Phillips, Toler & Sarpy, J. Francois Allain, John H. Clegg, New Orleans, La., for defendants-appellees in No. 83-3030.
Haight, Gardner, Poor & Havens, James J. Sentner, Jr., Houston, Tex., R. Glenn Bauer, Haight, Gardner, Poor & Havens, New York City, for Cardinal Shipping Corp. in No. 83-2338.
Royston, Rayzor, Vickery & Williams, Ted C. Litton, William R. Towns, Houston, Tex., for Seisho and Aizawa in No. 83-2338.
Appeals from the United States District Court for the Eastern District of Louisiana.
Appeals from the United States District Court for the Southern District of Texas.
Before GOLDBERG, RUBIN and REAVLEY, Circuit Judges.
GOLDBERG, Circuit Judge:
The two cases consolidated for this appeal both involve maritime liens and the effectiveness of "Prohibition-of-Lien" clauses contained in charterparties. We will treat the two cases separately, however, because they raise different peripheral issues and their factual settings differ.
I. CARDINAL SHIPPING v. M/S SEISHO MARU
Aizawa Kaiun K.K. ("Aizawa") owns the M/S Seisho Maru. Aizawa time-chartered the vessel to Nakamura Steamship Co., Ltd., ("Nakamura") under a charterparty dated August 17, 1979. Aizawa and Nakamura are both Japanese Corporations, and the Seisho Maru sails under a Japanese flag. The charterparty gave Nakamura the right to use or sublet the vessel for a set period. The actual operation of the vessel, however, would be the responsibility of a Master and crew provided by Aizawa. On November 17, 1980, Nakamura time-chartered the Seisho Maru to Clover Trading Corporation ("Clover"), a Liberian Corporation. The period of this charter was two years, plus or minus one month at the charterer's option. The charterparty provided for payment of hire to be made in London, semi-monthly in advance.
The time charter from Nakamura to Clover, as well as the head charter from Aizawa to Nakamura, were drawn on the standard New York Produce Exchange form. Both charters contained the following lien clause:
18. That the Owners shall have a lien upon all cargoes, and all sub-freights for any amounts due under this Charter, including General Average contributions, and the Charterers to have a lien on the Ship for all monies paid in advance and not earned, and any overpaid hire or excess deposit to be returned at once. Charterers will not suffer, nor permit to be continued, any lien or encumbrance incurred by them or their agents, which might have priority over the title and interest of the owners in the vessel.
(emphasis added).
On October 5, 1981, in Charlotte, N.C., Clover entered into a voyage charterparty with Cardinal Shipping Corporation ("Cardinal"), a United States Corporation. The charter contemplated the carriage of six thousand metric tons of steel coils from Oxeloesund, Sweden, to the ports of Detroit and Chicago. Cardinal executed the charter in order to meet its contractual commitment with a shipper of the cargo.
In accordance with the charterparty, Clover delivered the Seisho Maru to Cardinal in Oxeloesund. On November 3, 1981, Cardinal began loading the cargo of coils on board. In the meantime, a dispute had developed between Nakamura and Clover. Payment of hire under their time charter became due on October 28, 1981. The day before, Clover had advised Nakamura that it had instructed its bankers to transfer the amount due to Nakamura's bank. Nakamura's representatives, relying on this communication, waited several days for the transfer of funds. When the transfer had not occurred by November 3, Nakamura's representatives contacted Clover seeking clarification as to the non-payment of hire.
On the following day, November 4, 1981, Nakamura instructed the vessel that loading should cease immediately. Approximately 1800 of the 6000 metric tons had already been loaded; but neither Nakamura nor the Master of the Seisho Maru had signed bills of lading for the cargo. Since payment was not forthcoming, Nakamura gave formal notice on November 5 of the default in payment of hire, expressly reserving Nakamura's right under the charterparty to withdraw the vessel and affording Clover three banking days to cure the default.
When Clover failed to remit payment within that time, Nakamura announced that it would withdraw the vessel from the time charter. Some discussions ensued between Nakamura and Cardinal concerning the carriage of the cargo of steel coils, but no agreement could be reached. Thus, in mid-November, Nakamura discharged the cargo already on board and withdrew the Seisho Maru.
Cardinal made alternate arrangements to ship the cargo, allegedly suffering losses as a result. It filed suit in district court to recover damages for breach of the voyage charter. Cardinal brought this action in rem, asserting a lien against the Seisho Maru. Aizawa appeared as claimant of the vessel and filed a Motion to Dismiss Cardinal's in rem complaint. Cardinal, in turn, filed an Opposition to that motion as well as its own Cross-Motion for Summary Judgment. The trial court granted Aizawa's Motion to Dismiss, holding that the Prohibition-of-Lien Clause in Aizawa's charterparty precluded Cardinal's assertion of a lien. This appeal follows.
A. Issues
A major squall has brewed in this case because Cardinal is suing for breach of a charter to which Aizawa was not a party. Cardinal nevertheless asserts that the Seisho Maru itself is bound to that contract. Cardinal argues that ancient maritime doctrine creates reciprocal liens between the vessel and her cargo once the cargo is loaded on board. Aizawa responds that such a lien does not arise in this case and, in any event, is precluded by the Prohibition-of-Lien clause in the Nakamura-Clover charter. The shipowner argues that Cardinal had a duty of reasonable diligence to discover that clause. Finally, Aizawa argues that Swedish law should apply to this dispute under choice-of-law principles.
Approaching this storm line from the opposite heading, we hold that Swedish law does not apply but that American law precludes Cardinal's lien.
1. Choice of Law
This Circuit has held that the Restatement (Second) of Conflicts of Law [hereinafter cited as Second Restatement ] provides the proper model for resolving maritime choice-of-law problems. See Gulf Trading & Transportation v. the Vessel Hoegh Shield, 658 F.2d 363, 366 (5th Cir.1981), relying on Lauritzen v. Larsen, 345 U.S. 571, 73 S.Ct. 921, 97 L.Ed. 1254. In Gulf Trading, an American supplier ("Gulf") had delivered bunker fuel to a vessel in American waters. Failing to receive payment from the charterer of the vessel, Gulf seized the vessel and asserted a maritime lien. This Court, in deciding whether American law should govern the validity of the lien, followed the analysis of the Second Restatement and evaluated the various points of contact between the transaction and the governments whose competing laws might apply.
Looking first at the bunkering contract between Gulf and the charterer, we considered the contacts specified in section 188 of the Second Restatement:
[I]n the absence of an effective choice of law by the parties, the forum contacts to be considered include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties.
Gulf Trading, 658 F.2d at 366.
We also recognized, however, that a maritime lien does not arise solely by operation of contract law. Therefore, in addition to the section 188 contacts, we considered more general factors set forth in Second Restatement Sec. 6:
In the absence of statutory directives and subject to constitutional restrictions, the relevant factors include (a) the needs of the international system, (b) relevant policies of the forum, (c) relevant policies of other interested states, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied.
658 F.2d at 367.
We concluded that federal statutory law reflected a strong policy of protecting American suppliers and would lead to a uniform, predictable result in future cases. We also determined that the alternative forum (England) did not have a great interest in regulating the relationship between an American supplier and a non-English vessel. Therefore, we applied forum law rather than British law.
Now, directing the spyglass of precedent toward the deck of our own Seisho Maru, we likewise conclude that American law should govern. The voyage charter between Cardinal and Clover has the most significant contacts with the United States. The charterparty was executed in the United States between an American corporation (Cardinal) and a Liberian corporation (Clover). The places of performance included both Sweden, where the cargo was to be loaded, and the United States, where the cargo was to be discharged. Freight was to be paid by transferring money to a bank in New York. Disputes were to be arbitrated in New York. The only contacts with Sweden were the initial presence of the subject matter--the steel coils to be shipped--and the fact that performance began in Oxeloesund. Though the presence of the coils is an important factor, see Gulf Trading, 658 F.2d at 367 n. 4, we hold that the contacts with the United States predominate in this case.
Furthermore, the more general factors listed in Restatement Second Sec. 6 do not favor Swedish law. Sweden has some interest in the handling of cargo within its waters, but little concern about liens asserted by an American corporation against a non-Swedish vessel. Cf. Gulf Trading, 658 F.2d at 358. Aizawa has shown us no evidence of a strong policy in Swedish law regarding maritime liens in general. Nor has appellee demonstrated that the international maritime system is better served by Swedish rules than by American rules.
The effect of the parties' expectations is ambivalent at best. There is no reason to believe that Clover or Cardinal expected Swedish rather than American law to govern their dealings. Given that the charter called for performance in both hemispheres, Clover and Cardinal were at least as likely to anticipate that American law would control. Furthermore, the charter's incorporation of U.S. regulations in one technical area and its reference to U.S. arbitration provide some evidence that the contracting parties intended American law to apply.
As to Aizawa itself, the company does not argue that it expected Swedish law to govern liens against the Seisho Maru when it first time-chartered the vessel. Such expectations could have arisen only when Aizawa's Master became aware of the Clover-Cardinal voyage charter. The evidence does not support a claim that the Master's expectations would have been any different from those of Cardinal and Clover.
The final factors--certainty, uniformity, and easy application--all favor American law in this case. Under Aizawa's view, Swedish law would apply to breaches of the charterparty while the Seisho Maru was still in Oxeloesund, but American law might kick in once the vessel reached Detroit or perhaps at some point in the Atlantic. Uncertainty about when American law became applicable and the resulting incongruity of legal rules would produce errant gusts disturbing the predictable tradewind of maritime law.
In sum, general choice-of-law principles as well as the relevant transactional contacts impel us to apply American law. We will follow the charts of the forum in navigating the rough seas ahead.
2. The Maritime Lien
The maritime lien is an ancient and unique feature of admiralty doctrine. It arises by operation of law to provide security to the victims of certain maritime torts and contract breaches. See, e.g., The Barnstable, 181 U.S. 464, 21 S.Ct. 684, 45 L.Ed. 954 (1901); The Schooner Freeman v. Buckingham, 59 U.S. (18 How.) 182, 188, 15 L.Ed. 341 (1855); 2 Benedict on Admiralty Sec. 21, at 2 (7th ed. 1983); G. Gilmore & C. Black, The Law of Admiralty Chapter IX (2d ed. 1975) [hereinafter cited as Gilmore & Black ]. Plaintiffs bring an action directly against the vessel in rem. If they are victorious on the merits, they may enforce the judgment by condemnation and sale of the ship. See 2 Benedict on Admiralty, supra, Sec. 21, at 2-3.
A maritime lien typically arises when the owner has breached its contract with the charterer. See Rainbow Line v. M/V Tequila, 480 F.2d 1024 (2d Cir.1973); Belvedere v. Compania Plomari de Vapores, 189 F.2d 148 (5th Cir.1951).
[C]harterparties must, in the invariable regular course of ... business, be made, for the performance of which the law confers a lien on the vessel.
Rainbow Line, 480 F.2d at 1027 (quoting The Schooner Freeman v. Buckingham, 59 U.S. (18 How.) at 190, 15 L.Ed. 341). The charterer may enforce its contract through an action in rem.
The vessel may also become open to maritime liens if the owner (or his Master) accepts cargo on board and signs a bill of lading evidencing a contract of affreightment with the shipper. Breach of that contract (e.g., by the loss of the cargo during the voyage) would subject the vessel to in rem liability. See The Capitaine Faure, 10 F.2d 950, 954, 961 (2d Cir.1926); Tube Products of India v. S.S. Rio Grande, 334 F.Supp. 1039, 1041 (S.D.N.Y.1971); W. Poor, American Law of Charter Parties and Ocean Bills of Lading Sec. 10, at 33 (1968) [hereinafter cited as Poor on Charter Parties]; 2A Benedict on Admiralty, supra, Sec. 35, at 4-19.
In the present case, however, no such bills of lading were issued, and the plaintiffs sue for a breach not of the head charter but of a subcharter to which Aizawa was not privy. Cardinal nevertheless argues that Aizawa entrusted the Seisho Maru to a time charterer and thereby assented to the creation of liens upon the vessel as security for the performance of the charterer's contracts of affreightment. As the Supreme Court stated in The Schooner Freeman:
[W]hen the general owner intrusts the special owner with the entire control and employment of the ship, it is a just and reasonable implication of law that the general owner assents to the creation of liens binding upon his interest in the vessel, as security for the performance of contracts of affreightment made in the course of the lawful employment of the vessel. The general owner must be taken to know that the purpose for which the vessel is hired, when not employed to carry cargo belonging to the hirer, is to carry cargo of third persons; and that bills of lading, or charterparties, must, in the invariable regular course of that business, be made, for the performance of which the law confers a lien on the vessel.
59 U.S. (18 How.) at 190, 15 L.Ed. 341.
The Second Circuit has read this language to permit a maritime lien against the vessel when the charterer breaches its bill-of-lading contract with a shipper. See United States v. S.S. Lucie Schulte, 343 F.2d 897, 900 (2d Cir.1965) (shipper suing in rem to recover overcharges collected by charterer). The same reasoning could be used to recognize a lien for the breach of a subcharter. Cf. Gilmore & Black, supra, at 668-69 (lien may arise if not "prohibited by an apt clause in the [head] charterparty"). Conceivably, even the breach of a sub-subcharter (like the Clover-Cardinal agreement) could give rise to liens, under the theory that the subcharterer (Clover) was entrusted with the use of the vessel. And, if a subcharterer has authority thus to bind the vessel, why not a sub-subcharterer? The potential iterations of the theory are as multitudinous and repetitive as the chambers of the pearly nautilus.
We need not explore the full depths of those issues, however. Our case may be resolved on two narrower grounds. First, the lien cannot arise because it conflicts with Nakamura's right of withdrawal. Second, it is also barred by the Prohibition-of-Lien clause.
(a) Right of Withdrawal
Allowing a lien in this case would undermine Nakamura's right of withdrawal under its time charter. To clarify this point, we must provide some background information. Under the "executory contract doctrine," a maritime lien for breach of charterparty arises once (and to the extent that) cargo is loaded on board. See Osaka Shosen Kaisha v. Pacific Export Lumber, 260 U.S. 490, 43 S.Ct. 172, 67 L.Ed. 364 (1923); Bulkley v. Naumkeag Steam Cotton, 65 U.S. (24 How.) 386, 16 L.Ed. 599 (1860); Belvedere v. Compania Plomari de Vapores, 189 F.2d at 149-50; The Capitaine Faure, 10 F.2d at 961; Gilmore & Black, supra, Sec. 9-22, at 637-38, Sec. 9-23, at 639. The fanciful courts have envisioned a "union of ship and cargo," marking the commencement of the lien. See Krauss Brothers Lumber v. Dimon S.S. Corp., 290 U.S. 117, 121, 54 S.Ct. 105, 106, 78 L.Ed. 216 (1933). Thus, even if the ship does not leave port with the cargo, it may be liable for a charter breach. The Seisho Maru in this case discharged its cargo before leaving Oxeloesund; but because it had taken the steel coils on board for a few days, Cardinal argues that the discharge gave rise to a lien.
However, the cargo was unloaded because Nakamura was exercising its rights under the charter with Clover. Nakamura withdrew the vessel from the charter after Clover had failed to meet payment obligations. The charterparty expressly authorized a withdrawal under those circumstances. Clause 5 provides that if Clover fails to make
the punctual and regular payment of hire, ... [Nakamura] shall be at liberty to withdraw the vessel from the service of [Clover], without prejudice to any claim [Nakamura] may otherwise have on [Clover].
Record at 167. Clause 49 is more specific:
In default of prompt payment of the hire, or bank guarantee or deposit, or on any breach of this Charter, [Nakamura] shall notify [Clover] whereupon [Clover] shall rectify matters within three banking days of receipt of notification from [Nakamura], failing which [Nakamura] shall have the right to withdraw the vessel from the service of [Clover], without prejudice to any claim [Nakamura] may otherwise have on [Clover] under the Charter.
Record at 170. Under these terms, Nakamura was entitled to withdraw the Seisho Maru if Clover failed to meet its payments and if Nakamura gave the proper notice and allowed the appropriate grace period before acting. See Schirmer Stevedoring v. Seaboard Stevedoring, 306 F.2d 188, 189, 190, 191 (9th Cir.1962); Diana Compania Maritima v. Subfreights of the S.S. Admiralty Flyer, 280 F.Supp. 607 (S.D.N.Y.1968). Cardinal does not dispute that Nakamura met all of the procedural requirements and was entitled to withdraw the vessel.
Maritime law, however, required Nakamura to reland the cargo before effecting withdrawal of the vessel. As the Second Circuit declared in Luckenbach v. Pierson, 229 F. 130 (2d Cir.1915):
[T]he withdrawal of a vessel from a charter party means that the owner shall deprive the charterer of any further enjoyment or use of the vessel and take it into his own exclusive possession. This can be presently done, even where the vessel is at sea, provided she is light; but if there be any cargo on board no withdrawal can be made until the cargo be relanded if the vessel is at the loading port, or until it be discharged if she is at sea or at destination. In the present case, when Luckenbach notified Pierson & Co. that he would withdraw the vessel on June 27th if the hire in arrear were not then paid, she was loading at Baltimore and he could have done so by relanding the cargo.
Id. at 132 (emphasis added); Diana Compania Maritima v. Subfreights of the S.S. Admiralty Flyer, 280 F.Supp. 607, 612 (S.D.N.Y.1968); 2B Benedict on Admiralty, supra, Sec. 6, at 53 (citing Luckenbach as the leading case on this issue); Poor on Charter Parties, supra, Sec. 8, at 28 (same). This rule serves to protect both the vessel owner who is able to regain "control of his vessel" by discharging the cargo, Diana Compania Maritima, 280 F.Supp. at 613, and the cargo owner whose property will be unloaded at either of the two safest points--the loading port or the destination. The Luckenbach rule draws a reasonable line; once a vessel has put out to sea, she must continue the voyage and discharge her cargo before withdrawing from the charter.
If Cardinal were granted a lien in this case, however, it would directly conflict with the principles of Luckenbach and effectively torpedo the owner's right of withdrawal at the loading port. Once a charterer (in this case, Clover) allowed some cargo on board, the subcharterer's (or shipper's) lien would attach to ensure the carriage of the cargo. Even though the owner (or "disponent owner" Nakamura) had received no pay from its charterer and had entered into no agreements with the subcharterer, the owner could not reland the cargo. We are not prepared thus to sink the good ship Luckenbach. Cardinal is not entitled to a lien against the Seisho Maru.
(b) Prohibition-of-Lien Clause
The Prohibition-of-Lien clause in the two time charters provides an additional ground for rejecting a lien in this case. In The Schooner Freeman, the Supreme Court noted that it is "a just and reasonable implication of law that the general owner assents to the creation of liens" by the "special owner." 59 U.S. (18 How.) at 190, 15 L.Ed. 341. The general owner, however, can effectively negate that implication of assent by the inclusion of a clause prohibiting contract liens. See The Valencia, 165 U.S. 264, 17 S.Ct. 323, 41 L.Ed. 710 (1897); The Kate, 164 U.S. 458, 17 S.Ct. 135, 41 L.Ed. 512 (1896); United States v. S.S. Lucie Schulte, 343 F.2d at 900-901; Gilmore & Black, supra, Sec. 9-39, at 668-69, Sec. 9-46a, at 687-88.
Clause 18 of the Aizawa-Nakamura and Nakamura-Clover charters is the standard New York Produce Exchange provision, which has been enforced in a myriad of decisions. See, e.g., Walsh Stevedoring v. M/S Slagen, 361 F.2d 478, 479 (5th Cir.1966); Schilling v. A/S D/S Dannebrog, 320 F.2d 628, 632 (2d Cir.1963). Most of the cases involved materialmen who had furnished repairs and supplies to a ship under charter. Those cases are not particularly enlightening here because they turn on a construction of the Maritime Lien Act, 46 U.S.C. Sec. 971 et seq., which specifically addresses materialmen's liens. See infra at 470; TTT Stevedores of Texas v. M/V Jagat Vijeta, 696 F.2d 1135, 1139 and n. 2 (5th Cir.1983); Walsh Stevedoring, 361 F.2d at 479.
However, in The Lucie Schulte, the Second Circuit held that the Prohibition-of-Lien clause also limits a charterer's authority to subject the vessel to liens arising out of contracts of affreightment. 343 F.2d at 900-901. The shipowner (Schulte & Bruns) had time-chartered the S.S. Lucie Schulte to Three Bays Corporation. The charter contained exactly the same anti-lien provision as appears in our case. Three Bays subsequently contracted with the United States Government to ship cargo on the Lucie Schulte. However, Three Bays overcharged its shipper. Eventually, the government discovered the error and brought an action in rem to recover the excess tariffs. The court held that the anti-lien clause in the head charter precluded a maritime lien against the vessel:
Although the prime purpose of the clause may have been to trigger the pertinent provision of the Lien Act, we perceive no tenable ground for narrowing the broad language to materialmen's liens. Neither do we see any basis, either in policy or in authority, why an owner should be forbidden to protect himself against the creation of liens by a charterer under contracts of affreightment if he sufficiently brings the charterer's lack of authority home to the shipper.
343 F.2d at 901.
We agree that an owner should be able to shield himself against liens if he gives sufficient notice to shippers and subcharterers. The question becomes whether the notice was sufficient--or, more precisely, whether the charterer, at the time it chartered the vessel, "knew, or by reasonable diligence could have ascertained," that the ship was already under charter and that the charter contained a Prohibition-of-Lien clause. The Kate, 164 U.S. at 470, 17 S.Ct. at 140; The Lucie Schulte, 343 F.2d at 901. The party entering a contract has a duty of inquiry. See Gilmore & Black, at 672, 687-88. If he later seeks a lien for breach of that contract, he must meet the burden of showing that diligent inquiry would not have informed him of the higher charter or the anti-lien clause. See The Lucie Schulte, 343 F.2d at 901. The trial court found nothing in the record before it to indicate that Cardinal did not know and could not by reasonable diligence have discovered the Nakamura-Clover charter or Clause 18. Thus, Cardinal failed to bear its burden of proof on this matter.
Cardinal responds, however, that the rule of The Lucie Schulte should no longer apply. It points out that Congress amended the Maritime Lien Act in 1971, repealing a provision that required materialmen to exercise due diligence in ascertaining the terms of the ship's charterparty. See Pub.L. No. 92-79 (1971), amending 46 U.S.C. Sec. 973. Cardinal argues that that amendment undermines the reasoning of The Lucie Schulte.
We disagree. The amendment certainly affected the power of the materialman to acquire a maritime lien, see Atlantic and Gulf Stevedores v. M/V Grand Loyalty, 608 F.2d 197, 201-202 n. 7 (5th Cir.1979); but it had no effect on other contractors. The Maritime Lien Act delineated the rights only of materialmen. When enacted in 1910, it may have subsumed (and perhaps modified) more ancient principles respecting maritime liens. However, it has never purported to govern the shipper's or subcharterer's lien. See Gilmore & Black, supra, at 687. Thus, the amendment in 1971 had no direct bearing on the effectiveness of a Prohibition-of-Lien clause vis-a-vis the claim of a subcharterer.
Moreover, the legislative policy supporting the amendment has much less force in the case of non-materialmen. The House Report on the 1971 bill pointed out that the materialman needs protection from anti-lien clauses because he works under great time pressure and usually does not have time to investigate the authority of a charterer:
Testimony at the hearings on the bill would indicate that this problem is primarily encountered with foreign-flag vessels chartered to foreign operators. In order to protect themselves, the American materialman must ascertain whether a vessel requesting necessaries is under charter and if so, whether the charter contains a "no lien provision." Alternatively, he can make a credit check on the financial responsibility of the vessel operator. Generally, a vessel requiring necessaries is unable to give sufficient notice so that the American materialman can do either, and he usually ends up assuming the risk that his bill will be paid.
* * *
After careful consideration of the entire record, your Committee has concluded that, as a matter of equity, the owner should bear the loss in such a situation.
As a practical matter, the owner can more easily protect himself contractually by bonds or otherwise at the time he charters the vessel, than the American materialman who furnishes necessaries to a vessel under great economic pressure to put back to sea.
H.R.Report No. 92-340, reprinted in 1971 U.S.Code Cong. & Ad.News, 92nd Cong., 1st Sess., 1363, 1364, 1365. A would-be charterer, by contrast, is under much less time pressure and has earlier notice of his need to obtain a vessel. Consequently, he has greater freedom to conduct an adequate inquiry. Furthermore, the corporations that typically charter vessels are more sophisticated and have greater resources to devote to an investigation than has the local materialman. Cf. The Lucie Schulte, 343 F.2d at 901. As between a shipowner, charterer and subcharterer, it is not so obvious that the owner should bear all risks. Permitting a contractual allocation of risks between these parties is much more equitable than in the case of shipowner and materialman.
The Prohibition-of-Lien clause still serves a valid purpose. It encourages freer trade in the chartering and subchartering of vessels. Owners will be more likely to permit their charterers to enter freely into contracts of affreightment if the owners know that no "secret liens" will arise from obscure provisions in sub-agreements.
More important, the duty of inquiry that has been placed on shippers and charterers still serves a valid goal. It prevents them from "shutting their eyes" to facts that they could easily discover. See Gilmore & Black, supra, at 672. Because there are no strong counterreasons for shielding these parties from such an obligation, we hold that the rule of The Lucie Schulte is still binding.
Thus, Cardinal had the burden of showing that a reasonable inquiry would not have brought the anti-lien clause to surface. It failed to meet that burden, so its lien must likewise fail. The judgment of the trial court is
AFFIRMED.