Dealing with abandoned yachts and debtors

What do you do if you are a marina operator and a berthholder has defaulted on their marina fees? Or if a yacht has been abandoned in the marina? While one option is to pursue the individual in a ‘small claims court’, another option is to exercise a lien on the yacht.

Given the scope of the discussion, brevity is all-important, and in consequence a broad approach to what is a complex subject is provided here such that the reader can gain an insight into both the principles behind liens and the Torts (Interference with Goods) Act 1977, and the uses and the circumstances in which these may be used.

What is a lien?

A ‘lien’ is the right of one person to retain lawful possession of the property of another until payment of a debt is met. Any physical property, including a yacht, can be the subject of a lien, and the type of lien that will usually apply will be what is commonly known as a possessory lien.

What happens if the yacht has left the marina?

The significant point about a possessory lien is that the right to claim it only arises where a person is in physical possession of a yacht belonging to another and only lasts as long as possession is maintained; once surrendered, it can’t be claimed back. So if the yacht has upped and gone, then a marina operator will not be able to recover any money owed by exercising a lien on the yacht, and will have to recover the debt by bringing a court action in the ordinary way.

If you want to exercise a possessory lien, there must be a legal obligation to perform services, such as providing a berth, and the right to the lien does not normally arise until the work or the services have been contractual fulfilled by the marina.

Marina Terms and Conditions of Business should include an express term reserving the right to retain possession of a yacht until mooring and storage fees have been paid.

Duties while in possession

While a marina operator is in possession of a yacht he must exercise ‘reasonable’ care in the safekeeping and management of it. While it is for the courts to decide whether or not acts or omissions are reasonable, a marina operator should not go far wrong if they take all precautions necessary to redeliver the yacht in the same condition as it was in when it came into their possession. The yacht should be kept secure and treated in the same way as any other yacht currently entrusted to the marina operator’s care. Insurers should be advised of the situation, just in case the yacht’s own insurance has lapsed.

What rights are given by a lien?

The rights given by a lien are limited to the right to retain possession. A lien does not give a person in possession a right to sell a yacht which is in his possession, without the existence of one or more of the following:

• an express agreement between the parties which gives you the power to sell the yacht, by referring to the Torts (Interference with Goods) Act 1977;
• an order obtained from the court giving permission to sell (if in dispute with the customer);
• the person claiming the lien has a ‘statutory power’ to sell the yacht (among other goods).

What is the Torts (Interference with Goods) Act 1977?

This Act covers the rights/obligations of the yacht owner and the marina operator when a yacht is abandoned or stays beyond the contracted period, particularly if the owner cannot be traced or refuses to pay outstanding marina fees.

When does the Act apply?

Section 12 of the Act contains the code for dealing with uncollected yachts, and it applies where:

• the owner fails to take delivery of the yacht at the specified time, usually leaving outstanding debts; or
• the marina operator could impose an obligation on the owner to collect the yacht but cannot trace him; or
• the marina operator could expect the be relieved of his duty to safeguard the yacht on notice to the owner but cannot trace him.

The owner in this context will usually be either:

• a person who has abandoned the yacht; or
• a person who has defaulted in their marina fees and has also failed to remove the yacht from the marina.

An obvious solution to avoid any difficulty is for marina operators to incorporate a term in their conditions of business allowing them to sell if yachts are not collected after a reasonable (and clearly stated) period. Such a term must not contradict or over-ride the principles laid down in the Torts (Interference with Goods) Act 1977, or it runs the risk of being classed as “unfair”. As a matter of good practice, a marina operator should ensure that their customer records are up to date and include both the name and address of the customer.

What procedure should be used?

In the marine trade the most frequent application of the Act is in relation to abandoned boats and persistent non-payers.

If the customer has been asked to, but has failed to, remove his yacht, or the marina operator has tried to contact the customer but cannot trace or communicate with them (having taken reasonable steps to do so), the marina operator should send the customer a notice by recorded or registered post that:

• terminates the agreement with the customer 28 days after service of the notice; and
• informs the customer of the sums owed; and
• gives notice that if the customer does not settle his account and remove the yacht within three months of the date of the notice, then the yacht will be sold.

A notice cannot be served if the marina operator is in dispute with the customer over the condition of the yacht, or the services supplied. Equally, the marina operator should not give notice to sell where, because of a dispute concerning the yacht, the customer is questioning or refusing to pay all or any part of the marina operator’s claim. If this is the case, then an application will have to be made to the court for authority to sell the yacht.

The notice should be sent by registered post or recorded delivery to the customer’s last known address, or as a precautionary measure, if more than one address is known, to the other addresses as well. Alternatively, a ‘process server’ can serve it and this is the most reliable method.

While not provided for by the Act, it is desirable that between one month and two weeks before the three-month notice period expires the marina operator should write to the customer again enclosing a copy of the original notice and again warning the customer that the yacht will be sold.

Before selling the yacht, the marina operator must be reasonably sure that the customer owns the yacht. If it subsequently transpires that the customer was not the owner, the true owner may be able to recover the yacht from the purchaser, who in turn may have a claim against the marina operator. Checks should be made against all relevant registers and other corroborating sources.

In all but the clearest of cases we could recommend that marina operators should make an application to the court for authority to sell and to provide a sound basis for the payment out of any surplus. If the ‘true’ owner then appears, he/she may (subject to proof of ownership) claim the balance of the purchaser price.

The marina operator should use the best method of sale reasonably available in the circumstances, and obtain and retain a written valuation prior to sale. The cost of the valuation is one of the costs of the sale and may be recouped from the sale proceeds.

What can be deducted from the sale proceeds?

The marina operator is entitled to deduct from the sale proceeds:

• the costs of sale (for example, lawyers’ fees, brokers’ commission, cleaning costs, valuation costs etc.); and
• any sum owed before the date on which the notice was given.

The marina operation cannot normally make a charge for his own storage/mooring charges for the period between giving notice and sale, but the court may allow such charges.

The balance of the sale proceeds (if any) must be held for the customer and where the sale is by court order, the proceeds are usually paid into court. If the marina operator is in any doubt as to whether he/she is entitled to sell the yacht, he can apply to the court for an order authorising the sale (and to approve the method of sale proposed) and/or to determine the amount due. If this happens, the court will retain the balance of the purchase price after the deductions have been made. This is the course of action recommended in all cases to minimise the risk of any future disputes.

Summary checklist

In order to minimise future potential problems, marina operators would be well advised to check current berthing terms and contracts to ensure:

• they reserve an express right to exercise a lien over the yacht or the customer’s other goods;
• they can continue to charge for any services they provide while exercising a lien;
• they include a reference to the Torts (Interference with Goods) Act;
• the Terms and Conditions allow them to sell the yacht if it is not collected after a reasonable (and clearly stated) period; and
• the name and address of the customer is carefully noted, and verified regularly.

If, on undertaking this review, they find that their Terms and Conditions/contracts do not include these reference, they should:

• arrange to have them redrafted;
• check paperwork systems to ensure that customers receive and sign a copy of the terms every time they berth or store their yacht at the marina; and
• ensure that customer details are regularly updated.

If you do have to invoice the Torts (Interference with Goods) Act 1977, you should:

• draft the Notice, or take legal advice;
• check whether the customer is definitely the owner;
• keep up-to-date records of what was sent;
• ensure that you keep to the timelines indicated;
• take reasonable care of the yacht; and
• be fair and be seen to be fair.

Other options – statutory powers

Harbour Authorities may have the authority to sell a yacht following non-payment of marina dues under the Harbours, Docks and Piers Clauses Act 1847. The Act provides that if fees are payable to a Harbour Authority, the Harbour Authority may board the yacht and demand the money owed. If that fails, the Harbour Authority may take distrain or arrest, on its own authority, the yacht in question, until the money is paid; if it remains unpaid, the Harbour Authority may sell the yacht as a mechanism for recovering the money owed. Any surplus must be returned to the owner.

These powers date back to 1847, and are slightly at odds with the modern law. As a result, modern harbours often have these provisions excluded. Therefore, before a marina operator attempts to invoke these statutory powers, it is vitally important that it establishes, by reference to the relevant statutes, whether or not it has the authority to do so.

Conclusion

Knowing how to exercise liens, and the general framework of the Torts (Interference of Goods) Act can be a powerful tool in the marina operator’s arsenal, which, if correctly applied, should help reduce the cash flow problems caused by non-payers, and also help to overcome the problems associated with abandoned yachts.