The two aspects of retention law
There are two aspects to the right of rentention. First, the right of lien implies that the creditor may refuse to surrender property in his possession to the debtor. This applies even if the debtor is the owner of the property and thus constitutes an exception to the right of revocation that the owner is normally entitled to. As mentioned, the right of rentention can come in handy if the bill for repair work remains unpaid. In such a situation, the repairer can refuse to hand over the item until the owner has paid properly.
In addition to the right to refuse to surrender the thing, Article 3:292 of the Civil Code mentions a second aspect of the lien: “The creditor may recover his claim on the thing in priority over all those against whom the lien may be invoked.” In short, this article states that a creditor with a lien on an object may sell that object and use the proceeds to satisfy his own claim in priority.
This priority even goes so far as to allow the creditor in such a case to satisfy his claim above that of any pledge or mortgage holder. This also applies in the event that the debtor is declared bankrupt: the proceeds of the sold property may then be used by the creditor to satisfy his own claim first, only after which the surplus would flow into the bankruptcy estate.
Retention on vessels
There are thus two aspects to the right of retention. The first concerns the possibility of refusing to surrender an object, and the second concerns the priority the creditor’s claim has over other claims. While both aspects are generally applicable, this is slightly more complicated in the case of ships.
This is as follows. Article 8:210a of the Civil Code overrides the second aspect (Art. 3:292 of the Civil Code). In the case of liens on ships, the underlying claim does not have priority over other privileges, such as mortgage. However, the first aspect of the lien does apply to vessels, as the ‘s-Hertogenbosch Court of Appeal clarified in its judgment of 16 June 2015 ECLI:NL:GHSHE:2015:2192. Thus, while a creditor may refuse to surrender a vessel, it may not recover its claim by priority from the vessel.
The reason for this deviation has to do with the 1965 Geneva Convention on the Registration of Inland Navigation Vessels. Indeed, the first protocol of this convention stipulates that only a limited number of privileges are allowed on inland vessels. Permitted privileges include, for example, usufruct and mortgage rights. However, the right of retention is not recognised.
The risk of deadlock
Although the two aspects of lien law are ostensibly unrelated, and the elimination of the second aspect therefore seems unproblematic for ships at first glance, in practice it may raise difficulties. Consider the following case, which is similar to the case of the above-mentioned judgment of the ‘s-Hertogenbosch Court of Appeal.
Suppose a barge is repaired at a pilotage yard, but its bill remains unpaid. In such a case, the repairer acquires a lien on the vessel and may thus refuse to surrender it until it is paid. Now, however, the owner of the ship is declared bankrupt. The bankruptcy trustee then wants to sell the vessel at the highest possible price to pay off the unsecured creditors.
In such a situation, however, an impasse looms. The receiver will not proceed with the sale as long as he knows that the repairer can refuse to hand over the vessel, even to the possible buyer of the vessel. After all, this will not help the price of the vessel. On the other hand, the repairer will not sell the vessel itself, as its lien is not a privilege (as Art. 3:292 of the Civil Code does not apply in the case of ships). Indeed, the consequence would be that the proceeds will flow back to the bankruptcy estate, the repairer loses his lien and thus becomes an unsecured creditor.
The only way out would be for the receiver to ‘unload’ the lien, i.e. pay the bill so that the repairer loses its lien. This would therefore actually satisfy the repairer’s claim with (indirect) priority. The question is whether the liquidator will be satisfied with that.
Retention is an effective means of pressure to get bills paid. However, in the case of ships, the retention deviates from the main rule in one important aspect: the retention does not extend to priority. This can create deadlocks, where no party will proceed to sell the vessel. In such a case, creditor and receiver (or mortgage holder) will both have to sit down to negotiate a solution.