CHARTERERS DEFAULT - LIEN OVER CARGO BY IAN GOULSON

CHARTERERS’ DEFAULT - LIEN OVER CARGOBY IAN GOULSON

INTRODUCTION

• A lien is the right to hold the property of another as security for the performance of an obligation.

• Purpose of lien – Security for sums due and owing under the charter.

• Types of lien a) Lien over cargo b) Lien over sub - freights / sub – hire

INTRODUCTION (CONTINUED)

• Lien over cargo: Rights of lien created under time charter parties Other relevant contracts – bills of lading / sub-charter Other relevant considerations Where to exercise the lien

• Liening cargo in India

RIGHTS OF LIEN CREATED UNDER A TIME CHARTER

RIGHTS OF LIEN CREATED UNDER A TIME CHARTER

• Clause 18 NYPE 46 form

“That the Owners shall have a lien upon all cargoes, and all sub-freights for any amounts due under this Charter......”

RIGHTS OF LIEN CREATED UNDER A TIME CHARTER (CONTINUED)

• Clause 18 appears to create:

A right of lien over cargo A right of lien over sub-freights

• Is it that simple ?

RIGHTS OF LIEN CREATED UNDER A TIME CHARTER (CONTINUED)

• First point to check is whether there are sums actually due and owing under the relevant charterparty.

• If not, a lien cannot be exercised.

RIGHTS OF LIEN CREATED UNDER A TIME CHARTER (CONTINUED)

• A lien is possessory in nature

• Clause 18 invokes a contractual right of lien over cargo

• Effect of contractual lien – it creates rights only as between the parties to the contract in which it is contained (i.e. Owners and the time charterers).

RIGHTS OF LIEN CREATED UNDER A TIME CHARTER (CONTINUED)• Over what cargo can the lien be exercised?

Two Scenarios:

a) Where the lien clause is not incorporated in the relevant bill of lading;

b) Where the lien clause is incorporated in the relevant bill of lading.

RIGHTS OF LIEN CREATED UNDER A TIME CHARTER (CONTINUED)

a) Lien clause not incorporated in the bill of lading.

Do Owners have the right (as between themselves and the time charterers) to detain cargo which is not owned by the time charterers?

NYPE 46 form: Probably not

RIGHTS OF LIEN CREATED UNDER A TIME CHARTER (CONTINUED)

b) Lien clause is incorporated in the bill of lading

• Do Owners have a contractual right to lien the cargo even if it is not owned by the charterers?

• NYPE 46 Form – yes

OTHER RELEVANT CONTRACTS

OTHER RELEVANT CONTRACTS

Bill of Lading:• Is there a right of lien incorporated in the bills?• General words of incorporation of the relevant charter will

probably suffice.

• CONGEN 94 Bill of lading provides:“All terms and conditions, liberties and exceptions of the Charter Party, dated overleaf including the Law and Arbitration clause, are herewith incorporated”

• However;

OTHER RELEVANT CONTRACTS (CONTINUED)

• Is the head charter containing Owners’ right of lien clause (clause 18) identified on the face of the bill?

• If not, does the sub-charter which is most proximate to the bill of lading incorporate a lien clause?

• Is the lien clause relevant to the receipt, carriage or delivery of the bill of lading cargo?

• Is the lien clause regarded as out of place in the bill of lading?

OTHER RELEVANT CONTRACTS (CONTINUED)

• If there is no effective incorporation of the right of lien under the bills, receivers may (legitimately) arrest the vessel if discharge is delayed.

• Impact on P&I Cover.

• Consequently, even if there is a right of lien under the charter, the bills must also be checked before exercising a lien.

OTHER RELEVANT CONSIDERATIONS

OTHER RELEVANT CONSIDERATIONS

• Advice must be taken in the jurisdiction where the lien is to be exercised to ensure that under local law it is permissible to exercise the lien and that all procedural requirements are satisfied.

If bills are marked “freight pre-paid” this may prejudice any contractual right of lien as a matter of local law.

Port regulations?

Is it necessary to apply for a Court order to exercise a lien?

OTHER RELEVANT CONSIDERATIONS (CONTINUED)

Is counter-security required?

• How much is the cargo on board worth and to what extent must a lien be exercised over this as security for Owners’ claim?

WHERE TO EXERCISE A LIEN?

WHERE TO EXERCISE A LIEN?

• Normally at the port of discharge, but this probably includes anchoring off the declared port of discharge

• It is not permissible for an Owner to exercise a lien over the cargo by stopping the ship mid-voyage

• Impact on P&I Cover – deviation

WHERE TO EXERCISE A LIEN?

• Aim is to retain actual or constructive possession – storage in bonded warehouse?

Availability?

Ventilation?

Costs?

Duties as bailee of cargo

EXERCISING A LIEN IN INDIA

EXERCISING A LIEN IN INDIA

• Indian law recognises Owners’ right to exercise a lien over cargo for amounts due under the charter.

• Owners will have a possessory lien over the cargo if the right of lien is recognised in the charter and in the bill of lading.

• Indian law allows for exercise of a lien over cargo even after discharge, if discharging at a major port.

EXERCISING A LIEN IN INDIA (CONTINUED)

• Where discharging at major ports need to serve a notice of lien upon the discharge port authorities before or at the time of discharging the cargo from the vessel.

• Need to serve a notice of lien on cargo receivers.

• Port Trust is required to retain the cargo until the lien is released.

CONCLUSION

CONCLUSION

• Where sums under the charter are due and owing, Owners may be able to exercise a lien over the cargo.

• However, the position under the charter, the bill of lading and as a matter of local law must be checked on each occasion.

• Alternative methods of obtaining security or which may be exercised in parallel are, liening sub-freights and sub-hire.

THE END