CARGO CONSIDERATIONS - owners’ lien on cargo

In another cargo-related development, the English High Court has confirmed when it will order the sale of liened cargo which is the subject of arbitration proceedings.

Owners’ lien on cargo ­typically does not afford an owner the right to sell the cargo in order to satisfy debts due from charterers. However, in a recent decision in The Moscow Stars (Dainford Navigation Inc v PDVSA Petroleo SA (The “Moscow Stars”) [2017] EWHC 2150 (Comm)) the English High Court confirmed that it has the power to order sale of cargo pursuant to section 44(2)(d) of the Arbitration Act 1996 when cargo is deemed to be “the subject of the [arbitration] proceedings”.

In the case, owners had commenced arbitration against time charterers for unpaid hire and had exercised a ­contractual lien over the cargo ­belonging to the time charterer as ­security for the claim. Owners subsequently applied to the High Court for sale of the cargo to satisfy the time charterers’ debts. The court held that the exercise of a ­contractual lien over the cargo in support of the claim in ­arbitration ­constituted a sufficient nexus between the cargo and the arbitral proceedings, such that it could exercise its power to order sale of the cargo.

This decision may be of interest ­particularly to owners who may be faced with a situation where cargo belonging to a charterer remains on board a vessel for a long period of time without ­owners receiving hire, whilst still incurring operating costs. 

Relevant articles

  • 2018

    Cargo considerations - Protection given by letters of indemnity

    When delivering cargo in the absence of original bills of lading owners should take care to ensure that the terms of the Letter of Indemnity are drafted carefully.

  • Shipping Offshore

    2018

    “Export financing” for non-export shipbuilding

    In its recent National Budget Proposal for 2018, the Government has proposed a NOK 10 billion state loan and guarantee program for the construction of vessels at Norwegian shipyards intended for use in Norway.

  • Shipping Offshore

    2018

    A choice with consequences – progressive title transfer versus refund guarantees

    Irrespective of how the construction of a vessel is financed, the yard and its financiers will require that the buyer prepays a percentage of the contract price prior to delivery. This prepayment may be lost to the buyer if proper security for that prepayment is not put in place. Provision of refund guarantees is the most common way this is achieved, but progressive title transfer may in some cases be an alternative method for securing the buyer’s position.