LIENING CARGO – which lien clause applies to the bill of lading?

In a dry bulk market where some charterers are not paying freight or hire, their counterparties are often left to consider if they can lien the cargo on board the chartered vessel to obtain payment voluntarily, or by court sale if necessary.

Often this involves looking at a Congenbill of lading­ and establishing if a charterparty lien clause applies via clause (1) on the reverse which incorporates all “terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf…”. Problems arise when there is no date overleaf and a number of charterparties in a chain, any of which could apply, or there are a number of charter­parties in the chain with the same date as overleaf. The issue then becomes which charterparty lien clause to apply and what debt does it apply to.

As a matter of English law, the absence of a date overleaf on the face of the Congenbill does not prevent a charterparty from being incorporated. Where there is only one, direct with head owners, there is no issue as to it applying. However, what if there is a head time charter, followed by a sub time charter, followed by a head voyage charter and then a sub voyage ­charter. Which of these four charters is to be incorporated? Owners ­normally assert it is their head charter, as the charterparty they signed. Receivers under the bill usually argue it is the sub voyage charter, as the contract they most likely knew of in arranging the shipment. However, English law points in a different direction.

The starting point is that under a time charter, it is the time charterer who has power over the issue of the bill of ­lading, providing these reflect the mate’s receipts. It is also the time charterer who has authority to give orders to the master and direct the vessel in its commercial business. As such, the charter­party most likely to be of greatest influence on the ­voyage will have a time charterer as one of the parties. However, in so far as the Congenbill only concerns a single voyage, then the charterparty likely to be of most relevance to it will be a ­voyage ­charter. As such, English law hesitantly arrives at the position that the applicable charterparty is the one where a time ­charterer is acting as disponent owner, with the head voyage charterer as its counterparty. In other words, in our ­scenario, it will be the terms of the head voyage charter between the sub time charterer and the head voyage charterer that will be incorporated into the Congenbill.

This then raises a further question: If the bill of lading is an owner’s bill, made between head owners and receivers, how can a lien in the head voyage charter be applied to that bill when it refers to freight due to the sub time charterer who is not a party to the bill? Does the fact that the freight subject to the lien is not to be paid to the head owner bar the exercise of the lien? English law suggests not. Providing the freight is still due to be paid by the head voyage charterer to the sub time charterer, then the sub time charterer can direct the head time charterer to direct the head owner to exercise the lien on its behalf (against its indemnity for the costs, expenses and potential liabilities involved). The head owner acts as a form of trustee in such a lien, and accounts to the time charterers for any payments received as a consequence of the lien.

Obviously, persuading the head owner to take such steps can be difficult, particularly if it has been paid hire in full and has no personal interest in collecting the freight for time charterers. However, the alternative is that head owners might face orders from time charterers to stop the vessel in an attempt to obtain payment in the absence of a formal lien by head owners. Head owners would argue that this puts them in breach of the Congenbill as against the receivers, to which time charterers would say it is their right to give orders, including the right to order head owners in how to exercise rights under the bill of lading, so if head owners refuse, they are in breach. The respective rights and wrongs of such a showdown would be complex, but faced with this situation, head owners may well prefer to exercise the lien themselves as trustee to give themselves more protection from claims under the bill of lading from the receivers, particularly if head owners obtain an indemnity from the time charterers in the process.

As in all charterparty matters, generalisations are ­interesting but the individual circumstances of each dispute need to be carefully checked to see if they apply. Bearing that in mind, when it comes to liening cargo under a Congen bill, it seems English law will be looking first to the head voyage charterparty as the source of relevant terms to be in­corporated into the Congen bill unless another charter is expressly ­identified, and this is likely to lead to a less than obvious outcome.

Relevant articles

  • Shipping Offshore

    2015

    WELL BOAT CHARTERPARTIES – liability for cargo damage

    As the Norwegian fish farming industry continues to grow, so does the demand for well boats. These sophisticated vessels transport fish, but also undertake complex tasks such as delousing and sorting fish. Damage to or loss of the fish handled by these vessels can result in substantial losses. Therefore, owners and charterers of well boats are advised to regulate the risks associated with such services in their charterparties.

  • Shipping Offshore

    2015

    The Hague Convention on Choice of Court Agreements 2005

    A global enforcement regime for judgments handed down under exclusive choice of court agreements

  • Shipping Offshore

    2015

    English Commercial Court remains a strong choice despite introduction of new fees

    The cost of commencing proceedings in the English Commercial Court has recently increased. Despite of this, there are still real advantages of having the Commercial Court as forum for commercial disputes.