Cargo Liens for Unpaid Freight and Hire
The shipowner may be interested in knowing whether they have the authority to place a lien on the cargo until they receive payment for the freight or hire owed by the charterer. This right of lien must be established in the charterparty. To determine if they have a possessory lien over the cargo for unpaid freight and hire, the shipowner must examine the lien clause in the charterparty. The clarity of the clause is crucial, as it determines the extent of the lien and the shipowner’s ability to exercise their possessory lien for the unpaid freight or hire.
Examples of extensively worded lien clauses that safeguard the shipowner’s right to lien include clause 8 of the GENCON 1994 charterparty and clause 23 of NYPE 93 (New York Produce Exchange 1993). The shipowner can only assert their rights against the party in default by exercising a lien over the transported cargo when the “freight or hire” under the charterparty becomes “due” and “payable.”
It is essential for the charterparty to establish a right of lien:
GENCON 1994 (Clause 8) Lien Clause: The Owners shall have a lien on the cargo and on all sub-freights payable in respect of the cargo for freight, deadfreight, demurrage, claims for damages, and for all other amounts due under this Charter Party including costs of recovering the same.
NYPE 93 (Clause 23) Lien Clause: The Owners shall have a lien upon all cargoes and all sub-freights and/or sub-hire for any amounts due under this Charter Party, including general average contributions, and the Charterers shall have a lien on the Vessel for all monies paid in advance, and not earned, and any overpaid hire or excess deposit to be returned at once.
It is necessary to incorporate the lien clause into the Bill of Lading
The connection between the bill of lading holder and the shipowner is established through the contract of carriage outlined in, or represented by, the provisions of the bill of lading. The extent to which the charterparty is accurately referenced in the bill of lading determines the level of protection available to the shipowner when exercising their right to place a lien on the cargo. A standard incorporation clause, such as Clause 1 of Congenbill 2007, is a common example:
“All terms and conditions, liberties and exceptions of the charterparty, dated as overleaf, including the Law and Arbitration Clause/ Dispute Resolution Clause, are herewith incorporated”.
Therefore, if the bill of lading incorporates a lien clause for unpaid hire (in contrast to freight), the shipowner has the authority under the bill of lading to place a lien on the cargo, irrespective of whether it is possessed by the charterers.
CONGENBILL (Clause 1): All terms and conditions, liberties, and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated.
Cargo Liens Jurisdiction
It is essential for the courts in the jurisdiction where the lien is to be exercised to acknowledge the lien. Even if the charterparty and the bill of lading are subject to English law, the shipowner must determine whether liens are recognized in the jurisdiction where they intend to exercise the lien. In certain jurisdictions, particularly those that follow civil law, liens may not be acknowledged and cannot be exercised unless the cargo is owned by the defaulting party. Besides determining whether the right to the lien is recognized by local law, the shipowner must also ascertain whether any formalities are required to effectively execute a lien.
The shipowner must take adequate measures to secure and exercise their right of lien before releasing possession of the goods. In standard situations, the lien can be executed when the vessel arrives at the discharging port, is anchored off the discharging port, or onshore, where the cargo can be safely discharged and stored in a warehouse without the shipowner losing possession.
Cargo Liens and Shipowner Cargo Possession
It is crucial for the shipowner to ensure that they maintain possession of the goods after discharge. A lien over cargo is categorized as a possessory lien, which implies that the lien becomes invalid once possession is lost. Therefore, the shipowner must take appropriate steps to protect their right of lien over the cargo, such as warehousing the goods at their own expense. Maintaining uninterrupted possession or, at the very least, exclusive control of the cargo is essential for executing a lien.
Shipowners’ Right to Sell the Cargo for the Unpaid Freight
Unless expressly permitted by the charterparty or authorized by local law, the shipowner does not have the right to sell the cargo. The ability to sell the cargo is contingent upon the language of the contract of carriage or the charterparty. In either scenario, the shipowner is obligated to exercise care and diligence toward the liened cargo and will be held accountable for any harm or loss suffered by the party who has the right to the cargo.
Cargo Liens Notification
The shipowner is obliged to inform parties who hold an interest in the cargo, such as the charterer or the bill of lading holder, of their intention to exercise their lien. Failing to provide such notification should only be deemed significant if notice is required under the contract or local law. To provide shipowners with coverage in the event of a potential disagreement with a charterer and/or bill of lading holder regarding unpaid freight or hire, shipowners must immediately contact their P&I (Protection and Indemnity) Club.
What is Lien?
The term “lien” finds its origins in the Latin word “ligae”, which connotes the act of binding. In essence, a lien refers to a lawful entitlement to take hold of someone else’s asset until their outstanding debt has been paid in full.
What are the Types of Liens?
There are different types of liens:
1- Contractual Liens
2- Statutory Liens
3- Possessory Liens
4- Equitable Liens
5- Maritime Liens.
1- Contractual Liens
Occasionally, the individuals involved in a contractual agreement may explicitly include a provision within the contract that establishes a lien in the event of specific circumstances. The characteristics and scope of the lien are then determined by the precise language utilized in the contractual provision that establishes it. Contractual liens are a prevalent aspect of charter parties, such as the Exxonvoy 1969 Charter party form’s Clause 21. This clause stipulates that the owner has an unconditional entitlement to hold onto the cargo until all freight, deadfreight, and costs have been fully paid. Additionally, this lien persists even after the cargo has been delivered. Consequently, this provision combines the attributes of both possessory liens under common law and equitable liens.
It’s worth noting that in the case of Miramar Corporation v Holborn Oil Trading (1984), Lord Diplock referred to this particular lien clause as “curiously drafted”. Lord Diplock expressed the belief that the time had arrived for the House of Lords to reevaluate this and other standardized forms of lien clauses. Lord Diplock maintained that such provisions needed to be “clarified and simplified,” an opportunity that was not available in this case. His primary concern seemed to be regarding the uncertainty that arises concerning the precise scope of such liens.
Judicial concern has also been expressed regarding the shipowners’ lien on sub-freights outlined in Clause 18 of the NYPE (New York Produce Exchange) Form.
2- Statutory Liens
In certain cases, a lien may arise through statutory means in specific circumstances. In such scenarios, the statute in question will establish not only the creation of the lien but also its application and enforcement. Often, this enforcement involves the lienor’s authority to sell the relevant property. As an illustration, a bailee, who retains possession of someone else’s goods, may, under certain circumstances and subject to the Torts (Interference with Goods) Act 1977 Sections 12 and 13, sell the bailed goods.
Under the Sale of Goods Act 1979, a statutory lien is established concerning a contract of sale, wherein goods are sold for money (as per Section 2) and apply to the unpaid seller (Sections 41-43). As a result, the seller’s lien in contracts for the sale of goods is now entirely dependent on the 1979 Act. Provided certain conditions outlined in the Act are met, the unpaid seller holds statutory power and the right to sell the goods (Section 48).
Under Section 494 of the Merchant Shipping Act 1894, a shipowner holds a statutory lien for freight upon the unloading of goods. Once this lien has been established, it can only be discharged in the manner prescribed by Section 495 of the Merchant Shipping Act 1894.
3- Possessory Liens
The primary characteristic of a possessory lien is the physical possession of the debtor’s property by the lienholder. Such a lien entails the entitlement to keep hold of property held by the individual asserting the lien until a claim is duly settled. In order to establish this type of lien, possession is an indispensable requirement, and it must be:
b- Not for a particular purpose and
In the case of Hatton v Car Maintenance Co. Ltd. (1915), the proprietor of a motor vehicle (referred to as “H”) entered into an agreement with a company, wherein they agreed to provide maintenance and storage for her car over a period of three years, for which H paid an annual fee. Since H retained the right to retrieve her vehicle from the company’s garage at her discretion, the company had no lien, despite detaining the car in the garage due to H’s unpaid annual fee, as possession was not continuous.
What are the types of Possessory Liens?
A Possessory Lien may be:
A- General Possessory Liens
B- Particular Possessory Liens
A- General Possessory Liens
A general lien entails the entitlement to hold onto another person’s goods until all outstanding claims against that individual have been fully settled. General Possessory Liens may arise by:
1- Course in dealing
2- Continuous and well-recognized usage, or
3- Express agreement.
In the case of Jowitt and Sons v Union Cold Storage Co. (1913), X brought frozen meat into England and was financially supported by J, who paid for the meat and recovered his expenses by drawing a bill of exchange in favor of the bank, which X accepted. The bills of lading for the meat were held by the bank as collateral until the bill of exchange was settled. Upon arrival in England, the meat was stored with the Union Company under customary trade terms that included a general lien. When X failed to meet his acceptance, J acquired the bills of lading from the bank and demanded the meat, but the Union Company claimed a lien on the meat for outstanding fees related to other goods belonging to X. The court upheld the Union Company’s right to enforce their general lien against J. A general lien is a widely accepted practice among solicitors, factors, stockbrokers, and bankers.
B- Particular Possessory Liens
A particular lien denotes the entitlement to keep hold of goods until all fees relating to those goods have been fully paid. Common carriers hold a lien regarding the freight charges on transported goods. A particular lien does not arise unless:
1- Work has been completed, except when the owner prevents completion, and
2- Chattel (i.e. the object in question) has been improved by the work or the expenditure
In the case of Hatton v Car Maintenance Co., an agreement to maintain a motor vehicle did not qualify as an improvement to the car, resulting in the individual responsible for the maintenance having no lien.
Chattels refer to any tangible personal property (as opposed to real estate) that one owns or possesses. This includes actual physical items that one has ownership or possession of. Conversely, “chose in action” pertains to non-tangible items that an individual possesses, such as a debt or a share in stocks.
Under common law, a shipowner holds a possessory lien on cargo for the freight that is payable upon delivery. Similarly, the shipowner also holds a lien for general average contributions and for exceptional expenses that were reasonably incurred to safeguard the cargo. All these common law liens are possessory in nature, which implies that the shipowner’s entitlement involves retaining possession of the goods until the outstanding freight is paid. However, since the common law lien for freight is solely possessory, it can be waived or lost, such as by delivering the goods to the entitled party without demanding payment. There is no common law or implied lien regarding freight that is contractually payable either before delivery (i.e., advance freight) or after delivery. Likewise, there is no lien under common law for deadfreight or demurrage, or damages for detention. Nonetheless, liens for advance freight, demurrage, deadfreight, and other expenses, such as “all other charges,” can be established through an agreement. This type of lien created through a contract is known as a contractual lien.
The Process of Enforcing a Lien
A possessory lien is exclusively enforced through the right of retention, meaning that no claim may be made for storage or any other expenses incurred by the individual exercising the lien. Additionally, there is no inherent right to sell the property in question. However, certain statutes permit the enforcement of a lien through the sale of the property in the following situations:
a- Unpaid seller of goods, under the Sale of Goods Act 1979
b- Repairs of goods or the person accepting goods for treatment under the Torts (Interference with Goods) Act 1977
A possessory lien is extinguished by:
a- Payment or tender of the amount claimed will extinguish a possessory lien
b- Loss of possession of the goods will also extinguish a possessory lien.
c- Taking security under circumstances that demonstrate the security was acquired as a substitute for the lien can also extinguish a possessory lien
d- Abandonment can also lead to the extinguishment of a possessory lien
4- Equitable Liens
Equity comes into play to address any inequity or harshness caused by the restrictions of the common law. Consequently, an equitable lien may arise concerning property that cannot be subjected to a common law possessory lien, such as when the individual owed the debt no longer retains possession of the property. In such a situation, it is possible for an equitable lien to arise.
The primary consequence of a possessory lien is that the lienor retains the right to withhold the property until payment is made, thereby depriving the owner of its use.
Regarding a common-law possessory lien, the lienor does not possess the right to sell the property to settle the debt. Equitable liens do not depend on retention and thus cannot offer this consequence. However, an equitable lien may be enforced through the sale of the property if the court declares its existence.
An equitable lien is forfeited if the property is sold to a “bona fide purchaser for value without notice.” This individual is deemed as “Equity’s Darling” and is shielded from any application of equitable interest concerning the property they acquire. The purchaser, who buys the property for valuable consideration (and not as a gift), possesses no knowledge or basis to be aware of any equitable interest related to the property.
5- Maritime Liens
Maritime liens are a unique form of lien that requires thorough examination. A maritime lien can be described as a “privileged claim” made against maritime property concerning services provided or damages caused by that property. Maritime property, which is subject to maritime liens, includes the ship, cargo, or freight. The fundamental nature of a maritime lien was articulated by the court in The Bold Buccleugh (1852) as being a right that accompanies the ship, irrespective of the individual in possession of the vessel.
This is the fundamental difference between the Maritime Lien and both the Possessory Lien and the Equitable Lien:
1- Unlike a Possessory Lien, a Maritime Lien is not dependent on the lienor being in possession of the property.
2- Unlike an Equitable Lien, a Maritime Lien is not forfeited if the property is sold to a bona fide purchaser without notice, who is often referred to as “Equity’s Darling”.
The concept of a maritime lien is grounded in the “personification” of the ship. This involves viewing the ship as the “wrongdoer” and provides the rationale for the lien’s continuation even if ownership of the vessel changes hands.
Maritime Lien does not arise in all situations, primarily, Maritime Lien arises in respect of:
1- Harm caused by the ship, such as a collision
2- Unpaid salvage awards
3- Unpaid contractual issues, such as unpaid crew wages or unpaid disbursements
Maritime Lien Priorities
The maritime lien possesses several advantages over other forms of liens. One crucial advantage is that a maritime lien is a “provided claim”. This means that the holder of a maritime lien is granted a higher priority in comparison to other creditors when the ship is sold with the intent of distributing the assets to satisfy multiple creditors. When there are multiple maritime lienholders with claims over the same maritime property, the general rule is that maritime liens arising from ex delicto (damages caused) claims take precedence over those arising from ex contractu (contractual disputes). This is based on the idea that an injured party is compelled to deal with the “wrongdoer”. Despite the general rule favoring ex delicto maritime liens over ex contractu liens, the lien of subsequent salvors takes priority over an earlier damage lien. This is because the salvors have helped to preserve the property for the benefit of the earlier lienholder.
When determining the priority of different claims that carry maritime liens, they can be divided into two categories: contractual liens and damage liens. Within each category, the liens are prioritized based on the order in which they were incurred, with earlier liens taking priority over later ones. However, in general, liens arising from damage done (ex delicto) have a higher priority than those arising from contractual disputes (ex contractu), as the injured party has no choice but to deal with the wrongdoer. Subsequent salvors’ liens have priority over earlier damage liens, as the salvors have preserved the property for the benefit of the earlier lienor.
In the event that there is no explicit priority rating, such as salvage liens, it would seem reasonable to accord greater importance to those holding damage liens, rather than those with contractual liens. A contractual lien holder, as a claimant with a cause of action stemming from a breach of contract committed by the other party, is an individual who entered into the agreement presumably of their own volition and with full knowledge. Consequently, in a sense, the potential for incurring loss, harm or damage had been forewarned.
Conversely, the damage lien holder is an individual who has endured harm or damage due to another’s wrongful or tortious actions, rather than as a consequence of a breached contract. By the very nature of the event, they were not provided the benefit of forewarning or foreknowledge of the probability of such loss or damage. An evident example would be an innocent passenger who suffered injuries after a collision at sea. Hence, the principle that damage lien holders should be granted higher priority than contractual lien holders not only appears logical, but it also serves as the fundamental rule.
Regarding the hierarchy of claims, it is worth noting that salvage holds precedence over (a) prior salvage, (b) prior damage, (c) prior wages, (d) earlier claims to forfeiture by the Crown, (e) subsequent possessory liens, (f) necessaries, and (g) mortgages. The reason for this lies in the fact that a salvor’s lien is deemed superior, even in cases where there are multiple salvors (in reverse order of time) because, without their emergency services, there would be no funds available to compensate any other parties.
The Court of Appeal examined the scope of the maritime lien for crew wages in The Tacoma City case of 1991. In 1985, Reardon Smith Line, a world shipping group, declared insolvency and discontinued operations. The Tacoma City was owned by a subsidiary company and was mortgaged to a London bank. The ship was seized, and the bank was ordered by the court to pay the entire amount owed to the crew under their employment contract, except for any amount that did not qualify as wages in the bank’s judgment. Following this, the vessel was sold by the court, and the master and officers asserted their right to severance pay from the proceeds of the sale. The officers’ contracts included the National Maritime Board Agreement, which stated that an officer who had served with the company for a minimum of two years would be eligible for severance pay if they became “surplus to requirements”. The Court of Appeal ruled that the officers were not entitled to severance pay as per their employment contract. However, had the severance pay been owed, would it have qualified as a maritime lien? The officers argued that severance pay should be considered as “wages” since it accrued as a result of their service on board a ship. However, the Court of Appeal disagreed, stating that sums due as pension payments upon retirement could not be classified as “wages.” In modern employment contracts, bonuses, sick pay, and notice of termination are typically included and represent the value of the current service provided by the seafarer on the ship. Severance pay, on the other hand, is compensation for past service aboard the ship or a different ship and is paid upon termination of employment, making it distinct from wages.
In 1993, the International Convention on Maritime Liens and Mortgages, also known as the 1993 Convention, was adopted. The Convention would come into effect six months after at least 10 states expressed their consent to be bound by it. This Convention replaced the Liens and Mortgages Conventions of 1967 and 1926, which never came into force in English law. Whether or not the 1993 Convention will ever be enforced remains to be seen. The Convention does not provide a definition of maritime liens, but instead lists them under Article 4 (Convention liens), which are as follows:
1- master and crew wages including costs of repatriation and social insurance contributions;
2- claims for loss of life or personal injury in direct connection with the operation of the vessel;
4- claims for the port, canal, and other waterway dues and pilotage dues;
5- claims based on tort arising out of physical loss or damage caused by the operation of the vessel other than loss of or damage to cargo, containers, and passengers’ effects carried on the vessel.
According to Article 6 of the International Convention on Maritime Liens and Mortgages, a state that has ratified the International Convention on Maritime Liens and Mortgages may allow for additional maritime liens to be imposed on a vessel for claims beyond those outlined in Article 4, subject to certain conditions. These additional liens are given lower priority compared to the Convention maritime liens and registered mortgages, hypothèques, or charges (which comply with Article 1).
The International Convention on Maritime Liens and Mortgages provides a clear hierarchy of priorities between Convention maritime liens (under Article 4), other maritime liens (under Article 6), mortgages, and rights of retention. The order of priority is as follows: Convention maritime liens, rights of retention in favor of ship repairers or shipbuilders, registered mortgages, hypotheques and charges, and other maritime liens. Salvage liens, in particular, take priority over all other maritime liens that were attached to the vessel before the operation giving rise to the salvage liens was performed. The ranking of salvage liens is determined by the reverse order of the time when the claims secured by them accrued. Other liens rank in the order listed above, but are equal in rank with each other. Article 6 maritime liens are ranked after the maritime liens set out in Article 4 and also after registered mortgages, hypotheques, or charges that comply with the provisions of Article 1. These liens are extinguished after six months from the time when the claims secured by them arose, or at the end of a period of 60 days following the sale of the vessel to a bona fide purchaser.
Enforcing the Maritime Lien
The claimant who possesses a maritime lien has the ability to enforce the lien by initiating an action in rem against the vessel. This process is regulated by Section 21(3) of the Supreme Court Act 1981, which outlines the specific conditions in which a ship can be detained through the in rem procedure. Sections 20-23 of the same act provide further detail on these situations. It is worth noting that there exists a significant distinction between the rights in rem bestowed by statute and the general right of detention concerning a maritime lien. The latter is not established by statute but is instead governed by the procedural provisions of the 1981 Act.
The disparity between the maritime lien and the statutory right in rem is rooted in the fact that the former (and the consequent authority over the property) arises immediately when the event that results in the lien occurs. Consequently, the sale of the property does not affect this right. On the other hand, the statutory right in rem is considered to come into existence only when the legal action is initiated by issuing and serving the writ. Therefore, the statutory right to arrest the vessel is not established at the time when the incident causing the lien happens (as is the case with the maritime lien), but rather, it only comes into effect when the writ is actually served. Hence, the statutory rights in rem will be forfeited if the vessel is sold.
What is Cargo Lien?
Cargo Lien is the right given to a shipowner, in contract, to retain possession of the cargo at the port of discharge as security for the payment of freight or other charges due to the shipowner.
A shipowner may exercise a Lien given to him at common law that is not by express contractual terms, for:
- The recovery of general average contributions due from cargo.
- Any expenses incurred by the shipowner in protecting the cargo.
- To recover freight due on delivery of the cargo.
Shipowners’ Right of Lien
In addition, it is very common within charterparties to see an Express Contractual Term granting the shipowner a Right of Lien: Asbatankvoy: Part II Clause 21 “The owner shall have an absolute lien on the cargo for all freight, dead freight, demurrage, and costs, including attorney fees, on recovering the same, which shall continue after delivery of the cargo into the possession of the charterer, or of the holders of any bills of lading covering the same or of any storage.”
The standard form of the Asbatankvoy Charterparty sets out the form of a bill of lading that must be used with it. A standard form bill of lading provides that all of the terms of the charterparty which, of course, include the provision for a lien for demurrage is incorporated into the bill of lading.
In the ‘Miramar’ case the Shipowners exercised a lien over the cargo to require demurrage to be paid by the consignees. Disputes were referred to court and ultimately, in the House of Lords, the Shipowners were unsuccessful.
The court held that references made to the charterer in the charterparty should be construed literally to mean only the charterer of the vessel and not the consignee. Therefore, the inclusion of the lien clause in the charterparty into the bill of lading was ineffective.
Issues on Cargo Lien
Many practical issues arise from the exercise or attempted Exercise of a Cargo Lien. Before the exercise of a lien can take place the Shipowner needs to be able to demonstrate liability on the part of the charterer for the debt over which the lien is to be exercised.
Commonly, Shipowners will have concerns over the payment of freight due to them when rumors arise concerning the charterers’ financial standing. However, unless freight, demurrage, and so on are due to the Shipowners then a lien cannot be exercised over the cargo about these debts.
For example, if freight is payable upon completion of discharge then, in practical terms, the Shipowners cannot exercise a lien over the cargo for freight monies due to them because such monies do not become due until completion of discharge. After the discharge of the cargo possession of it has been lost and Shipowners are unable to then exercise a lien over the cargo.
As in the Miramar Case, it is necessary to consider the competing and contrasting obligations between the owner and charterer and shipowner and cargo owner under the Bill of Lading (B/L). If the contracts are not as one with each other the shipowner’s liability to cargo owners may differ substantially from those to the charterer. In these circumstances, the exercise of a lien can be very problematic.
A final, and often insurmountable hurdle, will be the attitude of the local court where the discharge of cargo is to take place. Whilst the charterparty may be subject to, for example, English or US law and jurisdiction, and indeed the Bill of Lading (B/L) may also incorporate such terms into it and therefore require disputes to be resolved in the English courts, whilst cargo is being discharged ashore the local courts may not be prepared to contemplate any jurisdiction other than their own.
In these circumstances, an aggrieved cargo owner whose cargo is being withheld by the ship’s owner for payment of monies due by the charterer will, almost invariably, approach the local court for an order for delivery of the cargo.
Furthermore, the ship will often face an arrest in the local jurisdiction to fund security for any losses the cargo owner has suffered. Therefore, in practical terms, the exercise of a lien over cargo is often problematic and one on which legal advice should always be sought.
How Cargo Lien is exercised?
Having said that the lien is exercised in the following way: There are two basic requirements:
- firstly, a demand for the amount in respect of which the lien is to be exercised must be made
- secondly, the continuous retention of the cargo by the ship’s owner. The ship’s owner must make clear to all parties concerned that he is exercising a lien over the cargo and provide sufficient information to allow the cargo owners and/or charterers to determine the monies due and provide payment to them in order to release the lien.
Shipowner must also retain possession of the goods
The Shipowner must also retain possession of the goods. Generally, possession of the goods will be retained on board the vessel. However, this can result in lengthy delays to the vessel during which time, if exercised wrongly, the ship will be neither earning freight revenue nor demurrage.
Generally, if the lien is exercised correctly then demurrage will accrue. It is possible, although somewhat unusual, for the owner to discharge the cargo ashore into dedicated storage facilities where his agent will exercise a lien over the cargo whilst the vessel departs the port.
In summary, in order to exercise a lien over the cargo, the shipowner must have a clear and well-drafted Lien Clause setting out the terms and conditions upon which the lien may be exercised. There must be a sum of money due, notice must be given and possession of the goods must be retained.
Cargo Lien Clause
According to the Lien Clause, if the charterer has failed to make payments due to the shipowner under the terms of the charter party, the shipowner has a right of lien on the cargo.
Shipowners may retain the cargo on board or in a warehouse ashore until the outstanding payment is made. Under common law, this is called Possessory Lien.
Lien Clause extends this to cover not only nonpayment of freight but also dead freight, demurrage, damages for detention, and general average (GA) contributions due to the shipowner.
What is a lien on the goods?
It is common for a charterparty to give a shipowner a contractual right of lien over goods, for sums due to him but not paid. This is in addition to the shipowner’s common law rights of lien over goods. A lien is a right to retain possession of goods.
The goods must be in the possession of the person exercising the lien or of his agent. As soon as the shipowner or his agent loses possession, he loses the opportunity to exercise a lien and cannot recover it.
The contractual liens given by a charterparty will identify the sums in respect of which the owner is entitled to exercise a lien. Clause 8 of the Gencon voyage charterparty entitles owners to lien for freight, deadfreight, demurrage, and damages for detention. Clause 21 of the Asbatankvoy voyage charterparty grants owners a lien for all freight, deadfreight, demurrage, and costs, including attorney fees, of recovering the same.
English law has long decided that a lien granted by a charterparty is a lien against the charterer. So, if he is the owner of the goods, then there is no problem. However, it is commonly the case that the goods are owned by someone else, a buyer who has paid for the goods and obtained a bill of lading. He will produce the bill of lading to the shipowner/carrier and call for delivery in the normal way.
The shipowner may face a problem exercising a lien. Unless the lien terms of the charter have been incorporated into the bill of lading, then a refusal to deliver the goods to the bill of lading holder/buyer would be a breach of the bill of lading contract of carriage.
It is unlikely that under a liner bill of lading the owner will incorporate any charterparty rights. He must rely on the clear wording of the bill of lading. If sums are not due under that contract, he will have little ground for exercising a lien against a bill of lading holder. However, if the bill is a charterparty form of a bill of lading, incorporating charterparty terms, then the shipowner/carrier has reasonable prospects for arguing that the charterparty lien clause is incorporated into the bill of lading terms.
As in Miramar (1984), whereas the English courts were not willing to manipulate the charterparty language to impose on the bill of lading holder an obligation to pay demurrage under the bill of lading, the court was ready to incorporate the charterparty lien clause into the bill of lading, allowing the owners/carrier to exercise a lien on the goods for unpaid demurrage both under the charterparty and the bill of lading. Whether a lien can be exercised is also a practical matter and the local court where the lien is exercised will usually be involved too.
What is the difference between a General Possessory Lien and a Particular Possessory Lien?
A possessory lien is a legal right that allows a person to retain possession of another person’s property until a debt owed to them has been satisfied. There are two main types of possessory liens: general possessory liens and particular possessory liens. The key differences between these two types are as follows:
- General Possessory Lien: A general possessory lien allows the lienholder to retain possession of the debtor’s property until all debts owed to the lienholder by the debtor are satisfied. This type of lien is not limited to a specific debt or transaction; instead, it covers all outstanding debts between the two parties. General possessory liens are less common and typically arise in specific circumstances or professions, such as by an attorney who retains a client’s documents to secure payment of all fees owed by the client.
- Particular Possessory Lien: A particular possessory lien, on the other hand, is limited to a specific debt or transaction. In this case, the lienholder can retain possession of the debtor’s property only until the specific debt related to that property is satisfied. This type of lien is more common and often arises when a service provider, such as a mechanic or a dry cleaner, retains possession of a customer’s property until payment for the services rendered on that particular item is received.
In summary, the main difference between a general possessory lien and a particular possessory lien lies in the scope of the debts they cover. A general possessory lien secures payment for all debts owed between the debtor and the lienholder, while a particular possessory lien secures payment for a specific debt or transaction.
When might an Equitable Lien arise?
An equitable lien is a type of lien that arises through principles of fairness and equity, rather than through a specific legal statute or an express agreement between the parties. Equitable liens are created by the courts to ensure that justice is served in certain situations where one party would be unjustly enriched at the expense of another party. An equitable lien might arise in the following circumstances:
- Unjust Enrichment: If one party (Party A) has unjustly enriched itself at the expense of another party (Party B), an equitable lien may be imposed to prevent Party A from benefiting unfairly. This often occurs when Party A receives property or funds they are not entitled to, and Party B has a legitimate claim to that property or those funds.
- Breach of Trust or Fiduciary Duty: An equitable lien can arise when a person who owes a fiduciary duty or trust to another party breaches that duty, causing financial harm. In such cases, the court may impose an equitable lien on the property in question to secure the injured party’s claim.
- Constructive Trusts: In situations where a party has obtained property through fraud, undue influence, or other wrongful means, a court may create a constructive trust and impose an equitable lien on the property in favor of the rightful owner.
- Equitable Subrogation: This occurs when a party (Party A) pays off a debt on behalf of another party (Party B), under the expectation of being reimbursed. If Party B refuses or fails to reimburse Party A, an equitable lien may be imposed on the property to secure Party A’s claim.
- Unpaid Vendor: In some cases, when a vendor sells the property to a buyer who fails to pay the purchase price, an equitable lien may be imposed on the property to secure the vendor’s claim for payment.
- Agreement to Create a Lien: Sometimes, parties may have agreed to create a lien on a property, but have failed to create a valid legal lien due to a technical defect. In these cases, a court may impose an equitable lien to give effect to the parties intentions.
Equitable Lien is a discretionary remedy, and their imposition depends on the specific facts of each case and the principles of fairness and justice.
What is “Equity’s Darling”?
“Equity’s Darling” is a legal term used to describe a bona fide purchaser for value without notice of any pre-existing equitable interests in the property they are acquiring. In other words, Equity’s Darling is an innocent purchaser who acquires property without any knowledge or reason to suspect that someone else might have a prior equitable claim to it.
“Equity’s Darling” term originates from the principles of equity, which is a branch of law that seeks to ensure fairness and justice in situations where the strict application of legal rules may lead to an unjust result. Equity recognizes that, in some cases, the rights of innocent third parties should be protected, even if doing so might be detrimental to the rights of others who hold prior equitable interests in the property.
The concept of Equity’s Darling is particularly relevant in situations involving competing interests in property. In these cases, the courts may prioritize the rights of a bona fide purchaser for value without notice over the rights of the person with a pre-existing equitable interest. This is done to encourage good faith transactions and maintain confidence in the market by ensuring that innocent purchasers can rely on the apparent state of the property’s ownership when making a purchase.
However, it is essential to note that for a person to be considered Equity’s Darling, they must:
- Be a purchaser, meaning they have acquired the property in exchange for some form of consideration (usually money).
- Act in good faith, without any fraudulent intent.
- Have no notice (actual, constructive, or imputed) of the prior equitable interest at the time of the purchase.
If these conditions are met, the courts may uphold the rights of Equity’s Darling, even if it means overriding the rights of someone with a prior equitable claim to the property.
Why are Maritime Liens said to be special liens?
Maritime Liens are considered special liens due to their unique characteristics and the specific nature of the maritime industry. Maritime liens are legal claims on a ship or other maritime property to secure the payment of debts or the fulfillment of obligations arising from maritime transactions or events. These liens have a few distinct features that set them apart from other types of liens, making them special:
- Secret nature: Maritime liens are often referred to as secret liens because they can exist without being formally recorded or registered. Unlike other liens, there is generally no requirement for public notice or registration, which means that parties dealing with a vessel might not be aware of any existing maritime liens against it.
- Attachment to the ship: Maritime liens attach directly to the ship itself, rather than to a specific owner. This means that the lien remains with the ship even if the ownership changes, making it particularly important for potential buyers to conduct thorough due diligence on a vessel’s history.
- Priority ranking: Maritime liens have a specific order of priority, which is generally different from the priority rules that apply to other types of liens. In the event of the sale or distribution of a vessel’s proceeds, maritime liens are typically paid off in the following order: (i) costs associated with the arrest and sale of the vessel; (ii) crew wages; (iii) salvage claims; (iv) maritime tort claims; and (v) contractual claims, such as mortgages or unpaid supplies.
- Duration and enforcement: Maritime liens can last for a considerable period, often remaining enforceable for several years. However, they can also be extinguished under certain circumstances, such as when a vessel is sold through a judicial sale.
- International recognition: Maritime liens are generally recognized across international jurisdictions, allowing claimants to enforce their liens in various countries. This is crucial in the maritime industry, where vessels frequently travel between different jurisdictions.
These unique characteristics of Maritime Liens demonstrate why they are considered special liens. Maritime Liens have been developed to cater to the specific needs of the maritime industry and to protect the interests of those involved in maritime transactions, such as shipowners, charterers, suppliers, and crew members.
What is the distinction between a common law Possessory Lien and an Equitable Lien?
Both common law possessory liens and equitable liens are legal tools that secure the payment of a debt or the performance of an obligation. However, there are several key distinctions between these two types of liens:
1- Nature and origin: Common law possessory liens arise from common law principles and are based on the lienholder’s possession of the debtor’s property. These liens do not require any written agreement or court intervention; they have created automatically when the lienholder takes possession of the property in the course of providing a service or performing a duty.
Equitable liens, on the other hand, arise from principles of equity and fairness, and they are created by the courts to ensure justice in specific situations. Equitable liens do not require the lienholder to have possession of the property; instead, they are often granted to protect a party’s interest in a property when legal remedies are insufficient or when the parties’ intentions cannot be given effect through a legal lien.
2- Possession: A crucial distinction between common law possessory liens and equitable liens lies in the requirement of possession. A common law possessory lien arises when a lienholder is in possession of the debtor’s property, and the lienholder has the right to retain possession until the debt is paid or the obligation is fulfilled. In contrast, equitable liens do not require possession, and the lienholder can enforce their claim against the property even if they do not have physical control over it.
3- Scope of application: Common law possessory liens typically arise in specific situations or transactions, such as when a mechanic repairs a car or when a dry cleaner cleans clothes. These liens are generally limited to the specific debt or obligation related to the service provided.
Equitable liens, however, can be granted in a broader range of circumstances, including cases of unjust enrichment, breaches of trust, and unpaid vendors. These liens often secure a broader range of debts or obligations, depending on the specific circumstances of each case.
4- Enforcement: To enforce a common-law possessory lien, the lienholder must retain possession of the property until the debt is paid or the obligation is fulfilled. If the debtor fails to satisfy the lien, the lienholder may need to initiate legal proceedings to sell the property to recover the debt.
Equitable liens, in contrast, are enforced through court proceedings. The lienholder can petition the court to order the sale of the property or to grant other equitable remedies, such as an injunction or the imposition of a constructive trust.
In summary, the key distinctions between common law possessory liens and equitable liens are their nature and origin, the requirement of possession, the scope of application, and the methods of enforcement.
Why is it said that a maritime lien is a “privileged claim”?
A Maritime Lien is often referred to as a “privileged claim” due to its unique characteristics and the special protections it provides to claimants in the maritime industry. A maritime lien is a legal claim on a vessel or other maritime property to secure the payment of debts or the fulfillment of obligations arising from maritime transactions or events