Issues Lien on Cargo

Many practical issues arise from the exercise or attempted exercise of a lien. Before the exercise of a lien can take place the owner needs to be able to demonstrate a liability on the part of the charterer for the debt over which the lien is to be exercised. Commonly, owners will have concern over the payment of freight due to them when rumours arise in relation to the charterers’ financial standing. However, unless freight, demurrage and so on is due to the owners then a lien cannot be exercised over the cargo in relation to these debts. For example, if freight is payable upon completion of discharge then, in practical terms, the owners 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 discharge of the cargo possession of it has been lost and owners are unable to then exercise a lien. As in the ‘Miramar’ case it is necessary to consider the competing and contrasting obligations between the owner and charterer and owner and cargo owner under the bill of lading. If the contracts are not as one with each other the owner’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 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 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 up of the cargo. Furthermore, the vessel 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. Having said that the lien is exercised in the following way: There are two basic requirements, the first a demand for the amount in respect of which the lien is to be exercised must be made and, 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 of them in order to release the lien. The vessel owner must also retain possession of the goods. Commonly, 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 vessel will be neither earning freight revenue nor demurrage. If the lien is exercised correctly then demurrage will generally 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 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.