Time Charters. Liens

A lien is a right in one man to retain that which is in his possession belonging to another, till certain demands of him the person in posssession are satisfied.
Per Grose J in Hammonds and Another, Executors of Blight, against Barclay and Others, Assignees of Fentham a Bankrupt [1802] EngR 107; (1802) 2 East 227

In shipping business most common type of lien is shipowner’s lien over goods while in his possession, i.e. during sea carriage, which is equally available for time and voyage chartered vessels. Usually this lien amounts only to a passive right to retain, cannot be transferred or sold and if/when the goods delivered to the receiver, the lien entitlement is lost forever.

The owners’ right for lien over cargo is often expressly reserved in time charter contract. Such liens of contractual origin (contractual liens) create respective rights only between parties to the contract (charterparty) in question. Therefore the shipowners have no any contractual right to retain the goods against bill of lading holders, unless bill of lading holders and the charterers are the same legal entity.

See respective clauses in NYPE, Baltime and Shelltime4 forms below, notable that Baltime form qualifies the shiponwers’ right to the lien only over cargo belonging to the time charterer.

BPTIME3, clause 14, lines 282-284:

Owners shall have a lien upon all cargoes, hire, sub-hire, freights and sub-freights for any amounts owed by Charterers under this Charter.

SHELLTIME4, clause 26, lines 360-362:

Owners shall have a lien upon all cargoes and all freights, sub-freights and demurrage for any amounts due under this charter; and Charterers shall have a lien on the vessel for all monies paid in advance and not earned, and for all claims for damages arising from any breach by Owners of this charter.

NYPE, clause 23, lines 259-263:

The Owners shall have a lien upon all cargoes and ail 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.

Baltime, clause 18, lines 258 – 264:

The Owners to have a lien upon all cargoes and sub-freight belonging to the Time-Charterers and any Bill of Lading freight for all claims under this Charter, and the Charterers to have a lien on the Vessel for all moneys paid in advance and not earned.

Examples of contractual liens reproduced above are possessory liens. At common law such lien does not, in general, authorise a sale.

For the shipowner to be said to be exercising a lien on cargo it is not sufficient only to refuse to carry it any further to the port of destination. The essence of the exercise of a lien is the denial of possession of the cargo to someone who wants it.

If charterparty does not limit the cargoes to be liened to those owned by the charterers, as for example Baltime does, then lien will be properly exercised, where the bill of lading covering the goods in question incorporates the terms and conditions of the governing charterparty. Therefore the shipowners have no any contractual right to retain the goods against bill of lading holders, unless bill of lading holders and the charterers are the same legal entity. However, it was held in The Aegnoussiotis [1977] 1 Lloyd’s Rep. 268 that in instances when liened cargoes are owned by third parties, the time charterers accept an obligation to procure the creation of a contractual lien in favour of the owners. If they do not do so and the owners assert a lien over such cargo, the third parties have a cause of action against the owners.

These words usually considered as contradicting to decision of Mocatta, J., in The Agios Giorgis [1976] 2 Lloyd’s Rep. 192. But actually what Donaldson J said is that, in cases when they are not cargo owners, the charterers are under implied obligation "to procure the creation of contractual lien", i.e. to create conditions when the shipowners can exercise they right for lien on contractual basis. These words, in my view, confirm the rule that that the owners have no any right, as against bill of lading holders other than the time charterers, to exercise a lien over their cargo. It is further confirmed by the following words of Donaldson J: "so far as the third parties have a cause of action against the owners", - thus if the charterers failed to procure the creation of contractual lien, i.e. no contractual relations established between the owners and the third parties, then the third parties can sue the owners for damages. It also can be inferred that the owners can sue the timecharteres for breach of obligation to procure the creation of contractual lien – which would equalize their losses against third parties claims.

Moreover hire will continue to be payable all period of delay, Donaldson J said in The Aegnoussiotis [1977] 2 Lloyd’s Rep. 268, at p.276:

But the time charterers themselves are in a different position. They cannot assert and take advantage of their own breach of contract. As against them, the purported exercise of the lien is valid. It follows that hire continued to be payable during the delay in discharging and that the time Charterers’ claims, based upon that delay, fail.

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