Cargo Lien - GA Storage Costs

August 2013

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Mettall Market OOO v Vitorio Shipping Company Ltd (‘’The Lehman Timber’’) (2013) EWCA Civ 650

The English High Court decision in this matter is discussed in an earlier website article: Exercising Lien on Cargo - General Average Security.

In brief the vessel was captured by Somali pirates in May 2008 and subsequently released following payment of a ransom. Shortly after, the vessel suffered a main engine breakdown. The cargo of steel coils was carried under four bills of lading and owners sought General Average (“GA”) security from Metall Market (cargo interests) in the form of a standard GA bond backed by insurers’ guarantee. A GA guarantee was provided in respect of only one of the bills of lading (98 coils). Owners continued to demand a GA bond in respect of all the cargo and also a cash deposit for the cargo not covered by the GA guarantee. Cargo interests refused to provide a bond or cash deposit for any part of the cargo.

Having not received the GA security requested, owners exercised their lien for GA contributions and discharged the cargo into a warehouse.

In arbitration, owners successfully recovered from cargo interests their contribution to GA and storage costs. On appeal, the High Court overturned the arbitrator’s decision that the cargo interests were liable for the storage costs.

The cargo interests unsuccessfully appealed the High Court’s decision that owners had not waived their lien when accepting the GA guarantee: “…there is nothing in the authorities to suggest that a guarantee without a bond is sufficient, or that to require a bond in addition to a guarantee is unreasonable … Provided the request is reasonable, the shipowner is entitled to make his own terms if he is to forego immediate payment or release his lien.” As such owners were entitled to exercise a lien in respect of GA when a GA guarantee had been provided by insurers for a small part of the cargo only and no GA bond has been provided by cargo interests.

In contrast, and in a decision to be welcomed by carriers the Court of Appeal decided that owners were entitled to the costs of storing the cargo when exercising their lien. In doing so, the court distinguished the House of Lords decision in Somes v British Empire Shipping Co (1860) on which the High Court had relied when deciding against owners. In that case a repair yard exercised a lien over a ship but failed in its claim to recover the berth costs for occupying the dock while the lien was exercised on the basis of a general rule that the costs of retaining possession of goods in the exercise of a lien are not recoverable from the owner of the goods. The Court of Appeal characterised this rule as ‘‘… a narrow one, of doubtful status outside the context of an artificer’s lien’’ i.e. a lien granted to a party who has carried out work on a chattel, and went on to state that ‘‘…it was significant that there were few examples of the application of this principle, and none in a commercial context or in the context of carriage of goods by sea’’. Having distinguished the principle in Somes, the arbitrator’s award was upheld.

Finally, it is also noteworthy that in giving the Court of Appeal’s decision Sir Bernard Rix said: “Shipping is performed on the basis that time is money and that a ship is a floating and travelling warehouse for which cargo must pay either in the form of agreed freight or hire, or by way of damages for any breach of contract. If the ship is delayed by the cargo owner’s failure to arrange timely discharge: whether that failure is his breach in facilitating the vessel’s arrival in berth where she may become an arrived ship (and thus start the laytime clock running which may in due course lead to demurrage), or whether he has incurred demurrage under the laytime code; or whether there is no laytime or demurrage code, but merely a general obligation to discharge according to the custom of the port or with customary despatch; or whether he has delayed discharge by refusing to discharge a lien for freight or any other payment for which the ship has a lien and has thereby given invalid instructions to discharge; then the contractual arrangement contemplates that either by the means of the liquidated damages known as demurrage, or by means of general damages for detention, the cargo owner must pay (subject of course to any express exceptions to his liability). That is the commercially just result, and the authorities reflect the search for the just and reasonable result. Thus the exercise of a lien must be reasonable and there must be no failure to mitigate damages, but subject to such commercially sensitive principles, the exercise of a lien is no excuse from contractual liability. Even if the Somes principle were prima facie capable of applying, the contractual context, as contemplated in Somes itself, would take the case out of it. And if the contract comes to an end, as in ENE Kos, then the ship will in any event be entitled to claim the cost of taking care of cargo and to continue to enforce any lien it has.”