The English Commercial Court Confirms Owners’ Right to Sell Liened Cargo

The English Courts upholds shipowners’ right to sell liened cargo for unpaid freight, even where that cargo belongs to a third-party consignee

In a recent judgment in The Lord Hassan[1], the English Commercial Court confirmed a shipowners’ right to sell a perishable third-party cargo, after it was liened for unpaid freight. 

Background 
Under the terms of a voyage charter dated 12 April 2024 on amended Synacomex form (the “CP”), the Vessel loaded a cargo of 11,000MT Ukrainian corn at Chornomorsk, Ukraine for carriage to Turkey. 

The CP incorporated a standard lien clause, and stipulated that freight was to be paid by Charterers in full within three days of signing / releasing bills of lading, but always before breaking bulk. 

A bill of lading was issued on 18 May 2024, marked “Freight Prepaid”, which incorporated the CP terms.

However, as no freight had in fact been paid, the Owners retained the bill of lading & exercised their right of lien on the cargo when the Vessel reached the discharge port in Turkey, then discharged the cargo into a warehouse ashore. The Owners’ lien was subsequently recognised by the Turkish Courts on 26 May 2024.

Subsequently, it was determined that the cargo was suffering from self-heating, heavy infestation of insects and maggots, signs of clumping and mould growth.

Accordingly, Owners commenced London arbitration & made an urgent application to the English Commercial Court for permission to sell the cargo before it deteriorated further. 

Legal Basis for Owners’ Application
Section 44(2)(d) of the English Arbitration Act 1996 bestows upon the Courts a wide power to order the sale of any goods which are “the subject of proceedings” and for the purpose of preserving evidence or assets in urgent cases[2]. 

In effect, the above means that the Courts’ powers in relation to cases where the substantive claim is to be determined in arbitration, are equivalent to those subject to Court proceedings – this includes the right to order “the sale of relevant property which is of perishable nature or which for any other good reason it is desirable to sell quickly” (CPR 25.1). 

Judgment
The Judge (Bryan J) granted an Order for the cargo to be sold and for the sale proceeds to be held in escrow pending resolution of the London arbitration. 

In order to protect the interests of any third-party cargo interests, however, the Judge also ordered Owners to give an undertaking in damages, backed up by a security of US$75,000, in case it should subsequently transpire that the lien was wrongful. 

In reaching the above decision, the Judge was satisfied that on the evidence the cargo would continue to deteriorate and ultimately perish if not sold, thereby fundamentally undermining Owners’ security. As such, the Judge considered this to be a “…paradigm case in which sale should be ordered”. 

One key distinguishing feature of this case (unlike in the earlier “The Moscow Stars” case) was that the cargo had been sold to a third party. That said, the Judge confirmed that this did not give rise to any defence to Owners’ claim or their right to assert a lien, bearing in mind that (i) the bill of lading incorporated the CP right of lien, and that (ii) crucially, the bill of lading had never been released. 

In considering this point, the Judge placed particular reliance upon the fact that it is unusual for a charterer to also be the owner of the cargo, meaning that any contrary decision would effectively rob a shipowners’ right of lien of any utility in the majority of cases. 

Importantly, however, the Judge commented obiter that the position may have been different if the bill of lading had been released into the hands of a third party, bearing in mind that it was marked “Freight Prepaid”, thereby potentially giving rise to an estoppel in those circumstances. 

Comments
This case provides an important confirmation that, under English law, a shipowner’s right to exercise lien on cargo and obtain a judicial Order for sale may not be prevented by the fact that the is cargo owned by a third party. 

The Judge’s obiter comments provide a useful reminder, however, of the potential hazards of “Freight Prepaid” bills of lading being released into the hands of a third party, before freight has in fact been received. 

Finally, it is also important to bear in mind that before proceeding to lien cargo, it must be checked whether such rights are recognised under local law in the jurisdiction where the lien is being exercised (i.e. the discharge port). 

Whilst in this case, the Owners were fortunate enough to be able to obtain recognition of the lien by the local courts thereby enabling them to maintain the lien even after the cargo had been discharged ashore, in some jurisdictions such recognition will generally not be granted (e.g. China) particularly when the cargo is owned by a third party. 

[1][2024] EWHC 3305 (Comm)
[2]The English Courts have previously confirmed in “The Moscow Stars” [2017] EWHC 2150 (Comm) that the Court has the power to order the sale of cargo that has been liened  to obtain security for a claim in arbitration.