Lord Marine Co. S.A. v Vimeksim SRD D.O.O. (The “Lord Hassan”)

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DMC/SandT/25/03

England

Lord Marine Co. S.A. v Vimeksim SRD D.O.O. (The “Lord Hassan”)

English Commercial Court: Bryan J: [2024] EWHC 3005 (Comm): 14 October 2024024/3305.html

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2024/3305.html [1]

James Watthey (instructed by Shearwater Law) for Lord Marine (Owners)

Vimeksim (Charterers) did not attend and were not represented at court

VOYAGE CHARTER: CARGO LIEN: BILL OF LADING ISSUED “FREIGHT PREPAID”: FREIGHT NOT PAID AS REQUIRED BEFORE BREAKING BULK AT PORT OF DISCHARGE: OWNERS EXERCISING LIEN OVER CARGO OF CORN: BILL OF LADING STILL HELD BY OWNERS: APPLICATION FOR ORDER TO SELL PERISHABLE CARGO TO REALISE SECURITY PENDING RESOLUTION OF OWNERS’ CLAIM FOR FREIGHT AGAINST CHARTERERS IN LONDON ARBITRATION: APPLICATION UNDER ARBITRATION ACT 1996 SECTION 44

Summary

The High Court held, in granting Owners’ urgent application, that the perishable and deteriorating cargo of corn, that was stored ashore in a warehouse at the port of discharge, subject to Owners’ lien for unpaid freight under the voyage charter should be sold.  This would enable Owners to realise value from the security conferred by the lien, with the proceeds of sale to await the outcome of the arbitration in London being pursued by Owners against Charterers for the unpaid freight.

Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and Deputy Editor of DMC’s CaseNotes

Background

Under a Synacomex 2000 standard form voyage charter (“Charter”) between Owners and Charterers, the bulk carrier “Lord Hassan” was loaded with 11,000 MT of corn in bulk (“Cargo”) by NTK Trans Poland (“Shippers”) on 18 May 2024 at a port in Ukraine.

Freight under the Charter was to be paid within three workings days after signing/releasing the bill of lading but in any case before breaking bulk.  Owners were also granted by clause 21 of the Charter a lien over the Cargo for the freight.  The Charter was subject to English law and London arbitration.

Owners issued a bill of lading on the Congenbill 1994 form dated 18 May 2024 (“BL”), naming the consignee as Altin Ates Kimya AS (“Receivers”), which suggested the Cargo had been sold to Receivers.

While the front of the BL was marked “FREIGHT PREPAID”, the freight was not in fact prepaid, or paid at any time thereafter.  Owners duly retained the BL, such that neither Charterers, Receivers nor any other party, including Shippers, ever had the BL in their possession or became its lawful holder.

At the port of discharge in Turkey, as a result of the non-payment of the freight, Owners exercised a contractual lien over the Cargo before discharge (“Lien”).  The Lien was later recognised by a Turkish court on 26 May 2024.

The Cargo was subsequently discharged to a warehouse near the port in Turkey awaiting resolution of the claim.  The warehouse was owned by Receivers and Owners paid for the storage of the Cargo to their order.

The Cargo was at risk of deterioration, having areas of self-heating, a heavy infestation of insects and maggots and signs of clumping and mould growth.

As a result, the Cargo needed to be sold and used promptly to avoid further deterioration.  Consequently, Owners decided to seek an order from the court on an urgent basis for the sale of the cargo.

No defence to the claim for freight had been advanced nor any justification for its non-payment by Charterers, which were matters that, in any event, were to be determined in the London arbitration, which Owners had commenced against Charterers under the Charter on 3 September 2024.

Judgment

The Judge noted that Charterers and Receivers had been served with notice of Owners’ application to seek the urgent sale of the Cargo and of the hearing scheduled before the Court to determine that application.

As such, Charterers and Receivers had been given a reasonable opportunity to attend the hearing, but they had chosen not to do so.  On that basis, the Judge was satisfied that he should proceed with the hearing given its urgency.

The Judge considered section 44 of the Arbitration Act 1996, which gives the Court the power to order the sale of a cargo in appropriate circumstances.

The Judge made reference to The “Moscow Stars” (fn.1), which concerned the granting of a section 44 order for the sale of an oil cargo that had been subject to a lien for a prolonged, and expected to be on-going, period absent a sale.

The Judge was satisfied that there was in principle power for the Court to order a sale in the present case.  Further, on the evidence, the Judge found that not only was the Cargo perishable but also that it was deteriorating rapidly.

On that basis, the Judge considered that the power to order the sale of the Cargo should be exercised.  That would preserve the value of the Cargo, which would otherwise diminish further or be lost by spoiling, so that the sale proceeds could stand as security for the freight claimed in the London arbitration.

On the evidence, the Cargo also appeared to have been sold to a third party (Receivers), which the Judge considered to be a distinguishing feature from The “Moscow Stars” case.  However, the Judge was satisfied that this did not give rise to a defence to Owners’ freight claim or their right to assert the Lien over the Cargo. That might well give rise to a claim by Receivers against the sellers under the sale contract, but it was not a matter for Owners.

The Judge noted that this was not a case where the BL had been released and was in the hands of a lawful holder who might legitimately be able to object to the exercise of the Lien.  While it was an academic point in the present case, the Judge considered that, with the lien clause in the Charter having been effectively incorporated into the BL, the position appeared to be that the lawful holder would likewise have been bound by the Lien, as were Charterers.

It was also the case that, despite the Cargo being held in Receivers’ warehouse, Owners had not lost their right to exercise the Lien.  That was because Receivers were acting as Owners’ agents in retaining possession of the Cargo.  Accordingly, the Judge was satisfied that Owners had not lost the Lien by reason of parting with possession of the Cargo, and that the Lien also bound Receivers.

Therefore, the Judge concluded that the present case was one in which it was appropriate to make the order sought under section 44 of the Arbitration Act 1996.  Owners were exercising a lawful lien on the Cargo and there was an urgent need to sell it, since it was at an immediate risk of deterioration to the point where it could no longer function as the intended security for the freight claim.

Finally, the Judge ordered Owners to give an undertaking in damages, in the event the exercise of the Lien proved to be unlawful, backed by security in the sum of USD75,000.  The reason for this was that it was not unforeseeable that losses might be suffered as a result of the Cargo sale, which Owners would be obliged to recompense.

Comment

This helpful judgment is one of two that have recently considered urgent applications for the sale of cargo under section 44 of the Arbitration Act 1996, the other being that of O v C (fn.2) in the context of sanctioned cargo.

This judgment is relatively short and worth reading in full, in that the Judge has also usefully addressed the position had the BLs been issued to a third party, and the impact on the right to exercise a lien and to sell the cargo in such a scenario, it being unusual for charterers to also own the cargo.

Footnote 1:  [2017] EWHC 2150 (Comm) – see BAILII at https://www.bailii.org/ew/cases/EWHC/Comm/2017/2150.html [2]

Footnote 2:  [2024] EWHC 2838 (Comm) – see DMC’s CaseNote at https://www.onlinedmc.co.uk/index.php/O_v_C