Metall Market v Vitorio Shipping - the Lehmann Timber
Metall Market OOO v Vitorio Shipping Co Ltd (The “Lehmann Timber”)
English Court of Appeal: Arden, Patten LLJ andSir Bernard Rix:  EWCA Civ 650:  QB 760,  2 Lloyd’s Rep 541
Miss Claire Blanchard QC, instructed by Stephenson Harwood LLP, for the Respondent
Mr Chirag Karia QC, instructed by Clyde & Co, for the Appellant
CARRIAGE OF GOODS: GENERAL AVERAGE: REQUEST BY SHIPOWNER FOR SECURITY IN THE FORM OF GENERAL AVERAGE BOND SUPPORTED BY GENERAL AVERAGE GUARANTEE: WHETHER TERMS OF REQUEST REASONABLE: WHETHER ACCEPTANCE OF PART SECURITY A WAIVER OF SHIPOWNER’S LIEN: WHETHER EXPENSES OF STORING CARGO ASHORE IN EXERCISE OF LIEN RECOVERABLE
Despite requests by the shipowner for General Average security in the form of a bond signed by the consignee and supported by an insurer’s guarantee, the consignee did not sign a bond and only provided an insurer’s guarantee for a small portion of its cargo. Instead of releasing the cargo to the consignee, the shipowner exercised its lien for general average contributions by directing the vessel to a location other than the discharge port and discharging the cargo into a warehouse there. The Court of Appeal held that the terms of the security demanded by the shipowner were reasonable and that acceptance of a partial guarantee would not amount to a waiver or automatic discharge of the shipowner’s lien. Further, the shipowner was entitled to recover the storage expenses as part of the expenses incurred in exercising its lien.
This note has been contributed by Ken T.C. Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.
The claimant, Vitorio Shipping Co Ltd (the “Owner”), was the demise-chartered owner of the vessel “Lehman Timber” (the “Vessel”). The cargo on board during a voyage from Changsu in China to St Petersburg in Russia included 1,089 steel coils (the “Cargo”) under four separate bills of lading, of which the defendant, Metall Market OOO (the “Consignee”), was the consignee. Only the cargo under one of the bills (the 4th bill) in respect of 98 coils was insured. The conditions of carriage set out on the reverse of the bills of lading provided for general average to be adjusted, stated and settled according to the York-Antwerp Rules 1994 in London.
During the voyage, the Vessel suffered two general average incidents. The Vessel was first captured whilst transiting the Gulf of Aden and held by pirates for 42 days. A substantial ransom was paid. On her release and en route to Salalah in Oman, the Vessel suffered a main engine breakdown and had to be towed there.
The Owner declared general average and appointed average adjusters who requested the cargo interests to provide general average security in the form of a general average bond to be signed by the cargo interests themselves and supported by a general average guarantee from cargo insurers or else a cash deposit. However, despite repeated requests, when the Vessel arrived off the port of St Petersburg on 20 September 2008, no bond was provided by the Consignee and an insurer’s guarantee for only the cargo under the 4th bill was forthcoming.
The Owner was unwilling to berth the Vessel, having received advice that the Vessel would be forced to discharge and it would be impossible to prevent the Consignee from obtaining possession of the cargo. Therefore, after waiting until 25 September 2008 off St Petersburg, the Owner sailed to nearby Hamina in Finland, where the Cargo was discharged into a warehouse and, subject to its lien, where it had remained since.
In subsequent arbitral proceedings, the arbitrators held that both the ransom payment and the cost of the tow were allowable general average disbursements. The total general average disbursements amounted to about US$3.5m and the Consignee’s liability was nearly 29% of the total. Further, it was held that the Owner was entitled to exercise a possessory lien over the Cargo for the Consignee’s contribution to the general average disbursements and their request for general average security was reasonable in form and amount. The actions taken by the Owner to preserve its lien were reasonable, including taking the cargo to Hamina and placing it in secure storage there. The Consignee’s claim for conversion was rejected.
The Consignee appealed against the arbitral award on two questions of law:
(1) Whether the Owner had waived its lien for cargo’s general average contribution when it requested from the Consignee a bond and an insurer’s guarantee as the price for giving up the lien, but had received an insurer’s guarantee for only a small portion of the cargo; and
(2) Whether the Owner’s exercise of its lien for general average contribution prevented it from recovering the continuing expense of looking after the Cargo in the warehouse at Hamina.
At first instance, Popplewell J (see  EWHC 844 (Comm)) answered the first question in favour of the Owner but the second question in favour of the Consignee. The Judge held that the principle in Somes v British Empire Shipping Co (1858) EB & E 353, (1859) EB & E 367, (1860) 8 HL Cas 338 prevented the Owner from recovering the expenses of looking after the Cargo.
Both the Owner and the Consignee appealed to the Court of Appeal.
Sir Bernard Rix gave the leading judgment of the Court of Appeal, with whom Arden and Patten LJJ agreed. The Court held in favour of the Owner in respect of both issues.
In relation to Issue (1), the Court noted that while both cargo’s liability to contribute and the shipowner’s lien arose at the time of the general average sacrifice or expenditure, it typically took a considerable time for average adjusters to complete an adjustment which might then be challenged in court or arbitration. A centuries-old practice had grown up for the shipowner to take security for what was reasonably estimated to be owed to it and/or the other parties to the adventure. The security was typically in the form of an average bond taken from the consignee of the cargo, backed up by a guarantee from the cargo’s insurer or a cash deposit. The consignee, who may very well not be the same as the owner of the cargo at the time of the general average incident, would provide that security or obtain it from the insurer of his cargo because he wanted his cargo delivered. The bond and/or guarantee represented new contracts and new causes of action and limitation began anew: see Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd (The Potoi Chau)  1 AC 226 (PC).
There was no authority to suggest that a guarantee without a bond was sufficient, or that to require a bond in addition to a guarantee was unreasonable. Provided the request for security was reasonable, a shipowner was entitled to make its own terms for foregoing immediate payment or releasing its lien. The provision of the guarantee but the refusal of a bond would not amount to a waiver or automatic discharge of the lien. In the present case, the Owner was clearly unwilling to give up its lien in the absence of a bond from the consignee in addition to an insurer’s guarantee or cash deposit. The Owner was entitled to take up its position which was reasonable in every respect and was entitled to refuse to deliver the 98 coils out of the entire Cargo.
In relation to Issue (2), Sir Bernard conducted an extensive review of authorities in relation to the Somes principle, that is, that in the absence of contract, an artificer’s (a person who carries out work on a chattel, such as a repairer) lien did not include a right to claim the expenses of exercising the lien. Sir Bernard was of the view that the Somes principle was a narrow one, applicable to an artificer’s lien which was to be contrasted from other kinds of lien. The Somes principle was of doubtful status outside that context. There appeared to be pragmatic concern that an artificer may act purely for his own benefit in retaining the chattel, in circumstances where there was no breach involved on the part of the person against whom the lien was exercised other than the failure to pay the price of the artificer’s labour, and where there was no benefit to such person. Further, in the ordinary case of an artificer’s lien, there was no breach of contract if that person failed to remove his chattel from the artificer at the time due for payment.
In the context of general average, there was no room for the strictness of the Somes principle. The shipowner had an obligation, as well as a right, to collect the general average contribution, or security for it, from all contributors and on behalf of all parties to the adventure. The Somes principle might operate to create harshness in a highly commercial setting such as ship-building or ship-repairing. Where the person against whom the lien was exercised could not pay, the lien was worthless because it did not bring with it a right of either expenses or sale; and where that person would not pay, he could blackmail the person exercising the lien with the expense of retention. Shipping was performed on the basis that time was money and that a ship was 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.
Therefore, the arbitrators were entitled to conclude that the expenses of the Owner incurred in exercising a lien by storing the Cargo could be claimed under bailment, whether or not the contract of carriage had come to an end.