Lord Marine Co SA -v- Vimeksim SRB DOO (Lord Hassan) [2024] EWHC 3305 (Comm)
In this recent decision, which the court has described as a paradigm case in which a sale should be ordered, the court has further considered its powers in support of arbitral proceedings and, specifically, its ability to order the sale of goods to preserve assets.
In this instance, the shipowners applied for the sale of cargo liened to secure claims against their charterers for unpaid freight. The cargo in question was perishable in nature and deteriorating rapidly.
In permitting the shipowners’ application, the court considered an earlier, well-established authority, The Moscow Stars [2017] EWHC 2150 (Comm). Significantly, in what the court described as a distinguishing feature from that case, the cargo in question in this case appears to have been owned by a third party and not the respondent charterers.
The background facts
Pursuant to a voyage charterparty dated 12 April 2024, the applicant shipowners, Lord Marine Co SA (Owners) chartered their vessel, the MV Lord Hassan (the Vessel) to the respondent charterers, Vimeksim S.R.B DOO (Charterers), for a voyage from Chornomorsk, Ukraine, to Iskenderun, Turkey (the Charterparty).
The Charterparty consisted of a Recap and the standard form terms of the Synacomex 2000. This included specific provisions for the timing of Charterers’ freight payment and a lien clause permitting Owners a lien on cargo for unpaid freight.
The Vessel loaded 11,000 metric tonnes of Ukrainian corn in bulk (the Cargo) and a bill of lading was issued on 18 May 2024 (the Bill of Lading), naming Altin Ates Kimya AS as receivers (the Receivers), and NTK Trans Poland as the shippers. Significantly, although the Bill of Lading was marked ‘FREIGHT PREPAID’, no freight had in fact been paid and Owners retained the Bill of Lading. Neither Charterers, Receivers nor any other party ever had possession of the Bill of Lading or became its lawful holder.
The Bill of Lading was on the CONGENBILL 1994 standard form, with the reverse of the Bill of Lading incorporating ‘All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause…’.
As a consequence of Charterers’ failure to make payment of freight as required by the Charterparty, Owners duly exercised their contractual lien prior to discharge. The lien was successfully recognised in a local court in Turkey, and the Cargo was subsequently discharged into a warehouse pending resolution of the claim.
On 3 September 2024, Owners commenced LMAA arbitration in respect of the unpaid freight. Owners were increasingly concerned about the condition of the cargo and the risk of deterioration, and a cargo scientist was accordingly appointed to sample and test the Cargo.
Given its rapidly deteriorating condition, and the recommendation of the appointed cargo scientist to sell the cargo as soon as possible in order to avoid total loss, Owners made an urgent application pursuant to section 44 of the Arbitration Act 1996 (the Act) for the sale of the Cargo.
At the time of the application hearing, sample analysis had not yet been completed and there was no evidence as to whether the Cargo remained on specification (as per any contractual specification) nor any evidence of the extent of any deterioration.
However, the appointed cargo scientist had provided various interim reports on the condition of the Cargo in situ, and had raised significant concerns regarding an immediate risk of deterioration to the point whereby the Cargo could no longer be used as intended, with large areas of the Cargo undergoing significant self-heating and mould growth, as well as cargo infestation.
Although the Charterers and Receivers both had notice of the application hearing, neither party was in attendance.
Court’s power to order sale of cargo
The court’s power to make an order for sale of a cargo in such circumstances is well established. Section 44 of the Act provides as follows:
‘44 court powers exercisable in support of arbitral proceedings.
(1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purpose of and in relation to legal proceedings.
2) Those matters are –
[…] (d) the sale of any goods the subject of the proceedings…
(3) If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.
(4) If the case is not one of urgency the court shall act only on the application of a party to the arbitral proceedings (upon notice to the other parties and to the tribunal) made with the permission of the tribunal or the agreement in writing of the other parties.’
The Commercial court decision
In assessing the application of section 44 to the present case, the court considered the precedent set down by The Moscow Stars. This well-known decision provides authority for the fact that the requirement of section 44(2)(d) – i.e. for the goods to be the ‘subject of the proceedings’ – is satisfied in circumstances where a contractual lien is being exercised over goods as security for a claim.
The court considered its powers in this context, noting that it has the same power under section 44 ‘as it has for the purposes of and in relation to legal proceedings’. Powers in relation to legal (i.e. court) proceedings include making an order for ‘the sale of relevant property which is of a perishable nature or which for any other good reason it is desirable to sell quickly’ (CPR 25.1).
The court was satisfied on the evidence provided that the Cargo was perishable and at real risk of imminent perishment. It also noted that if the sale were not ordered, the value of the lien to Owners would be impaired, potentially to the extent of rendering the security conferred by the lien as worthless.
A notable feature of this case, distinguishing it from The Moscow Stars, was the fact that the Cargo had seemingly been sold on to a third party. However, the court did not consider this to give rise to any defence to Owners’ claims or right to assert a lien (notwithstanding the fact that the Receivers may have a separate claim against the Charterers under the underlying sale contract).
Although academic in the present case given that the Bill of Lading was retained by Owners, the court did state that, given the Bill of Lading incorporated the lien clause of the Charterparty, the lawful holder of the Bill of Lading would likewise have been bound by the lien in any event, which is ‘Readily incorporated [into the Bill of Lading] by general words’ and as such would be effective against the lawful holder in the same way as against Charterers. The court did, however, comment that the position may be different in circumstances where the lawful holder had relied upon the fact that the Bill of Lading was marked as freight having been prepaid (giving rise to potential arguments on estoppel).
In the circumstances of the case, the court was content to grant the order sought for the sale of the Cargo.
Comment
This decision provides a useful reminder of the effectiveness of a shipowner’s rights of lien and of the court’s ability to make orders in relation to arbitral proceedings to assist in preserving this security in circumstances where the property in question is of a perishable nature.
It is important to bear in mind that, as ever, each case will turn on its own facts and that the ability to enforce a lien on cargo effectively will very much depend not only upon the contractual terms incorporated into the applicable charterparty and bill of lading, but also on the jurisdiction in which the lien is being exercised.
For further information, please contact:
Claire Messer, Partner, Hill Dickinson
claire.messer@hilldickinson.com
