February, 2025 - The Lord Hassan: Commercial Court permits sale of liened cargo

In Lord Marine Co. S.A. v Vimeskim SRB D.O.O (“The Lord Hassan”) [2024] EWHC 3305 (Comm), the Commercial Court supported the owner’s claim in London arbitration proceedings by permitting the sale of a perishable cargo belonging to a third party over which the owner had exercised a lien for unpaid freight.

Facts

On 12 April 2024 a voyage charterparty comprising a recap and amended Synacomex 200 form (“the Charterparty”) was entered into in respect of the MV LORD HASSAN (“the ship”) between Lord Marine Co S.A. (“the Owner”) and Vimeksim SRB D.O.O (“the Charterer”).

The Charterparty contained the following relevant clauses:

“Freight to be paid by Charterers 100% less commission in USD currency”; and

“Lien Clause

Owners shall have a lien on the cargo for freight, deadfreight, demurrage and average contribution due to them under this Charterparty.”

The ship loaded 11,000 mt of Ukranian corn in bulk (“the Cargo”) at Chornomorsk and a bill of lading was issued by the Owner on Congenform 1994 which was marked “freight prepaid”.  The bill of lading incorporated “all terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, including the Law and Arbitration Clause”.

However, the freight was not prepaid such that the Owner retained the bill of lading. As the ship proceeded towards the discharge port at Iskenderun in Turkey, the Owner exercised a contractual lien over the Cargo as security for its claim for unpaid freight, and issued notices to both the Charterer and the receiver of the Cargo.

The Cargo was subsequently discharged ashore into a warehouse under the Owner’s control but it quickly became apparent that the Cargo was deteriorating rapidly with self-heating, mould growth, caking and insect infestation. As a result, the Owner had to act quickly to protect its lien and/or security before the Cargo became worthless.

Proceedings

The Owner commenced LMAA arbitration against the Charterer seeking payment of its freight. At the same time, it made an urgent application to the Commercial Court under section 44 of the Arbitration Act 1996 (“the Act”) seeking an order to sell the Cargo to preserve security for its claim.  The Charterer chose not to participate in the Commercial Court proceedings and did not put forward any defence/reply to the application.

The leading English law case concerning the court’s power to order the sale of cargo is The Moscow Stars [2017] EWHC 2150 (Comm). In that case, the court held that it had the power to order the sale of liened cargo under section 44 of the Act where: (1) the subject cargo is the security for a claim; and (2) there is in imminent risk that the cargo is deteriorating and the shipowner’s security is at risk of being lost.

The only distinguishing feature between the present case and The Moscow Stars, was that the Charterer did not own the cargo. In considering this point, the Commercial Court cited the decision of the High Court of Singapore in The Corinna (Five Ocean Corporation v Cingler Ship Pte Ltd (PT Commodities & Energy Resources, intervener) [2015] SGHC 311). The Corinna also involved  a perishable cargo that had to be sold quickly and the Singapore court did not consider ownership of the cargo gave rise to any defence to the owner’s claim or the right to assert a lien.

In agreeing with the finding in The Corinna, the Commercial Court made an order that the Cargo be sold and the proceeds held in escrow pending resolution of the arbitration.

Commentary

Whilst neither the Charterer nor the receiver participated in the proceedings in this case, shipowners should always exercise caution in selling cargo owned by a third party as they may face a claim in conversion from the rightful owner of the cargo. In this case, the Commercial Court allowed for this by ordering the Owner to provide a cross undertaking in damages by way of payment into escrow or a P&I Club LOU, limited to £75,000.

Lastly, the proceedings may have been less straightforward had the Charterer/receiver relied upon the fact that the bill was marked “freight prepaid” as then there may have been an argument in estoppel against the Owner.

As always, if Members have any questions in relation to the above issues they are invited to contact the Club for further information.