In Lord Marine Co S.A. v Vimeksim SRB D.O.O. (“The Lord Hassam”) [2024] EWHC 3305 the English High Court considered whether it could order the sale of cargo over which a shipowner was exercising a contractual lien as security for a claim brought in arbitration against charterers for unpaid charterparty freight, even though charterers did not own the cargo.
A freight pre-paid bill of lading had been issued by owners for a cargo of corn in bulk carried under a voyage charterparty on amended SYNACOMEX 2000 terms. The charterparty included a clause permitting owners to exercise a lien on cargo for freight, deadfreight, demurrage and average contributions due under the charterparty. The bill of lading was on the CONGENBILL94 form and contained standard wording incorporating the voyage charterparty. The lien clause in the charterparty was, therefore, incorporated into the bill of lading.
Although the bill was marked “freight pre-paid”, the evidence produced to the Court was that freight had not been paid and that the original bill of lading was retained by owners and had not come into the possession of charterers or the receivers named in the bill. Having loaded the cargo in Ukraine, the vessel proceeded to the discharge port in Turkey, where owners exercised a contractual lien over the cargo for freight due under the charterparty. The cargo was discharged into a warehouse under owners’ control.
An owner’s obligation is to deliver the cargo to the lawful holder of the bill of lading. However, in this case, charterers were not the shippers, and charterers, receivers nor any other party had ever been lawful holders of the bill.
Under English law, a bill of lading marked “freight pre-paid” creates an estoppel (i.e. indisputable evidence that freight has been paid) except against a party who has not relied upon that statement or who knows that freight has not been paid. As neither charterers nor receivers ever lawfully held the bill of lading, they could not say that they relied on the “freight pre-paid” endorsement on the bill of lading to claim title to the cargo. Additionally, charterers knew, of course, that freight had not been paid, given that they had failed to make the freight payment due under the charterparty.
The shippers of the cargo, whilst not party to the proceedings, were also subject to a lien on the cargo due to the charterparty lien clause being incorporated into the bill of lading. There was also no evidence that the shippers had relied on the “freight pre-paid” endorsement on the bill. In any event, the receivers had indicated that the cargo had been sold to a third party, so the shippers had no further title to or interest in the cargo.
The Court ruled that it can exercise its powers to support arbitration proceedings by ordering the sale of a cargo which is the subject of those proceedings. A cargo can be the “subject of the proceedings” when it has sufficient proximity to the dispute and claim. Specifically, a cargo which is the subject of a contractual lien being exercised as security for a claim in arbitration can be the subject of the court proceedings, with the proceedings being an application for an order to sell that cargo.
The Court held that its authority includes the ability to make an order to preserve evidence or assets, which includes a discretion to order the sale of relevant property which is of a perishable nature or which for any other good reason it is desirable to sell quickly. Where cargo is shown to be deteriorating in value or may be lost entirely due to its inherent nature, the court will preserve the value of the cargo rather than the cargo itself. The value of the cargo is preserved by its sale in the form of the sale proceeds.
Accordingly, the Court confirmed that cargo carried on a ship may be liened and sold for a debt due to owners by charterers, where charterers do not own the cargo but the cargo is subject to owners’ contractual rights.
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