Freight - Lien - General average
Metall Market OOO v Vitorio Shipping Company Ltd: Queen's Bench Division, Commercial Court (Mr Justice Popplewell): 4 April 2012
The claimant company had been the receiver of a cargo of steel coils being carried upon a vessel of which the defendant company had been the demise chartered owner. The coils had been made up of four parcels carried under four bills of lading. The bills of lading had provided for adjustment of general average. During the voyage, the vessel had fallen into the hands of pirates. The defendant negotiated the vessel's release upon payment of a ransom and she sailed to a port of refuge.
The defendant declared general average and appointed adjusters, who attempted to collect general average security from, inter alia, the claimant. Security had been sought in the form of a general average bond backed by an insurers' guarantee or a cash deposit. Upon reaching the discharge port, the claimant refused to provide a bond or a cash deposit in respect of any of the cargo. Part of the cargo that had been subject to one bill of lading (parcel 4), which had amounted for 9% of the overall cargo, had been insured, and an insurers' guarantee had been provided by the claimant for that portion of the cargo.
However, the claimant refused to provide any security for any of the other parcels of the cargo in the form of an insurance guarantee, bond or cash deposit. The defendant accordingly exercised its lien, took the full cargo to a nearby port and discharged it to a warehouse. The defendant thereafter sought recovery of the claimant's contribution to general average. In addition, it sought to recover the costs of preservation and protection of the cargo whilst in storage. The claimant denied liability and counterclaimed for alleged conversion of the cargo. An arbitration tribunal held that the claimant was liable for both general average and the storage costs. Alternatively, that storage charges by way of damages had been recoverable for the claimant's failure to take delivery. The claimant appealed pursuant to section 69 of the Arbitration Act 1996.
It fell to be determined whether (i) the defendant had been entitled to refuse to deliver up parcel 4 to the claimant in purported exercise of its lien for general average contribution for that cargo even after it had received and accepted an unlimited general average guarantee from the insurers of that cargo; (ii) the defendant was entitled to recover storage and other expenses incurred by it in exercising its lien over the cargo after its discharge from the vessel. The claimant submitted that, pursuant to the principle established in Somes v British Empire Shipping Co [1843-60] All ER Rep 844 (Somes), a party which had exercised a possessory lien adversely to the interests of the true owner of the goods had not been entitled to recover the costs of exercising that lien; and (iii) the defendant was entitled to the storage costs as damages for breach or in substitution for damages for detention.
The court ruled: (1) it was settled law that a shipowner was entitled to exercise its lien until the cargo owner's contribution to general average was paid. If a shipowner has agreed to give up its lien in return for security, it was entitled to ask for reasonable security in return. The question of what was reasonable was a question of fact for the tribunal. As to the form of what amounted to reasonable security, the long established practice was that the shipowner gave up its lien in return for a general average bond, and security for that obligation in the form of a cash deposit or a general average guarantee.
In order to establish that the taking of a security had had the effect of destroying the lien, there had to be something in the facts of the case or in the nature of the security taken that was inconsistent with the continued existence of the lien. Where inconsistency was in issue, the concept of destruction of the lien was usually expressed in terms of waiver. Where that inconsistency was said to have come from a transaction between the lienee and a third party, the juridical basis for the destruction of the lien lay in the doctrine of waiver, which in that context had required an unequivocal act of the lienee (see  - ,  of the judgment).
The principles relating to the shipowner's lien accorded with the principles relating to the commercial imperatives that faced a shipowner's lien with a general average lien who had sought security from a consignee. If it is to be held to have lost the lien, which it was obliged to exercise on behalf of others as well as entitled to exercise on its own behalf, the shipowner should be entitled to insist on security in an amount and form which it could be confident would have represented a sufficient replacement for the security of the lien (see  of the judgment).
In the instant case, the insurers' guarantee had been intended to operate in conjunction with a general average bond. The wording of the guarantee said nothing about delivery without a bond being in place from the claimant consignee. The factual matrix against which the insurers' guarantee fell to be construed, was that it had been sought in conjunction with a bond in accordance with the almost invariable practice. Accordingly, the insurers' guarantee would have provided no security without a bond, which had never been provided by the claimant. In those circumstances, the retention of the insurers' guarantee could not be said to have been inconsistent with the continued existence of the lien held by the defendant (see  of the judgment).
The tribunal's determination on the first issue would be upheld (see ,  of the judgment).
Cowell v Simpson 16 Ves 275 considered; Hewison v Guthrie 2 Bing NC 755 considered; Angus v McLachlan [1881-5] All ER Rep 845 considered; Taylor, Stileman and Underwood, Re, ex p Payne Collier  1 Ch 590 considered; Bank of Africa v Salisbury Gold Mining Co  AC 281 considered; Morris, Re  1 KB 473 considered; Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd, The Potoi Chau  3 All ER 706 considered; Clifford Harris & Co v Solland International Ltd  2 All ER 334 considered.
(2) In light of established authority, where a gratuitous bailee incurred expenses in carrying out his duties in preserving and caring for the goods, he had a correlative right to recover such expenses from the owner of the goods, provided that he had not denied possession of the goods to the owner solely on the grounds that he had been exercising a lien. Where, however, a bailee was exercising a lien adversely to the owner who was seeking possession, and that was his sole ground for denying possession to the owner who would otherwise have been entitled to possession but for the lien, the bailee had no such right.
Lien was an exercise in self-help and if the lienee was denying to the goods owner the possession which he had asserted, the lienee was not entitled to treat the preservation and caring for the cargo which he performed whilst he was exercising his option as being for the benefit of the goods owner. The detention was wholly for the benefit of the lienee, not the owner who was seeking possession, and therefore preserving and caring for the cargo during such detention was to be treated as solely for the benefit of the lienee (see  of the judgment).
Applying the Somes principle, it followed that the defendant was not entitled to recover the storage costs on the first basis found by the tribunal (see ,  of the judgment). It followed that the defendant was not entitled to recover the storage costs as costs of preserving the cargo whilst exercising the lien (see  of the judgment).
Somes v British Empire Shipping Co [1843-60] All ER Rep 844 considered; Delantera Amadora SA v Bristol Channel Shiprepairers Ltd and Swansea Dry Dock Co, The Katingaki  2 Lloyd's Rep 372 considered; China-Pacific SA v Food Corpn of India, The Winson  AC 939 considered; Enimont Overseas AG v RO Jugotanker Zadar, The Olib  2 Lloyd's Rep 108 considered; Morris v Beaconsfield Motors  All ER (D) 335 (Jul) considered; ENE Kos v Petroleo Brasileiro SA (Petrobas), The Kos  2 All ER (Comm) 57 considered.
(3) The defendant's claim that it had been entitled to the storage costs as damages for breach by the claimant, in substitution for damages for detention, had depended upon establishing a breach of contract by the claimant to have taken delivery of the cargo, and/or to had done all things necessary to have enabled the vessel to become an arrived ship. That claim was unsound. It had been inconsistent with the concept of a possessory lien as a self-help option, and was inconsistent with the principle that a claimant for damages for breach of contract had not been entitled to recover for damages caused solely by his own act. The claimant had been seeking to take delivery of the cargo and had been ready, willing and able to do so.
The sole reason why delivery had not taken place and the vessel had not become an arrived ship, was that the defendant had chosen not to tender delivery because it had exercised the lien (see  -  of the judgment). Accordingly, the defendant had not been entitled to claim for the storage costs as damages (see  of the judgment).
Chirag Karia QC (instructed by Clyde & Co) for the claimant; Claire Blanchard QC (instructed by Stephenson Harwood) for the defendant.