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Web alert: Reminder to ship owners of their right to recover costs of exercising possesory lien on cargo

News & Insights 11 February 2014

Discussion of a case which reached the Court of Appeal and brought a change in English Law

(Metall Market OOO v Vitorio Shipping (The Lehmann Timber) [2013] EWCA Civ 650).
The important dicta of the above case was to establish ship owners’ rights to recover the costs of exercising a possessory lien over cargo under specific circumstances when General Average Security is requested from the cargo interests.
The M/V Lehman Timber whilst on her maiden voyage from China to Russia, was captured by Somali pirates. Upon payment of the ransom, she was released and continued her voyage until she experienced main engine breakdown, where she had to be towed to a port of refuge for repairs. Consequently, the owners declared General Average and sought to obtain customary General Average Security in the form of an Average Bond from cargo interests and an Average Guarantee from cargo underwriters. As some of the cargo was uninsured, the cargo interests were also asked to also provide cash deposits as GA security. The cargo interests refused to provide both the Average Bond and the cash deposits and eventually an Average Guarantee was only received for 10% of the cargo. In the light of the above, the owners decided to exercise a possessory lien on all cargo until full GA security was in place. After the vessel waited for 5 days at the discharge port, she sailed to a nearby port and discharged the cargo in order to store it in a warehouse. Extra port charges and storage costs were incurred, which the owners sought to recover from cargo interests together with cargo’s proportion of General Average.
The above case reached the Court of Appeal and brought a change in English Law, which is summarised as follows:

  • The owners of the vessel are entitled to exercise a possessory lien on cargo in General Average when an Average Guarantee has been obtained, but an Average Bond has not.
  • In such circumstances, the ship owners are entitled to recover the extra costs incurred in exercising this lien.

Although this decision may not be relevant to all lien situations, it will ultimately have the effect of placing ship owners and their P&I Clubs in a much stronger position than they have previously been in when enforcing, or using the threat of enforcement in respect of their lien, to obtain satisfactory securities. This however would be applicable in so far as the exercise of a lien is reasonable and the ship owners have proven that there is no failure on their part to mitigate all relevant expenses.

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