The Ship Owner's Lien on Sub-freights and Personal Property Securities Regimes

• Author: Matthew Woolley
• Position: BCom, LLB (VUW), ATCL; Policy Analyst, Inland Revenue, New Zealand. The author has written this article in his personal capacity: the opinions expressed do not necessarily reflect those of Inland Revenue. The author thanks Dr. Bevan Marten, Lecturer at Victoria University of Wellington, for his help and support throughout the researching and...
• Pages: 69-81

(2014) 28 ANZ Mar LJ

69

THE SHIPOWNER’S LIEN ON SUB-FREIGHTS

AND PERSONAL PROPERTY SECURITIES REGIMES

Matthew Woolley

*

In the event of default by a head charterer, a shipowner may advance a direct claim under the bill of lading

against the shipper for freight, with an alternative claim against the charterer to enforce the charterparty lien

on sub-freights. With maritime-related insolvencies increasingly common these claims are important to

shipowners as they pro vide another method of debt recovery. This article explores the co ntentious shipowner’s

lien on sub-freights payable to the chartere r. Clear guidance on the nature of the lien has particular importance

in New Zealand, Australia and other countries where statutory personal property securities regimes are

operated. Finally, the article considers the nature of the lien in the light of the policy rationale underlying

personal property securities regimes.

1 Introduction

Two recent international decisions have seen appellate courts allow a shipowner to skip a chain of charterers

and demand payment of freight directly from the shipper.1 Unsurprisingly, shipowners have welcomed these

decisions as they provide additional protection where a charterer is in default.2 Given the prevalence of vessel

chartering these decisions will have a far-reaching effect. The 20 leading container ship operators account for

over 80% of international container shipping capacity.3 Around half of the ships operated by these shipping

lines are chartered-in.4

In the event of an intermediate charterer becoming insolvent and defaulting, a shipowner may bring a claim for

bill of lading freight and a claim to a lien over sub-freights pa yable to the charterer. A claim for bill of lading

freight is like ly to be the primary claim where goods are shipped on an ‘owner’s bill of lading’. This article

examines what has often been advanced as an alternate basis of claim, the lien over sub-freights payable to the

charterer. The article will argue that the true nature of the lien over sub-freights payable is that of an equitable

charge. The author concludes that the introduction of p ersonal property securities regimes in countries including

Australia and New Zealand will demand shipowners register financing statements in respect of the lien on sub-

freights if this avenue of debt recovery is to remain effective.

2 Background

The true nature of the lien on sub-freights included in the terms of many charterpartie s is the subject of differing

judicial and scholarly vie ws.5 To a vessel owner, a lien on sub-freights clause is important as it purports to give

the owner the right to attach to sub-freights payable under sub-charterparties for payments in respect of the

headcharter.

Two recent decisions by appellate courts, Dry Bulk Handy Holding in the United Kingdom and Byatt

International in Canada represent a significant development in the law concerning charterparty chains where

there is a default by an intermediate charterer.6 In both decisions the dispute arose because of the insolvency and

subsequent default of Korea Line Corporation (KLC), an intermediate charterer to whom the respective

shipowners had chartered vessels.

In Dry Bulk Handy Holding, Smith J did not uphold a claim to enforce the lien on sub-freights. Smith J

concluded the lien clause was effective ‘with regard to the sub-freights that fell due after the cargo was loaded’7

* BCom, LLB (VUW), ATCL; Policy Analyst, Inland Revenue, New Zealand. The author has written this article in his personal capacity:

the opinions expressed do not necessarily reflect those of Inland Revenue. The author thanks Dr B evan Marten, Lecturer at Victoria

University of Wellington, for his help and support throughout the researching and writing of this paper.

1 Dry Bulk Handy Holding Inc v Fayette International Holdings Ltd; The Bulk Chile [2013] EWCA Civ 184 (14 March 2013) (‘Dry Bulk

Handy Holding’); Byatt International SA v Canworld Shipping Company Limited; MV Loyalty 2013 BCCA 427 (‘Byatt International’).

2 Eric Stamford, ‘Canadian ruling allows owners to knock on shippers’ door for hire’ TradeWinds (Norway), 25 October 2013, 32.

3 Conference on Trade and Development Review of Maritime Transport 2013 UNCTAD/RMT/2013 (2013) 51.

4 Ibid.

5 See Fidelis Oditah, ‘The juridical nature of a lien on sub-freights’ [1989] Lloyd’s Maritime & Commercial Law Quarterly 191; Graeme

Bowtle, ‘Liens on Sub-freights Re Brumark’ [2002] Lloyd’s Maritime & Commercial Law Quarterly 289; Michael Wilford, ‘Liens on Sub-

freights and Priorities’ [1988] Lloyd’s Maritime & Commercial Law Quarterly 148.

6 Dry Bulk Handy Holding [2013] EWCA Civ 184 (14 March 2013); Byatt International 2013 BCCA 427.

7 Dry Bulk Handy Holding Inc v Fayette International Holdings Ltd [2012] EWHC 2107 (Comm) (24 July 2012) [66] (Smith J).