19/09/2020
Some important information's regarding Lien on sub-freight; Charterer and shipowner regularly face this problem in shipping business.
Ship-owner lien on sub freight:
The time charter between A and B contains a lien on sub-freight clause.
By agreeing to this clause B agrees that if he does not pay the sums that are payable to A under the time charter, A is entitled to give notice to a sub-charterer that the freight that is payable to B under the sub-charter should be payable instead to A.
A exercises that right by giving notice to sub-charterer C that the freight that is payable by C to B under the sub-charter should be paid to A instead of to B.
The vast majority of charterparties will include in their terms a lien clause which confers on the owner a lien over sub-freight (and sometimes sub-hire), for any amounts due to the owner under the head charterparty. If the owner exercises his lien, sums which would otherwise be payable by the sub-charterer to the charterer under the sub-charterparty, should instead become directly payable to the owner.
Does a contractual lien on sub-freights include sub-sub-freights?
In order to be able to do that, there must be back-to-back lien clauses in the charterparties down the line. This would, however, not be possible if the charters were on the Baltime form where the lien is limited to sub-freights ‘belonging to the time-charterer.
Is a ship-owner entitled to lien freight under his bill of lading when it stipulates that “freight is payable as per (a sub-voyage) charter party”?
Doubt has been expressed in the past as to whether the shipowners’ lien may be undermined if the B/L provides that freight should be paid “as per the charter” and the latter provides expressly that freight is to be paid into a nominated account controlled by the time charterer.
However, recent cases suggest that this should not prevent the shipowner from requiring that payment should be made into his bank account. (See the comments of Coleman J and Rix LJ in “Spyros C” (2000) 2 Ll. Rep 319
A provision that freight is “payable as per charter party”(which is not the owners’ charter party) does not exclude that right. The freight would still be due to the ship owner, even though it may be payable to another party.
When can an owner exercise his right to lien?
An owner exercises its lien by giving notice to the sub-charterer(s), shippers or other party that owes the freight which they are claiming. There is no special requirement regarding the form of the notice, as long as it brings the assignment to the attention of the party that owes the freight
The charterers can exercise full rights over the sub-freights as their (ie charterers’) income until there is an actual default in the payment of hire to the owner: possible, probable or inevitable (future) default is not enough (The Spiros C [2000] 2 Lloyd’s Rep 319). However, once the freight is paid, the lien is lost.
If such notice is received before the freight has been paid the holder of the B/L has a duty to pay the freight to the ship-owner.
The lien must be exercised by way of a demand that is to be received before the freight is paid by the sub-charterer either to the charterer or to his agent.
If a ship-owner purports to exercise a lien when he does not have the right to do so, he is wrongfully depriving the cargo owner of the right to take possession of his property and may be liable to the property owner in damages.
Priority of claims where the charterers assign sub-freights to a third party
Legal and practical difficulties
As in the case of the lien on cargo the exercise of a lien on sub-freights may also be frustrated by a number of difficulties.
Firstly, in order to have the right to intercept the sub-freight the shipowner must make sure that he gives his notice to the cargo owner before the latter pays the sub-freight to the time charterer. If the notice is received after the payment has been made to the time charterer then the notice is of no effect and the shipowner has “lost” his lien. This danger is particularly obvious when the sub-freight is prepaid.
Similarly, if the time charterer has assigned his right to receive the freight to a third party before receipt of the notice from the shipowner, the doctrine of priorities of equitable assignments laid down in Dearle v Hall means that the shipowner’s demand has been undermined by the earlier assignment and the shipowner cannot demand payment of the freight in defiance of the right of the prior assignee. ( see Attika Hope)
The court further held that the owner’s maritime lien had priority over a bank’s UCC security interest on any funds in the account.
There have been cases, however, where the sub-charterer or shipper has been required to pay twice.
Thus, where hire is due under the charter, and the sub-charterer makes payment of the sub-freights to the charterer with notice of the shipowner’s lien, the owner may still be entitled to exercise his lien on the sub-freights.
In the sub-charterer was required to pay sub-freights twice. In this case, the court held that the sub-charterer was under a duty to make a prompt and good faith effort to ascertain the status of the freights in the hands of its agent. Since the sub-charterer could have stopped payment by its agent to the charterer, it was held liable to the owner for the entire sum due to the owner from the charterer.
Insolvency of Intermediate Charterer - Entitlement of Owner to Sub-Freight
There is no unjust enrichment or double recovery and there is not sufficient evidence for a conclusion that a payment to the owner would benefit of head charter party. There seems little question that, pursuant to the terms of the head charter party, the owner has the right to direct the payment of sub-freights to itself.
