Metall Market OOO v. Vitorio Shipping Company Limited (Lehmann Timber) [2013] EWCA Civ 650

On appeal from a Commercial Court decision, the Court of Appeal has overturned part of the first instance Judge’s decision and held that a shipowner (hereinafter “owner”) could recover the costs of storing cargo whilst exercising a lien for general average (“GA”) security. However, it upheld the Judge’s decision that the Owner’s lien was not waived where an average guarantee was given, but no average bond provided.  

The background facts

The Lehmann Timber did not have a happy start to life. In May 2008, on her maiden voyage from China to St Petersburg carrying a cargo of 1,089 steel coils, the vessel was captured by pirates and held until a substantial ransom was paid. After her release, the vessel sailed for Salalah, Oman. However, she suffered a main engine breakdown and had to be towed there. The Owner subsequently declared GA but, by the time the vessel arrived at St Petersburg on 20 September 2008, the steel market was in the process of collapsing and the cargo receivers, who were almost entirely uninsured, were neither willing nor able to secure the GA claim. The Owner was advised that, if he entered the port and tendered NOR, he would be forced to discharge and he would lose his lien. So, having only received a GA guarantee from the receivers’ insurers in relation to 9% of the cargo, the vessel waited for five days off St Petersburg and then sailed to Hamina, Finland, where the cargo was discharged into a warehouse in October 2008. It remains there to this day and the storage charges exceed US$1 million. 

The arbitration proceedings and the Commercial Court decision

The Owner commenced arbitration proceedings against the cargo receivers under the Congen bills of lading to recover GA and the costs of storing the cargo. The bills of lading incorporated the terms of a voyage charter, which provided for GA to be adjusted in London and in accordance with the York Antwerp Rules 1994. The cargo receivers denied liability and counterclaimed for the alleged conversion of the cargo. The Tribunal found in favour of the Owner. 

On appeal to the Commercial Court, Mr Justice Popplewell agreed with the Tribunal that the Owner was entitled to refuse to discharge the 9% portion of the cargo having only received a guarantee and no bond, but he refused to allow the Owner to recover the storage costs of the cargo on the basis that he was obliged to apply the House of Lords decision in Somes v. British Empire Shipping Co. (1860) 8 HR Cas. 328. In 1860, it was (and remains to this day) a principle of English law that if  a customer left goods with an “artificer” (a skilled worker who makes or repairs things) and subsequently failed to pay for the work done, then in the absence of a contractual term to the contrary, the artificer could exercise a lien on the goods to force the customer to pay, but he could not charge his customer for the costs of exercising the lien. The example referred to in the House of Lords was that of a tailor who makes a suit of clothes for his customer. Somes applied that principle to a lien for an unpaid bill for repairs to a ship. The ship yard had exercised a lien over the ship until the bill was paid and then sought to charge for the occupation of the dock by the vessel. The House of Lords held that the costs of retaining possession of goods in the exercise of a lien were not recoverable from the owner of the goods, because the lien was being exercised for the benefit of the yard and not for the benefit of the shipowner.  

The Court of Appeal decision

The Court of Appeal found in favour of the Owner on both points.

Had the lien been waived?

The Court of Appeal noted that it was a long established practice for security to be taken in the form of an average bond from the consignee of the cargo, which was backed by a guarantee from the cargo’s insurer or a cash deposit. Although a bond might not add anything in the practical sense, refusal of the consignee to provide the bond would cause the Owner to be concerned as to the status of the consignee’s liability.  Furthermore, the Court of Appeal was willing to assume that even if the effectiveness of the average guarantee was not contingent on the consignee’s liability under the bond, the Owner had been perfectly clear that the bond was required and there had been no waiver of the lien.

Could the Owner claim the expense of exercising the lien?

The Court of Appeal then looked at whether the Owner was entitled to claim for the expenses resulting from the exercise of the lien. Having considered the Somes case and cases referring to it in detail, the Court of Appeal decided that the Somes principle “was a narrow one”, confined to situations involving an “artificer’s lien”. It might work satisfactorily in relation to an artificer’s lien (e.g. the tailor) but in a highly commercial setting, such as ship building or repair, “the Somes case itself illustrates the harshness and uncommerciality of the…doctrine.” It had not taken a hold in the carriage of goods by sea and it should not do so.

In reaching this decision, Sir Bernard Rix, who gave the leading judgment, said:

Shipping is performed on the basis that time is money and that a ship is a floating and travelling warehouse for which cargo must pay whether in the form of agreed freight or hire, or by way of damages for any breach of contract. If the ship is delayed by the cargo owner's failure to arrange timely discharge...then the contractual arrangement contemplates that either by the means of the liquidated damages known as demurrage, or by means of general damages for detention, the cargo owner must pay (subject of course to any express exceptions to his liability).”

Disagreeing with Mr Justice Popplewell, Sir Bernard Rix went on to say:

“…the charterer or consignee cannot complain that the shipowner is causing the delay himself when everything starts with the cargo interest providing invalid instructions for discharge. It is more therefore than a mere failure to pay: the failure to pay means that there is no valid instruction to discharge or true willingness to receive the cargo.”

Finally, he supported his decision with reference to bailment and the Supreme Court decision in The Kos [2012] UKSC 17 (see Shipping E-Brief July 2012). 

Comment

The decision of the Court of Appeal will be of assistance to owners when they seek to exercise a lien for anything in circumstances where the ship is not already in port and the laytime clock is running. However, we repeat our advice to owners in the bulk trade to take some time to examine the typical lien clauses that are found in the liner trade. Those clauses grant a shipowner very useful rights to recover costs and sell goods.