When freight has not been paid, Owners / Operators need to consider how best to secure their position as against the defaulting party.
One of the main traditional options was to seek a lien on cargo for the unpaid freight.
Exercising liens, however, can be a practically challenging task.Key points to the successful exercise of a lien, include: there must be a right of lien under the charter party that right of lien must also exist in the contract of carriage sufficient steps need to be taken to exercise the lien in due time the lien must be recognised by the law of the country in which it is sought to be exercised there must be practical means of securely holding on to the cargoIn the article accompanying this update,
What can the Shipowner do?
Even if the shipowner believes he stands in a position to lawfully exercise a lien on the cargo, he cannot rule out the possibility that the cargo receiver (or any other party who claims to be the owner of the cargo) will apply to the court for an order to release the cargo.
The shipowner finds himself stuck between a rock and a hard place. He is unable to obtain payment for the freight from the charterer. Neither is he able to avail of the protection he would like to rely on, since he cannot validly exercise the lien in China.
Some shipowners choose to try and force the charterer’s hand by refusing to proceed to the discharge port or by doing so but refusing to discharge the cargo, in the hope that this will force the charterer to pay freight.
By doing so, the shipowner may be in breach of his obligation to proceed to the discharge port with due despatch, and be exposed to liability to the holder of the Bill of Lading for interference with the Bill of Lading holder’s right to the cargo.
Further, this is a commercially unrealistic solution (how long will the shipowner be prepared to wait?), and in circumstances where the charterer is in genuine financial difficulty it is unlikely to have the desired impact.
Shipowners would do well to bear in mind the wise old saying that “prevention is better than cure”. The shipowner’s best hope is to avoid this unfortunate situation by paying careful consideration to choosing commercial partners. Shipowners must be careful to conduct the appropriate financial due diligence on counterparties, especially when embarking on new commercial relationships with charterers who do not have an established reputation in the market.
Every situation is unique and depends on the precise facts, so shipowners are encouraged to seek legal advice if they have any doubts about the legal position.