TT Talk - Lien – Make sure it is "right" before exercising your right


  • Date: 02/02/2007
  • Source: TT Talk 95

A lien means the right to detain possession of somebody else's property as security for a debt. It is an aggressive but difficult tool. Transport operators must understand how to exercise a right of lien properly, or they may face claims for unlawful detention of the goods. The Club would like to offer the following advice. the common law right of lien is very restrictive. In the maritime context, it is only for unpaid freight, general average, and costs incurred in preserving the goods; and it can only be exercised against that consignment over which the freight is outstanding (that is, it is a "particular" lien). As regards freight forwarders, it is more limited still; the law recognises no general right of lien: as a mere bailee for reward (e.g. a land carrier or a warehouse operator) who does not improve the goods (by contrast with a car repairer) he does not have a right of lien unless his contract expressly provides for one.

The concept of lien originated from the common law. At common law, a sea carrier, for example, has a lien for unpaid freight. A repairer's lien against the vehicle owner for outstanding charges is another well-known example. However,

In the light of this situation, transport operators often create their own right of lien by contract and in terms wider than the common law lien. Thus standard conditions, bill of lading terms or industry association conditions normally contain a lien clause. This is a contractual lien.

Some points to remember in this regard. Firstly, there is no lien if no debt is due. Transport operators must consider any existing credit terms or payment conditions, before taking lien action. Also, a mere claim or dispute not yet adjudicated by a court is not a debt.

Retaining possession is the essence of lien. This can be done via one's agent or subcontractor but exclusive control must be present. A delivery of the goods to any third party, or any waiver of the right of lien, invalidates a lien. A common waiver situation is when a bill of lading is stamped "freight prepaid". In such a case, the carrier is usually prevented from exercising a lien for outstanding freight against a third party consignee who has bought the goods in reliance on the "freight prepaid" statement in the bill.

Another basic requirement is to communicate the demand of lien to the person whose property is to be held. This is logical, as any unexplained denial of delivery amounts to unlawful possession. An operator need not state the exact amount for which the lien is exercised, although an unreasonable overstatement may prejudice his position. We recommend that the demand be made in writing, with express reference to the lien clause being relied on.

As we have said above, the common law lien is very restrictive. A good contractual lien clause will therefore cover as many types of sums due as possible. Basically, the words "any amount due" or "all sums payable", would suffice to cover other charges in addition to unpaid freight. This also contractually extends the lien to charges other than those relating to the consignment being liened. It makes it thus a "general", rather than a "particular" lien.

It is worth noting that a lien confers no right of sale of the goods being held, no matter how long the amount has been outstanding and the goods been kept. Therefore, it is common for the lien clause to include an express right of sale. Nevertheless, we do not recommend any contractual right of sale be exercised without the transport operator first consulting its liability insurers or legal advisors. This is because a contractual right of sale must be exercised with reasonableness.

Another very important point to note is that the transport operator is not able to recover the costs of exercising a lien (e.g. storage costs) unless the lien clause specifically provides for this. A recent High Court case in England, Jarl Tra v Convoys [2003] 2 Lloyd's Rep, 459, even suggests that very clear wording must be present in the contract. [For a note on this case, see DMC’s CaseNotes @ www.onlinedmc.co.uk/jarl_tra_v__convoys.htm.

However, just having a well drafted and powerful lien clause in the contract is far from enough. The biggest uncertainty is that the contractual lien is only effective against the customer with whom the contract was made, but not the whole world. The customer may not be the actual owner or assignee of the goods, as when a warehouse operator contracts with the shipping line only and not directly with the cargo interests. The disadvantages of this doctrine, known as the "privity of contract" principle, have been reduced to some degree by the development of the concept of bailment on terms. In Jarl Tra v Convoys, a subcontractor's general lien clause was held to be valid against a third party cargo owner whose contract with the main contractor contained a "liberty to subcontract on any terms" clause. As a result, the third party was deemed to have known or consented to the general lien clause in the subcontractor’s terms. However, there is no guarantee that this crucial link in the contractual chain will be present in every case.

Also, foreign jurisdiction is another factor to consider. Not all countries recognise a right of lien. Disregard of the local law and regulations may expose a forwarder to unwanted legal consequences.

Finally, the transport operator should not forget that it has a continuing responsibility to care for the goods under lien and may therefore be liable for loss or damage to them whilst in the operator’s custody. The Club covers the liability of its members for loss or damage of goods held under lien. However, it is subject to the applicable insurance limits. For expensive cargoes especially, the Member who does has an insurable interest should take out cargo insurance After all, it is still the responsibility of the member to make sure that the course of action he follows is proper.

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