TT Talk - Liens in English law following the La Senza case (March 2012)
The La Senza case highlights the rights of a freight forwarder (trading under BIFA standard conditions) to exercise a general lien over branded goods where a customer has become insolvent. This case was successfully defended for the freight forwarders/carriers by law firm Holman Fenwick & Willan, who have published a detailed article, available at www.hfw.com/publications/client-briefings/insolvency-and-general-liens
In this case, the freight forwarders, Uniserve, were owed unpaid freight and storage costs by La Senza amounting to GBP0.9 million, and so they exercised a lien over La Senza's cargo in their possession. Shortly afterwards, La Senza entered into administration and the administrators applied to the court for an order to deliver up the goods, as per the court's discretionary powers in accordance with section 234 of the Insolvency Act 1986, and for the proceeds of any sale they made to be placed into an escrow account. There was no offer to pay Uniserve’s charges nor to provide an indemnity in relation to any costs or claims arising from complying with the order to deliver up the goods. The administrators argued that they had the best prospect of achieving substantial value for goods because they could sell them as branded goods, whereas, if they were sold by Uniserve, the goods would have to be 'de-branded' and sold for less. Uniserve opposed the administrators' application, seeking the court's permission to rely on the lien (they would later have to request permission to sell the goods).
The court ruled in favour of the freight forwarder, recognising that, if they granted the administrators' request, it would be inadequate to protect the freight forwarder's rights and would destroy the freight forwarder's security. Furthermore, the court would not order that any goods sold by the freight forwarder in exercise of the lien should be stripped of their branding, because to do so would be to fetter the terms of the lien. The administrators were ordered to pay the freight forwarder's costs. Overall, a very good result for this British freight forwarder.
Clearly, freight forwarders have to maintain awareness of their customers' financial position, as they are usually paid in arrears. Once a customer enters into administration or liquidation, a forwarder will have to apply to the court to exercise any lien. However, the benefit of a valid exercise of lien is that the supplier becomes a secured creditor. The validity of a general lien (as opposed to a particular lien) and the right to sell the cargo are therefore very important in securing payment for services.
Despite this success and the comfort it provides that contracting on suitable terms results in recognition as secured creditors, resorting to litigation is a position of last resort. Every case will present facts that are unique to the specific circumstances and, whilst this ruling is a welcome and positive development, operators should still seek clear legal advice should they find themselves concerned over the liquidity of a customer. Beyond robust credit control procedures, it is also vital that the contractual conditions contain an effective general lien provision and critically have been incorporated into dealings with the customer. It is in any event recommended that contracts are routinely reviewed and specifically incorporated, providing maximum protection to operators for these and general purposes.