Lien on cargo on board the vessel in Ukraine
3 Серпня, 2024
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Relations in the field of merchant shipping involve business entities representing different maritime states, including the countries of the Black Sea basin. Ukraine, as one of the largest Black Sea states, plays an important role in the development of international maritime transportation. Even today, in the times of Russia’s full-scale invasion of the territory of the sovereign state of Ukraine, the institution of maritime transportation and international trade in general continues to function. According to unique features of such legal relations, the parties often have misunderstandings caused by breaches of contractual obligations by the other parties. Therefore, creditors may resort to the use of such a mechanism of protection of rights as a lien over the cargo. So, here we would like to clarify how it works in practice.
I. The right of the Owners to exercise a lien over the cargo as per Ukrainian law.
Ukrainian legislation provides that the Creditor, who legitimately possesses the thing (res) to be handed over to the Debtor (alternatively, to a person specified by the Debtor), is entitled to withhold the res in the event of failure of the Debtor to perform the obligation to pay for such res or to reimburse the Creditor for costs and other losses related to such res. The right of possessory lien arises out of the direct guidance of the law and does not require any additional stipulation in the contract between the Creditor and the Debtor.
The execution of the right of possessory lien by the Creditor is possible when all following preconditions are met:
1. The Creditor de facto possesses the thing which belongs to the Debtor;
2. The possession of a thing by the Creditor is lawful;
3. The thing is to be handed over to the Debtor or another person designated by him;
4. There is the valid overdue obligation of the Debtor to the Creditor.
Generally, the obligation of the Debtor, which can be secured by the possessory lien, must be directly associated with the res being withheld by the Creditor. However, unless otherwise provided by contract or by law, the possessory lien may be executed also in respect of other demands of the Creditor. In other words, if the Creditor possesses the res in connection to some particular obligation of Debtor, but the Debtor fails to perform some other obligations to the same Creditor, the possessory lien may also be executed by the Creditor in connection to these other obligations. The theory of Ukrainian civil law treats the right of possessory lien as a right of any creditor in any obligation, i.e. as a common universal measure to secure any kind of obligation.
The Creditor has the right of possessory lien on res regardless the acquisition of title on such res by the third parties, where the title on res was transferred after the thing was delivered to the possession of the Creditor. However, if the res originally did not belong to the Debtor as the owner, bona fide holder etc., it cannot be withheld by the Creditor.
The Creditor, who withholds res as a result of possessory lien, does not acquire the title on res thus he has no right to make use of the thing. On the contrary, the Debtor, who retains the title on the res, keeps the right to dispose of it as well.
During reception of the cargo the consignee shall reimburse the expenses incurred by carrier at the account of cargo, shall pay a fee for a vessel’s idle stay in the port of discharging, and pay the freight and demurrage at the port of loading, if this is provided in the bill of lading or other document under which the cargo had been carried.
The carrier may not release the cargo until payment has been made or security has been provided.
After releasing the cargo to the consignee, the carrier shall lose the right to claim the shipper or charterer to pay amounts which are not paid by the consignee, unless the carrier failed to exercise the right of possessory lien for the reasons beyond his control.
To secure the demands, the carrier shall be entitled to lien on the cargo being carried.
The consignee shall, on acceptance of the cargo, pay to the carrier, if not previously done by the consignor (consignee), proper freight, pay demurrage charges, reimburse the costs incurred through the cargo as specified by the carrier and, in case of general average, make an emergency fee or provide appropriate security.
The carrier may not deliver the cargo until the amounts or security have been paid.
These number of special legal provisions testify to the existence of the right to retain the goods from the carrier only at the port of unloading, when the carriage is completed and it is a matter of acceptance of the goods by the consignee, who is obliged to pay the carrier all the payments provided for in the contract of carriage, and the costs (losses) incurred at the expense and in connection with the thing – the cargo.
II. The right of the Owners to exercise a lien over the cargo in the current situation in Ukraine (when the martial law was announced)
Generally, charter parties are governed by English law.
In case of impossibility of fulfilling the charter party due to hostilities, shelling, blockades, etc., the party may declare frustration and the opposite party has not many arguments to oppose such position.
As it was held in one of the leading cases on the issue, which concerned the prevention of a voyage by the French blockade of Hamburg, Lush, J., said: “a state of war must be presumed to be likely to continue so long, and so to disturb the commerce of merchants, as to defeat and destroy the object of a commercial adventure like this.” (Geipel v. Smith (1872) L.R. 7 Q.B. 404)
That is a general principle of English law that if a contract is frustrated it effectively comes to an end and the parties are released from their obligations.
Moreover, it must be considered that the current situation is directly related to the military situation in Ukraine, so we draw attention to the following:
1. Either party shall be entitled to repudiate the contract for carriage of cargo by sea without compensation to the other party for any related loss in such cases as may arise when the vessel departs the port:
– military or other activities that might endanger the seizure of the vessel or cargo;
– blockade of the port of departure or destination;
– detention of a vessel by order of the authorities for reasons beyond the control of the parties to the contract;
– engaging a vessel for special needs of the state;
– prohibition by the harbour master of the seaport to export the cargo intended for carriage from the port of departure or import it into the port of destination in cases provided for by law.
2. In the cases provided for in this article, the carrier shall not bear the costs of unloading.
It logically follows from what has been said that it is impossible to apply a lien in case of frustration. Thus, the lien can be applied only if the fulfillment of the contractual obligations was possible but was not performed by the debtor.
So, analysing all mentioned above, we can make key conclusions.
Firstly, the creditor has a legal right to lien the debtor’s property as security for his right of claim. To exercise the right of lien, several elements must be required, namely:
1. Existence of a legal right of claim against the debtor – the owner of the property;
2. Lawful possession of the property that is being held by the creditor.
Secondly, as for the special legislation, which regulates the relations of the parties under the contract of carriage, it is granted that the carrier has the right of lien on the cargo, but only to secure the claims against the consignee of the cargo at the port of discharge.
So, according to the mentioned above, in some cases it is really complicated to establish a legitimate link to prove that the Owners have any direct claim against the Shippers arising out of the charter party or contract of sea carriage.
Thirdly, the situation in the Black Sea is dynamic and rapidly changing, so the grounds for frustration are no longer relevant, therefore, on proper grounds, a lien may be applicable.
