Enforcement of a lien over cargo – the decision in “MOSCOW STARS”
by William Stansfield
The Commercial Court recently ordered that a cargo of about 50,000 mt of crude oil on board m/t “MOSCOW STARS” be sold and the proceeds of sale be paid into court as security for a claim being advanced in London arbitration.
The English courts have made such orders before, but there are very few reported judgments which explain the reasons behind making such an order. The publication of a fully reasoned judgment from Mr Justice Males in this case is therefore a welcome and useful development in English maritime law.
The claimant is the owner of the vessel. The defendant and time charterer of the vessel is PDVSA Petroleo S.A. As is usual in a time charterparty, the owner had a contractual lien over the cargo for all sums due under the charter.
According to the judgment, the charterers got into substantial arrears on charter hire. In consequence, the owners served a notice of exercise of lien over the cargo. This happened on 18 October 2016. A second notice of lien was served on 26 November 2016. At the date of the second notice of lien, the ship was drifting off Bullen Bay, Curacao.
It appears that the ship has drifted off Curacao ever since. In the meantime, the owners have been incurring the usual costs of running the ship (crewing, insurance, etc), but have also incurred the cost of supplying bunkers to the ship. The defendant time charterers apparently still remain substantially in arrears on the payment of hire.
The owners commenced arbitration in London under the terms of the relevant charterparty to recover the outstanding hire and other expenses.
On 5 May 2017, the owners applied to court for an order that the cargo on board the ship be sold pursuant to section 44 Arbitration Act 1996.
Under section 44 of the Arbitration Act 1996, as read with Part 25 of the English Civil Procedure Rules, the English court has the power to make an order for the sale of cargo on board a vessel when:
1) the cargo is the “subject of the proceedings”; and
2) the cargo is of a perishable nature or there is some other good reason which makes it desirable to sell it quickly.
Thus, the court had to consider whether the crude oil was the subject of the arbitration proceedings and, if so, whether in this case there was a good reason to sell it quickly.
As for the first question, the court said where a contractual lien is being exercised over a defendant’s goods as security for a claim which is being advanced in arbitration, there is a sufficient nexus between the cargo and the arbitral proceedings. Accordingly, the court said that the court had the power to order a sale pursuant to section 44 of the Arbitration Act 1996.
The court then considered the second question, which is whether the court should exercise its discretion to make the order. In this regard, the court was mildly critical of the delay in pursuing the application. Nonetheless, the court said that there was a good reason why the court should exercise its discretion to order the sale of the cargo because:
1) the cargo had been on board for over nine months, and without an order for sale, would remain there for many months more;
2) the owners are not receiving hire, but are having to pay the daily operating costs;
3) the ship needed to be cargo free so that she could go to her scheduled dry dock;
4) there would be little or no prejudice to the defendant in selling the cargo. The cargo would be converted into money for the benefit of all parties; and
5) there was no viable alternative, such as discharge into storage.
Given the circumstances, the court had little hesitation in ordering that the cargo be sold. The court also directed that the defendant time charterers should sign any sale contract as seller.
It may seem odd that the English court made this order when the ship and cargo were located outside English territorial waters. However, an important fact in this case is that the cargo was owned by the defendant time charterers. The charterers had agreed to refer disputes to arbitration in London, and so by extension, the charterers had also agreed to accept the English court’s overriding supervisory role in London arbitration, including the power to grant interim remedies in support of an arbitration under s.44 Arbitration Act 1996.
The court expressly declined to state what the position would be if the cargo was owned by a third party not a party to the underlying charterparty arbitration. We expect that it would be much harder to persuade the court to make an order for sale when the owner of the cargo is a third party because of the draconian effect that such an order would have on the property rights of that third party.
A copy of the judgment can be found here: (http://www.bailii.org/ew/cases/EWHC/Comm/2017/2150.html)
If you require advice in relation to the contents of this article or to discuss it further, please contact William Stansfield, whose details appear below.