UK: Commercial Court Clarifies The Nature Of Charterparty Liens

Last Updated: 20 June 2012
Article by John Simpson and David Richards
Western Bulk Shipowning III A/S v. Carbofer Maritime Trading ApS & others (The Western Moscow)

[2012] EWHC 1224

In the May 2009 edition of our Shipping E-Brief, we wrote about the issue of charterparty liens and arbitrations (see In that article, we discussed the different approaches taken in previous cases when analysing the legal basis of a lien on sub-freight and/or sub-hire. In The Western Moscow, Mr Justice Clarke has looked in detail at the issue and has given a clear view on the nature of such liens.

The background facts

The Western Moscowwas the subject of a long charterparty chain which included the claimant as owner and the three defendants, CMT, OceanTask and SeaTask, as charterer, sub-charterer and sub-sub-charterer respectively. The owner terminated its charterparty with CMT due to the non-payment of hire and exercised a lien on sub-hire. CMT gave notice that it was exercising its lien to OceanTask and SeaTask. 

The owner asserted that it was entitled to be paid all the hire due under the CMT/ OceanTask charterparty and under the OceanTask /  SeaTask charterparty. 

The Commercial Court decision

Nature of lien

Having considered all the previous authorities, Mr Justice Clarke decided that a lien on sub-freight/ sub-hire creates an assignment by way of a charge. The same conclusion had been reached by the  court in The Ugland Trailer [1985] 2 Lloyd's Rep 372. That decision has come under attack in a number of subsequent cases, which put forward an alternative interpretation that the right is a personal contractual right of interception. Nonetheless, Mr Justice Clarke upheld the "assignment by way of charge" analysis. 

The most important consequence of this analysis is that, as a security interest, an equitable charge may require registration in certain jurisdictions. For example, security interests must be registered against UK companies within 21 days of their creation to be binding in the event of an insolvency. For a UK company, therefore, a lien on sub-freight will be void against a liquidator or creditor if not registered within 21 days of the charterparty being entered into. Similar rules may exist for companies incorporated in other jurisdictions.


SeaTask was able to argue that, as an assignment is taken "subject to equities", the amount payable to the owner by virtue of the lien could be reduced by sums which OceanTask/ SeaTask could legitimately set off from charter hire. The right of set-off, however, in the OceanTask / SeaTask charterparty had to be exercised before such a right arose. Since that right of set-off was not exercised before the owner gave notice of the lien, set-off did not apply in this case.

"No lien" clause

The effect of the lien clause was that CMT had assigned to the owner not only hire due to it from OceanTask but also any sub-hire due under any sub-charterparties. The OceanTask/ SeaTask charter, however, had deleted the standard clause permitting a lien on sub-freight. In its place, the charterparty provided "no lien". The judge held that the effect of this clause was to preclude the owner from asserting its lien against those below SeaTask in the charter chain. However, it did not affect the owner's rights against SeaTask. 


This case represents the most comprehensive recent review of the legal nature of a lien on sub-freights/hires and firmly follows the view that such a lien constitutes an equitable charge. Whilst the position will not be certain until the Court of Appeal rules on the issue, it is now prudent to assume that the English courts will follow Mr Justice Clarke's judgment.  It follows that, where a charterer is based in a jurisdiction where floating charges are registrable within a limited period of creation of the charge, vessel owners should be aware that the lien on sub-freights/hires may not be effective unless the charge is registered against the charterer on or shortly after conclusion of the charterparty.  In most cases, this is impractical and can result in the ship-owner losing one of its potential avenues to obtain payment of hire due. Ship-owners are therefore well advised to carry out due diligence on the solvency of their charterers and to obtain properly worded (and, where necessary, registered) parent company guarantees from more solvent companies where appropriate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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