Western Bulk Shipowning III A/S v. Carbofer Maritime Trading
ApS & others (The Western Moscow)
 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 /
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  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"
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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