In case of charterer`s insolvency, the shipowner can recover the freight and demurrage due under the charter party by exercising the lien on the cargo provided that the charter party lien clause has been properly incorporated into the Bill of Lading.
In the English case law the relevant case is Miramar Maritime Corp. v. Holborn Oil Trading (The "Miramar")1.
In that case the vessel "Miramar" was voyage chartered by S.E.A. Petrochem Pte. Ltd. for the carriage of a cargo of high speed diesel oil from Singapore to one safe berth, in Haldia or Calcutta. Subsequently the charterparty was amended so as to give the charterers the option of discharging at one safe port in Sri Lanka.
The vessel arrived at Trincomalee, in Sri Lanka but was kept waiting for a time and was then diverted to Madras in consideration of additional freight. Upon arrival at Madras, the vessel was kept waiting again, and was then sent back to Trincomalee. On the second occasion the vessel entered Trincomalee and began to discharge. By that time a substantial sum was due to shipowner for demurrage incurred at the port of discharge, so that after the commencement of discharging operations the shipowner made repeated demands to the voyage charterer and consignee for the payment of demurrage due. The voyage charterer became insolvent and the consignee denied the liability for demurrage. Then the shipowner withheld the delivery to shore tanks and exercised a lien on the cargo remaining on board. The parties eventually agreed that lien be lifted and the discharge of cargo be completed. The dispute went initially to English High Court (Queen`s Bench Division).
The Tanker Bill of Lading had a clause incorporating the charter party terms by general words as follows:

"This shipment is carried under and pursuant to the terms of the charter dated 19 May 1980, between Miramar Maritime Corporation, Monrovia and S.E.A. Petrochem Ltd., Singapore, charterer and all the terms whatsoever of the said charter except the rate and payment of freight specified therein apply to and govern the rights of the parties concerned in this shipment."


The tanker voyage charter party was made on Exxonvoy 1969 form, the name under which Asbatankvoy tanker voyage charter party form was published and used before 1977 when it was taken over by the American Association of Ship Brokers and Agents and re-published under the name of Asbatankvoy. The Lien Clause of Exxonvoy 1969 charter party form had the following wording:

"21. LIEN.
The Owner shall have an absolute lien on the cargo for all freight, deadfreight, demurrage and costs, including attorney fees, of recovering the same, which lien shall continue after delivery of the cargo into the possession of the Charterer, or of the holders of any Bills of Lading covering the same or of any storageman."


The English High Court (Queen`s Bench Division) held that the charter party lien clause was incorporated into the Tanker Bill of Lading and was binding on the third party holder of Tanker Bill of Lading. The relevant passage of the judgment is quoted below:

"[C]lause 21 (lien clause) can be incorporated into the bill of lading contract without any strain ...
For practical purposes, what he [shipowner] needs is the capacity to enforce his claim on the spot, and for this purpose the lien is what matters. If the incorporating words of the bill of lading ensure that the shipowner`s lien is good against the bill of lading holder2, this is sufficient to meet the shipowner`s requirements ...
The [lien clause] must be understood as creating rights against third parties. A clause in the charter cannot do this directly, and it must therefore have been intended that the clause would operate by way of incorporation into the bills of lading. Since the clause is of a type which most intimately concerns the interests of the consignee in the carriage and delivery of the cargo, even the most general form of incorporating words would, in principle, be sufficient to produce this result. ...
It has been a feature of shipping practice for many years that the shipowner looks primarily to his lien in case of dispute, and no doubt has ever been raised about the acceptability of a situation where the lien is more extensive as against consignees than their own direct personal liability."


The comments of English High Court (Queen`s Bench Division) in The "Miramar" case as to the effect of incorporation into the Bill of Lading of Exxonvoy 1969 charter party lien clause had been considered by the Singapore High Court in The "Trade Resolve"3 in a case involving the effect of incorporation into the Bill of Lading of Asbatankvoy charter party lien clause.
In that case, the dispute was caused by the refusal of the Bill of Lading holder to pay demurrage incurred at the port of discharge during the blending of a small quantity of emulsified oil with the cargo of fuel oil on board the vessel. The cargo of fuel oil was sold by the supplier to middleman who on its turn sold it to the ultimate buyer. The ultimate buyer arranged with its bank to issue a letter of credit for the payment of cargo.
The shipowner agreed to discharge the cargo against the middleman`s promise that the incoming letter of credit was to include the amount due for demurrage. The letter of credit was said to be transferable to allow the middleman to pay the supplier and the amount due to shipowner for demurrage. The middleman eventually sent a bank remittance advice to shipowner which showed that a remittance of USD 100,000 had been made from the middleman`s bank in favour of the shipowner. However, this proved to be false and the shipowner ordered the Master to stop the discharge and exercised a lien on the cargo remaining on board of approximately 13,500 metric tonnes as security for the payment of demurrage.
Following the payment under letter of credit, the ultimate buyer became the holder of Charter Party Bill of Lading and commenced a legal action in Singapore against the shipowner for the wrongful detention and conversion of the cargo remaining on board and obtained a warrant of arrest of the vessel, which was anchored off the port limits of Singapore. The Bill of Lading holder said that the lien exercised by the shipowner did not bind him and refused to pay any of the demurrage and detention charges incurred.
The shipowner relied on the opinions expressed by the English High Court in The "Miramar"4 on the question whether an identical lien clause was incorporated into the Charter Party Bill of Lading so as to be binding on the holder of Charter Party Bill of Lading and asked the Singapore High Court to determine two issues:
(a) whether the lien clause (Clause 21) of Asbatankvoy tanker voyage charter party form dated 3 September 1998 between the charterer and the shipowner had been incorporated into the Bill of Lading signed by the Master of the vessel;
and
(b) whether it entitled the shipowner to exercise a lien on the cargo for all demurrage due and payable under the voyage charter party, which lien was valid, binding and effective as against the holder of Charter Party Bill of Lading.
Unlike in The "Miramar" case, in The "Trade Resolve" case the shipowner has not claimed any other rights than the right to lien over the blended oil cargo retained on board for demurrage pursuant to the lien clause of charter party. The shipowner did not claim that the holder of Charter Party Bill of Lading was personally liable to pay the demurrage incurred during the blending operations. The shipowner could have commenced a separate legal action against the holder of Charter Party Bill of Lading in case the proceeds of sale of the oil cargo retained on board were insufficient to satisfy their unpaid demurrage.
The Bill of Lading clause incorporating the charter party terms had the following wording:

"This shipment is carried under and pursuant to the terms of the charter dated 3 September 1998 at Piraeus between Transport Hellenic Inc., Panama and Aris Shipping Ltd., Abu Dhabi as charterer, and all the terms whatsoever of the said charter except the rate and payment of freight specified therein apply to and govern the rights of the parties concerned in this shipment."

Given that the Lien Clause of Asbatankvoy tanker voyage charter party form has the same wording as the Lien Clause of Exxonvoy 1969 charter party form considered in The "Miramar", the Singapore High Court said that the comments of English High Court in The "Miramar" concerning the effect of incorporation of charter party lien clause into the Bill of Lading contract of carriage were equally applicable to the case analysed in The "Trade Resolve". Since Asbatankvoy tanker voyage charter party form is widely used in oil trade, the Singapore High Court said that the holder of Charter Party Bill of Lading should have fully understood the implications of the provisions of Clause 21 regarding the shipowner`s right to lien on the cargo whereby the shipowner would have an absolute lien on the cargo for all demurrage unpaid including the legal costs for recovery. 
The general words of incorporation used in the Bill of Lading were sufficient to incorporate the charter party lien clause into the Bill of Lading contract of carriage because the lien clause is a clause related to the carriage and delivery of the cargo. Accordingly, the Singapore High Court ordered the sale of oil cargo retained on board and the proceeds of sale to be paid into Court. However, the shipowner was  entitled only to the sale proceeds for the unpaid demurrage and the costs for recovery. It was not entitled to the sale proceeds covering the detention charges, because there was no reference to detention charges in the lien clause. To avoid such situation, the shipowners chartering their vessels on Asbatankvoy terms should amend the Clause 21 to include a specific reference to detention5.
The Singapore High Court held that any unpaid demurrage and legal costs for recovery not satisfied by the proceeds of sale of the oil cargo retained on board the vessel would not be claimable against the holder of Charter Party Bill of Lading. Any balance of the sale proceeds remaining after satisfaction of the demurrage and recovery costs would have to be paid to the holder of Charter Party Bill of Lading.
The decisions in The "Miramar" and The "Trade Resolve" show that in case of tanker voyage charter party forms which place the responsibility for the payment of demurrage upon the charterer, the English and Singapore Courts would allow the shipowner to exercise a lien on the cargo for the unpaid demurrage and receive the proceeds resulting from the sale of the cargo retained on board. However, the shipowner would not be allowed to claim against the Bill of Lading holder for the payment of demurrage, not even when the proceeds of sale of the cargo under the lien are insufficient to cover the amount due. It is perhaps for this reason that the clause of INTANKBILL 78 imposing the liability for unpaid freight, deadfreight and demurrage upon the consignee6 has been replaced in the INTANKBILL form adopted by INTERTANKO in 2003 with a clause which incorporates expressly the provisions of charter party lien clause.
In case of Asbatankvoy lien clause the practical difficulty of exercising the lien on cargo for demurrage is that the calculation of demurrage is not made separately for loading port and discharge port, but similarly to SHELLVOY 6 and BPVOY4 the demurrage is calculated after delivery so that unless the shipowner is able to assert its lien over the cargo while is in the shore tanks, the incorporation of lien provisions into the Bill of Lading is useless. In The "Miramar" and The "Trade Resolve" the shipowners decided to exercise the lien on the cargo on board the vessel because of the large sums due for demurrage incurred before the commencement of discharge.
The intended effect of Asbatankvoy lien clause is to make the lien enforceable even after the delivery of the cargo providing that the "lien shall continue after delivery of the cargo into the possession of the Charterer, or of the holders of any Bills of Lading covering the same or of any storageman".
Examples of cases involving the enforcement of Asbatankvoy lien clause upon the delivery of the cargo are the English law case Siboti K/S v. BP France S.A.7, where the shipowner asserted a lien over the oil cargo in the shore tanks of discharge port and the US law case Arochem Corp. v. Wilomi, Inc.8, where the shipowner asserted a lien on the oil cargo upon the delivery on board another vessel. In the latter case the US Court of Appeals for the Fifth Circuit held that:

"No rational person would establish a lien on cargo for certain costs that are due after delivery of the cargo but have delivery of the cargo extinguish the lien. If that were the case, the lien would be a futile mechanism for protection. Consequently, the parties must have intended the lien to survive delivery of the cargo."


In Atlantic Richfield Co. v. Good Hope Refineries9, the US Court of Appeals for the Fifth Circuit agreed that "[t]he existence of problem is real" but said that if the lien clause does not preserve the lien upon delivery in the shore tanks, the available remedy is the conditional delivery, i.e. delivery against a bank guarantee. Sub-clause 27 (b) of POLCOALVOY Charter Party form has the following provisions on this matter:

"Security. In case of disputes over items payable by the Charterers/Shippers/Consignees, the interested party shall have an option of providing the Owners with an acceptable letter of guarantee in which event the Owners not to exercise the lien on the cargo for such items."

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Oil Trade Review Edition No. 3.

Endnotes:

1. [1984] A.C. 676; [1984] 2 Lloyd`s Rep. 129.
2. Clause (1) of the Conditions of Carriage of "Intankbill 2003" form of Charter Party Bill of Lading do this by expressly incorporating the provisions of lien clause of charter party.
3. [1999] SGHC 109.
4. [1983] 2 Lloyd`s Rep. 319.
5. For an example of lien clause including a specific reference to detention, see the Clause 27 of Australian Wheat Charter 1990, "AUSTWHEAT 1990" form.
6. The clause had the following wording: "By taking delivery of the cargo the Consignee shall make himself liable for unpaid freight, deadfreight, demurrage and other charges."
7. [2003] 2 Lloyd`s Rep. 364
8. 962 F. 2d 496 (5th Cir. 1992).
9. 604 F. 2d 865 (5th Cir. 1979).