Metall Market OOO v Vitorio Shipping Company Ltd

This is an appeal from an arbitration Award in declaratory form dated 22 July 2011. It is brought with permission under section 69 of the Arbitration Act 1996. The arbitration arose out of the capture of the vessel “Lehmann Timber” (the “Vessel”) by Somali pirates on or about 28 May 2008 during her maiden voyage. At the time she was carrying a cargo of steel coils, loaded in China for discharge at St Petersburg, and a deck cargo of hatch covers for discharge in Germany. The Claimant (“MMO”), a Russian company, was the receiver of the steel coils cargo. The Defendant was the demise chartered owner of the Vessel (“Owners”).

The steel coils cargo was carried under four bills of lading on the Congenbill 1994 form. Bills of lading numbered 1 (for 215 steel coils) and 3 (for 411 steel coils) were consigned to order, and MMO were the endorsees. Bills of lading numbered 2 (for 365 steel coils) and 4 (for 98 steel coils) were straight bills naming MMO as the consignees. The bills provided for adjustment of General Average in accordance with the York Antwerp Rules in London and incorporated the terms of a voyage charterparty dated 2 April 2008, including its English law and London arbitration provisions.

After 42 days in the hands of the pirates and protracted negotiations, Owners paid a ransom to secure the release of the Vessel and she sailed for Salalah in Oman as a port of refuge on 8 July 2008. Whilst en route the Vessel suffered a main engine breakdown on or about 12 July 2008, and had to be towed into port, where she arrived on 21 July 2008. Owners declared general average. The arbitrators subsequently held that both the payment of the ransom and the cost of the tow to Salalah were allowable general average disbursements; that the total GA disbursements were a little over $3.5 million plus interest, commission and adjusters’ fees (reducing it from an equivalent figure of a little over $4 million in the original adjustment); that the value of the cargo for the purposes of the general average adjustment was a little over $6.5m; and that MMO is liable for 28.82931% of the GA disbursements.

Having declared general average, Owners appointed average adjusters, who attempted to collect general average security from cargo interests. Security was sought in the form of a general average bond backed by an insurers’ guarantee, or alternatively a cash deposit.

After repairs and a crew change at Salalah, the Vessel made for the discharge ports. The receivers of the hatch covers provided security for general average by the provision of a bond and insurers’ guarantee and the hatch covers were delivered to them at the first discharge port in Germany on 9 September 2008. The Vessel then made for St Petersburg where she arrived on 20 September 2008. MMO refused to provide a bond or a cash deposit in respect of any part of the cargo. Only the cargo carried under bill of lading no. 4 (98 coils, about 9% of the cargo) was insured and an insurers’ guarantee was provided for that portion of the cargo (“the GA Guarantee”). The Owners continued to demand a GA bond from MMO in respect of that parcel and the other three parcels, and a cash deposit of $920,000 for the lion’s share of the cargo not covered by the GA Guarantee. The arbitrators found that the amount and form of the security sought was reasonable. MMO refused to provide any security for any of the four parcels in the form of a GA bond or cash deposit.

Owners exercised their lien. After waiting off St Petersburg until 25 September 2008, Owners took the cargo to a nearby port, Hamina in Finland. After waiting off Hamina for several days, Owners there discharged the cargo into a warehouse, where it remains to this day. Throughout that time Owners have been incurring insurance and storage charges for the cargo of some $20,000 per month and continue to do so.

In the arbitration Owners sought to recover MMO’s contribution to general average and the costs of preservation and protection of the cargo, including insurance and storage costs at Hamina, berthing costs, handling charges and legal costs. These were referred to for convenience, but not wholly accurately, as “the storage costs”, and I shall refer to them as such in this judgment. MMO denied being under any liability to contribute in general average, and counterclaimed for the alleged conversion of the cargo. The Tribunal found MMO liable for both general average and the storage costs. MMO’s counterclaims were all dismissed.

The Award decided a large number of disputes between the parties. MMO now appeals two aspects of that decision. First, MMO says that Owners were obliged to deliver the cargo in respect of which the GA Guarantee was provided (98 coils covered by Bill of Lading no. 4), and are liable in damages for failure to do so. Secondly, MMO says that it is not liable for the storage costs which Owners have incurred in respect of all the steel coils.

The questions of law were framed in these terms.

On the first question, the Tribunal held that Owners were entitled to refuse delivery of the 98 coils because they had, and retained, a possessory lien for general average. The Tribunal further held that even if they no longer had such a lien in respect of the 98 coils, they were entitled to decline delivery because the practicalities were such that they could not reasonably have delivered that parcel without risking damage to the other parcels and/or loss of their lien on the other parcels, which made up over 90% of the cargo.

MMO argues that:

Owners argue that the decision of the Tribunal was right on both of the two alternative grounds. In particular:

Owners further argue that if they are wrong on both grounds, nevertheless on the Tribunal’s findings MMO failed to mitigate its loss by failing to provide a GA Bond for the four parcels and a cash deposit for the three not covered by the GA Guarantee; and that had it done so, the cargo would have been delivered and it would have suffered no loss.

At common law, the obligation to pay general average arises at the time of the sacrifice or expense and rests on the owner of the cargo at that time. That common law position can be, and usually is, modified by contract, by a term in the charterparty or bills of lading (or both). The shipowner has a possessory lien over the cargo, which right accrues at the time of the sacrifice or expense, which is exercisable as against the person entitled to demand delivery of the cargo. That lien can be exercised whether or not the consignee is also the person liable to contribute to general average (whether at common law or in contract).

The shipowner has both the right and the obligation to exercise the lien for his own benefit and for the benefit of all other parties interested in the venture who might be entitled to receive a payment in general average. That is because, until the general average is adjusted, it will often not be known which of the interested parties is entitled to a contribution and in what amount. Where cargo has been sacrificed, for example, the cargo owner may be entitled to a general average contribution in respect of the loss of his cargo. In such circumstances, failure by the shipowner to exercise the lien exposes the shipowner to liability and damages at the suit of the cargo owner: Crooks v Allen (1879) 5 QBD 38.

Prima facie, the shipowner is entitled to exercise his lien until the cargo owner’s contribution to general average is paid. In Tate & Lyle v Hain (1934) 49 Ll L Rep 123 Greer LJ, in a dissenting judgment which was expressly approved by Lord Atkinson in the House of Lords when allowing the appeal from the majority decision of the Court of Appeal, summarised the position in this way:

“With regard to the question of lien, the law is stated in Carver on Carriage by Sea, 7th Ed., p. 605, Sect. 442:-

“The shipowner has a lien upon the goods for general average contributions due in respect of them, whether the claim be on his own behalf or on behalf of other cargo-owners.

The matter is dealt with in Art. 117 of Scrutton on Charterparties and Bills of Lading, in these terms:-

“Where a general average loss has occurred on a voyage, the shipowner or master has the right to retain the cargo until he is paid or tendered the amount due on it for general average: he is under a duty to persons entitled to a general average contribution from the cargo so to do, and is liable to an action if he omits to do so.”

Lord Esher in Huth & Company v. Lamport, 16 Q.B.D. 735, at p. 736, says :-

“The defendants as shipowners had a lien on all the goods on board to secure payment by each owner of his proportion of this general average, and were entitled to refuse to deliver goods to any consignee of the cargo until they were paid the amount of the general average to which he was liable.”

Having regard to the earlier part of the passage, I understand the words "to which he was liable" to mean to which the owner was liable.

In Scaife v. Tobin, 3 B. & Ad. 523, it was held that a consignee who was not the owner of the goods when he received them in pursuance of a bill of lading, and not the owner of the goods when a general average sacrifice was made, was not liable to contribute; but in the course of the argument it was pointed out by Lord Wensleydale, then Mr. Justice Parke, that the liability was the liability of the owner at the time the general average accrued: see p. 527. It seems to me a reasonable inference from the origin of the rules of law relating to general average that the owner of any cargo who has benefited by the general average sacrifices and expenses must be the person on whom the liability falls, and that if a liability to contribute does fall on such owner, the ship is given a lien which entitles the ship to refuse delivery until payment is made.”

If a shipowner agrees to give up his lien in return for security, he is entitled to ask for reasonable security in return, without regard to the question whether the consignee is under any personal liability to contribute. Because the lien is a right which attaches to the property, it is immaterial whether the consignee was the owner of the cargo at the time of the general average sacrifice or expenditure so as to be the cargo interest liable to contribute in general average. (Huth v Lamport (1885-1886) LR 16 QBD 735 per Lord Esher MR at p737; per Lindley LJ & Lopes LJ at p738; Castle Ins Co v Hong Kong Islands Shipping Co [1984] AC 226, 236; Lowndes & Rudolph The Law of General Average 13^th Edn paragraph 30.41).

As to the form of what amounts to reasonable security, the practice is that the shipowner gives up his lien in return for (i) a general average bond, being a promise by the person taking delivery to pay any general average which is properly due and (ii) security for that obligation, in the form of a cash deposit or a general average guarantee. The practice of seeking security for general average contributions by way of a bond from the consignee seeking delivery, fortified by a guarantee from insurers or a cash deposit, is long established and referred to in many authorities.

In Castle Ins Co v Hong Kong Islands Shipping Co [1984] AC 226 in the Privy Council, Lord Diplock said at p. 234:

“The lien attaches to the preserved cargo at the time when the sacrifice is made or the liability to the expenditure incurred. The lien is a possessory lien and it is the duty of the master of the vessel to exercise the lien at the time of discharge of the preserved cargo in such a way as will provide equivalent security for contributions towards general average sacrifices made or expenditure incurred not only by those concerned in the ship but also by those concerned in cargo in respect of which a net general average loss has been sustained. The lien, being a possessory one and not a maritime lien, is exercisable only against the consignee, but it is exercisable whether or not the consignee was owner of the consignment at the time of the general average sacrifice or expenditure that gave rise to the lien: a fact of which the shipowner may well be unaware. At the time of discharge the sum for which the lien is security (save in the simplest cases, which do not include that of a general ship) is unquantifiable until after there has been an average adjustment. Indeed in the case of some consignees of cargo that has been preserved in part only or damaged in consequence of a general average loss, so far from being liable to a net general average contribution they may eventually turn out to be entitled to a net payment in general average. … In practice what happens is what happened in the instant case; the master, acting on behalf of the shipowner and of any persons interested in cargo who will be found on the adjustment to be entitled to a net general average payment, releases the preserved cargo to the consignees upon the execution by each consignee of an average bond in one or other of Lloyd's standard forms accompanied, in the comparatively rare cases of cargo that is uninsured or underinsured, by a deposit in a bank in joint names of money as security or, more usually, by a letter of guarantee from the insurer of the cargo.”

It appears from the speech of Lord Blackburn in Svendsen v Wallace Bros. (1885) 10 App.Cas. 404 that the general practice of providing a bond and a guarantee has existed for over two hundred years. It was described in the Award in this case as an “almost invariable practice”.

I was referred to a number of cases which were concerned with the question of when a lienee lost the benefit of a lien by doing something inconsistent with its continued existence. They included Cowell v Simpson (1809) Ves Jr 275, 33 ER 989; Hewison v Guthrie (1836) 2 Ming NC 755, 132 ER 290; Angus v McLachlan (1883) LR 23 Ch D 330; In re Taylor, Stileman & Underwood [1891] 1 Ch 590; Bank of Africa Ltd v Salisbury Gold Mining Co Ltd [1892] AC 281; In re Morris [1908] 1 KB 473; and Clifford Harris & Co v Solland International Ltd [2005] 2 All ER 334.

I derive the following principles from those cases.

Where, as in the current case, the inconsistency is said to come from a transaction between the lienee and a third party, the juridical basis for the destruction of the lien must lie, in my judgment, in the doctrine of waiver; no question can arise of assessing the intention, objectively, of the lienor. Waiver in this context, whether it be treated as waiver by estoppel or waiver by election, requires an unequivocal act of the lienee; anything less could not amount to a waiver. In some cases the inconsistency may be a matter of doubt depending on the construction of documents against the background of complex or disputed facts. In such circumstances the no man’s land of doubt belongs to the lienee. He is not to be taken to have waived his lien unless what he has done is unequivocally inconsistent with its continued existence.

This accords with the commercial imperatives which face an owner with a general average lien seeking security from a consignee. If he is to be held to have lost the lien, which he is obliged to exercise on behalf of others as well as entitled to exercise on his own behalf, he should be entitled to insist on security in an amount and form which he can be confident will respond as a sufficient replacement for the security of the lien. He should not be held to have lost the lien if he takes a further security which is of potential but doubtful sufficiency, the efficacy of which will only be established by subsequent enquiry or determination.

The Tribunal found as a fact that Owners were acting reasonably in seeking security in the form of a bond from MMO in relation to the 98 coils as well as the remainder of the cargo. Its conclusions were summarised in paragraph 1.15 of the Award in the following terms:

“6 – Although Owners have no power to compel MMO to provide GA security, their requests for GA security from MMO in the form of a bond supported by an insurer’s guarantee or cash deposit were reasonable in principle, form, amount and circumstance. ”

“7 – MMO’s failure to discharge the lien by way of GA security or otherwise in respect of the entire cargo was a breach of its obligation to take delivery pursuant to the contracts of carriage. MMO’s refusal to provide GA security other than a guarantee for 9% of the cargo was unreasonable, incomprehensible and irrational. ”

“8 - The actions taken by Owners to preserve their lien were reasonable, including taking the cargo to Hamina and placing it in secure storage and not releasing the 98 coils covered by an insurer’s GA guarantee and not releasing a value related proportion of the balance of the Cargo. ”

“9 - MMO’s conduct subsequent to the placing of the Cargo in store in Hamina has manifested not merely an abject failure to mitigate any losses they might be suffering as a consequence of being kept from the Cargo but also, inexplicably, an apparent intention to do all that was possible to avoid any form of negotiated outcome and to delay ultimate resolution.”

The Tribunal found that Owners acted “in accordance with long established practice” whereas MMO had acted “contrary to what is generally recognised as the almost invariable practice” in failing to provide the security requested [Reasons para 14.4]. It concluded that:

It is submitted on behalf of Owners that the Tribunal’s findings of fact are dispositive of the First Question in their favour. It is argued that the only relevant question is whether Owners acted reasonably in seeking a general average bond in addition to the GA Guarantee in return for releasing their lien; and that, the Tribunal having found that they were so acting, no question of losing the lien can have arisen.

On behalf of MMO it is argued that the terms of the GA Guarantee here are incompatible with the continued existence of Owners’ lien because the GA Guarantee was tendered and accepted by Owners expressly:

“In consideration of the delivery in due course of the goods specified to the Consignees thereof without collection of a deposit. . . .”

It is said that the acceptance of security requiring the delivery of the cargo to MMO is self-evidently inconsistent with Owners continuing to be entitled not to deliver to MMO in the exercise of a lien. Owners decided to take the GA Guarantee without a general average bond, notwithstanding that they continued to press for the latter, and they retain the GA Guarantee to this day with the intention of relying on it. In doing so, MMO argue, Owners contractually bound themselves to the insurers to deliver up the 98 coils to MMO without exercising the lien. That was a binding contractual undertaking which was the consideration given to the insurers for the latter assuming their obligation to pay under the guarantee, which was on their part a new and binding undertaking by insurers of which Owners received and retain the benefit.

In my judgment this argument is unsound. The GA Guarantee was intended to operate in conjunction with a general average bond. The wording of the guarantee is expressed to be in consideration of delivery “without collection of a deposit” but it says nothing of delivery without a bond being in place from consignees. The factual matrix against which the GA Guarantee falls to be construed is that it was sought in conjunction with a bond in accordance with the almost invariable practice of the last 200 years or more. In those circumstances it is at the very lowest arguable that the Insurers could successfully contend that the GA Guarantee was not intended to respond in the absence of a bond with which it was expected to go hand in hand. The legal analysis might be that the guarantee is to be construed as a secondary liability guaranteeing only such liability as was undertaken under a GA bond by the consignees; or it might be that the circumstances indicated that the provision of a GA bond was a condition precedent to liability under the GA Guarantee. In either event the GA Guarantee would provide no sufficient security without a GA bond, which was never provided by MMO. In those circumstances the retention of the GA Guarantee could not be said to be inconsistent with the continued existence of the lien.

I have said that this is at the very lowest arguable because that is sufficient to defeat MMO’s argument. If there is uncertainty, there has been no taking of security which is unequivocally inconsistent with the continued existence of the lien. Moreover there could be no basis for challenging the factual findings of the Tribunal that it was reasonable for the Owners to require a general average bond before releasing the 98 coils even assuming that the construction of the GA Guarantee is a matter of law, rather than, as I consider, a mixed question of fact and law.

Mr Karia QC argued that the waiver was a waiver by election. He was, however, in some difficulty in identifying the moment and manner in which this election had taken place. It was argued on behalf of Owners that if MMO were right, Owners would be at risk if they received a general average guarantee in advance of receiving a bond, and that they would always have to ensure that the bond were received first. Mr. Karia QC sought to meet this argument by suggesting that it did not matter in what order the documents were produced because the GA Guarantee when initially supplied was only a conditional undertaking on behalf of insurers, conditional for a period of “hiatus” upon a bond being issued; but it was said that the waiver took effect once the Owners knew that a bond would not be provided but nevertheless decided to keep the GA Guarantee (without communicating that fact to the insurers). Upon probing it became apparent that this analysis was untenable: if the guarantee was an undertaking to pay which when first provided was conditional on provision of a bond by MMO, that condition could not have been fulfilled by an uncommunicated decision by the Owners to rely on the guarantee as effective in the face of it being clear that no bond would be provided. Mr. Karia QC reverted to the contention that the GA Guarantee had been unconditionally binding when first provided. But if that were so, the mode and moment of “election” would have to be the combination of the GA Guarantee first being sought from the Insurers (without making it conditional on provision of a bond) coupled with receipt of such guarantee; for it would have to be at that moment that Owners made an accepted offer in unconditional terms which created a binding contract with Insurers, whose effect was to provide (on MMO’s case) security inconsistent with the continuation of the lien. It would therefore arise irrespective of whether a bond was still expected or not. The commercial unattractiveness of this consequence, from which Mr Karia QC sought to escape by an analysis he was ultimately forced to abandon, reinforces the conclusion that the seeking and receipt of the guarantee at a time when a bond was also being sought could not be said to be an unequivocal election to rely on such security alone in the absence of a bond.

If it were necessary to reach a conclusion on the construction of the GA Guarantee, it is to my mind decided adversely to MMO’s argument by the Tribunal’s finding at Reasons paragraph 14.2:

“GA Security is generally provided in the form of two separate instruments, a bond and a guarantee; these are usually provided on well used, industry standard forms. The GA Bond is furnished by cargo interests to the effect that they will answer to a demand in due course for GA contributions even if they might not otherwise be the liable party. The GA Bond is supported by a GA guarantee which is provided by the insurers of the party providing the GA bond, insuring the bond provider’s liabilities under the bond.” (my emphasis)

Although this passage of the Reasons is addressing itself to the usual form of general average guarantee, it is apparent from other parts of the Reasons that the Tribunal considered the GA Guarantee provided by insurers in this case to be in such usual form. The Tribunal has found, therefore, that the GA Guarantee in this case is to be construed, against the background of the practice in this market and the factual circumstances in which it was demanded and provided, as imposing a secondary liability by way of an undertaking to discharge such liability as MMO themselves undertook under a general average bond which was intended to accompany it. That is a finding which the Tribunal were entitled to make, which is one of mixed fact and law, and which can not be said by this Court to be wrong.

Mr Karia QC advanced a further argument on this point. He argued that Bill of Lading numbered 4, being a straight bill naming MMO as consignee, and non negotiable, already imposed liability for general average on MMO; and that under section 3(1)(a) of the Carriage of Goods by Sea Act 1992, a receiver of cargo who (like MMO) demands delivery of goods to which a bill of lading relates has the same liabilities under the bill of lading contract as if he had concluded it himself. So, he argued, requiring a GA bond from MMO to undertake the same liability to which it was already subject was (a) unreasonable because it was unnecessary and (b) not a question of taking security at all.

In my judgment the Tribunal’s finding that it was reasonable to require a GA bond is a complete answer to this argument. The rationale for the general practice of requiring a bond as well as a guarantee is that the bond provides certainty to the shipowner that the consignee, to whom the cargo is released, will answer for the claim to GA, irrespective of any subsequent arguments about liability in contract under the existing contractual arrangements or ownership of the goods at the time of the general average sacrifice, and irrespective of argument on the effect of legal provisions. It obviates the need for any inquiry into who might otherwise be liable to pay the general average, a fact of which the shipowner may be unaware and which in some circumstances he may be unable to ascertain. It is a straightforward and commercially simple course to pursue, which provides certainty for the shipowner if he is to give up the lien and imposes no prejudice on a consignee. If a consignee wishes to take delivery he must accept the liability for the contribution in general average which that cargo is ultimately found liable to make. If he is already liable for such contribution, he suffers no prejudice in confirming it in a GA bond. If he declines to do so, the shipowner is entitled to be suspicious that he will seek to dispute or evade such liability, even if such liability is soundly based in contract and in law by the existing relationship.

The Tribunal has found that it was reasonable for Owners to follow that almost invariable practice in the particular circumstances of this case. Ms Blanchard QC, on behalf of Owners, suggested that there might be some doubt as to the existence of liability on MMO’s part in the absence of a GA bond because the bills of lading might arguably have been thought to be negotiable bills. As a matter of subsequent legal analysis, that seems to me far fetched. But however that may be, the legal principle is that an owner is entitled to retain the lien for general average unless and until security is tendered which is reasonable in form and amount; and that the question of what was reasonable in this case was a question of fact for the members of the Tribunal, informed as they are by their experience and the evidence (which is not before the Court) of the practice and the particular circumstances in which the Owners and MMO found themselves and communicated with each other.

Accordingly the First Question falls to be decided in favour of Owners. In those circumstances I do not need to consider the alternative ground on which the Tribunal decided that point in favour of Owners, nor to consider Owners’ alternative submission that MMO failed to mitigate its loss from non delivery of the 98 coils.

The Second Question falls to be addressed on the basis that Owners were entitled to exercise a lien in relation to all the steel coils.

On the second question, the Tribunal held that Owners were entitled to the storage charges on three alternative bases:

MMO submits as follows.

Owners submit that the decision of the Tribunal was right on each of the alternative grounds on which it found in their favour.

In Somes v British Empire Shipping Co (1858) El. Bl. & El. 353(QB), (1859) El. Bl. & El. 367 (Exch Ch), (1860) 8 HL Cas 338, 11 ER 459 (HL), a shipowner engaged shipwrights to carry out substantial repairs to its 3000 ton vessel at the latter’s dockyard in Blackwall. The contract provided for a sum to be payable for the use of the dockyard (“from 120 to 150 guineas”) and for the repairs to be paid for on a quantum meruit basis with agreed prices for materials. When the repairs were completed and the shipwrights sought payment of their account, the shipowner sought time to pay. The shipwrights exercised their lien over the ship for payment of the repair costs, but urged the shipowner to discharge the lien and remove the vessel because by occupying the dock it was preventing the shipwrights from receiving other vessels which were waiting to go in. The shipwrights demanded £21 per day for occupation of the dock, a sum which was assumed for the purposes of the action to be reasonable. After 27 days the shipowner paid the shipwrights’ account under protest. Thereafter it brought an action to recover £567 which was the amount paid in respect of occupation of the dock whilst the shipwrights were exercising their lien. The claim succeeded at first instance at Queen’s Bench, on appeal to the Exchequer Chamber and on appeal to the House of Lords. At all levels the shipwrights’ argument that they should be entitled to the £567 as the costs and expenses of exercising the lien was unanimously rejected.

At first instance, Lord Campbell CJ giving the (reserved) judgment of the Court stated that:

“The onus therefore is cast upon the Defendants to shew that, by the general law of England, an artificer who, exercising his right of lien, detains a chattel, in making or repairing which he has expended his labour or materials, has a claim against the owner for taking care of the chattel while it is so detained. But the claim appears to be quite novel; and on principle there is great difficulty in supporting it either ex contractu or ex delicto. The owner of the chattel can hardly be supposed to have promised to pay for the keeping of it while, against his will, he is deprived of the use of it; and there seems no consideration for such a promise. Then the chattel can hardly be supposed to be wrongfully left in the possession of the artificer, when the owner has been prevented by the artificer from taking possession of it himself. …

The right of detaining goods on which there is a lien is a remedy to the party aggrieved which is to be enforced by his own act; and, where such a remedy is permitted, the common law does not seem generally to give him the costs of enforcing it. Although the lord of a manor be entitled to amends for the keep of a horse which he has seized as an astray (Henly v Walsh (2 Salk. 686)), the distrainor of goods which have been replevied cannot claim any lien upon them; Bradyll v Ball (1Bro. C.C. 427). So, where a horse was distrained to compel an appearance in a hundred court, it was held that, after appearance, the plaintiff could not justify detaining the horse for his keep (Bul.N.P. 45).

If cattle are distrained damage feasant, and impounded in a pound overt, the owner of the cattle must feed them; if in a pound covert or close, “the cattle are to be sustained with meat and drink at the peril at him that distraineth, and he shall not have any satisfaction therefore” (Co. Litt. 47b.).

For these reasons, on the questions submitted to us, we give judgment for the plaintiffs”

Two points may be noted. The first is that Lord Campbell treated the case as one concerned with charges “for taking care of the chattel whilst it is so detained”. This accords with what one expects must have been, in part at least, the service for which the shipwrights were seeking to charge £21 per day. The shipwrights must have taken such steps as were necessary to secure and protect the vessel at the dock from loss or damage from the normal exigencies which might have affected her, whether from the elements or from theft or other human interference, in accordance with their duty as bailees. Secondly the references to the cases involving horses and cattle are to cases where the relevant cost is that of feeding and keeping the animal, an expense which was obviously a cost of caring for and preserving the property which was the subject matter of lien or distraint.

In the Exchequer Chamber, the six judges all gave brief judgments dismissing the appeal. The approach of Cockburn CJ, and others, was that the case was one in which “the law gives an artificer an option to detain the chattel but does not bind him to do so” and the question was whether the law should annex, as an incident of that option, an obligation on the owner to pay for the detention against his will. They found no principle or precedent for annexing such an incident, however beneficial it might be, in the absence of contract. Baron Watson, in agreeing, said: “I think the analogy between a lien and distress at common law very strong; and the authorities are decisive that at common law the distrainor had no compensation for the costs of impounding the chattel or of feeding it if he did.” The reliance on the distraint cases suggests that the principle was regarded as applying to costs and expenses, not merely remuneration, and as applying where the claim was for the costs and expenses of caring for and preserving the property in question.

In the House of Lords, Lord Cranworth LC stated the principle in these terms:

“Where goods are delivered to have any work done upon them… the person doing those repairs has a lien upon the goods for the amount of the sum charged; but that is confined to a lien for the amount of that sum, and the party doing the repairs cannot add to that lien a charge for the use of his premises while keeping the goods (in this case the ship) not for the benefit of the ship owner, but for his own. It must be taken to be now decided, that at common law there is no right to such a demand.”

Later he said:

“But the short question is only this, whether Messrs Somes retaining the ship, not for the benefit for the owners of the ship, but for their own benefit, in order the better to enforce the payment of their demand, could then say “we will add our demand for the use of the dock during that time to our lien for the repairs”. The two Courts held, and, as I think, correctly held, that they had no such right.”

Lord Wensleydale said as follows:

“My Lords, I am of entirely the same opinion. Two principal points have been made in this case. The first is, whether if a person, who has a lien upon any chattel, chooses to keep it for the purpose of enforcing his lien, he can make any claim against the proprietor of that chattel for so keeping it. No authority can be found affirming such a proposition, and I am clearly of the opinion that no person has, by law, a right to add to his lien upon a chattel a charge for keeping it till the debt is paid; that is, in truth, a charge for keeping it for his own benefit, not for the benefit of the person whose chattel is in his possession. That was the opinion of all the Judges of the Courts below, and I think their opinion is perfectly right.”

Lord Chelmsford agreed with both judgments.

In The Katingaki [1976] 2 Lloyd’s Rep. 372 shiprepairers exercised a lien over a vessel in their dockyard following a dispute about payment for repairs. In proceedings brought in rem, the shiprepairers claimed, amongst other things, dock charges and expenses for the period when the lien was being exercised. Brandon J held such a claim was precluded by the principle in Somes unless the charges or expenses could be established to be the subject matter of (i) a claim for damages or (ii) an express or implied term of the repair contract. He held neither to be arguable on the facts of that case and so held the charges and expenses irrecoverable. Counsel for the shiprepairers (Mr. Staughton QC, as he then was) did not seek to draw a distinction between remuneration (charges) and expenses, and no distinction was drawn in the judgment.

China Pacific SA v Food Corporation of India (The Winson) (HL) [1982] AC 939 concerned a cargo of wheat shipped in the US Gulf for delivery in Bombay. The vessel stranded on a reef in the South China Sea. Salvors entered into a salvage agreement with the shipowners and cargo owners on Lloyds open form. In performance of that contract the salvors lightened the vessel by offloading part of the cargo into barges and carrying it to Manila as a place of safety. There the salvors arranged for it to be stored under cover, in part on a vessel in the harbour and in part in a bonded warehouse ashore. The salvors sought to recover the costs of such storage from the cargo owners, being the stevedoring and charter costs of arranging storage on the vessel in the harbour, and the warehouse charges they had to pay for the warehousing ashore. The storage was both reasonable and necessary for the preservation of the cargo and to prevent its deterioration. The claim succeeded before Lloyd J, the successful appeal from whom was overturned by the House of Lords.

Lord Diplock, with whom Lords Keith, Roskill and Brandon agreed, noted that the case had been argued throughout on the basis that the salvage contract had come to an end at the time the cargo arrived in Manila, whilst leaving open whether that assumption was correct (p.956G). He held that the salvors were entitled to recover the storage costs from cargo owners because as bailees they

“owed a duty of care to the cargo owner to take such measures to preserve the salved wheat from deterioration by exposure to the elements as a man of ordinary prudence would take for the preservation of his own property …… and if he fulfils that duty he has, in my view, a correlative right to charge the owner of the goods with the expenses reasonably incurred in doing so.” (page 960E).

The case did not directly concern the question of recovery of costs incurred whilst exercising a lien, because the salvors had not exercised a lien in that case. However the principle in Somes was dealt with by Lord Diplock in the context of an argument by the cargo owners that it precluded recovery. He said this at page 962F-963B:

“[The cargo owner sought] … to avail itself of the principle, which it contended was laid down by this House in Somes v Directors of British Empire Shipping Co (1860) 8 H.L. Cas.338, to the effect that where a person entitled to a possessory lien over goods incurs expenses in maintaining possession of them in the exercise of his right of lien and preserving in the meantime their value as security for the owner’s indebtedness to him, he cannot recover such expenses from the owner. That case is, in my view, authority for the proposition that, where a lienee remains in possession of goods in the exercise of his right of lien only (ie, one who has refused a demand by the lienor for redelivery of the goods with which, in the absence of the lien, the lienee would be under a legal obligation to comply), he cannot recover from the lienor loss or expenses incurred by him exclusively for his own benefit in maintaining his security as lienee and from which the lienor derives no benefit as owner of the goods. I would not seek to suggest that this authority has become outdated for the proposition that was then laid down; but I would deny that it is authority for anything more and, in particular, for the further proposition that expenditure necessary for the preservation of the goods from deterioration from which the owner does derive benefit is irrecoverable, where such expenditure is made by bailee at a time before possession of the goods has been demanded of him by the owner and his only right to retain lawful possession of them thereafter rests upon his own election to continue in possession, after such demand, in the exercise of the rights of lienee.” (emphasis in original)

In this passage Lord Diplock treated the principle in Somes as one which applied to recovery of “loss or expenses”, not merely to charges or remuneration. If the Somes principle were confined to remuneration, that would have been a further and obvious ground of its inapplicability to the salvor’s claim, which was one for incurred expenditure. No such distinction was drawn by Lord Diplock.

In The Olib [1991] 1 Lloyd’s Rep 108 the plaintiffs were named consignees in bills of lading and intermediate sellers of the cargo. The bills of lading incorporated the terms of a charterparty which conferred a lien on owners, not only for deadfreight and demurrage, but also for costs incurred after delivery. At the discharge port, no one came forward to receive the cargo and the defendant shipowners discharged it ashore. Three weeks later, the plaintiffs came forward claiming to be owners of the goods, but they did not present the bills of lading or seek delivery. The shipowners threatened to sell the cargo on the grounds that it was at risk of deterioration, to which the plaintiffs objected. There followed a negotiated settlement in which the plaintiffs agreed to pay a lump sum of $400,000 in return for release of the cargo to them, but, so the shipowners alleged, subject to presentation of documents of title. The sum was paid on 24 and 27 October, but documents of title were not presented and the plaintiffs denied that such had been a condition of the agreement reached. After two months of further negotiations, the shipowners sold the cargo to an entity to whom the plaintiffs had endorsed the bills of lading, who presented the bills on 27 December; the owners exercised their lien and refused to release the cargo until the storage charges for the period of storage ashore after 24 October were paid. After a further delay, the plaintiffs agreed to pay $40,000 in respect of such charges. The plaintiffs brought proceedings to set aside the agreements for economic duress and for return of the $440,000 paid. The matter came before Webster J on the hearing of an application by the defendant shipowners to set aside leave to serve the writ out of the jurisdiction. That application succeeded. On the question of the defendant shipowner’s entitlement to claim storage charges Webster J said at p116 col 1:

“Mr. Englehart submitted that the defendants were not entitled to expenses incurred in preserving the lien for their own benefit. But the decision in China Pacific S.A. v. Food Corporation of India, [1982] 1 Lloyd’s Rep. 117; [1981] AC 939 is authority for the proposition that a gratuitous bailee, which is what the defendants were by October, is under a duty to the bailor to take measures necessary to preserve the property in question and has a correlative right to charge the bailor with expenses reasonably incurred in fulfilling that duty. Mr. Englehart submitted that the plaintiffs were not the bailors in the present case; but he accepted that they stepped into the shoes of the bailors when, as they allege, they took up the bill of lading on Sept. 14, and their cargo claim is brought in the capacity of bailors. In my view, in these circumstances, the plaintiffs’ contention that it was unlawful for the defendants to exercise their lien as security for those expenses is also virtually unarguable”.

Webster J did not refer to Somes in his judgment. It is to be noted that the $40,000 of storage charges related to the period between 24 Oct and 27 Dec, ie prior to the presentation of bills of lading. The costs were not, therefore, those which had been incurred whilst the shipowners were exercising their lien adversely to the consignees, but rather costs incurred whilst they were withholding delivery because the plaintiffs had not presented the bills of lading or produced any other proof of title. Webster J was not therefore concerned with the right of a lienee to recover the costs of exercising a lien where, but for the lien, the cargo owner or consignee would have been entitled to possession. The case was one in which there was no entitlement to delivery irrespective of the lien.

In Morris v Beaconsfield Motors (CA) [2001] EWCA Civ 1322 the plaintiff delivered his motor car to the defendant garage owners for repair. Following completion of repair, the plaintiff failed to pay and the car was detained by the defendants exercising their lien and eventually sold. An issue arose as to whether the defendants were entitled to apply the proceeds of sale to recoup storage charges whilst exercising their lien, which the plaintiffs charged at £8 per day. The Court of Appeal (Pill LJ and Rimer J) held not, on the grounds that Somes precluded such recovery. Ms Blanchard QC suggested that the storage charges in this case were purely remuneration, not costs incurred in preserving the vehicle. It is not clear from the report that that is so. But significantly that was not the basis on which the case was decided. At paragraph 25 Pill LJ referred to The Winson and set out Lord Diplock’s dictum addressing Somes. At paragraph 26 he treated the reason why the garage owners could not recover the storage charges under the principle in The Winson as being that they were exercising a lien adversely to the plaintiff, not that they were charging for remuneration.

During the detention of the car, the garage owners had paid £105 to renew a cherished number plate which was of value in itself and which would have been lost in the absence of renewal. At paragraphs 5 and 28 Pill LJ treated this sum as recoverable and standing on a different footing from the storage charges, because it was of eventual benefit to the lienor. Ms Blanchrd QC argued that this was authority for the proposition that a sum spent in preservation of an asset over which a lien was exercised is recoverable. It is true that the language used in the judgment is that of preservation of an asset. But to my mind the recovery of the £105 is better characterised as being the conferring of a benefit by way of improvement, or of conferring a benefit in the form of creating a separate asset. A cherished number plate is a separate asset, which is transferable from vehicle to vehicle and personal to the owner rather than the vehicle. The garage owners would have been under no duty as a bailee to renew the cherished number plate and had they let it expire, the value of the car as such would have been unaffected. By voluntarily spending £105 on renewing, they were in effect creating a new valuable asset which would otherwise have ceased to exist by effluxion of time. Alternatively if the number plate and asset are to be treated as a single asset, what the garage owners were doing was improving and enhancing the value of the car, not merely preserving it, by attaching to it a valuable number plate which it would otherwise have ceased to have by effluxion of time. In any event what was said by Pill LJ on this head of claim was obiter. The issue did not arise for decision because it was not clear whether credit had been given for this sum in the accounting between the parties and the Court was not asked to determine it (see paragraph 28). Rimer J did not concur in this aspect of the case and expressed no view on it.

In Ene 1 Kos Ltd v Petroleo Brasieiro (The Kos) [2010] 2 Lloyd’s Rep 409, the shipowners had withdrawn their vessel under a time charter after completion of loading and called on the charterers to discharge the cargo. They claimed remuneration (at a rate in excess of the charterparty hire) for the time the cargo remained on the vessel and expenses. In the Court of Appeal the claim to remuneration failed. The claim to expenses succeeded in part. The case has gone on appeal to the Supreme Court, where the hearing has taken place but judgment has yet to be delivered.

Affirming the right of a bailee to recover expenses incurred in fulfilling his duty to look after the cargo, Longmore LJ held at paragraph 35:

“The owners are on stronger ground in relation to expenses since The Winson is authority that, in some circumstances, some such expenses can be recovered. I would, however, draw a distinction between expenses incurred during the first period when the parties were discussing whether to make a new contract at market rate or not. During that period the vessel was idle for the benefit of both parties in case a further agreement could be made. Expenses incurred during that time were not expenses incurred in taking care of the cargo let alone in preserving the cargo (which was the position in The Winson: see pages 960E to F and 961F per Lord Diplock). Once the decision to discharge was finally made, that discharge required cooperation between the owners and the charterers. Although the true position was that the owners were requiring the charterers to discharge the cargo and the charterers were complying with that requirement, the nature of the discharge meant that the owners did have to use bunkers in the course of that cooperative endeavour. The expenses of those bunkers were expenses incurred in taking care of the cargo during actual cargo operations. The Winson is authority for the proposition that the cost of those bunkers can be recovered from charterers.”

Earlier in his judgment, in dealing at paragraph 31 with an argument which arose in the context of the remuneration claim, Longmore LJ appears to have accepted the proposition that had the shipowners legitimately discharged the cargo into store, they would have been able to recover reasonable storage charges.

The Kos was not a case in which shipowners were purporting to exercise a lien and Somes was not referred to in the judgments.

I conclude that the principle to be derived from these authorities is that where a gratuitous bailee incurs expenses in carrying out his duties in preserving and caring for the goods, he has a correlative right to recover such expenses from the owner of the goods, provided that he is not denying possession of the goods to the owner solely on the grounds that he is exercising a lien. Where, however, he is exercising a lien adversely to the goods owner, who is seeking possession, and that is his sole ground for denying possession to the owner who would otherwise be entitled to possession but for the lien, he has no such right. In the latter circumstance the exercise of the lien and the retention of possession adversely to the goods owner are treated as being solely for the benefit of the lienee, for which he is not entitled to be reimbursed, even if his costs include those of preserving the goods. Lien is an exercise in self help, and if the lienee is denying to the goods owner the possession which the latter seeks, he is not entitled to treat the preservation and caring for the cargo which he performs whilst exercising his option as being for the benefit of the goods owner. The detention is wholly for the benefit of the lienee, not the goods owner who is seeking possession, and therefore preserving and caring for the cargo during such detention is also to be treated as solely for the benefit of the lienee. This is so notwithstanding that the goods owner will derive a benefit if and when the detention ceases. The expenditure is not treated as being for the benefit of the lienor because if the lienee released his lien, and gave up adverse possession, the goods owner could take possession and would or might no longer have to incur such expenditure himself. The costs of preserving and caring for the assets whilst they are being kept from the goods owner can not therefore properly be treated as being for the latter’s benefit.

The textbook writers are unanimously of the same view:

This is the rule established in Somes, however beneficial it might be (in the words of Cockburn CJ) for the opposite to be the rule. The value to the lienee of a lien over goods which are expensive to preserve, and over which his rights of sale are circumscribed, may be emasculated by the costs of preservation. Since the lienee exercising his right to adverse possession nevertheless retains his duties as bailee, and would be liable to the goods owner for loss and damage caused by failure to take steps to fulfil those duties, there is one sense in which the costs involved in preservation accrue to the benefit of the goods owner as well as the lienee. But however that may be, to allow the Owners to recover their storage costs as the costs of exercising the lien in this case would involve abandoning the principle in Somes altogether. It is of course always possible for a party on whom a lien is conferred by contract to stipulate in the contract that he should be entitled to recover the costs of exercising the lien. In the absence of such contractual stipulation, the law does not confer such an entitlement.

Ms Blanchard QC sought to distinguish Somes on three grounds. First she argued that it was concerned only with remuneration, not expenditure. I reject this argument. The reasoning in Somes, and in particular reliance on the distraint and horse and cattle cases indicate that it was intended to be applicable to cases of expenditure. Somes was treated in The Winston as being a case establishing a principle applicable to costs and expenses. No distinction between costs and remuneration was drawn in The Katingaki or Morris v Beaconsfield Motors. Moreover, there would seem to me to be little logic or commercial merit in drawing a distinction between remuneration and expenses in this context. If a lienee has his own warehouse, which would otherwise be rented to others at a given rent were it not occupied by the goods over which he is exercising a lien, he may either choose to keep the goods there, or warehouse them with another and pay the same amount in rent. Why, one might ask, should he be unable to recover if he does the former (“remuneration”) but able to recover if he does the latter (“expenses”)? Nor is the boundary between remuneration and expense a clear one. Remuneration is rarely pure profit; it usually covers a cost by way of direct or indirect overheads.

Ms Blanchard QC also sought to distinguish Somes on the grounds that it did not apply to expenditure incurred for the preservation of the goods. That too flies in the face of the decision and reasoning in Somes. I have already observed that Lord Campbell CJ treated that as a case of the shipwrights caring for the ship whilst in the dock, and it seems probable that it must have been so. The reasoning in Somes, and in particular reliance on the distraint and horse and cattle cases, indicates that the principle enunciated was intended to be applicable to cases of expenditure which is incurred to preserve the subject matter of the lien. Lord Diplock’s dictum in The Winson indicates that the scope of the principle applies where the lienee is carrying out his duties as bailee. Had Lord Diplock thought that the principle had no application to costs incurred in caring for the goods he would have rejected the cargo owners argument and distinguished Somes on those grounds. Instead he was careful to treat Somes as establishing a principle which was inapplicable to the facts of that case (a) because the salvors had not exercised a lien and (b) because Somes did not apply where no adverse possession was being maintained against a goods owner who had demanded possession.

In this context it does not assist Owners that the Tribunal found that MMO is deriving a benefit from the cargo being kept in secure and weatherproof storage (Reasons paragraph 15.11). Costs incurred in preservation of an asset during the exercise of a lien will be for the benefit of the lienor in the sense that otherwise his goods will deteriorate. But that is not a relevant benefit such as to entitle the lienee to charge for the costs of conferring it, for the reasons which I have explained.

Ms Blanchard QC’s third ground of distinction was that the principle in Somes only applies where the expenses are incurred solely for the benefit of the lienee. She argued that in this case Owners incurred the expenses also for the benefit of MMO because the costs were those of preserving the cargo from the elements. This is no more than another way of putting her second ground of distinction, which I have rejected for the reasons given above. She also contended that the lien was exercised not only for the benefit of Owners but, pursuant to Owners’ obligation, on behalf of all those who might be interested in the average adjustment. There are two answers to this point. First, on the facts of this case, the only GA expenditure and sacrifice made was made by Owners, not other cargo interests; the lien was not in fact being exercised for the potential benefit of anyone other than Owners. The owners of the steel hatch covers, for example, had made no sacrifice and would have no GA claim. Secondly, it would not avail an owner to say that the lien was being exercised for the benefit of other parties to the venture. In doing so the owner acts as agent for the other parties (see Strang Steel & Co v Scott (1889) 14 App. Cas. 601). He and the other parties for whom he is agent are exercising the lien in their joint interest. The lien is therefore being exercised for the sole benefit of “the lienee”. What matters in this context is that the lien is being exercised by those parties adversely to the interests of the goods owner.

At paragraph 15.11 of the Reasons the Tribunal held

“the charges were (and continue to be) incurred by the Owners not just for themselves but for the benefit of all the parties to the common maritime adventure. For the owners and the deck cargo interests, the benefit is the preservation of the lien for GA security over the Cargo”.

It is difficult to understand how the deck cargo interests could have had any interest in the exercise of the lien and Ms Blanchard QC was unable to explain any. But even assuming such an interest, their benefit is not something which takes the storage charges incurred by reason of the exercise of the lien outside the scope of the principle established in Somes.

It follows that Owners are not entitled to recover the storage costs on the first basis found by the Tribunal.

Storage costs as damages for breach or in substitution for damages for detention

Owners submitted, correctly, that they were entitled to retain the steel coils on board in exercise of their lien, or at their option to warehouse them ashore whilst retaining their lien. They contended, therefore, that they were entitled to the costs of doing the latter, as reasonable mitigation of the greater costs which would have been incurred by retaining the goods on board. This way of putting Owners’ case depended upon establishing a breach of contract by MMO. The obligation breached by MMO was said to be one or both of:

It is worth emphasising that the claim is not one for demurrage or for breach of the laytime provisions in the relevant contract of carriage. The bills of lading incorporated all terms and conditions, liberties and exceptions of a voyage charter dated 2 April 2008. The voyage charter contained the following terms:

“23 Arrived Ship

The vessel is deemed to be an arrived ship only after it is in free pratique and customs cleared after the shippers/receivers have received the notice of readiness to load/discharge from the Master … The notice of readiness may only be tendered in writing after ship’s arrival at the designated berth whether customs cleared or not, whether in free pratique or not within regular working hours …

…

25 Load/Discharge, Tally

… The cargo to be loaded and stowed by shippers’ stevedores free of risk and expense to the vessel, under deck only, on customary quick despatch att (sic) all ends with no demurrage/no despatch, in the ship’s main cargo compartments and discharge free of risk and expense to the vessel on customary quick despatch att (sic) all ends with no demurrage/no despatch.

…

30 Bill of Lading

…

In case originals BS/L are not available on vsl’s arrival in discharging port owners/master to discharge the cargo immediately upon arrival into custody of the port and the cargo to be released to receivers against presentation of original BS/L or charterers’ letter of indemnity in shipowners’ P&I wording.

…

32 Discharge Port Notices

Owners/Master to tender to Chrs 10/8/6/4 days approximate and 3/2/1 day(s) definite notice of arrival at load/discharge port to enable charterers/shippers/receivers to get cargo/documents ready accordingly.

…

40 Detention Money

Detention rate of USD8500 PDPR all ends to apply in case:

Ldports : A) cargo is not ready for shipment

Under those provisions, the Vessel would not become an arrived ship until she arrived in berth, and only at that time would the charterer’s obligation arise under clause 25 to “discharge free of risk and expense to the vessel on customary quick despatch”. The Vessel never became an arrived ship at berth in St Petersburg because Owners refused to berth, in exercise of their lien. Nor did the demurrage provisions in clause 40 apply. Accordingly Owners claim is a claim for damages, not demurrage or costs incurred in mitigation of demurrage.

In my judgment Owner’s claim for the storage costs as damages, or as the cost of mitigating damages, is unsound. It is inconsistent with the concept of a possessory lien as a self help option; it is inconsistent with the principle in Somes; and it is inconsistent with the principle that a claimant for damages for breach of contract can not recover for damages caused solely by his own act.

MMO was seeking to take delivery of the cargo and was ready, willing and able to do so. It had not done anything to prevent Owners from delivering the cargo. It had not refused to take delivery, or done anything to disable itself from taking delivery when the cargo was to be tendered for delivery by Owners. The sole reason why delivery did not take place was that Owners chose not to tender delivery. They chose not to tender delivery because they were exercising a lien. To describe MMO as failing to take delivery in those circumstances, when they were ready, willing and able to do so, is an abuse of language.

MMO could only be said to have failed to take delivery if its breach consisted in not paying or securing the GA claim which was what entitled Owners to exercise their lien. To treat such failure as a breach entitling Owners to recover the costs of detention as damages involves treating a lien not simply as an option whose exercise is solely for Owner’s (and other GA net claimants’) benefit, but rather as something whose exercise itself entitles Owners to all losses suffered from having exercised it. This undermines the principle in Somes. If a claim for breach of the obligation which gives rise to the lien can found a claim for damages comprising the costs of detention for the period during which the lien is exercised, the claims for such costs would have succeeded in Somes, The Katingaki and Morris v Beaconsfield.

Nor can one address an argument that MMO was in breach of an obligation to take delivery without asking when such an obligation to take delivery arises. The obvious answer would be that the obligation arises when the ship owner tenders delivery or, at least does all things reasonably within his power to enable the consignee to take delivery. Here Owners did neither. They withheld delivery. They prevented MMO from taking delivery by refusing to deliver the cargo at St Petersburg. But for that refusal, MMO would have taken delivery. When and how, therefore, is it said that the breach arose? Ms Blanchard QC’s answer was that it arose by failure to provide reasonable GA security. But she recognised that she could not argue for that failure being the breach of an obligation which itself sounded in the damages Owners were seeking to recover, because of the principle in Somes. Her argument had to be that although in substance the breach was the failure to discharge the lien, in form this was not because of an obligation to do so, but because only by doing so could MMO fulfil its obligation to take delivery. This is a distinction without a difference. In reality it seeks to turn the exercise of the lien into something which imposes an obligation on the lienor to discharge it. In my judgment this is inconsistent with the nature of the lien as a self help option granted to the ship owner.

The same can be said of Owner’s alternative formulation that MMO’s breach was of an implied obligation to do all within its power to enable the Vessel to become an arrived ship. MMO did nothing to prevent the vessel becoming an arrived ship; it wanted to take delivery of the steel coils and was ready, willing and able to do so. The berth was available. What prevented the Vessel becoming an arrived ship was Owners’ exercise of the lien. This is only something for which MMO could be said to be liable if MMO was under an obligation to do what was necessary to avoid Owners exercising the lien, ie to pay or secure the general average claim which gave rise to the lien.

Ms Blanchard QC suggested that if Owners were not in breach in failing to tender delivery, which they were not, it must follow that MMO would be in breach of its obligation to take delivery, because delivery is one of the fundamental objects of the venture and the parties can not have contemplated that Owners would be entitled to withhold delivery without the receivers thereby being in breach. If delivery does not take place, she argued, one or other party must be in breach of contract so as to be responsible for the financial consequences.

I found this argument unpersuasive. I do not see why, if delivery of the cargo does not take place, it must inevitably follow that charterers/receivers must be in breach of the relevant contract of carriage merely because shipowners are not in breach. The allocation of risk in the bundle of contracts of carriage involved in the maritime adventure contain an allocation of risk which is to be found in the terms of those contracts, and in this context, in the provisions concerning laytime, discharge and general average. It would be open to shipowners to negotiate a term of the charterparty or bill of lading so as to provide that they are to be entitled to the costs of exercising their lien, or to the losses caused by the detention of the vessel should they exercise their lien. Similarly they can seek to negotiate laytime provisions which have that effect. But in the absence of any such agreement, the lien remains an exercise in self help, with financial consequences for which a charterer/receiver, who has not agreed to pay demurrage, has not agreed to pay. The goods owner will not get his goods, but he does not, in the absence of express provision, agree to indemnify the shipowner for the financial consequences of not getting them.

Ms Blanchard QC further submitted that the nature of the general average lien meant that it would be unreasonable and unjust to expect Owners to bear the costs or losses caused by exercise of the lien. This was so because it arose at common law, not by contract, and because the exercise of the lien was not a matter solely for the shipowner’s choice; he would often (although not on the facts of this case) be obliged to exercise it on behalf of other potential GA claimants. But neither of those features preclude the shipowner from improving his position in the contractual arrangements he makes with other participants in the maritime adventure. In the absence of stipulating in the charterparty and/or bill of lading for the right to an indemnity against, or contribution towards, costs or charges, I see nothing unreasonable in the lien being treated as an option the exercise of which imposes on the shipowner the financial consequences of doing so. That is the rationale underlying the principle in Somes, because the exercise of the lien is treated as being solely for the benefit of the shipowner and those for who have an interest in general average. How the financial consequences are borne between the shipowner on the one hand and those other GA claimants for whom he is acting in exercising the lien on the other hand, is a matter for regulation between them and of no concern to the receiver/charterer.

For these reasons, in the absence of binding or compelling authority to the contrary, I would hold that this way of advancing Owners’ claim for storage costs fails.

Ms Blanchard QC sought to support her argument by reference to two authorities in particular. In Lyle Shipping Co v Corporation of Cardiff (1899) Com. Cas. 87 the plaintiff shipowners sued the defendant indorsees of the bill of lading for damages for detention of the vessel at the discharge port, Cardiff. Two questions arose. The first was whether the defendants were liable for damages for detention during discharging the ship, and in particular whether they were in breach of the charterparty clause, incorporated into the bill of lading, which provided “Ship to be discharged with all despatch, as customary, weather permitting”. The discharge delay was caused by an insufficiency of railway wagons to receive the cargo, which led to discharge taking 45 working days rather than 22 or 23 days which customary despatch would have achieved. The shipowners succeeded on the first issue. The second issue concerned liability for a period of four days within those 45 days, during which discharge was suspended by reason of the shipowner exercising a lien in respect of unpaid demurrage incurred at the loadport, Fremantle, the amount of which was disputed. On this issue, the argument advanced on behalf of the defendant receivers (by Mr Carver QC and Mr Scrutton for the third party shippers who had provided an indemnity) was twofold (p. 96-97). First it was said that the exercise of the lien was unreasonable by reason of its timing and the amount claimed. Secondly it was argued that this being a claim for damages, they could not be recovered where the damages had been caused by the plaintiff’s own act, being caused solely by the shipowners’ exercise of the lien. At page 97 Bigham J stated:

“In respect of the demurrage at Freemantle the ship owners, in my opinion, were, at the time they made this claim, entitled to exercise their lien; nor did they destroy that right by putting forward a claim larger than was justified; for in putting it forward I do not think they seriously meant that they would not give up the remainder of the cargo at all, until the whole of that amount was paid to them. They only intended to claim what was really due; and I do not think that their conduct was such as to relieve the defendants from the obligation to tender such a sum as would be in fact sufficient to discharge the lien.

Then, if the plaintiffs were acting rightly in exercising their lien, can they claim damages for detention of the ship during its exercise? This depends, in my opinion, on whether they exercised their lien in a reasonable manner. ”

The question of whether the shipowners had acted reasonably in exercising the lien was treated as turning upon whether they should have warehoused the cargo ashore, exercising their rights which arose under the provisions of the Merchant Shipping Act, rather than keeping the goods on board. Bigham J concluded at page 99:

“I come to the conclusion, therefore, that the plaintiffs were disposed to act reasonably, and that they did adopt a reasonable course in keeping the cargo on board. There was every likelihood of the dispute being settled in a few days, and it would have been unreasonable, under the circumstances, to have landed the cargo and have incurred warehouse rent. The plaintiffs are, therefore, entitled to damages for four days’ detention.”

Bigham J did not in terms address the second of the arguments put forward on behalf of the receivers, namely that the loss was exclusively caused by the shipowners’ own act in exercising the lien. His decision necessarily means that he rejected it. Somes was not apparently cited or relied upon by counsel arguing the point on behalf of the receivers, perhaps because this was a claim for damages for detention of the vessel rather than for storage costs. At first sight the decision therefore appears to support Owners’ argument in this case. But for reasons I will explain, I do not believe that it does so.

In Rashtriya Chemicals and Fertilisers Ltd v Huddart Parker Industries Ltd (The Boral Gas) [1988] 1 Lloyd’s Rep 342, shipowners brought a claim against charterers under a consecutive voyage charterparty for demurrage in respect of a period whilst the shipowners were withholding the cargo, relying on the exercise of a lien in respect of claims for demurrage and damages for detention on previous voyages. Charterers argued that laytime could not count, and demurrage could not accrue, during that period because the shipowners were not permitting the charterers to take delivery and therefore could not claim that the vessel was delayed by the charterers rather than themselves. Evans J rejected the argument and held that the exercise of the lien did not interrupt laytime or prevent demurrage accruing.

That was a case of demurrage, not damages for detention. Evans J rejected the argument that the delay had been caused by the failure of the shipowners to perform their obligation to deliver the cargo on the basis that the shipowners’ obligation was qualified by the entitlement to exercise the lien. He said:

“The charterers’ submission predicates that there has been a refusal by the shipowners to discharge in accordance with the charter-party. The right to exercise a lien is given expressly by the charter-party itself. It can only operate as a qualification of the undertaking to give discharge. By exercising the right, the shipowners in my judgment do not refuse to give discharge in accordance with their undertaking. Rather, they rely, as they are entitled to do when freight or demurrage is due and unpaid, upon the qualification in their favour of what would otherwise be their obligation, which in the circumstances frees them from it. Therefore, in my judgment, the case is not one where the shipowners have refused to perform their undertaking to give discharge, because the obligation itself is qualified, nor where they have done anything equivalent to removing the ship from the discharging berth.”

The case therefore concerned the scope of a shipowner’s obligation to give delivery, which was not breached by the lawful exercise of a lien, and its effect on a shipowner’s claim for demurrage, which is a contractual entitlement conferred by the relevant laytime clauses of the charterparty. It did not concern the question whether the exercise of a lien by a shipowner enabled the shipowner to treat the charterer as in breach of an obligation to take delivery, so as to found a claim for damages. However in the course of his judgment Evans J addressed the decision in Lyle Shipping in these terms:

“In Lyle Shipping Co Ltd v Cardiff Corporation (1899) 5 Com. Cas.87, the second question argued was whether the shipowners could recover damages for detention, not demurrage, during the period when they exercised their lien for loading port demurrage. The charterers’ response was that the exercise of the lien was unreasonable because it was for an excessive amount (5 Com. Cas at page 96) and that the ship owners could not recover damages caused solely by their own act (page 97). They did not contend that the shipowners could not recover even if the exercise of the lien was reasonable and lawful. Since the charterers’ case was argued by Carver QC and Scrutton, this omission was one of double, or perhaps twin, Homeric proportions. (emphasis in original) ………..

The judgment does therefore support the view that the shipowner can recover damages for detention of the ship during a period where delay was caused by his own, reasonable, exercise of a lien, at least where the charterer’s obligation is to discharge with customary despatch, as it was in that case.”

I do not agree with Evans J that Mr Carver QC and Mr Scrutton “did not contend that the shipowners could not recover even if the exercise of the lien was reasonable and lawful”. The argument attributed to them which is recorded at page 97 of the report in Lyle Shipping includes this:

“This is a claim for damages; a person cannot recover damages which have been caused by his own acts: Möller v Jecks (1865) 19 C.B.N.S. 332. A still nearer authority is an American case, “Ten thousand and eighty-two Oak-Ties” [1898] 87 Fed. Rep.935. The question is not whether the plaintiffs were within their rights in exercising their lien, but whether they can recover damages caused solely by its exercise.”

This was a contention that the shipowners could not recover even if the exercise of the lien was reasonable and lawful. It was implicitly rejected, but not explicitly addressed, in Bigham J’s judgment. If there was any Homeric nodding in that case it was on the Bench, not at the Bar.

The Boral Gas is therefore authority for the proposition that the shipowner’s entitlement to demurrage arises notwithstanding that the delay is caused by the exercise of his lien. It also treats Lyle Shipping as correct in deciding that the shipowner can recover damages for detention of the ship during a period where delay was caused by his own, reasonable, exercise of a lien, “at least where the charterer’s obligation is to discharge with customary despatch, as it was in that case”. I shall return to the significance of this qualification.

Ms Blanchard QC submitted that there should be no distinction between a case where the owner’s claim arises under the laytime provisions as one for demurrage and one which arises as damages for breach of the obligation to take delivery. There is, she argued, no commercial or logical distinction to be drawn between the two in this context. Demurrage is a claim for damages for detention, not a claim in debt: President of India v Lips Maritime Corporation (The Lips) [1988] AC 395, 422E-H.

Although this argument has superficial attractions, I am not persuaded by it. There is a relevant distinction between demurrage and damages for detention where the damages claim is premised on a breach of provisions which are not the laytime provisions or other provisions defining the time allowed for loading or discharging. The laytime and demurrage provisions contain a contractual undertaking by the charterer (sometimes assumed by the receiver) to pay for detention of the vessel at an agreed rate and in agreed circumstances when the loading or discharging takes longer than contractually allowed. Although conceptually a claim in damages, the obligation breached is the express undertaking derived from the laytime provisions of the charterparty not to keep the vessel beyond the stipulated laydays (see The Lips at 422F). The law annexes an exception to that obligation where the detention is caused by the shipowner’s “default” or breach of charter. If the shipowner is not in breach of charter, the laytime provisions contain the obligation of which the charterer is and remains in breach so as to entitle the shipowner to demurrage. In a demurrage claim, the focus is therefore on the effect of the exercise of the lien on the shipowner’s obligations. By contrast, in the absence of operative laytime provisions, the charterer can only be liable for detention if it is caused by a breach of some other obligation he has undertaken, whether expressly or impliedly. The focus is therefore on the effect of the exercise of the lien, if any, on the charterer’s obligations. In other words, where demurrage accrues under operative laytime provisions there is a presumptive right to payment unless the delay is caused by the shipowner’s breach of charter or default; whereas in the absence of operative laytime provisions, there is a presumptive absence of liability to pay for detention unless charterers are in breach of some other term of the contract of carriage. The two are not comparable. In the former case it is sufficient for the shipowner to establish that the exercise of the lien does not put him in breach of his obligations. In the latter case it does not avail a shipowner merely to establish that he is not himself in breach of his obligations. He must establish a breach by the charterer. Where he has not stipulated for a laytime regimen which establishes an entitlement to be paid for the detention of the vessel, he must be able to point to breach of some other obligation. The charterer’s breach can not be created by the shipowner’s exercise of his lien.

Accordingly, The Boral Gas is distinguishable from the present case as concerning a claim for demurrage. In my view Lyle Shipping is also properly to be regarded as a case concerned, in substance, with demurrage. It is true that in form it was a claim for damages for detention. But the term which was breached, providing for discharge with customary despatch, was essentially part of the laytime regimen, and the damages for detention in that case were sought and awarded at the demurrage rate. Conceptually demurrage is damages for detention, not debt; Mr. Scrutton was later to observe, as Scrutton LJ in Inverkip Steamship Co v Bunge & Co (1917) Com.Cas. 200, 204, that such was a current view of its nature. The indemnity given to the defendant receivers by the third party shippers in that case was an indemnity “against all claims and demands for and in respect of demurrage” (p.87-88). Accordingly the very fact that the point was argued on behalf of the shippers, and that liability was found against them on the third party claim, confirms that no distinction was being drawn between demurrage and the plaintiff’s claim framed as damages for detention in that case. I do not regard Lyle Shipping as authority for the proposition that a shipowner can recover damages for detention of the ship during a period where delay was caused by his own, reasonable, exercise of a lien, when the breach alleged is not one relating to laytime or time allowed for loading/discharging.

Evans J may have had such a point in mind when adding his qualification in the words italicised below:

“The judgment does therefore support the view that the shipowner can recover damages for detention of the ship during a period where delay was caused by his own, reasonable, exercise of a lien, at least where the charterer’s obligation is to discharge with customary despatch, as it was in that case.”

Accordingly the Second Question will be answered in favour of MMO.

I will hear the parties on the appropriate form of relief.