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Shipowners’ Liens under the Ukrainian laws

27.08.2015

Overview

 

A lien is the right given to a Shipowner to retain possession of the cargo as security for the payment of freight or other charges. Such a right may, in certain circumstances, arise at applicable law or it may be provided for in express term of the contract of carriage or charter party.

 

Under Ukrainian laws, Shipowners are granted a right of lien over cargo carried on board their ship. However, the provisions concerning a lien should be considered carefully before actually exercising this right.

 

Applicable Laws

 

Under the general rule of the Civil Code of Ukraine, a creditor that lawfully possesses properties which has to be handed over to a debtor or to another person indicated by a debtor, firstly, has the right of retaining properties in case of the debtor's failure to fulfill its obligation to pay for it or reimburse the creditor for the expenses thereof and other losses related to it; and, secondly, is entitled to satisfy his/her demands by selling the retained items.

 

This right of lien under Ukrainian laws arises independently of contract's provisions. Nevertheless, this right under the Civil Code of Ukraine can be applied only if the debtor is:

 

- an owner of the item;
- or bona fide holder;
- or a third person who has acquired thetitle to itthat had arisen after the item was transferred into a creditor's possession.

 

If the debtors are not owners or bona fide holders of the delivered cargo (that there is very common in shipping), consequently, the provision of the Civil Code are not applicable. However, there are the special provisions of the Merchant Shipping Code of Ukraine (hereafter - MSCU), which also provide with the right to exercise a lien under certain circumstances.

 

Pursuant to the Clauses 163 and 173 of the MSCU, during reception of the cargo the Consignee is obliged:

 

- to clear any charges related to the cargo,
- to pay for a vessel demurrage in the port of discharging;
- to pay the freight;
- to pay for the vessel demurrage at the port of loading;

- in case of a general average - to make the average contribution or provide proper security.

 

if this is provided for in the Bill of Lading or another document under which the cargo had been carried.

 

Otherwise the Carrier can refuse giving out the cargo until the mentioned debts is paid or proper security is granted, that means the Carrier is entitled to lien on the cargo being carried.

 

In addition, the Carrier is entitled also to sell the retained cargo through legal proceedings and satisfy his demands by the proceeds of sale with prior notification to the Shipper or Charterer, as well as the Consignee thereof. If the received amount from the sale will not be sufficient to cover the aforementioned payments as well as the interest and losses caused by to the overdue payment, the Carrier has the right to demand from the Shipper or Charterer the amount of shortage.

 

In accordance with MSCU, a lien can be exercised only if this right is provided for in the shipping documents under which the cargo had been carried. Moreover, exercise of a lien is confined to the amounts unpaid due to the particular voyage that is contrary to the provisions of the Civil Code of Ukraine. In accordance with the Civil Code of Ukraine, retaining the goods may secure other claims of a creditor, unless otherwise is established by the agreement or the law. Therefore the applicable provisions will depend on the certain case.

 

Besides, it is important to know that this right will be lost as soon as the cargo is delivered to the Consignee or his Agent, except for the cases when the Carrier was not able to exercise the right for reasons beyond his control.

 

Places where cargo can be stored while being under lien

 

Under Ukrainian law there are two options where the Shipowner may keep the cargo being under lien - on the board of the vessel or at the chosen bonded warehouse.
Exercise of the lien by retaining the cargo on board the vessel invariably results in delay to the vessel. Recovery of compensation for that delay is not straightforward. If the Shipowner acts in an unreasonable way then he may be unable to recover the delay, notwithstanding that he was exercising a valid lien.

 

As an option the Carrier may transfer the cargo to a bonded warehouse for responsible storage. Simultaneously the Carrier keeps the right of a lien in case of storing goods at a warehouse not belonging to the Consignee upon the condition that the owner of the warehouse is informed that the cargo is under a lien. However, the problems may arise as the Carrier has to conclude the Storage Agreement and is liable for the storage costs, which can be reimbursed afterwards from the Consignee or Shipper. In general, the warehouse owners are afraid that storage costs will not be settled and the cargo will not be collected, therefore the negotiation can take a lot of time and efforts.

 

Common problems arising from the exercising of lien in Ukraine


Problems arise when the owner of the cargo is none of the party of the shipping contracts which is very usual in shipping practice. There are a lot of cases in Ukraine when the Shipowner exercised a lien on the cargo, which did not belong to the Consignee or Charterer, and afterwards the owner of the cargo lodged a possessory claim to the court demanding the vessel to be discharged or to eliminate violations of his right to use and dispose of his property. Even the cargo owners arrest their own property preventing it from the selling procedure. Therefore a lien cannot be exercised effectively at the discharge port.


Due to such court practice, sometimes we recommend to our Clients to declare a lien on cargo, informing the actual Consignee and Shipper about the lien in writing and to keep the vessel an outer road, however in zone of territorial sea of Ukraine, with the purpose of preventing an arrest by the Consignees or by the owner of the cargo. Ukrainian laws do not prohibit the Shipowner to exercise a lien while waiting off the port.


It is very important to register a right of lien on the goods in the State Register of Encumbrances over Movable Property, as registered encumbrances, based on a right of a lien, shall have priority over other registered encumbrances and of course have priority over unregistered.


Notwithstanding the fact that Ukrainian laws recognize right of lien, unfortunately procedure of exercising of the right of lien on cargo was not specified by the law and should be enforced by the bailiffs under the decision of the commercial court (court proceedings) or under the enforcement inscription of a notary (very low chances to be obtained from a notary and implement it afterwards).


Conclusion

 

In conclusion, it should be noted that the Ukrainian laws give a right of lien on the cargo, however, there are a lot of challenges to exercise this right in practice. We had a few cases when we declared a lien on cargo in interests of our Clients, but none of that went to a court - usually parties settle the dispute amicably before the commencement of a court trial.


Individual circumstances vary and other features of Ukrainian law may be relevant. It is recommended that you contact us and take detailed advice before taking any decisions.

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