Court Of Appeal Confirms Ship-Owners’ Rights To Intercept Freight

Dry Bulk Handy Holding Inc. and another v. Fayette International Holdings and another (The Bulk Chile) [2013] EWCA Civ 184

In our October 2012 Shipping E-brief, we reported on the Commercial Court decision in The Bulk Chile, which held that a ship-owner is entitled to redirect the payment of freight due under bills of lading and separately rely on a charterparty lien on sub-freights. The Court of Appeal has now upheld that decision. The prevailing view remains that a lien on sub-freights is a form of security in the form of a charge which in certain jurisdictions may need to be registered to be effective where the time charterer becomes insolvent. It should be noted that such charges are registrable in the UK and that our rules governing the registration of charges changed on 6 April 2013.

The background facts

The vessel owned by DBHH was time chartered to KLC and sub-time-chartered to Fayette. Both time charters were on NYPE terms, clause 18 of which provided that "Owners shall have a lien upon all cargoes and all sub-freights for any amounts due under this charter... ." Fayette voyage chartered the vessel to Metinvest. KLC failed to pay hire so DBHH sent a notice to Fayette and to Metinvest requiring them to pay direct to DBHH freight or hire due under "charters, bills of lading, or other contracts of carriage".

Subsequently, bills of lading were issued for the cargo which stated "Freight payable as per [the voyage charter]" and "freight prepaid", although freight had not in fact been paid. The bills were owners' bills and the shippers were Metinvest. Metinvest paid freight to Fayette. DBHH accordingly brought both bill of lading claims and charterparty lien claims.

The Commercial Court decision

Mr Justice Andrew Smith held that DBHH was entitled to instruct Metinvest to pay the freight due under the bills of lading to DBHH. This right arose independently of DBHH's rights under clause 18 of the time charter and could be exercised at any time before the freight had been paid.

Clause 18 gave DBHH security over "all sub-freights" due to KLC. This security took the form of an assignment by way of a charge. The KLC-Fayette charter contained the same clause and therefore gave KLC security over Fayette's right to receive freight under the voyage charter. Consequently, Fayette had given security over the voyage charter freight to KLC who had assigned that security to DBHH.

As the notices were sent by DBHH before freight was paid, they constituted...