Liability For Freight: Beware ' The Risk Of Being Required To Pay Twice'

Dry Bulk Handy Holding Inc. and another v. Fayette International Holdings Ltd and another (The Bulk Chile) [2012] EWHC 2107 (Comm).

The Commercial Court has recently determined a dispute concerning an attempt by owners to intercept freight payable by sub-charterers. The case illustrates the risks of a sub-charterer failing to heed a warning that, should he pay his despondent owner despite being put on notice of the ship-owner's rights, he runs the risk of having to pay twice. Thecourt also dealt with a claim for payment for services rendered post-withdrawal.

The background facts

The vessel was, at the material times, subject to the following charterparty chain: DBHH - CSAV - KLC - Fayette - Metinvest.

In early 2011, KLC entered "rehabilitation" proceedings in Korea to restructure their debt obligations. The charterpartiesin the chain between DBHH and Fayette were all on terms which included clause 18 of the NYPE form which provides that "Owners shall have a lien upon all cargoes and all sub-freights for any amounts due under this Charter....".

Bills of lading were issued by Metinvest as shippers stating "freight payable as per Charterparty" and "freight prepaid".In fact, the freight had not been prepaid.

The head owners, DBHH, issued a number of invoices to KLC for hire until in excess of US$700,000 was outstanding. On 1 February 2011, notices were sent on behalf of DBHH to Fayette and Metinvest, directing the sub-charterers to pay freight or hire due under "charters, bills of lading, or other contracts of carriage" directly to the owners. A second notice was sent on 5 February 2011 which sought to extend the lien to cargo onboard.

On 26 February 2011, DBHH withdrew the vessel from KLC's service. On 1 March 2011, Fayette gave five days' notice of the vessel's redelivery. Even though DBHH had withdrawn the vessel from KLC, they continued to perform the voyage and discharged the cargo at Jakarta. On 12 April 2011,Metinvest paid about US$2.5 million in freight to Fayette.

Various claims arose and came before the Commercial Court.

The Commercial Court decision

Claim under the bills of lading

DBHH argued that, under the contract of carriage between DBHH and Metinvest as evidenced by the bills of lading, Metinvest were liable to pay freight to DBHH. Mr Justice Andrew Smith held that the right of DBHH to intercept or to intervene so as to require payment of freight was distinct from any right they might have to exercise a lien over sub-freight.

It...