BC Court Of Appeal Upholds The Right Of A Shipowner To Direct Payment Of Freight

The B.C. Court of Appeal has confirmed that a ship owner which is a party to a bill of lading has the right to direct payment of unpaid freight that would otherwise be payable to a third party. In doing so, the Court has adopted, for the first time, the longstanding position in English law in Canada. [Byatt International SA v. Canworld Shipping Company Ltd. et al, (2013) BCCA 427]

Byatt International SA ("Byatt"), the owner of the vessel "LOYALTY",had time chartered it to Korea Line Corporation ("KLC"). KLC in turn had time chartered the ship to MUR Shipping BV ("MUR").

Subsequently Canworld Shipping Company Limited ("Canworld"), who had a service agreement with Prism Sulphur Corporation ("Prism") to transport Prism's sulphur worldwide, voyage chartered the vessel from MUR. In this case, the sulphur was being shipped to Australia pursuant to a bill of lading signed by the "LOYALTY's" master and Prism was named as the shipper.

During the term of the time charter KLC became insolvent and defaulted on its hire payments to Byatt. MUR however remained current in its hire payments to KLC.

Byatt then moved to secure its position by serving a Notice of Lien under its charter party on Prism. The Notice sought to exercise a lien over the freight payable by Prism and still outstanding under the bill of lading. As a result of that Notice and the competing claims of Canworld and MUR for the freight, Prism brought interpleader proceedings in order to have the Court determine which party was entitled to the unpaid freight.

After the freight had been interpleaded but before the Court's determined which claimant was entitled to the interpleaded funds, Byatt served a Direction to Pay on Prism requiring Prism to pay to Byatt the unpaid freight payable pursuant to the bill of lading.

At the trial level both MUR and Canworld succeeded in their argument that Byatt was not entitled to the freight. However, the Court of Appeal has now reversed that decision and held that Byatt was entitled to the freight.

Pursuant to a settlement between Byatt and KLC reached in separate insolvency proceedings in Korea, any monies that were received by Byatt pursuant to its contractual rights to exercise liens against hire or freight were to be credited against the amount owed by...