Metall Market OOO v Vitorio Shipping Company Ltd

A shipowner exercising a possessory general average lien may retain cargo until reasonable security is tendered. Taking security does not waive the lien unless the security, or the circumstances in which it is taken, is unequivocally inconsistent with retaining it. A general average guarantee may properly be treated as intended to operate with a general average bond.

At common law, a lienee cannot recover the costs of retaining possession adversely to the goods owner solely to enforce the lien, even where those costs preserve the goods. That rule may be altered by contract. A receiver ready and willing to take delivery does not breach an obligation to take delivery merely because the shipowner lawfully withholds delivery under the lien. Demurrage under operative laytime provisions is distinct from damages for detention.

The claimant, a receiver of steel coils, appealed under section 69 of the Arbitration Act 1996 from an arbitral award concerning general average following the capture and ransom of the vessel Lehmann Timber by Somali pirates.

The arbitrators held that the defendant shipowners were entitled to retain the cargo under a general average lien, despite having received an insurers’ guarantee for one parcel, because the claimant had not provided the accompanying general average bond. They also awarded the shipowners storage and related expenses incurred after the cargo was discharged into a warehouse.

The appeal concerned whether the guarantee had waived the lien and whether storage costs were recoverable. The central issues were the effect of the guarantee and bond practice, the rule in Somes v British Empire Shipping Co, and whether the claimant had breached any obligation by failing to take delivery.

1. First question — lien and guarantee. The appeal on delivery of the 98 coils was dismissed. A shipowner has a possessory lien for general average and both a right and a duty to exercise it for the benefit of those interested in the adjustment. The lien remains until payment or reasonable security is tendered.
2. Waiver by taking security depends on whether the security or the surrounding circumstances are unequivocally inconsistent with continued retention of the lien. Where the position is doubtful, the lienee is not taken to have waived the lien. This follows from the principles discussed in Angus v McLachlan, In re Taylor, Stileman & Underwood, Bank of Africa Ltd v Salisbury Gold Mining Co Ltd and In re Morris.
3. The insurers’ guarantee was properly construed, against the background of long-established practice, as intended to operate with a general average bond. It therefore did not provide sufficient security in the absence of the bond and was not inconsistent with the continuing lien. The arbitral finding that a bond was reasonable was a mixed finding of fact and law which could not be shown to be wrong. Section 3(1)(a) of the Carriage of Goods by Sea Act 1992 did not make the bond unnecessary.
4. Second question — storage costs. The appeal succeeded on the storage costs. Under Somes v British Empire Shipping Co, a lienee cannot recover costs or expenses of retaining possession adversely to the owner solely in exercise of the lien. The principle applies to preservation expenses as well as remuneration. The bailee’s correlative right to recover reasonable preservation expenses recognised in China Pacific SA v Food Corporation of India (The Winson) does not apply where the bailee is withholding possession solely under the lien.
5. The shipowners could not recover the storage costs as damages. The claimant was ready, willing and able to take delivery; the only reason delivery did not occur was the shipowners’ decision to withhold it. The lien is self-help and does not create a breach by the receiver or convert the exercise of the lien into a basis for damages.
6. Rashtriya Chemicals and Fertilisers Ltd v Huddart Parker Industries Ltd (The Boral Gas) and Lyle Shipping Co v Corporation of Cardiff concerned demurrage or a laytime regime and did not govern a claim for damages absent breach of an equivalent contractual obligation. The storage claim therefore failed. The parties were to address the appropriate relief.

Arbitration — An arbitral award dated 22 July 2011 held that the shipowners could retain the cargo under a general average lien and recover the storage costs.

High Court (Commercial Court) — The appeal under section 69 of the Arbitration Act 1996 succeeded in relation to the storage costs but failed in relation to delivery of the 98 coils.