Lord Marine Co SA v Vimeksim SRB DOO

Under section 44 of the Arbitration Act 1996, the court may order the sale of cargo subject to a contractual lien securing an arbitral claim. The cargo may be the subject of the proceedings even where the arbitration seeks payment rather than a declaration concerning the lien. In an urgent case, sale may preserve the value of an asset where deterioration would destroy or substantially impair the security. The power is exercised by reference to the court’s powers under CPR Part 25, including the power to sell perishable property. Possible third-party ownership does not itself prevent sale where the lien is incorporated into the bill of lading and binds the relevant interests. Appropriate protection may be required through an undertaking in damages, potentially fortified by security.

Shipowners sought an urgent order for the sale of 11,000 tonnes of corn under section 44 of the Arbitration Act 1996. The cargo was subject to a contractual lien securing unpaid freight and was deteriorating through self-heating, mould growth and infestation. The owners had commenced London arbitration against the charterers, who failed to appoint an arbitrator and did not attend the application. The receivers were notified but also did not attend. The bill of lading was marked freight prepaid, but had been retained by the owners and had never been held by a lawful holder. The issues were whether the court had jurisdiction to order sale, whether the statutory and CPR criteria were met, and whether possible third-party ownership affected the lien.

The application was granted. The court ordered the sale of the cargo under section 44 of the Arbitration Act 1996, subject to an undertaking in damages fortified by security of $75,000.

1. Jurisdiction. A contractual lien over a defendant’s goods may make the goods the subject of arbitral proceedings where the lien is exercised as security for a claim advanced in arbitration. The reasoning in The Moscow Stars supported the conclusion that no separate claim for a declaration concerning the lien was required. Section 44(1) gave the court the same relevant powers as in legal proceedings, including the power under CPR Part 25 to order sale.
2. Urgency and preservation. The cargo was perishable and was at immediate risk of further deterioration. Sale was necessary to preserve the value of the asset and the value of the owners’ security. The arbitrator had consented to the application, although the court held that, in an urgent case, an order could be made without such consent where necessary to preserve assets.
3. Lien and third-party interests. The possible sale of the cargo to a third party did not provide a defence to the owners’ claim or prevent exercise of the lien. The lien clause was incorporated into the bill of lading. Since the bill of lading had been retained and no party had become a lawful holder, the freight-prepaid notation did not create an impediment based on estoppel. Even if the cargo belonged to a third party, the lien could bind that interest where incorporated into the bill of lading.
4. Possession and protection. The owners had retained possession through a storage agent and had not lost the lien by storing the cargo in a warehouse owned by them. The court required an appropriate and fortified undertaking in damages because the lien might ultimately prove wrongful.