Arthur A. Nitsevych, Interlegal Ukraine

Failure of the charterer to pay the freight or demurrage amount incurred at the port of loading is quite frequent situation in the carriage of goods by sea. In the shipping business, the most common type of shipowner’s remedy is the right of lien over the cargo in his possession. The right to declare a possessory lien on cargo is often expressly reserved both in voyage and time charter-parties. In many countries of Black Sea region the right of lien is being treated in similar ways, however, if the shipowner intends to exercise this right within the jurisdiction of Ukraine, he should consider several aspects related to the peculiarities of local laws.

Generally, the concept of a lien on cargo is being recognized in Ukraine. The right of possessory lien arises out of the direct guidance of the law and does not require any additional stipulation in the charter-party. As a common rule, the legislation of Ukraine provides that a creditor, who legitimately possesses the property to be handed over to the debtor, is entitled to retain this property in the event of failure of the debtor to pay for such property, or to reimburse the creditor for costs and other losses related to the property. Under the Ukrainian civil law, the creditor has the right of lien on the property regardless of a third party’s acquisition of the title to it, e.g. where the title was transferred after the property got in possession of the creditor (for example, where the negotiable bill of lading is transferred to a third party while the cargo is being carried).

In addition to the general rules stipulated in the Civil Code, Ukrainian legislation contains a number of special provisions regulating the possessory lien in shipping sector. With regard to the carriage by sea, there are respective provisions in the Code of Merchant Shipping of Ukraine.

It need to be mentioned, however, that where the property is not originally belonging to the debtor as its owner or bona fide holder, it cannot be retained by the creditor. Therefore, a very controversial aspect of the execution of a possessory lien may arise where a debtor (charterer) is not the owner of the cargo, which is typical for sea carriage. The bills of lading usually do not associate the charterer with the real owner of cargo in any way. Consequently, when a shipowner exercises a lien on cargo that is not directly associated with the charterer, there is the risk that the shipowner will face certain legal actions from the cargo owner or consignee.

Having not obtained delivery of the cargo, the cargo interests (owner, consignee under the bill of lading or the lawful holder of the bill of lading) may apply to local court with the possessory claim, asserting that the shipowner prevents the cargo interests to take possession of and dispose of their property. The cargo interests so would request the court to lay the shipowner under obligation to discharge the cargo. In one of the recent cases, the cargo owners even imposed an attachment of their own cargo in the vessel\’s holds in order to prevent the vessel from sailing. Combined with the lien on cargo declared by the shipowner, this created a deadlock.

On the other hand, the initiation of court proceedings by the cargo interests may furnish the shipowner with additional legal instruments, including the possibility to defend against cargo interests’ claim or file a counterclaim to the same local court. For example, the shipowner may ask the court to grant the permission to unload the cargo into the shore facility.

Such legal possibility exists, despite the actual performance of such procedure is not really simple. The provisions of Merchant Shipping Code stipulate that a carrier retains the right of withholding the cargo when the cargo is placed into the shore warehouse, subject to the prior notification of the cargo owner regarding such possessory lien. As for the actions which are available in Ukraine to exercise the lien on cargo after discharging it into the shore storage facility, such are quite problematic both from legal and practical point of view.

First of all, the placement of cargo in the shore warehouse is directly connected with customs clearance issues, and the shipowners, not being the owners of cargo, are not able to arrange the necessary customs procedures for temporary import.

Secondly, the placement of cargo in the shore facility is possible only subject to the execution of respective contract between the shipowner and storage facility operator. It is presumed that the cargo owners or consignees themselves have such contract with the shore warehouse operator; therefore they will be able to effectively prevent the placement of cargo into the storage.

Thirdly, the cargo stored in shore warehouse must be clearly identified to the court to obtain judicial attachment. There is some controversial court practice, when interested persons imposed an arrest to cargo immediately after discharging, using the terminal cargo receipts, but it cannot be said that such practice is well established.

The best plan of actions in such situations depends on the measures chosen, which should be extensively considered. Before declaring a possessory lien on cargo, all possible risks for the shipowner must be assessed in details.