The 3rd Circuit U.S. Court of Appeals decision, which relies on a 1866 Supreme Court opinion, is being heralded as a victory for ocean carriers.
The 3rd Circuit U.S. Court of Appeals has affirmed the right of ocean carriers, including NVOCCs, to have contracts that extend common law maritime liens.
Brendan Collins of GKG Law in Washington represented the non-vessel operating common carrier (NVOCC) OEC Group, which was successful in getting the 3rd Circuit to overturn decisions by the U.S. Bankruptcy and U.S. District Court in OEC Group’s favor. GKG works with many NVOCCs and also represents the National Customs Brokers and Forwarders Association of America.
In an article on the decision — In re: World Imports Ltd. et, al. 15-1498 (3d Cir. April 20, 2016) — Collins said it was “a major victory for NVOCCs and reinforces the benefit to carriers of utilizing expansive lien language in their tariffs, bills of lading and credit agreements with shippers.”
He explained the decision held that “contractual modifications to common law maritime liens are enforceable.”
“The dispute between the parties turned on the question of whether a carrier could enforce a lien up to the value of cargo in its possession for freight owed not only on the shipments at issue but for prior shipments handled by the carrier as well,” added Collins.
World Imports, Ltd. and several affiliated companies involved in the business of buying furniture wholesale and selling it to retail distributors, filed for bankruptcy protection under Chapter 11 in 2013. The company had used the OEC Group’s transportation services for approximately five years to move cargo from countries of origin to its warehouse or other destinations in the United States designated by World Imports.
After the bankruptcy filing, OEC promptly filed a motion for relief from the automatic stay imposed by bankruptcy code.
OEC argued it was a secured creditor with a possessory maritime lien on World Imports’ goods in its possession, and was therefore entitled to refuse to release such goods unless and until certain prepetition claims were satisfied.
OEC provided documentation that, as of July 10, 2013, the total amount owed to OEC by World Imports was $1,452,956. Of that amount, $458,251 was the estimated freight and related charges due on containers then in OEC’s possession, so-called “landed goods,” and the remaining $994,705 consisted of freight and related charges associated with goods for which OEC had previously provided transportation services. OEC estimated the total value of World Imports’ goods then in its possession was approximately $1,926,363.
Collins said both the bankruptcy court and the district court held that OEC could not enforce the lien for prior shipments because the carrier’s lien rights were waived when it released cargo associated with the prior shipments.
In reversing those lower court decisions, he said the 3rd Circuit relied upon an 1866 U.S. Supreme Court opinion, Bird of Paradise, 72 U.S. 545, which “recognized that while ordinarily a cargo lien is lost upon delivery, where the parties extend the lien by contract, the lien is enforceable as written.”
“It’s a case that has not been cited that often and with the passage of time, things that get lost in the fog,” said Collins. “We think this ruling is consistent with rulings from other circuits, but there was some dispute, as reflected in the fact that the district court and the bankruptcy court ruled against us before the 3rd Circuit reversed.”
Because OEC had included language in its credit application, its tariff, and the terms and conditions of its bills lading, providing it with a continuing lien on property of the customer with regard to the shipments on which the lien was claimed and “prior shipments,” and because those documents spelled out that the liens survived delivery, OEC’s maritime liens were enforceable up to the value of the goods, Collins explained.
“In holding that this contractual extension of the traditional maritime lien is enforceable, the Third Circuit recognized that policy concerns articulated by the shipper did not compel a different result,” Collins wrote in his article on the decision.
“Specifically, the court held that any risk to third parties was alleviated by the fact that these liens were reflected in the carrier’s tariff so they had actual notice of the risk,” he added. “In addition, the court recognized that its ruling promotes maritime trade because absent providing such protections to carriers, carriers would not take the risk of transporting cargo without being paid in full for all prior shipments. Finally, the court recognized that its holding was consistent with parties’ right to frame the terms of their contracts as they desire.”
The 3rd Circuit said of the decision, “In sum, we do not think the policy concerns roused by World Imports and accepted by the Bankruptcy Court and District Court are sufficient to either outweigh the benefit to commerce of allowing two sophisticated businesses to contract to a mutually agreeable transportation and credit arrangement, or to curtail the broad contractual freedom the Bird of Paradise on its face allows.”
Court rules ocean carriers, NVOCCs can extend maritime liens
