The 3rd Circuit of the U.S. Court of Appeals has affirmed the right of ocean carriers, including non-vessel-operating common carriers, to have contracts that extend common law maritime liens.
Brendan Collins of Washington-based GKG Law represented OEC Group and was successful in getting the 3rd Circuit to rule in favor of his client, overturning decisions by a U.S. Bankruptcy Court and a U.S. District Court. GKG works with many NVOs and represents the National Customs Brokers and Forwarders Association of America, but Collins said the decision would also apply to vessel-operating common carriers.
In an article, Collins said the decision (In re: World Imports Ltd. et, al. 3rd Cir. 15-1498. April 20), is “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.”
The 3rd Circuit held “contractual modifications to common law maritime liens are enforceable,” he said. “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.”
World Imports Ltd. and its affiliates purchased furniture wholesale and sold it to retail distributors. The company used OEC’s services to move the cargo from overseas to the United States.
After World Imports filed for bankruptcy protection, 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 release of the goods unless and until certain prepetition claims were satisfied.
OEC provided documentation that, as of July 10, 2013, the total amount owed to it 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 about $1,926,363.
The bankruptcy court and 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.
The 3rd Circuit reversed, relying in part on 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.”
Collins said the decision was “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, tariff, and the terms and conditions of its bills of 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.
“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 “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.”
Attorney Wayne Rohde of Cozen O’Connor noted in an article “The Federal Maritime Commission has held that an attempt by a common carrier to hold shipments covered by a bill of lading based on amounts due on previous shipments is a violation of the Shipping Act’s prohibition on unreasonable practices in connection with the receipt, handling, storage and delivery of property.
“However, in light of the Third Circuit’s recent decision, it appears that the FMC’s decisions to this effect may be vulnerable to challenge as being based on an overly narrow interpretation of the ability of the parties to extend the possessory lien by contract,” Rohde said.
Shippers’ Law: Extended maritime liens
