Lien is a powerful legal remedy

Feb 2, 2009
Author: Jeremy Prain,
Bowman Gilfillan, Cape Town

by Jeremy Prain
Senior Associate in the Maritime & Transport Department of Bowman Gilfillan, Cape Town

The freight and logistics industry is a pressurised business. Most cargoes are time sensitive and the slightest delay can have severe financial and reputational consequences for any of the parties in the logistics chain.

Carriers, freight forwarders and warehousemen have to balance these time pressures against the commercial risk of non-payment for their services. There is, at times, a fine line between buckling to time pressures by releasing cargo in one’s possession before payment, and exercising a lien – otherwise known as a right of retention over property – as a means of securing claims against debtors for unpaid freight and related carriage charges.

The right to retain the property of another by way of a lien is a powerful legal remedy and often takes exporters and importers by surprise. It is therefore worth considering the legal issues surrounding the exercise of liens and the extent to which a lien holder may retain property in its possession.

A lien is a right to retain physical control over another’s property as a means of securing payment of a claim until the claim has been satisfied. In other words, the lien holder obtains rights of possession over property, but only so far as to provide the holder with security for a claim.

The rights afforded to carriers, forwarders and the like to exercise a lien flows from the personal obligations created by the contract for the carriage or storage of the goods. Liens of this nature are referred to as “debtor and creditor” liens.

Several South African court judgments which have confirmed, for example, that a warehouseman has a lien as security for storing goods, and a forwarding agent, carrier and ship’s Master have a lien over goods they have forwarded or transported, to ensure payment of agents’ fees, freight and storage on those goods.

Moreover, it is normal in the industry to find specific contractual clauses in a carrier’s or forwarder’s standard trading terms and conditions or bills of lading, which specifically reserve the right to exercise a lien over goods as security for the debts of their customers.

Our courts should, in principle, respect and uphold the lien holder’s right to exercise a lien, provided that it can be shown that the lien holder has exclusive possession of the property which forms the subject matter of the right.

Furthermore, the property retained must be owned by the person who owes the debt to the lien holder. In other words, a lien will be defeated if, for example, a freight forwarder attempts to exercise a lien over goods owned by party “A” as security for unpaid freight owed by party “B”.

The general rule requiring the lien holder to retain exclusive and uninterrupted possession of the property has been relaxed in our law insofar as it relates to the shipowners’s right of retention. A shipowner will be deemed to remain in possession of property where he delivers the goods to a warehouse under his own or under the sole control of the ship’s agent, or in circumstances where the shipowner is required by law to land and warehouse the property.

A question which often arises in the context of liens is whether the lien holder can exercise a so-called “general lien” to retain property against payment of a general balance of accounts which it may have in respect of a particular debtor. Carriers and forwarders will normally seek to rely on a general lien by including a term in their bills of lading or standard trading conditions which purports to grant them the right to exercise a lien over all goods coming into their possession as security for all debts owed by the “merchant” or customer.

In the absence of a specific contractual term providing for a general lien, the legal position is that the lien holder will be restricted to exercising lien over property that relates to the claim only – not all property in his possession.

However, if the lien holder reserves the right in his contract with the owner to exercise a “general lien”, then there is legal authority – in the decision of Danzas Trek (Pty) Ltd v Du Bourg – to the effect that a lien of this nature is enforceable.

In this case, the claimant, which carried on business as an international clearing, shipping and forwarding agent, sought to rely on clause 28 of the (then) SAFA terms and conditions, which provided that “all goods which come into the possession or under the control of the Company shall be subject to a special and general lien and pledge for monies due to the Company in respect of services and/or disbursements relating to such goods, and for any other indebtedness to the company from whatever cause by the sender, owner or consignee of the goods”.

The Court found that clause 28 entitled the forwarder to a lien for any indebtedness, whether it arose from the goods held by it or not, and that the lien would extend to all goods held by the claimant. It should be noted, however, that the lien holder would still be required to establish that the debtor is the owner of the property over which the lien is exercised.

Ownership can often be difficult to prove when one is dealing with numerous parties involved in the logistics chain.

Lien holders are often caught on the horns of a dilemma when seeking to exercise a lien, because the holder will normally be required to store the goods (at a cost) whilst retaining the property. Legally speaking, there is considerable doubt as to whether the expenses incurred by the lien holder in maintaining the property are secured by the lien. Although there are conflicting court decisions in this regard, the better view (and one endorsed by most textbooks) is that such costs should be recoverable by the lien holder.

It should also be noted that the owner of the property may defeat the lien by providing adequate alternative security, such as a bank guarantee, for payment of the debt. The court will exercise its discretion as to whether or not to order restoration of the property in return for substituted security. Much will depend on the particular facts of every case.

While liens will generally be exercised sparingly, exporters and importers are well advised to take adequate steps to prevent their cargo being retained. The power to stop the movement of a consignment of goods due to non-payment can have catastrophic consequences for all of the parties in the logistics chain.