Samsun Logix v. Oceantrade
Oceantrade was not represented
TIMECHARTERPARTIES: TIMECHARTERERS IN BANKRUPTCY: BANKRUPTCY PROCEEDINGS TAKING PLACE IN NEW YORK COURT: ENGLISH HIGH COURT FREEZING ORDERS: SUB-FREIGHTS HELD IN ESCROW IN ENGLAND: PRIORITIES AS BETWEEN CREDITORS: WHETHER COURT RULING ON PRIORITIES HAD UTILITY: LIEN ON SUB-FREIGHTS: WHETHER ARBITRATION AWARD HOLDING LIEN VALID BINDING ON THIRD PARTIES: WHETHER LIEN EXERCISED IN TIME
In applications to decide which of two creditors (Samsun and Deval) of defaulting timecharterers (Oceantrade) had the better entitlement to sub-freights paid to Oceantrade’s English solicitors and held by them in escrow under a freezing order of the English High Court, the Court held a) that an arbitration award holding that a lien under clause 18 of the standard New York Produce Exchange Form of charterparty had been validly exercised could not affect the rights of persons who were not parties to the arbitration agreement b) that Deval’s purported exercise of that lien came too late to be effective and c) that, although the court in New York seised of Oceantrade’s bankruptcy would determine the final disposition of the escrow funds, it would nevertheless be helpful to that court for the Court to rule on the respective priorities of Samsun and Deval as a matter of English law.
DMC Category Rating: Confirmed
Meanwhile, on 9 September 2005, solicitors for Deval wrote to Mills & Co, giving notice that Deval exercised a lien on the sub-freights the latter were holding, in purported exercise of the lien on sub-freights given by clause 18 of the standard form New York Produce Exchange form of charterparty. At the end of September 2005, Deval obtained from the English High Court a freezing order against Oceantrade. It then took its claims to arbitration and obtained an award in the amount of US$783,026. The award also declared that Deval had validly exercised its right of lien upon the sub-freights held in the Mills’ account. Oceantrade did not appeal the award.
Although the final disposition of the funds in the Mills’ account was clearly a matter for the New York bankruptcy court, both Samsun and Deval asked the court to determine, as between them, their respective priorities to the funds in the Mills’ account.
For Samsun it was argued that Samsun was not and could not be bound by any ruling made in the Deval arbitration to which it was not a party; no finding made in arbitration was capable of creating a right in rem, nor did the clause 18 lien confer any proprietary interest. It was merely a right to intercept freight payments before they reached the charterer. If the lien did give rise to proprietary rights, how could Samsun not be heard on this issue? Conversely, if the lien did not give rise to proprietary rights, how could Samsun be bound by it? Further, by the time that Deval purported to exercise their lien (on 9 September 2005), it was already too late, as the sub-charterers had discharged their obligation to pay freight by paying the funds to Mills, regardless of the capacity in which Mills held the funds. Samsun, as a judgment creditor, enjoyed priority over Deval.
For Deval it was argued that the arbitrator, who alone had jurisdiction to determine the question, had held that Deval had validly exercised its right of lien over the sub-freights, having intercepted the money in time. There had been no appeal of that award and the court had no jurisdiction to rule upon it. As between Deval and Samsun, Deval accordingly enjoyed priority in respect of the funds in the Mills account.
As regards the status of the Deval arbitration award, the judge held that it could only bind the parties to it and could not of itself, affect the rights of Samsun. The judge agreed with the statements in Wilford on Time Charters to the effect that the liens provided by clause 18 of the New York Produce Exchange Form of charterparty were not maritime liens but were contractual only. As such, they created a right only between the parties to the charterparty. They operated simply as a right to intercept that which was moving from a third party to the charterer.
The judge then considered the issue of timing. He held that it was settled law that the right to lien is lost if the sub-freights have already been paid to the charterers or their agents, quoting from the judgment of Rix L.J. in The "Spiros C"  2 Lloyd’s Rep 319 at p.323. He then found that such payment had in fact been made on 7 September 2005, when the sub-freights were paid to Mills & Co. It was clear from the facts of the case, in particular the terms of the freezing injunction, that Mills & Co received the sub-freights as agents for Oceantrade (emphasis added); it made no difference that the funds so received were subject to a freezing order. That did not alter the underlying nature of the payment; it simply regulated the uses which could be made of it.
As a result, the judge held that Deval did not enjoy any priority over Samsun in respect of the escrow funds and that, as a matter of enforcement under English law, Samsun, as a judgement creditor, was "procedurally a step ahead of Deval".
Back to Top
These Case Notes have been prepared with care, but neither the Editor nor the International and other Contributors can guarantee that they are free from error, nor that they contain every pertinent point. Reliance should not therefore be placed upon them without independent verification. The Editor and the International and other Contributors disclaim all liability for any loss of whatsoever nature and howsoever arising as a result of others acting or refraining from acting in reliance on the contents of this website and the information to which it gives access. The Editor claims copyright in the content of the website.