Novorossiysk Co. v. Chemex
In this case, the Fifth Circuit Court of Appeals, in a majority opinion, reversed the judgment of the district court and held that the time-charter between Novorossiysk and Chemex, under which Novorossiysk was afforded a lien on "all freights", was sufficiently explicit to provide a lien on all subfreights. Accordingly, the court concluded that Novorossiysk had a maritime lien over the subfreights that would take priority over a third-party’s Rule B attachment. Rule B* of the Supplemental Rules for Certain Admiralty and Maritime Claims codifies the traditional maritime attachment practices and procedures under U.S. law.
DMC Rating Category: Confirmed
Case note submitted by Jana N. Byron of the firm Healy & Baillie, LLP in New York. Healy & Baillie are the International Contributors to the website for the United States
Novorossiysk thereafter faxed a notice to Westway stating that it was exercising a lien on "all freights and subfreights" due under the time-charter and requested that Westway pay all outstanding freight due under the Chemex-Westway voyage charter directly to Novorossiysk. Chembulk Trading subsequently obtained a Writ of Attachment and Garnishment pursuant to Rule B on the same funds owed by Westway to Chemex. After Chembulk Trading obtained its writ, Novorossiysk also obtained a writ of Attachment for the funds.
As stated above, the Novorossiysk-Chemex time-charter granted Novorossiysk a maritime lien on "all cargoes and all freights for any amounts due under this charter." The district court determined that, as a matter of law, the Westway freight was properly characterized as "subfreights" rather than "freights" (because it was money owed to Chemex by a third-party payor/subcharterer of the m/v "Tuapse"). The court then concluded that the Novorossiysk-Chemex time-charter did not give Novorossiysk a maritime lien on the Westway freight because the charter provided for a lien only on "all freights" and not on "subfreights."
The Circuit Court reversed this decision, holding that the district court’s interpretation of "all freights" in the Novorossiysk-Chemex time-charter was erroneous as a matter of law. The Court based its decision on the basic principle of contract interpretation that all the terms in a contract should be interpreted without rendering any of them meaningless or superfluous. Applying this principle, the Court reasoned that if the charter gave Novorossiysk a lien over "freights" only, it would, in effect, be affording Novorossiysk a lien on a debt owed to itself. Interpreting the charter in this manner, the Court observed, would render the term meaningless in so far as it would be "useless to assert a security interest in the very debt owed."
The Court went on to state that a more meaningful interpretation would be that the term "all freights" afforded Novorossiysk a lien on the subfreights owed by Westway. The Court reasoned that this was so because (1) such an interpretation would render the term "all freights" meaningful; (2) it was consistent with the definition of "freight" and "subfreight"; and (3) many courts have regularly used the terms "freight" and "subfreight" interchangeably regardless of whether the money was owed by a charterer or subcharterer. The Court concluded that the "term ‘subfreights’ has not become, by custom and usage, the only way to refer to compensation payable by a third party to a charterer", and that the term "all freights" in the Novorossiysk-Chemex time-charter was sufficiently explicit to provide a lien on all subfreights. Thus, the Court held that Novorossiysk had a maritime lien on the subfreights that took priority over Chembulk Trading’s Rule B attachment.
*A Rule B attachment is generally available where a plaintiff has an in personam maritime claim against a defendant and it allows the plaintiff to assert jurisdiction over a defendant through attachment of property in a jurisdiction in which the defendant cannot otherwise be found. The attachment procedure serves both to obtain jurisdiction over the defendant (to the extent of the attached property) and to secure the plaintiff’s claim.
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