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Liens - possessory liens - general liens - an analysis by Paul Bugden

by Paul Bugden (Forwarderlaw)

A possessory lien has judicially been defined as a right in one man to retain that which is in his possession belonging to another until certain demands of the person in possession are satisfied. An equitable lien is a species of equitable charge arising in equity by operation of law independent of possession or contract. This note is limited to consideration of forwarder’s possessory liens.

Anything which in law is capable of possession may be the subject of a possessory lien. Documents, just as much as goods may give rise to a right of lien. On the other hand a debt cannot be subject to a lien as it is a chose in action rather than a chose in possession. Nevertheless money can be; to the extent at least it is represented by currency or notes.

Liens arise in all walks of life and may arise by implication of law, by establishment of a custom or by a special contract.

If there is no possession on the part of the lienee (i.e. the party claiming entitlement to the lien) there can of course be no possessory lien but possession held through a sub-contractor or agent of the lienee is sufficient. Possession taken by a wrongful act will of course not suffice.

There can be no lien (at least at common law) if no debt is due and payable to the lienee at the time of the exercise of the lien. Hence if credit terms have been granted by the lienee and have not expired (or otherwise been lawfully revoked) no lien can be exercised. Likewise a claim on the part of the lienee in damages which has not been the subject of a adjudication by the Court or compromise affords no right to a lien.

A general lien is a lien in respect of all monies owed to the lienee. A particular lien is limited to monies owed to the lienee in respect of the goods over which the lien is sought to be exercised. The common law generally only allows a particular lien whereas most liens created by special contract will seek to create a general lien for all sums owed.

The activities in which a freight forwarder can participate are almost boundless and the common law does not recognise a right of lien in favour of a freight forwarder as such. Rather the common law recognises a lien in favour of the freight forwarder when acting in certain capacities. For example a forwarder acting as a traditional forwarding agent or customs agent will have a lien by reason of the lien recognised at law in favour of all agents whether they be engaged in forwarding activities or otherwise. Likewise a forwarder acting as a contracting or actual carrier will have by common law a carrier’s lien. A forwarder acting as a warehouser will generally have a warehouser’s lien by application of law.

If the forwarder wishes to have a clear right of lien and indeed a general lien for all types of business he engages in plainly it is necessary for him to contract for such provision in his contractual arrangements with his customer by means of so-called special contract. Normally this is done by use of one of the standards sets of forwarding terms by the forwarder. Reasonable efforts must have been made by the forwarder to be drawn to the attention of the customer to the terms or the terms must otherwise be specifically referred to in a pre-contract quotation so that they actually form part of the forwarder’s contract with the customer.

A lien however does not of itself carry (subject to a few exceptions) a right of sale on the part of the lienee although such right may be incorporated as a matter of special contract in which case the lienee will have to closely observe the contractual rights given to him and should be careful to serve any notices of intention to sell required by the contract and follow the necessary procedures stipulated by the contract strictly.

The Court also has powers to order a sale under the Torts (Inference with Goods) Act 1977 and by its inherent jurisdiction.

A right of lien (whether arising by common law or by special contract and whether general or specific) does not of itself carry with it a right on their part of the lienee to charge the lienor for the costs of storage or upkeep incurred by the lienee whilst the lien is exercised. Most lien clauses however make specific provision for these charges to be attributable to and payable by the customer and in exceptional cases the lienee may be able to recover the costs even in the absence of specific contractual entitlement to do so.

The most common difficulties with liens usually arises in respect of insolvency of the debtor and claims by third parties although neither usually present insurmountable problems to the forwarder’s successful exercise of his rights.

The exercise of a lien against an insolvent customer may require the consent of the Court although the powers of the Court to order the lienee to return of the goods to the insolvent customer may not be used to deprive the lienee of all security – rather substitute security will be order e.g. payment into Court as a pre-condition to the release of the goods.

It is a commonly held view that a possessory lien cannot be effective against the owner of the goods. However as a matter of law assertion (or indeed proof) of ownership of goods is of itself really neither here nor there in disputing a lienee’s claim to assert a good lien. Provided a lienee has possession of the goods and he can show a valid common law lien (usually limited to the sums owed in respect of the specific goods liened (or a contractual lien) usually extending to a general lien of all monies owed and also giving a power of sale) the his lien will in the ordinary way be good against the whole world.

Possession is just as much an interest in property as is ownership and indeed possession is no lesser interest but simply a concurrent interest and often one in different hands. Evidence of ownership is in any event insufficient for an owner of goods to bring a cause of action against a lienee for wrongful withholding of the goods and their delivery up. The remedy of the owner lies in the tort of conversion but the right to sue in conversion depends upon proof by the Claimant of the immediate right to possession. In all cases where there is a valid lien the immediate right to possession will be that of the lienee and not that of the owner and the owner’s interest in the goods will be taken subject to the lienee’s rights.

Possession, or the right to possession is not an inevitable consequence of ownership and the two are not necessarily in the same hands. The latter is often separated from the former and there is not assumption that just because a person is the owner of the goods that he is entitled to the immediate possession of the goods or indeed any possession at all.

Where the debtor (or indeed any other party) disputes the validity of the lien there are provisions in the Court Rules to enable the sum in dispute to be paid into Court so as to ensure the goods can be released immediately with the money remaining in Court pending resolution of the issue as to whether the lien is valid.

June 28, 2002

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