On 29 June 2018 the Eastern Finland Appeal Court handed down a significant judgment on whether the statutory maritime lien over cargo also covers the costs associated with the general average that accrued as a result of confirming the general average and exercising the lien for a general average contribution.
The Lehmann Timber, carrying steel coils under four Congenbill bills of lading from China to St Petersburg, was hijacked off the coast of Somalia and held until a ransom was paid in July 2008. The owner declared a general average and requested security from the Russian cargo owner for its share of the general average contribution. As the owner had received a guarantee only in regard to one bill of lading, the vessel departed from St Petersburg and discharged the cargo in Hamina, Finland, where the cargo had been stored since October 2008, causing storage and associated costs approximating $2 million.
District court decision
According to the Maritime Code, a maritime lien over cargo is lost if the cargo is released. The maritime lien extinguishes within the one-year limitation period unless legal proceedings are commenced.
In July 2009 the owner commenced court proceedings before the Kymenlaakso District Court in Kotka, Finland, to secure its statutory maritime lien under the Maritime Code. The owner’s claim was that, considering the general average claim of $1.3 million (to be confirmed in the arbitration in London) and the legal costs (totaling over £1 million), interest should be paid by virtue of the maritime lien over the cargo possessed by the owner in Hamina.
According to the claim, pursuant to Chapter 3(9) of the Maritime Code, a maritime lien on laden goods is security which covers (for example):
- receivables concerning salvage money;
- general average contributions; or
- other costs to be divided on the same grounds.
The legal proceedings in Finland were complex and delayed for years while awaiting arbitral awards from England. In the meantime, the cargo was sold to new owners and the original owner went bankrupt.
The district court finally rendered its judgment on 10 February 2017. The court accepted the owner’s claims by relying heavily on the testimony of an emeritus professor regarding whether the maritime lien on the cargo covered the costs associated with the general average claim in addition to the general average contribution, including:
- the interest on the general average claim;
- the storage costs in Finland; and
- the legal costs of arbitral and court proceedings in England and Finland.
According to the expert testimony, other than a 1968 reference in support of the owner’s view, no existing Finnish legal literature addressed this question; however, Nordic maritime literature and real arguments supported the interpretation that legal and storage costs are associated with the general average claim and therefore, to be recoverable, do not have to be such other costs which are divided on the same grounds.
Appeal court decision
Following the cargo owners’ appeals, the Eastern Finland Appeal Court overruled the district court’s decision in regard to the storage ($1.7 million) and legal costs, and partially in regard to the interest on the general average contribution. The appeal court ordered the owner to release the cargo to the defendants against the presentation of the original bills of lading and the payment of the general average contribution.
According to the appeal court, a maritime lien arises under the law, not under a contract. Therefore, the court cannot order any receivables other than those legally owed under the maritime lien. In this regard, the mortgage is considered differently as, according to the Enforcement Code, associated costs of the receivables are also secured if they are included in the mortgage deed.
Contrary to the district court, the appeal court based its decision on the Enforcement Code and associated legislation. According to Chapter 5(33) of the Enforcement Code, claims must be paid in order of priority. The Act on Order of Priority of Creditors holds that interest is limited to three years.
Regarding the part of the cargo for which the guarantee was provided, the Appeal Court found that this should have been released in St Petersburg and its possession was unjustified. As for the remaining part, on 5 February 2013 the cargo owners offered to pay the general average contribution and storage costs against the release of the cargo. The appeal court found that the duty to pay interest had ended on this date.
Regarding the legal costs, the appeal court emphasised that the purpose of the general average contribution is to compensate financial sacrifices that also benefit the cargo owners. In this case, the legal costs resulted from the confirmation of the general average and therefore did not benefit the cargo owners. Further, such costs are not deemed to be recoverable in the legislature.
Regarding the storage costs, the appeal court admitted that the situation might need to be treated differently as the storage of the cargo had also benefited the cargo owners. However, in order for such costs to be recoverable, they must be included in the general average contribution. As this was not the case, the owner’s claim was dismissed.
In deciding that these kinds of associated cost and expense are not recoverable and secured by maritime lien, the appeal court made the exercise of a lien more difficult and less attractive to ship owners. However, as statutory maritime lien provides additional security to ship owners, it would be similarly correct to conclude that the effect of lien cannot be extended beyond the express provisions of the law.
The appeal court’s judgment is not legally binding as the owner has sought leave to appeal to the Supreme Court.