News

MARCH 2016

POSSESSORY LIEN IN THE SPANISH MARITIME NAVIGATION LAW

BACKGROUNDS

Before the approval of the Spanish Maritime Navigation Law, the possessory lien or right to retain cargo was not recognized in Spain–unlike what is previewed in Common Law. Therefore, the Ship owner had no possessory lien over cargo to guarantee the freight payment.

In the Spanish Law, there was only the right to deposit and sell the cargo, as well as a special privilege over cargo that was lost 20 days after its delivery, or even before if the cargo had been transferred to a bona fide third party and at an onerous title.

Article 665 of the Spanish Commercial Code, on the other hand, also indicated that it was not legal that the Captain of a vessel would delay discharging operations if he had doubts about freight payment and this prohibition was interpreted in Spain as a public order norm, and thus, cannot be waived by parties contractually.

However, the Ship owner had the possibility to ask for a judicial deposit of cargo before its delivery to the Consignee, if he had doubts about freight payment.

NEW REGULATION REGARDING POSSESSORY LIEN IN SPAIN

With the approval of the new Spanish Maritime Navigation Law, the possessory lien (in the Common Law sense) is now expressly recognized. With this new Law, if freight is not paid, the affected party can exercise the lien without any further formalities; that is by keeping cargo under their control.

The possessory lien can also be exercised by the Port Handling Operators when the costs for their services are not paid.

The possessory lien is recognized over cargo, not over bills of lading, which must be delivered to the Shipper once the cargo is on board the vessel.

THE POSSESSORY LIEN A PREFERENTIAL CREDIT

The possessory lien is conceived in the Spanish Maritime Navigation Law as a preferential credit. The Law establishes that the transported cargo will be preferably attached to freight payment, delays and other expenses derived from transportation until its delivery and during the following 15 days; except if during this time the cargo has been sold at onerous title to a bona fide third party.

TERMS USED IN THE SPANISH MARITIME LAW WHEN REFERRING TO POSSESSORY LIEN AND TO THE CARGO DEPOSIT AND SALE FILE

The terms used in the Spanish Navigation Law are:

- “Carrier”, the party that, in exchange of a freight payment, transports by sea the cargo and delivers it to the Consignee at the port or place of destiny.

- “Charterer”, the party who charters the vessel for voyages, whether these are carried out in an agreed determined period (Time Charter) or several determined voyages (Voyage Charter). The Charterer can also agree with third parties Charters in his own name for the transport of cargo.

POSSESSORY LIEN AND CARGO DEPOSIT AND SALE FILE

Although the Law does not explicitly mentions “Voyage Charters”, it could be understood that the article 237 applies to these charters.

The Law establishes that the Carrier is entitled to exercise the possessory lien and retain cargo until freight, delays and other expenses derived from transportation are paid.

This lien cannot be exercised when the Consignee is different from the Charterer, unless the Bill of Lading or Sea Waybill mentions that the freight is to be paid at the port of destiny.

The Carrier can also request the initiation of the cargo deposit and sale file, which is done through a notary who is allowed to sell cargo, with the same limitation regarding the Consignee of cargo who is not the Charterer.

The Charterer will also have to pay the part of the freight that the Carrier has not received from the Consignee, in spite of having the Carrier exercised the possessory lien or cargo deposit and sale file recognized by article 237 of the Spanish Maritime Law.

For example, Owner A has chartered his vessel to Charterer B and once freight payment is due, A has the right to retain cargo (to exercise the possessory lien). A can also initiate through a notary a cargo deposit and sale file.

However, for A to exercise his possessory lien, B has to be the Consignee of the cargo or the Bill of Lading must mention that the freight is to be paid at destination.

POSSESSORY LIEN OR CARGO DEPOSIT AND SALE FILE IN A TIME CHARTER

The Law differentiates the actions to be carried out when non-payment occurs in a Time Charter. The Law establishes that the Carrier is allowed to retain or deposit cargo for unpaid freight when cargo belongs to Charterer.

If cargo belongs to a third party who has hired transportation with the Charterer, the Carrier is only allowed to retain or deposit cargo in the amount equivalent to the freight that is still owed to the Charterer.

Thus, if for example, Owner A has chartered his vessel to Charterer B and once freight payment is due, A has the right to retain cargo (to exercise the possessory lien) OR initiate through a notary a cargo deposit and sale file.

However, for A to exercise his rights, B has to be the owner of the cargo.

If B has sold cargo to C a bona fide third party (who could have hired transportation with B), then B would no longer be the owner of cargo and A would only be able to exercise his rights for the freight amount that C still owes to B.

PROCEDURE OF CARGO DEPOSIT AND SALE BEFORE THE NOTARY

Regarding the procedure through notary, the Law indicates that an application before notary must be filed, mentioning the kind of transportation, presenting a copy of the Bill of Lading, the identity of the Consignee if known, the freight, the expenses claimed, etc.

Once the application is accepted, the notary will request to the Consignee the immediate payment of due amounts.

If the Consignee was not found or the claimed person would not pay or provide enough payment guarantee when required or within the following 48 hours, the notary will order the deposit of cargo.

After the deposit, the appraisal and cargo sale will follow. The amount obtained from the sale will be used to cover, firstly, the deposit expenses as well as the sale or auction expenses; and the rest will be delivered to the claimant of the unpaid freight, or other expenses claimed, and only up to the amount claimed.

WHAT IF THE CHARTERER WANTS TO STOP THE SALE DURING THE DEPOSIT AND SALE PROCEEDING.

The deposit ordered by the notary can only be stopped if the required party fulfills two cumulative requirements:

-          Lodging a sufficient guarantee in a 48 hour term period counting from notification of payment request

-          Filing a writ before the Court / Arbitration Chamber within 20 days from the day the guarantee was lodged.

If cargo owners present opposition to the payment when required by the notary or in the following 48 hours, the remainder will be deposited and left in stand-by waiting for the procedure results. In this case, the interested party must present a writ or begin Judicial or Arbitration proceedings before the competent Court within a 20 day period if presented in a Spanish Tribunal or 30 days if presented before a foreign Court, in both cases term begins to count from the presentation of the opposition.

We remain to your entire disposal to provide our services in these subjects, as well as to answer any question or doubts regarding the subject under study in this Circular.