In difficult economic times transport operators occasionally find that a nominated receiver of shipped goods is unwilling or unable to pay freight or other charges outstanding on a shipment, leaving the carrier with an unpaid bill and/or responsibility for goods they don’t want.  With storage and demurrage charges quickly adding up, carriers must look for an effective way to deal with the abandoned goods.  A well drafted carriage contract can often provide a quick and easy solution for recouping outstanding charges and/or disposing of unwanted goods.

Where payment is outstanding, if the transport operator still has the goods its trump card is its lien, entitling it to retain possession of the goods despite any other party’s rights.  Most standard terms and conditions in the transport and storage industry include a contractual lien over goods to secure any sums owed to the operator.

What is a lien?

A lien is an entitlement to hold goods until an outstanding amount is paid.

A well written lien clause will make it clear that the carrier is entitled to exercise a lien over a shipment for any amounts owed by the shipper concerned, whether those amounts are owed for charges relating to the shipment in question, or previous shipments.  This can be important.  It is not unusual for a transport operator to have released earlier shipments without receiving payment, before subsequently realising the need to exercise a lien over a later shipment to secure payment not just for charges on that shipment, but for all the charges for shipments carried or stored for the same shipper previously.  If the carrier’s lien clause is narrowly written and only allows the carrier to exercise a lien over a shipment for charges relating to that shipment, this may not be permissible.

An important point to note is that a carrier’s lien is dependent on possession.  If a carrier gives up possession to anyone else, the lien is lost.  This does not mean that the carrier must personally keep the goods in hand: the carrier will not lose its lien by keeping the goods, under its direction, at a third party container yard (for example).

A situation that sometimes arises is where, partway through carriage, the carrier learns that freight is not going to be paid (perhaps because the receiver has gone into liquidation).  Can the carrier exercise a lien when the carrier hasn’t yet completed the carriage?  The position is not clear and will depend upon the particular contractual and commercial arrangements, but the answer may well be “no” so this is a point to watch.

Having secured possession of a shipment over which there are outstanding charges – or having been left with possession of an unwanted shipment – what can the carrier do next?  Assuming the cargo has some value and that there are charges outstanding, the obvious solution is to sell the cargo and use the proceeds to pay off the debt.

Can I sell uncollected goods?

There is legislation in each state providing a means of disposing of uncollected goods, but the legislation typically involves lengthy waiting periods and onerous notice obligations or court order, and consequently relying upon the legislation is often inconvenient and uncommercial.  However the statutory procedures do not over-ride existing contractual rights.  Consequently most transport operators already have – in their terms and conditions – the tools to help themselves.  The procedures for exercising the power of sale will ultimately be determined by the specific wording of the contract, but can and typically include the right to sell the goods without notice to the customer, as well as to sell the goods by public auction or private sale.

There are some potential pitfalls which need to be considered and avoided.  The first concern is to ensure that a reasonable market value is obtained for the goods when they are sold.  The transport operator may be required to make up any shortfall to the owner of the goods, if the goods have been sold at an undervalue.  The best way to ensure a market price is achieved is to sell the goods at an appropriately advertised public auction.  This is not always a practical solution for goods in very limited markets; a private sale might be more suitable.  Before disposing of the goods by private sale, the transport operator should take steps to protect itself against any later allegation that the goods were sold at an undervalue.  Such steps might include obtaining offers from multiple buyers, or obtaining and following the advice of a valuer.

Once the goods have been sold, a transport operator’s contract will typically permit the operator to take its outstanding charges from the sale proceeds.  If the sale proceeds exceed the sums owed to the transport operator, the residual amount (less the costs of the sale) will have to be remitted to the customer.

If the sale of the goods has not satisfied the sums owed to the transport operator, it is worth considering whether there are any other parties against which to claim.  Depending on the nature of the contract, there might be other targets such as a shipper or consignee, who may be jointly liable for any costs.  From a practical point of view, it will only be prudent to consider further claims where a large amount remains owing.

Can I dispose of uncollected goods?

Where the goods have little or no value the practical course of actions may well be to simply dispose of the goods to avoid incurring further costs relating to storage or maintenance of the unwanted goods.  A transport operator should consider whether the contract allows for a simple disposal of goods as opposed to sale.  The legislative position varies depending on jurisdiction, though many states allow for the disposal or destruction of perishable goods or goods of no value.

When claiming a contractual lien and exercising a power of sale, it is imperative to ensure you do not exceed the scope of the agreement.  Before exercising a power of sale a transport operator must familiarise themselves with the terms of the contract, and ensure they meet any requirements including any time periods, notice requirements and sale procedures.  If these requirements are restrictive a transport operator should consider amending their terms and conditions for future transactions, and making these amendments well known to their clients.

This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.

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