Six things you need to know about the right of lien

17 September 2013
Oliver Jackson is a senior associate at MundaysDisputes in the supply chain are increasingly common, with the sector continuing to be affected by the wider economic climate. Although businesses are starting to recover, late payments and insolvencies remain a real problem for industry. Related to these delays is the common dilemma which rises time and time again for carriers in a supply chain: what are their rights over goods held under lien? Can these goods can be sold and can storage charges be claimed? There may also be a question mark over whether the goods are held under lien at all. The following top tips tackle the best way to not only mitigate risk, but to prevent problems related to liens in the supply chain arising in the first place.
  1. Under common law, the carrier has a right of lien over goods received by a seller. But this only covers those specific goods, and isn’t a general right of lien that extends to all goods held by the carrier, pending payment for all contracts. Under common law, the right of lien would also terminate if the purchaser of the goods had not paid for them and fell into insolvency – these rights revert back to the seller.
  2. Therefore, the best place to start is your standard terms of trading or those of your trade association, whether it is the British International Freight Association (BIFA), the UK Warehouse Association (UKWA) or the Road Haulage Association (RHA). By way of example, the BIFA terms contain a number of useful clauses that tackle the shortfalls in common law and help to protect carriers in the supply chain. Some of the key clauses are set out below.
  3. If the carrier is seeking payment, clause 8A is important, giving a right of “general lien” over goods in the possession of the forwarder in respect of any outstanding invoices “on any account whatsoever”. This clause also gives a right to sell the goods held under lien on 28 days’ notice being given.
  4. If the carrier is defending claims for delay and damage, clauses 23-25 exclude liability where the forwarder has used reasonable diligence and/or where delay or the damage is due to factors outside the forwarder’s control. Further, clause 25 includes a general exclusion of liability for delay. Where a forwarder is unable to avoid liability for damage, then clause 26 imposes strict limits on the damages that can be awarded.
  5. It is also important to note claimants are required to act quickly. Under clause 27 of the BIFA terms there is a strict time limit of nine months for commencing legal proceedings. This is the same time limit as under the UKWA standard terms and compares with the one-year time limit under the RHA terms, CMR convention and the Haig Visby Rules.
  6. Most disputes involving freight forwarders are resolved through the use of the BIFA terms, and therefore the challenge is to ensure they are incorporated in contracts. Neglecting to do so leaves the carrier vulnerable to claims, delays and expense, especially if no provisions have been made for a general right of lien, a right to claim storage charges for goods held and a right to sell these goods. Depending on your industry, the UKWA and RHA terms are a reliable alternative.
Neglecting to ensure the standard terms of your trade association are incorporated into your contracts with other parties is when the real issues can start. ☛ Oliver Jackson is a senior associate at Mundays
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