A decision that the common provision in time charters giving owners a lien on sub-freights constitutes an equitable charge registrable under s. 95 of the Companies Act 1948 (now s. 395 of the Companies Act 1985) may prove to be a serious inroad into the already limited remedies available to shipowners when time charterers default in payment of hire.

Welsh Irish Ferries chartered the Ugland Trailer from Norwegian owners on the New York Produce Exchange form for a period of about six months. The charter contained the usual cl. 18 giving the owners a lien upon all sub-freights for any amounts due under the charter. During the currency of the charter, Welsh Irish Ferries executed a debenture in favour of a bank under which, inter alia, “all book debts both present and future due or owing to the company and the benefit of all rights relating thereto …” were charged. The debenture, which further provided that the charge created should be a fixed first charge, was duly registered under s. 95 of the Companies Act 1948. Section 95(1) of the 1948 Act (now s. 395 of the 1985 Act) renders void against the liquidator and any creditor of a company to which the section applies, any charge created by the company unless it is registered within 21 days. By s. 95(2) (now s. 396 of the 1985 Act) the section applies, inter alia, to “a charge on book debts of the company”.

Cargo was carried during the period of the time charter under the terms of consignment notes issued to shippers by the time charterers. No bills of lading were issued and hence there were no contracts to which the owners were a party under which freight was payable. The only rights the owners of the Ugland Trailer had in regard to freights were those given by the lien on sub-freights under cl. 18 of the time charter.

Following defaults in the payment of hire by the time charterers, the owners terminated the charter and gave notice to shippers requiring them to pay all outstanding sums due in respect of freight to them. Subsequently, the bank in exercise of its rights under the debenture appointed receivers who, after an order was made for the winding-up of the time charterers, applied to the court for directions whether to pay the freight collected from the shippers to the owners or to the bank.

It was held by Nourse, J.,1 that the lien on sub-freights operated to create an equitable charge on Welsh Irish Ferries’ book debts, including the sub-freights; that on the clear wording of s. 95, the lien was registrable as a charge; and that, since the lien had not been registered, the bank’s fixed charge took priority over the claim of the owners of the Ugland Trailer.

It was argued on behalf of the owners that although the New York Produce Exchange form of time charter had been in use since before 1913, the rights under cl. 18