Lloyd's Maritime and Commercial Law Quarterly
LIEN ON SUB-FREIGHTS NEED NOT BE PERFECTED UNDER U.S. UNIFORM COMMERCIAL CODE
In re Pacific Caribbean Shipping (U.S.A.) Inc. (The Alicia)1
In a recent case of great commercial importance, it was held that a shipowner’s lien on sub-freights under a time charterparty is a maritime lien not governed by the filing requirements of the Uniform Commercial Code (UCC), enacted in all states except Louisiana. This decision is in sharp contrast with that of Nourse, J., in the Chancery Division of the English High Court in In re Welsh Irish Ferries Ltd. (The Ugland Trailer)2 to the effect that the lien is a “charge” registrable under the Companies Act 1948, s. 95 (now the Companies Act 1985, s. 395).
Both cases involved time charters under the New York Produce Exchange Form, in which cl. 18 gives the owner a lien on sub-freights as security for charter hire due. In The Alicia, the vessel was sub-chartered out. The time charterer having defaulted in its obligation to pay charter hire, the owner terminated the charter and withdrew the vessel. The sub-charterer was notified to withhold payment to the time charterer and complied. Shortly thereafter, the time charterer filed for bankruptcy. The trustee in bankruptcy sought to set aside the owner’s lien on the sub-freights earned by the time charterer because the owner had not perfected its lien by filing a notice of same under the California version of the UCC. (The charterer had an office in California.)
The UCC governs, among other things, secured transactions. It provides that a “security interest” in “accounts” can be perfected only by filing a “financing statement” in a registry maintained by the state in which the debtor is “located”. The trustee argued that the following definition indicated a legislative intent to cover liens on sub-freights:
“Account” means any right to payment for goods sold or leased or services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance …. All rights to payment earned or unearned under a charter or other contract involving the use or hire of a vessel and all rights incident to the charter or contract are accounts.
It has previously been noted3 that under U.S. law a maritime lien has a very special significance that can determine the outcome of a case. In The Alicia, the trustee contended that the lien on sub-freights is not a maritime lien and that state law is therefore controlling. The court decided to the contrary.
Prior to the adoption of the UCC by 49 states,4 it was held in numerous cases5 that a maritime lien on sub-freights prevails over non-maritime claims of
1 789 F.2d 1406, 1986 A.M.C. 2308 (9th Cir., 1986).
2 [1986] Ch. 471; see M.T.W. [1986] 1 LMCLQ 1.
3 See D. R. Owen, “U.S. Maritime Liens and the New Arrest and Attachment Rules” [1985] 4 LMCLQ 424.
4 Louisiana has a substantially similar filing requirement without, however, any reference to charters.
5 Eg. In re North Atlantic and Gulf Steamship Co. Inc., 204 F. Supp. 899, 1963 A.M.C. 871 (S.D. N.Y., 1962), aff’d 320 F.2d 628 (2d Cir., 1963).
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