Server: Netscape-Enterprise/2.01 Date: Wed, 31 Dec 1997 20:56:45 GMT Content-type: text/html
On June 18, 1996, a Federal Appeals Court for the 9th Circuit held that an NVOCC may obtain a maritime lien on cargo for unpaid oceanfreight charges. This long awaited decision is significant for NVOCCs.
Prior to becoming an attorney, I worked for an NVOCC in Seattle, Washington. We often experienced collection problems and we realized that once the freight was released to the consignee, there was little we could do to enforce our rights unless we intended to expend significant resources. The chances of recovery become even slighter whenever we learned the shipper/consignee may be bankrupt.
The case in question is entitled Logistics Management d/b/a TWI Ocean Logistics Services v. Pyramid Tent Arena et al. ____F3d____, (1996 WL 330484 (9th Cir. (Cal.)) The case concerns a five story modular tent like structure that was shipped from England to Las Vegas, Nevada.. The tent like structure called the "pyramid" was owned by Pebbles Music who leased the structure to Diamond Entertainment. Diamond intended to use the pyramid at a hotel in Las Vegas, Nevada for gladiator performances. Diamond used the NVOCC- TWI to transport the Pyramid from England to Nevada. The oceanfreight charges were approximately $250,000.
TWI booked the pyramid with Maersk Container Line. The goods left Felixstowe and then were discharged in New Jersey. The pyramid was the placed on a rail to California. After the Pyramid arrived in Long Beach, TWI refused to make delivery to Las Vegas claiming that the shipper did not pay the prepaid freight charges as referenced on the NVOCC-TWI bill of lading. TWI already paid Maersk line the shipping charges.
TWI then filed various complaints in Federal Court for the foreclosure of a maritime lien and for collection of tariff charges against the individuals and the cargo itself. TWI also filed to arrest the goods, which was granted by the District Court Judge and Maersk was appointed the custodian of the freight. Shortly thereafter, both Pebbles and Diamond filed motions to dismiss the case for lack of subject matter jurisdiction. The Federal District Court Judge ruled in favor of Pebbles and Diamond and the case was dismissed - TWI appealed and won.
The real question in this case was whether an NVOCC is entitled to a maritime lien on cargo. The defendant, Pebbles, argued that the NVOCC-TWI was not a vessel owner in possession of the cargo and therefore not entitled to a maritime lien.
The maritime lien is a claim on some property for the payment of a debt. Carriers have long had a possessory lien against cargo carried for any freight that was due. Osaka Shesken Kaisha v. Pacific Export Lumber Co., 260 U.S. 490, 1923 AMC 55 (1923). In other words, the carrier can hold the goods and if the freight is not paid, sell it. The possessory lien can be enforced in rem - in the Federal District where the goods are located. In this case, the goods arrived in Long Beach and the court action was commenced in that jurisdiction.
The Court of Appeals for the 9th Circuit essentially held that that the NVOCC was a common carrier regulated by the Federal Maritime Commission and therefore came within the definition of "carrier" as defined in maritime law. Because the NVOCC assumed responsibility for the delivery of the cargo, the NVOCC satisfied the definition of "carrier". A "carrier" was defined as a person that assumes responsibility from the port of receipt to the port of destination. As further evidence, the court pointed to the lien provisions drafted into the NVOCC's bill of lading issued to Diamond. Because TWI asserted its right to a maritime lien in the bill of lading, the NVO should be able to exercise that right.
In the opinion, there was some question as to whether the responsibility of the carrier terminated when the goods were discharged from the ocean carrier and railed to Long Beach. Pebbles and Diamond argued that when the goods were discharged in New Jersey, the goods were essentially delivered and therefore should not have been subjected to a maritime lien. The court held that TWI maintained actual or constructive possession after the pyramid was discharged from the Maersk vessel.
Two points worthy of mentioning: First, the NVOCC is recognized in admiralty/maritime law as a carrier. Does this mean that an NVOCC will be granted other rights that vessel owners may have and are now not shared with the NVOCC? This decision could have far -reaching consequences the scope of which this article does not permit me to address. Frankly, the court is simply recognizing reality. Many ocean carriers are filling their ships with NVOCC freight. NVOs execute service contracts with carriers. Since there are some many NVOs compared to carriers, it is not unusual to have vessels filled with NVO cargo. If that is true, should not the NVO be protected? For the NVOCC, that protection is recognizing the terms of their bill of lading as it pertains to the maritime lien.
Second, the court also recognized the intermodal nature of the NVOCC's bills of lading. Often the NVOCC will arrange for a movement of freight combining the ocean carriage with air/truck/rail.
Whether the NVOCC can fully protect its right to a maritime lien is another question. NVOs work off of small margins, usually the difference between the carrier's service contract rates and the rate they can charge their customer; this is a lower rate than the carriers charge for full container load movements. But the door is open for the NVOCC and rightly so.
[Charles H. Veigel practices Transportation Law at the Law Offices of Brusanowski & Veigel in Seattle, Washington. ]
Copyright © 1996, Charles H. Veigel, All Rights Reserved