NVOCC Maritime Lien Enforcement: Do Your Documents Protect Your Interests?

By Candace C. Clark / May 01, 2016

In the recent opinion issued by the United States Court of Appeals for the Third Circuit, World Imps., Ltd., et al. v. OEC Grp. N.Y. (In re World Imps., Ltd.), 2016 U.S. App. LEXIS 7118, the Court determined that certain general and continuing lien contract provisions which expand the application of possessory maritime liens, entitle a non-vessel operating common carrier (NVOCC) to collect past due freight and related charges against goods currently in its possession. By affording NVOCCs such enhanced lien enforcement rights, this precedential decision represents a tremendous win for NVOCCs.

World Imports arises from an underlying lien enforcement dispute initiated in bankruptcy court between debtor-importers of goods and an NVOCC. Prior to the commencement of the bankruptcy cases, the debtor-importers contracted with the NVOCC for the delivery of various shipments. As a result, the debtors incurred a significant debt for freight and related charges. To recover such debt, the NVOCC, in the course of the bankruptcy proceedings, sought relief from the automatic stay to enforce its possessory maritime liens. Based on the NVOCC's published tariff, its terms and conditions, and the credit application, the NVOCC contended that the debtors' goods in its possession fully secured the entirety of the debt owed by the debtors, including pre-petition freight charges for previously delivered goods.

The debtors disputed the breadth of the maritime lien asserted by the NVOCC contending that such lien was limited to the charges incurred in the transport of the goods remaining in the NVOCC's possession. The debtors argued that the contractual modifications to the NVOCC's maritime lien, which expanded its application to past due charges on shipments not in the NVOCC's possession, were unenforceable. The bankruptcy court agreed with the debtors; and the district court affirmed.

Based on the following legal principles: (1) the strong presumption of nonwaiver of a maritime lien upon delivery; (2) the familiar principle that a maritime lien may attach to substitute property; and (3) the parties' general freedom to contract, the Third Circuit reversed both lower courts. The Court held that liens arising by operation of maritime law may be modified or extended by agreement, and such an agreement may extend an unwaived lien onto property currently in the lienholder's possession, provided that, the documentation language sufficiently reflects the parties' intent to permit the survival of the liens beyond delivery and the subsequent attachment of such liens to substitute property. Finding the operative language in the tariff, the terms and conditions and the credit application, the Court remanded the case to the District Court to fashion an appropriate remedy that would permit the NVOCC to enforce its maritime liens for all debt owed to it by the debtors. 

While highly advantageous for NVOCCs, the World Imports decision incidentally resulted in the unexpected subordination of consensual lienholders as a result of the priority afforded maritime lienholders.  The expanded maritime lien superseded the rights of secured parties in the goods held by the NVOCC. Thus, importantly, unwary secured parties must take heed of the expanded application of maritime liens to ensure they receive the benefit of their bargain.

For NVOCCs, however, the World Imports opinion represents a dramatic enhancement of the protection afforded by maritime liens. As the Court made clear in its opinion, it is important that NVOCCs have the right documentation in place to achieve this result. We would be happy to review your documents to make sure you have the appropriate language as approved by the Court. Please feel free to contact us for this purpose or if you have any other questions about this case and what it could mean for you.

If you have any questions about this alert, please contact Candace Clark at cclark@clarkhill.com | 312.517.7504.