03 March 2025
5 min read
#Transport, Shipping & Logistics, #Dispute Resolution & Litigation
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In today’s global economy, timing is everything. Any hold up in the supply chain can have serious consequences for both profitability and customer satisfaction. The Federal Court’s decision in Nick Scali Ltd v Lion Global Forwarding Pty Ltd [2024] FCA 1247 demonstrates not only the significant impact of an effectively exercised lien clause in holding up the supply chain, but also the serious muscle of liens in securing debts.
Furniture retailer Nick Scali Ltd (Nick Scali) needed to transport goods from their place of manufacture in China, to their place of retail in Australia. To do this, Nick Scali contracted with freight forwarder, Lion Global Forwarding Pty Ltd (Lion), a non-vessel operating common carrier (NVOCC), for the carriage of goods. As a NVOCC, Lion wasn’t responsible for the actual ocean carriage of the goods – rather, its responsibilities included contracting for ocean carriage, receiving the goods at the port of discharge, arranging customs clearance and delivering the goods to Nick Scali’s stores. As part of these arrangements, Lion effectively subcontracted the ocean carriage of Nick Scali goods out of China to another company, Shenzhen HJT Supply Chain Management Ltd (HJT).
A lien clause is a security right to take and retain possession and control of property pending payment which is otherwise due and owing. A general lien can be exercised in relation to any of the grantor’s property, even property in respect of which charges are not outstanding, whereas a particular lien can only be exercised against the particular property in respect of which charges are outstanding. In the case, Lion’s standard trading terms and conditions contained a lien clausE. It stated Lion could take a “general and particular possessory lien over Nick Scali’s goods until all outstanding amounts are paid in full”.
In October 2024, Nick Scali discovered that Lion was behind in making payments to various creditors, including HJT. As a result of Lion’s difficulty in paying creditors, and the creditor’s resultant tightening of credit terms, Lion sought payment from Nick Scali “to avoid any further delays on deliveries”.
Nick Scali was reluctant to pay, given that there was no guarantee that their payments to Lion would be forwarded to HJT. Understandably, Nick Scali wanted to avoid a situation where it paid Lion, who may use that money to satisfy any number of creditors, and so have to pay again, this time direct to HJT, to secure shipment of their goods.
In an effort to prompt payment, Lion gave statements of account to Nick Scali for:
Notably, the outstanding amounts were significantly less than the value of the goods held pursuant to the lien exercised by Lion, which was approximately $18.6 million.
When Nick Scali did not pay, Lion exercised its lien and issued orders to stop delivering goods to Nick Scali.
Nick Scali applied to the Federal Court for the urgent interlocutory release of the approximately 240 shipping containers held by Lion purportedly under its contractual lien.
In rejecting Nick Scali’s case, the Court found that while Nick Scali was naturally concerned about making payments to Lion, for fear of having to pay twice to secure the realise of its goods, but this concern did not invalidate the exercise of the lien by Lion:
“The truth is that Nick Scali is substantially overdue in making payment to Lion… and that Nick Scali has not paid those amounts because it fears, with some justification, that even if it pays those amounts it may not get its goods because of the stand-off between Lion and HJT. That, however, provides no contractual basis to resist payment, and it does not provide an answer to Lion’s assertion of its lien”.
On the broad terms of its contract with Nick Scali, Lion was entitled to be paid. Ultimately, the Court concluded that what Lion may or may not do with the money was irrelevant to the validity of the lien. This outcome accords with courts’ generally held respect for parties’ contractual bargains – if the parties wanted payments to flow directly through to the ocean carrier or they wanted the lien to only be exercisable where Lion was paying Nick Scali’s carriers, they could have said so.
Lion’s exercise of its lien was valid and it was entitled to payment of the outstanding amounts before releasing any of the 240 containers to Nick Scali.
Perhaps the most significant takeaway is that the Federal Court was prepared to uphold the lien. The outcome of this case signifies that liens, often touted as useful mechanism in securing contractual obligations to pay, are an effective yet relatively simple means of providing security in international ocean-going affreightment – in other words, the ‘magic words’ of a lien clause work.
It is also significant that the value of the goods secured by the exercise of the contractual lien (approx. AUD$18.6 million) did not need to be equivalent to the value of the unpaid amounts (approx. AUD$3.3 million) in order for the lien to be valid. This element of the decision again emphasises the power of the lien as a tool in securing payment and the serious impediment a broad and unchecked lien clause can have on a party which has legitimate reservations about paying the secured party.
Finally, the outcome of this case demonstrates how third-party service providers can hold up the supply chain, with consequences for both the consignee, its profitability and its customers. It was HJT’s refusal to perform its subcontracted obligations without payment from Lion that prompted Lion to demand payment from Nick Scali, and Nick Scali’s justifiable resistance to Lion’s demand which resulted in Lion detaining Nick Scali’s goods and increasingly agitated customers not receiving their orders. The web of relationships formed in international transport arrangements is vast and complex. It is important to give full and proper consideration to the potentially significant consequences of lien and other important clauses when entering into arrangements for the shipment of goods.
If you require assistance in organising or reviewing your arrangements for the affreightment of goods, or enforcing (or refuting the enforcement of) a lien or security interest, please contact Nathan Cecil or Geoff Farnsworth from our Transport, Shipping and Logistics team.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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