A lien you can lean on

Clauses contained in standard trading terms can provide a level of protection for a freight forwarder or warehouseman

I t is very common for a set of standard trading terms (STCs) for a freight forwarder or warehouseman to include a clause similar to this:

“All goods and documents relating to goods including bills of lading and import permits, as well as all refunds, repayments, claims and other recoveries, shall be subject to a special and general lien and pledge either for moneys due in respect of such goods or for other moneys due to the company from the customer, sender, owner, consignee, importer or the holder of the bill of lading or their agents, if any.”

This type of clause affords a warehouseman or freight forwarder two forms of security in lieu of non-payment by their customer. These security mechanisms are often overlooked or under-used. In order to exercise the full protection of your STCs, a wary warehouseman or freight forwarder should use these forms of security to ensure prompt payment or to maintain liquidity in the business.

A lien is a form of tacit security, conferred by operation of law. Simply defined, a lien is a right to retain physical control of another’s property as security for payment of a claim relating money owed to the holder of the lien, until the claim has been satisfied. The lawful operation of a lien requires: a debt owed to the holder of the lien; the holder of the lien and the debtor must be parties to a contract in terms of which the debt is owed; in some instances the debt must be in respect of specific property retained; the debt must be due and the holder of the lien must be in possession of the property. The lien created in the clause above is termed debtor creditor lien, which simply means that the lien is a personal right and ancillary to the main obligation. A debtor creditor lien cannot be exercise against a third party; the operation of the lien is only enforceable against the debtor.

A general lien may be held over all property, in the creditor’s possession, owned by the debtor where as a special lien operates against a specific piece of property. In a special lien, the specific piece of property alone satisfies the debt; the lien does not attach to other property owned by the debtor.

A pledge is a limited real right of security created by delivery of the movable asset to the pledgee. A pledge is created by an agreement between the pledger, who undertakes to deliver the movable property, and the pledgee. Subsequent bona fide delivery of the property and continuous physical control by the creditor are essential requirements for the lawful operation of a pledge. On payment of the debt, for which the property has been pledged, the creditor’s security ceases and the pledge cannot be used as security for any other debts. However, a pledge may be constituted in a way that it is available as security for any and all debts.

A distinction between these forms of security can be found in the fact that a lien is a right of retention which does not afford the creditor a right to execute. A pledge, on the other hand, allows a creditor to execute on the pledge property in order to settle the debts.

These forms of security are effective mechanisms to extract moneys owed. Warehousemen and freight forwarders should not hesitate to protect themselves through these lawful mechanisms.