Liens work - debt recovery for freight forwarders
Often I receive debt recovery calls from freight forwarders for small amounts and my advice is often the same "we can pursue the debt, but you will probably spend more on us then what you are owed by the debtor." One of those cases where the only winner would be the lawyer. In reality, the most efficient and effective debt collection strategy a freight forwarder can employ is a contractual right to exercise a lien over goods.
If a lien is enforceable, the freight forwarder can refuse to release goods in their possession if they are owed money by the customer. If properly drafted, the freight forwarder will have the right:
to hold goods if amounts are owing on previous shipments;
to sell goods and also recover the costs of sale;
to hold documents, such as a bill of lading, and not only goods.
Other options to be considered are the right to hold goods:
if amounts are owed by related companies of the customers, even if not owed by the customer;
in respect of amount invoiced but not yet due;
if there is a breach of any terms of credit;
if administrators or liquidators are appointed to the customer.
In a recent Victorian Tribunal case an importer sought an injunction to compel a freight forwarder to release goods that were being held subject to a lien. The lien only applied to debts owed by the particular company that was the customer and not it its related bodies corporate. The freight forwarder sought to enforce the lien in respect of a number of companies which had a common director and shareholder. The freight forwarder for all practical purposes saw the corporate group as the one customer.
The Tribunal would only allow the lien to be exercised in respect of debts owed by the company that was a party to the contract with the freight forwarder. It was not concerned with debts owed by the associated companies. However, luckily for the freight forwarder, there was a small amount owned by the contractual customer so the lien could be enforced.
It is important to note that the Tribunal enforced the lien even though it was acknowledged that the debt was small and the impact on the importer of not receiving the goods would be significant.
Know precisely who is your customer. If you are dealing with a corporate group, make sure the lien covers debts of the entire corporate group.
Don't be scared to exercise a lien. The right to hold goods subject to lien is enforced by the Courts and is one of the few rights that can be exercised against administrators.
Pay careful attention to the wording of the lien. Does it cover all invoiced amounts, or only debts that are due? Do you have to give notice before exercising a lien? Does the lien only cover goods belonging to the customer, or any good the subject of the services? Can you recover the costs of exercising a lien, such as legal fees?
Liens will often be the most effective tool to enforce payment of small debts.
Please contact us if you need help drafting a contractual lien clause or enforcing a lien.