Lien Clause

What it does

A lien clause gives the owner a contractual right to retain or hold property as security for money the charterer owes, most commonly a lien on the cargo for freight, deadfreight, demurrage, or general average, and a lien on sub-freights or sub-hire payable by third parties down the contractual chain. It is the owner's principal self-help security if the charterer does not pay.

The cargo lien lets the owner refuse to release the goods until the secured sums are paid, while the lien on sub-freights allows the owner to direct that money owed to the charterer by sub-charterers or receivers be paid to the owner instead. The clause defines what debts are secured and what property is caught, and its practical effectiveness depends heavily on the law of the place where the owner tries to exercise it.

Commercial effect

The lien clause is about security and leverage. By giving the owner a hold over cargo and incoming payments, it improves the chance of being paid and gives the owner bargaining power if a dispute over freight, demurrage, or hire arises. Without it the owner would be left to pursue the charterer as an unsecured creditor, which may be of little value if the charterer is in difficulty.

Its real-world value is uneven, because exercising a lien depends on practicalities and on local law: the owner must physically be able to hold the cargo, often at the discharge port, and the lien on sub-freights must be effective against the third parties who owe the money. The clause is read with the freight, demurrage, deadfreight, and cesser provisions, which define the debts it secures and how the security interacts with the charterer's release from liability.

Owner's perspective

The owner wants a broad and effective lien covering all the sums that might be owed to it, freight, deadfreight, demurrage, damages for detention, and general average, and extending to sub-freights and sub-hire so it can reach money flowing through the chain. The lien is the owner's main security, and it wants it drafted widely so that it has real leverage if payment is not made.

The owner is also conscious of the practical limits and wants the clause to support exercise of the lien where it matters, typically at discharge. It pays attention to how the lien interacts with the cesser clause, since a cesser provision that releases the charterer from liability is usually conditioned on the owner having an effective lien, and the owner wants to avoid losing its claim against the charterer without gaining workable security in its place.

Charterer's perspective

The charterer accepts that the owner will have a lien for genuine debts but wants it confined to clearly owed sums and not used as leverage in a disputed claim to hold cargo hostage. It is mindful that an exercised lien can disrupt its sale obligations to receivers, so it wants the secured debts well defined and the clause not drafted so broadly that the owner can tie up cargo over a contested amount.

Where the charterer is itself an intermediary, it focuses on the lien on sub-freights and how it interacts with its own arrangements down the line, and on the cesser clause that may release it from personal liability in exchange for the owner's lien. It negotiates these provisions together, since its exposure depends on the balance between being released from liability and the owner having effective recourse to the cargo and sub-freights instead.

Negotiation points

• The debts the lien secures — freight, deadfreight, demurrage, detention, general average.
• Whether the lien extends to sub-freights and sub-hire, and how that is exercised.
• The interaction with the cesser clause and the conditioning of cesser on an effective lien.
• The practical and local-law limits on exercising the lien at the discharge port.

Common variations

• A lien on cargo for freight, deadfreight, demurrage, and general average.
• A lien extended to sub-freights and, in time charters, sub-hire.
• A lien clause paired with a cesser provision releasing the charterer once cargo is shipped.
• A narrowly drawn lien confined to clearly established, undisputed sums.