Withholding of Cargo
In compliance with Article 160 of the Merchant Shipping Code of RF, the carrier is entitled to withhold the cargo until the consignee effects payment or provides a security of his obligation to reimburse for the carrier’s expenses, or to pay for the vessel’s idle time in the port of discharge, as well as to pay for the freight and idle time in the port of loading, provided this is stipulated by the bill of lading or another document supporting cargo transportation.
Subject to Article 163 of the Russian Merchant Shipping Code all payments due to the carrier are effected by the consignor or charterer. In cases specified by the contract between the consignor or charterer and the carrier, and provided the data on these are included in the bill of lading, the payments may be effected by the consignee.
The Russian Merchant Shipping Code does not specifically stipulate the right to withhold the cargo as a security of the charterer’s (consignor’s) obligations. However, in accordance with Article 359 of the Civil Code of RF, the creditor who possesses a thing to be transferred to the debtor or to a person indicated by the debtor is entitled, unless the debtor discharges his obligation to pay for the thing concerned in due time or reimburses the creditor for the related costs and other losses, to withhold the thing until the obligation is discharged. Subject to para 1, Article 149 of the Russian Merchant Shipping Code the consignor has the right to take charge of the cargo until the cargo is released to the consignee or the right concerned is assigned to the consignee or a third party. When the right to take charge of the cargo is assigned to the consignee or a third party the consignor must notify the same to the carrier.
Therefore, until the cargo is released or the carrier is notified of the consignor’s right to take charge of the cargo, the right to the cargo belongs to the consignor. Hence, if the consignor is a debtor, the carrier can withhold the cargo until the consignor’s obligations are discharged and until the right to the cargo is assigned.
At the same time, the rules contained in part 2, para 1, Article 359 of the Civil Code of RF stipulate that the claims, though unrelated to the payment for the thing or reimbursement of expenses on it or other losses, but arising from the obligation the parties to which act as entrepreneurs, may be secured by withholding of the thing concerned. Hence, the carriers are entitled to withhold the cargo belonging to the consignor until the latter discharges the carrier’s claims arising from any of the obligations between the carrier and the consignor.
The right to withhold the cargo until the consignor discharges his obligations may be stipulated in the bill of lading. However, it should be taken into account that the claims of the carrier withholding the cargo against the consignor may be satisfied at the expense of the cargo’s cost only in a manner prescribed for satisfaction of the claims secured by lien. In accordance with para 2, Article 349 of the Civil Code of RF claims of the lienee (in our case – the carrier withholding the cargo) are satisfied at the expense of encumbered (withheld) property pursuant to a judgement, unless stipulated otherwise by the agreement between the lienee and the lienor.
The carrier’s claims against the consignor and reasonable expenses are satisfied out of proceeds from the sale of the cargo. The balance is transferred to the consignor. In the event the amount of proceeds from the sale is insufficient to cover the sums due to the carrier, the latter is entitled to collect the missing amount from the charterer (consignor) pursuant to a judgement. Based on the judgement, a writ is issued for collection of the debt from the charterer. An executory process is initiated in respect of the writ, and the charterer’s property may be attached to secure the claims indicated in the writ. The attachment and sale of the entity-debtor’s property are effected following the priority set forth by the Law On Executory Process:
1)first - the property not directly involved in production (securities, moneys in the debtor’s deposit and other accounts, foreign currency values, cars, office design items, etc.);
2) secondly - ready products (goods), as well as other valuables not directly involved in production and not intended for such direct involvement;
3) thirdly - real estate, as well as raw materials and consumables, machine-tools, equipment, other capital goods intended to be directly involved in production. In absence of the property of this priority or in the event this is insufficient, the execution is made upon the next priority property.