Opinion
CIVIL ACTION NO: (02-3000 C/W 02-3004 AND 02-3077 SECTION: "D" (2)
May 20, 2003
MINUTE ENTRY
Before the court are the Cross-Motions for Summary Judgment for Determination of Priority filed by Chembulk Trading LLC (Plaintiff in No. 02-3000), and Novorossiysk Shipping Co. (Plaintiff in No. 02-3004). The motions are before the court on briefs, without oral argument.
Having reviewed the memoranda of counsel, the record and the applicable law, the court rules in favor of Chembulk.
Chembulk's Rule B Attachment
On August 29, 2002, Chembulk and Chemex, Ltd. entered into a charter party for the charter of the M/V Chembulk Clipper. Chembulk was the disponent owner and operator of the M/V Chembulk Clipper and Chemex was its charterer. Ultimately, Chemex failed to pay Chembulk approximately $147,000 of freight and approximately $36,500 in demurrage when due. Chembulk learned that Westway Trading Corporation (the receiver of cargo contained on another vessel, the M/V TUAPSE) was holding approximately $31,000 of funds for freight owing to Chemex in its accounts in New Orleans. And on October 2, 2002, Chembulk filed Civil Action No. 02-3000, seeking a Writ of Maritime Attachment and Garnishment pursuant to Rule (B) of the Supplemental Rules for Certain Admiralty and Maritime Claims, against the sub-freights owed to Chemex in Westway's possession.
On or about October 16, 2002, Westway filed a Complaint for Interpleader depositing $31,533.55 into the registry of the Court. ( See Civil Action No. 02-3077, consolidated herein). On February 18, 2003, Westway filed Declarations of Chemex, Ltd. and it agent, Brookwater, Limited, relinquishing any and all rights to this money. (Doc. No. 18).
Novorossiysk's Rule B Attachment
On or about May 30, 2001, Novorossiysk entered into a time charter party with Chemex for the charter of the M/V TUAPSE. Novorossiysk was the registered owner of the M/V TUAPSE and Chemex was its charterer. Chemex then voyage chartered the vessel to Westway. Ultimately, Chemex failed to pay Novorossiysk charter hire causing Novorossiysk alleged losses and damages in the amount of $500,000.On a faxed letter dated October 1, 2002, Novorossiysk wrote Westway stating it was exercising its right to a "lien on all freight and sub-freights due pursuant to clause 27 of the charter." ( See Exhibit 3 attached to Novorossiysk's Cross-Motion for Summary Judgment, Doc. No. 17). Novorossiysk also quoted the relevant part of clause 27 as providing: " Owners shall have a lien upon all cargoes and all freights for any amount due under this charter." (Id.).
The provision is silent with respect to the existence of a lien against sub-freights. (See Time Charter Party attached to Chembulk's MSJ, as Exhibit F).
On October 4, 2002, Novorossiysk also filed Civil Action No. 02-3004, seeking a Writ of Attachment and Garnishment pursuant to Rule (B) of the Supplemental Rules for Certain Admiralty and Maritime Claims, against the funds held by Westway (i.e., the same funds which are the subject of Chembulk's Rule B attachment). Novorossiysk contends that it filed this action, "in an abundance of caution," because it "became aware of other previous contracts for which Westway might still hold freights/sub-freights belonging to Chemex, but would not be covered by Novorossiysk's 1 October 2002 notice of lien." ( See Novorossiysk's Cross-Motion, Doc. No. 17, p. 4).
On October 9, 2002, Chembulk's attachment and Novorossiysk's attachment were consolidated since both attachments involved the same funds for freight in Westway's possession. (Doc. No. 5).
Novorossiysk's In Rem Claim
On March 17, 2003, after the parties had filed their cross-motions for summary judgment, Novorossiysk filed a Motion for Leave to File First Supplemental and Amended Verified Complaint (Doc. No. 24). The Magistrate Judge granted the motion, finding that there were no factors (i.e., undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility of amendment) weighing against Novorossiysk's proposed amendment. (Doc. No. 33). Rather, the Magistrate Judge found that Novorossiysk sought to amend to clarify the basis of its maritime lien, and did so soon after Chembulk raised an issue that Novorossiysk's original complaint may have been deficient. ( Id.).
In its First Supplemental and Amended Verified Complaint, Novorossiysk asserts:
IV.
Made in rem defendant is the freight in the amount of $31,000, previously held by Westway Trading ("Westway"), and currently in the registry of the Court . . .
V.
On or about 30 May 2001, Novorossiysk entered into a time charter of the M/V TUAPSE with Chemex, Ltd. ("Chemex"). The charter party imposed various obligations on the parties thereto. Novorossiysk has duly and faithfully performed its obligations under the charter party, but Chemex has breached the charter party in various respects, as a result of which plaintiff is owed various sums for unpaid hire. . . .
VI.
Pursuant to said charter party, Novorossiysk has a maritime lien on the $31,000 in the registry of the Court, representing freight owed by Westway to Chemex, for Chemex's breach of the charter party between Novorossiysk and Chemex, and therefore is entitled to enforce that lien pursuant to Supplemental Rule C of the federal Rules of Civil Procedure.
( See Novorossiysk's First Supplemental and Amended Verified Complaint, Doc. No. 34).
After filing its amended complaint, Novorossiysk arrested the $31,000 in freight currently held in the court's registry. (Docs. Nos. 35 38).
Legal Analysis
The primary legal issue before the court is whether or not Novorossiysk has a contractual right to assert a maritime lien over the $31,000 previously held by Westway and currently in the registry of the Court. If so, Novorossiysk's maritime lien takes priority over Chembulk's Rule B attachment, as claimants with maritime liens are entitled to preference and priority over attaching creditors. If not, this is a case of two attaching creditors, and Chembulk's Rule B attachment (of October 2, 2002) takes priority over Novorossiysk's Rule B attachment (of October 4, 2002).
Novorossiysk notified Westway in its October 1, 2002 faxed letter that Novorossiysk was exercising its lien on "all freights and sub-freights due pursuant to clause 27 of the charter". (Emphasis added). However, while Clause 27 provides that "Owners shall have a lien upon all cargoes and all freights for any amount due under this charter," it does not explicitly contain the word "subfreights".
Chembulk argues that the funds held by Westway were "subfreights", and that without an explicit grant within the charter party, Novorossiysk did not obtain a valid lien against these. On the other hand, Novorossiysk maintains that the money Chemex earned from Westway under the voyage charter were "freights," and not "subfreights," and thus Clause 27 in the charter party between Novorossiysk and Chemex giving Novorossiysk (as owner of the vessel) a lien on all freights specifically covers the funds Westway owed Chemex.
Thus, the court must decide if the funds Westway owed to Chemex (and now held in the court's registry) are properly characterized as "freight" or "subfreight."
"Freight" versus "Subfreight"
"Freight" is the hire paid by the charterer to the owner for the use of the latter's vessel. "Subfreights" are amounts that third-party payors — whether subcharterers, shippers or consignees-contract to pay directly to the charterer for the hire of the ship or the transport of goods.
Cornish Shipping Ltd. v. Inter'I Nederlanden Bank N. V., 53 F.3d 499, 500 at n. 1 (2nd Cir. 1995), citing 2 Thomas J. Schoenbaum, Admiralty and Maritime law § 11-11, at 194 (2d ed. 1994).
Cornish Shipping Ltd., 53 F.3d 499, 500 at n. 1, citing 2 Thomas J. Schoenbaum, Admiralty and Maritime law § 11-17, at 207 n. 25.
"To secure payments of freight due from a charterer of its ship, a shipowner may create, by express provision in the charter party, a lien on the subfreights earned by the vessel." Where the charterer defaults on its payment of freight or its other obligations under the charter party, the owner may exercise its lien on the subfreights by giving notice to the consignee.
Cornish Shipping Ltd., 53 F.3d at 502 (emphasis added).
Id.
Here, Novorossiysk maintains that it is not attempting to enforce a lien on sub-freights, but rather a lien on freights. Novorossiysk explains that:
Novorossiysk's contract with Chemex involved a time charterer, and the contract between Chemex and Westway would be considered a voyage charterer. As such, the Westway funds owed to Chemex are considered freights, and the funds owed by Chemex to Novorossiysk are hire. . . . [S]ub-freight[s] are amounts that third party payers, such as a subcharterer, would owe. That is not the case here and therefore Novorossiysk does have a lien on freights, as they are rightfully called in the charter party.
However, Novorossiysk's argument overlooks the fact that in its October 1, 2002, letter faxed to Westway, Novorossiysk states that it is exercising its right to lien freight and subfreight.
( See Doc. No. 28, Novorossiysk's Reply Memo, at 2).
Chembulk disagrees with this characterization and argues:
Novorossiysk chartered the M/V TUAPSE to Defendant Chemex. . . . Chemex thereafter voyage chartered the vessel to Westway. . . . Novorossiysk was not a party to the contract between Chemex and Westway. Monies owed by Westway to Chemex for the shipment of cargo would therefore be characterized as sub-freights because Westway was a third party payor-subcharterer-of the M/V TUAPSE.(See Doc. No. 26, Chembulk's Reply Memo, at 2).
Under the facts of this case, the court finds Chembulk's argument more persuasive. Thus, as a matter of law, the court concludes that the monies owed by Westway to Chemex are properly characterized as "subfreights" (rather than "freights") because they are the amounts that Westway (a third party payor/subcharterer of the M/V TUAPSE) agreed to pay Chemex for the shipment of cargo. The amounts that Chemex owed Novorossiysk for the time-charter of the M/V TUAPSE are characterized as "hire" or "freights".
See footnotes 3 4, and accompanying text.
Further, since the initial time charter between Novorossiysk and Chemex did not expressly provide that Novorossiysk had a lien on "subfreights", the court finds that Novorossiysk does not have a valid maritime lien over the Westway funds. Thus, this is a matter of competing Rule B attachments. And since Chembulk was first to the courthouse to attach the Westway funds, Chembulk's Rule B attachment has priority over Novorossiysk's Rule B attachment.
Equity versus Inequity
Novorossiysk also argues that it would be inequitable to allow Chembulk to obtain freight generated on Novorossiysk's voyage pursuant to a contract entered into between Novorossiysk and Chemex. Novorossiysk maintains that:
The exercise of the lien by Novorossiysk is with respect to the carriage undertaken by the vessel at that time, and the funds Westway agreed to pay Chembulk for the voyage that Novorossiysk performed. Therefore, from an equitable standpoint, Novorossiysk should have the benefit of the disputed funds since the funds represent payment of funds due for the very voyage on which that freight was due. The breach of contract between Novorossiysk and Chemex is a much stronger claim to the freight than Chembulk's subsequent writ of attachment filed in an attempt to obtain money pursuant to another completely separate contract.
( See Doc. No. 22, Novorossiysk's Response Memo, at 7-8).
Chembulk disagrees and argues that it promptly secured its rights as a creditor of Chemex. Further, Chembulk maintains that it would be inequitable to reward Novorossiysk for its delay in asserting its rights as a creditor of Chemex, i.e., not attaching the Westway funds first, and by not securing its (alleged) rights through an in rem process in its original Complaint, and amending its Complaint over five months later.
Because this is a matter of competing creditors, the court finds that equity is also not on Novorossiysk's side. Chembulk was first to attach the Westway funds, and the fact that these funds were once earmarked to pay Chemex for shipment of cargo on Novorossiysk's vessel (the M/V TUAPSE) cannot trump Chembulk's attachment.
Accordingly;
IT IS ORDERED that Chembulk's Motion for Summary Judgment for Determination of Priority be and is hereby GRANTED, and Novorossiysk's Motion for Summary Judgment for Determination of Priority be and is hereby DENIED.
IT IS FURTHER ORDERED that Chembulk is entitled to the Westway funds now held in the Registry of the Court.