Vitorio Shipping Co Ltd (Vitorio) was the disponent owner of the vessel Lehmann Timber. The vessel was time chartered by Vitorio to Lehmann Chartering GmbH & Co KG (Lehmann Chartering) and was voyage chartered by Lehmann Chartering to Powerful Asia Group Ltd under an amended Gencon charter (the voyage charter). The consignee was Metall Market OOO (MMO). The voyage was from Changsu, China, to St Petersburg, Russia, where the consignee's cargo of 1,089 steel coils was to have been discharged. Four Gencon bills of lading covered the cargo, incorporating an 'arbitration clause' and provided that general average (GA) shall be adjusted according to the York-Antwerp Rules 1994. Only cargo under bill no 4 (BL4), which covered 98 coils, was insured.

During the voyage, the vessel suffered two GA incidents. First, the vessel was detained by pirates until a ransom was paid. After being released, the vessel suffered an engine breakdown and had to be towed to Salalah, Oman. The owner declared GA and appointed average adjusters. The adjusters asked MMO to provide GA security in the form of a GA bond to be signed by MMO and support for the bond in the form of a GA guarantee from cargo insurers or a cash deposit. However, no bond was provided by MMO. An insurer's guarantee for only the cargo under BL4 was forthcoming. No other guarantee or deposit was provided.

The vessel waited for several days off St Petersburg. The owner was unwilling to berth on advice that the vessel would be forced to discharge, enabling MMO to obtain possession of the cargo. Subsequently, the vessel sailed to Hamina, Finland, and discharged the cargo into a warehouse. Insurance and storage charges for the cargo amounted to about USD 20,000 per month.

At first instance, the arbitrators found that:

• Both the capture by pirates and the engine breakdown were GA events. Both the ransom payment and towage cost were allowable GA disbursements. The total GA disbursements were slightly over USD 3,500,000. MMO's liability was nearly 29% of that. The owner was entitled to exercise a possessory lien over the cargo for MMO's contribution to GA disbursements.
• The owner's request for GA security from MMO in the form of a bond supported by a guarantee or cash deposit was reasonable. MMO's failure and refusal to provide security was unreasonable. MMO's failure to discharge the lien by way of GA security or otherwise was a breach of its obligation to take delivery under the carriage contracts.
• The actions taken by the owner to preserve its lien were reasonable, including not releasing the 98 coils and not releasing a value-related proportion of the balance of the cargo. MMO is solely responsible for the costs incurred by the owners in connection with storing the cargo at Hamina. The owner's actions did not prejudice its lien.

MMO appealed on two issues. First, whether the owner's lien for cargo's GA contribution was waived or discharged when the owner requested GA security from MMO as the price for giving up its lien, but only received a guarantee for only 98 coils and no bond or deposit. Second, whether the exercise by the shipowner of its lien for GA contribution prevented the shipowner from recovering the expenses involved in exercising that lien.

On appeal, the owners succeeded on the first issue while MMO succeeded on the second: Metall Market OOO v Vitorio Shipping Co Ltd (The Lehmann Timber) [2012] EWHC 844 (Comm), [2012] 2 Lloyd's Rep 73.

On further appeal, MMO argued, without citing any supporting authority, that acceptance of the guarantee for the 98 coils, even in the absence of a bond, discharges the owner's lien pro tanto. It is also incompatible with the maintenance of the lien over the 98 coils. MMO argued that the bond is superfluous because, by presenting BLs to request delivery, MMO becomes bound to pay GA (under cl 3 of the bills) and/or the law imposes such liability on MMO through s 3(1)(a) of the Carriage of Goods by Sea Act 1992 (UK). Therefore, a bond was not needed to make the consignee liable.

Held: MMO's appeal dismissed. Owner's appeal allowed.

The arbitrators' award is upheld. On the second issue, the owner is entitled to recover those expenses as damages for breach of MMO's failure to arrange for timely discharge of its cargo. In any case, the owner is also acting as a bailee and is entitled to recover. Somes v British Empire Shipping Co (1860) 8 HL Cas 338 is distinguishable. On the first issue, the owner was entitled to refuse delivery as it properly exercised its lien for GA contribution. This included the cargo covered by BL4, despite receiving and retaining the guarantee. The lien was not extinguished by acceptance of that guarantee.

Both the shipowner's lien and the cargo interests' liability to contribute arise at the time of the GA sacrifice or disbursement. The liability falls on whomever at that time is the owner of the cargo. It is an in personam liability, albeit the lien attaches to the cargo. The cause of action and the running of time commence at the moment of the GA incident. However, because it typically takes a considerable time for average adjusters to complete an adjustment, setting out the respective contributing liabilities of the various parties to the adventure, and because the adjustment is not binding on the parties, but may be challenged in court or arbitration, the centuries-old practice is for the shipowner to take security for what it is reasonably estimated may be owed to it and/or the other parties to the adventure. That security has typically been in the form of a bond taken from the consignee of the cargo, backed up by a guarantee from the cargo's insurer or a cash deposit. The consignee will provide that security or obtain it from the insurer of its cargo, because it wants its cargo delivered, and without satisfying the shipowner with adequate security, it cannot obtain its cargo. The bond and/or guarantee represent new contracts, which may contain their own law and jurisdiction clauses, and new causes of action, against new parties, come into existence based upon them. Limitation begins anew, either from the time of the bond or guarantee, or, as the bond and guarantee regularly state, from the time of the published adjustment (or the adjusters' certificate for an interim payment, where that is provided for). The shipowner is not only interested in protecting its own position but is obligated to all contributing parties to protect their positions too, because in theory they or some of them may be owed by other parties to the adventure more than they are liable to contribute themselves: see Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd (The Potoi Chau) [1984] 1 AC 226 (PC) 237-241; Crooks & Co v Allan (1879) 5 QBD 38, 41-42; Christian B Svendsen v Wallace Bros (1885) 10 App Cas 404, 410; Huth & Co v Lamport (1886) LR 16 QBD 735 (CA); Tate & Lyle Ltd v Hain Steamship Co Ltd (1934) 49 Ll L Rep 123 (CA) (where Greer LJ's dissenting judgment was upheld in Tate & Lyle Ltd v Hain Steamship Co Ltd (1936) 55 Ll L Rep 159 (HL)).

The Court rejected MMO's argument that the lien was discharged by acceptance of the guarantee for the 98 coils. In the present case the bond and guarantee requested did not promise delivery by the owner. Furthermore, the authorities illustrate how the bond supported by additional security, either by guarantee or cash deposit, is the typical and long-standing means by which a shipowner is entitled to stipulate for the terms on which the shipowner will be willing to forego its lien. Nothing suggested that a guarantee without a bond is sufficient, or that to require a bond in addition to a guarantee is unreasonable. Provided the request is reasonable, the shipowner is entitled to make its own terms if the shipowner is to forego immediate payment or release its lien. Where a shipowner requests both bond and guarantee, the law does not insist that provision of the guarantee, but refusal of a bond, will waive or discharge the lien.

Based on the authorities, long-standing practice, and the arbitrators' findings, the owner was entitled to retain its lien without a bond from MMO in addition to an insurer's guarantee or cash deposit. The owner is entitled to the undertaking of MMO in addition to the insurer's. MMO is the party most interested in the delivery of the goods. MMO should be primarily responsible for any GA contribution. Although the insurer ought to be creditworthy, not all insurers turn out to be so.