The lien rights of agents in maritime freight forwarding

In maritime cargo agency contracts, there is an agency contract formed between the principal and the agent. The payment of agency fees is naturally the principal's most important obligation under the contract and also the agent's primary concern. In practice, incidents of the principal withholding agency fees frequently occur. How the freight forwarding agent can safeguard their legitimate rights and interests to ensure the collection of agency fees is a very important issue. For example, in the Shanghai Maritime Court's report on serving and safeguarding the integrated development of the Yangtze River Delta region, as well as in typical case examples, the seventh case focuses on this issue: whether the indirect possession of the principal's goods by the freight forwarding company, based on a certain legal relationship, meets the statutory requirements for the creditor's right to exercise a lien.

The Shanghai Maritime Court stated: "Regarding the question of whether there is a right to exercise a lien on the goods, the plaintiff (the freight forwarding company) was entrusted with the clearance and inland transportation of the goods, and they have the legal possession of the goods due to their obligations in inland transportation and storage. The goods in question belong to the defendant, and the declared customs value is equivalent to the amount of overdue debt owed by the defendant to the plaintiff. Furthermore, the plaintiff still indirectly possesses the goods, which does not affect the effectiveness of the lien. Based on the above, the judgment confirms that the plaintiff has the right to exercise a lien on the goods under the bill of lading." The judgment made by the Shanghai Maritime Court in this case is highly valuable as it protects the legitimate rights and interests of the freight forwarding agent and serves as a typical example of the lawful exercise of lien rights by freight forwarders.

The ability of freight forwarding companies to exercise a lien is a significant matter. It means that these companies can assert a possessory security interest in the goods. When the principal is unable to repay the agency fees, the freight forwarding company can assert its rights over the goods. If the freight charges remain unpaid even after a second notice, the company can auction the goods and prioritize the repayment of the agency fees from the proceeds.

There are two other important points to consider regarding the lien rights. According to the provisions of China's Civil Code, if the value of the retained property exceeds the amount of the debt after discounting, auctioning, or selling, the surplus belongs to the debtor, while the debtor is responsible for settling any shortfall. This means that the method of realizing the lien rights, whether through discounting, auctioning, or selling, depends on the nature of the specific retained goods, and the Civil Code does not impose mandatory requirements in this regard.

Furthermore, there is a relationship between the lien right and the rights of mortgage or pledge. The goods retained by the freight forwarder may also be subject to other security interests. This situation involves the relationship between the lien right and the rights of mortgage or pledge. According to Article 456 of China's Civil Code, "If the same chattel is subject to a mortgage or pledge and is also subject to retention, the lien holder shall have priority in receiving compensation." This means that the lien right of the freight forwarding company has good protection, and even if the goods are encumbered by a mortgage or pledge, the freight forwarding company does not need to be overly concerned.

However, it is important to note that the aforementioned case example represents only a small part of the business operations of logistics companies, specifically the "last-mile delivery" phase of imported goods under the "door-to-door" responsibility. In other phases, logistics companies find it difficult to achieve "legal possession" of the goods. In general, besides the previously mentioned scenario, logistics companies can legally possess goods if they are also responsible for packaging, cleaning, fumigation, or providing warehousing services for the goods. In such cases, they may have "legal possession" of the goods and can exercise a lawful lien over them.

In addition to the requirement of "legal possession" for exercising a lien on goods, the following points should also be noted. Firstly, export goods cannot be retained. The relevant regulations clearly state that freight forwarding agents have an obligation to deliver the goods to the carrier to complete entrusted matters. This obligation itself contradicts the act of retaining the goods. In other words, in such cases, the goods are considered "movable property that cannot be retained according to legal provisions." Retaining them would violate mandatory legal regulations. However, it is worth noting that under certain conditions, freight forwarding companies can withhold documents. But this withholding of documents is an expression of exercising the right of defense rather than exercising a lien right.

Secondly, the retained goods must be equivalent to the amount of the matured creditor's claim. It is important to note that in addition to being equivalent and not exceeding the amount, the creditor's claim must be matured. This means that if the settlement period for the relevant debt has not expired, the goods cannot be retained.

Thirdly, the retained goods must be properly stored. This point is relatively straightforward. If the goods are damaged or lost during the retention period, it may be necessary to compensate for such losses.Finally, it is necessary to provide the principal with a reasonable performance period in order to realize the creditor's claim through auctioning or selling. In general, except for perishable goods or goods with obvious seasonal or time-sensitive requirements, a reasonable performance period is two months.

Overall, there are several limitations for freight forwarding agents to realize matured creditor's claims through the retention of goods. Therefore, it is important for freight forwarding companies to be cautious in practice and avoid illegal retention that could lead to losses.

Zhai Dongwei International Trade & logistics Attorney team was founded in 2007. Its founder, Zhai Dongwei, is the founding partner of Guangdong Yingzun Law Firm. Focusing on International trade,maritime affairs, and supply chain cases for more than 16 years, the team currently has more than 30 professional logistics attorneys, of which more than 10 have overseas work and study experience, and can use Chinese, English and French to work and participate in business negotiations.