BHS fallout likely to create problems for liner operators

We have received several enquiries already from liner clients asking about the potential impact of the BHS collapse.

BHS filed for Court protection on Monday 25 April and the case has similarities with the collapse of Woolworths in 2008. Like Woolworths, BHS is a large importer with the majority of its products being manufactured in Asia and shipped via containers to the UK.

An unpaid seller in the UK has for many years enjoyed special rights to stop goods being delivered to an insolvent buyer. Those rights are set out in 1979 The Sale of Goods Act. The main provisions are:

– “When the buyer of goods becomes insolvent the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price.”

– “Goods are deemed to be in the course of transit from the time when they are delivered to a carrier … for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from the carrier.”

– “The unpaid seller may exercise his right of stoppage in transit either by taking actual possession of the goods or by giving notice of his claim to the carrier … in whose possession the goods are.”

– “When notice of stoppage in transit is given by the seller to the carrier… in possession of the goods, he must redeliver the goods to, or according to the directions of the seller, and the expenses of the re-delivery must be borne by the seller.”

We expect to see stoppage in transit notices being served on liner operators in relation to BHS goods as shippers in China and India wake up to the fact that they are not going to get paid.

The legal position of the liner operator depends on the terms of its liner bill of lading. Some bills seek to contractually override the sellers right to stop goods in transit but there is an issue as to whether attempts to restrict the sellers’ rights would be deemed enforceable by the English Courts. There is also usually an indemnity provision in liner bills which purports to make the unpaid seller/ shipper liable to indemnify the carrier in circumstances where the carrier suffers loss and expense as a result of a notice to stop goods in transit. Finally, there is an issue as to how the right to stop goods in transit interacts with the carriers’ lien over the goods for unpaid freight. The Sale of Goods Act only refers to recovery of the expenses of returning stopped goods to their origin but in practice there will be other costs involved and the freight for the initial voyage may also be unpaid. Most liner bills have wide lien clause allowing the lien to be maintained.

Stoppage in transit notices should not be ignored. If the carrier disregards the notice then this can lead to an action for damages against the carrier for the losses incurred.

We advised several liner operators in relation to the Woolworths collapse and so we are familiar with the issues arising. Please contact Nick Burgess at BDM if you require any assistance.

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