Lykes Lines Limited Tmm Lines Limited, LLC v. M/v Bbc Sealand, in Rem, Bbc Chartering & Logistics Gmbh & Co. Kg

Citation: 398 F.3d 319Docket: 04-20057

Court: Court of Appeals for the Fifth Circuit; February 15, 2005; Federal Appellate Court

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Defendant BBC Chartering Logistics GMBH Co. K.G. owns the vessel M/V BBC SEALAND, which was chartered by Argonaut Shipping International and Pegasus Marine Finance (Argonaut/Pegasus) to transport cargo for TMM Lines Ltd. LLC and Lykes Lines Ltd. (TMM/Lykes). TMM/Lykes contracted through agent JBL to transport 89 containers from Itajai, Brazil to Puerto Cabello, Venezuela, and Houston, Texas, for $210,600. Although TMM/Lykes was the cargo owner, no direct contractual relationship existed between them and BBC.

The charter agreement included a lien provision allowing BBC to secure freight and recovery costs against the cargo. It mandated that freight be paid in full before the vessel departed. Despite the outstanding freight payment, SEALAND departed Itajai on December 14, 2001. On December 18, Argonaut/Pegasus improperly issued bills of lading for TMM/Lykes’ cargo, which contained a lien clause favoring the 'carrier.' While TMM/Lykes allegedly paid the full freight by December 19, the bills were marked 'freight prepaid' before payment was confirmed.

On January 8, 2002, upon reaching Puerto Cabello, BBC demanded payment again and stated that if not received within 48 hours, the SEALAND would proceed to Houston without discharging TMM/Lykes’ cargo. Negotiations between the parties failed, and the SEALAND left for Houston without unloading the cargo.

On January 10, 2002, Argonaut/Pegasus sent the BBC/Argonaut charter party to CP Ships, TMM/Lykes' parent. BBC notified Argonaut/Pegasus and CP Ships that it would assert a freight lien against the cargo upon the vessel's arrival in Houston unless all freight was paid. The SEALAND arrived on January 17, 2002, and the cargo was discharged to BBC's warehouse but later released to TMM/Lykes after security was posted, which then transshipped the cargo to Venezuela. BBC did not receive the payment due under the charter party. Subsequently, BBC filed a complaint in rem against the cargo to enforce its lien for nonpayment of freight, later amending the claim to include an in personam claim against Argonaut/Pegasus and Cosvogiannis. TMM/Lykes filed its own complaint alleging breach of contract, damage to cargo, and conversion, leading to the arrest of the SEALAND for its claims. BBC obtained an arbitration judgment against Argonaut/Pegasus.

Following a bench trial, the district court ruled in favor of BBC against Argonaut/Pegasus and Cosvogiannis for $407,486, and in favor of TMM/Lykes against the same parties for $124,509, with no appeals filed. The court determined that the SEALAND deviated from its intended delivery to Puerto Cabello, awarding TMM/Lykes the costs of transshipping the cargo. BBC's claim for a lien against TMM/Lykes' cargo was denied.

BBC appealed, arguing that the district court incorrectly ruled it could not assert a carrier's lien for freight against TMM/Lykes' cargo. Maritime law recognizes such liens, but they only apply to cargo owned by the charterer, Argonaut/Pegasus, which was not the case here, as the cargo belonged to TMM/Lykes. Under general maritime law, a lien does not arise against third-party owned cargo. Although the charter party included provisions for a lien on cargo for freight and other dues, this lien is contractual, not automatic under maritime law, and must be perfected against a third-party cargo owner. To perfect the lien, the vessel owner must provide actual notice of the lien provisions in the charter party to the cargo owner before the cargo owner pays freight; failure to do so results in the lien being discharged.

Actual notice of a lien can be provided by including the lien terms in the bill of lading or by supplying a copy of the charter party to the shipper. The district court determined that TMM/Lykes did not receive actual notice of the lien in the BBC/Argonaut charter party until January 10, 2002, when BBC sent them the agreement. There was no finding on when TMM/Lykes made payment to Argonaut/Pegasus, but evidence indicated that payments were completed by December 26, 2001. Consequently, if TMM/Lykes lacked actual notice of the lien until January 10, BBC could not enforce a lien against the cargo. 

BBC contended that TMM/Lykes had constructive notice due to their awareness of the SEALAND as the carrying vessel and a request for payment confirmation to BBC. However, these facts did not constitute actual notice, and constructive notice is insufficient for perfecting liens against third-party cargo owners. 

BBC further argued that the lien provision in the Argonaut/Pegasus bill of lading provided actual notice. The bills stated that the 'Carrier' had a lien on goods for freight and defined 'Carrier' to include Pegasus Marine Finance, Inc. The SEALAND was identified as the carrying vessel. Despite this, the court disagreed, noting that there was no legal precedent supporting the claim that this partial information could alert the cargo owner to the lien provision in the charter party. Legal requirements for notice necessitate that the cargo owner be informed of the lien's existence, its legal basis, and the lienholder's intent to enforce it. The Argonaut/Pegasus bill of lading did not reference a lien in favor of BBC or indicate BBC's intent to enforce it. Therefore, TMM/Lykes did not receive proper notice until January 10, 2002, after they had already fulfilled their freight obligations.

The district court correctly determined that BBC could not claim a carrier's lien for freight against TMM/Lykes' cargo, rejecting both general maritime law and the charter party lien provision. Furthermore, the court found that SEALAND ratified and subsequently breached the bills of lading issued by Argonaut/Pegasus, rendering SEALAND liable in rem for transshipment costs incurred by TMM/Lykes. BBC contested the court's ruling, arguing that SEALAND was not bound by the unauthorized bills of lading issued after it had already set sail with the cargo. However, the legal principle established is that once a vessel sails with cargo on board, any subsequently issued bills of lading become binding contracts in rem. This ratification creates a maritime lien for recovery purposes, irrespective of whether the bills were issued under the authority of the vessel's master. The district court's reference to Cactus Pipe Supply Co. v. M/V MONTMARTRE supports this, indicating that even unauthorized bills bind the vessel when it receives the cargo and commences the voyage. BBC's reliance on Insurance Co. of North America v. S/S AMERICAN ARGOSY was deemed misplaced, as the bills of lading were issued by Argonaut/Pegasus, the charterer, rather than a non-vessel operating common carrier. Lastly, the argument that ratification requires bills to be issued prior to sailing was countered with the assertion that a common carrier's liability begins upon cargo acceptance, making the eventual bill of lading the operative contract from the voyage's commencement.

The district court correctly held the SEALAND accountable for the bills of lading issued by Argonaut/Pegasus, establishing a valid contract of carriage upon accepting the cargo for transport. The court found that the SEALAND breached this contract by not discharging TMM/Lykes' cargo in Puerto Cabello as stipulated, instead unloading it in Houston, Texas. This action constituted a deviation, which increases the risk associated with the shipment and is deemed a breach for which the vessel is liable for the costs incurred by TMM/Lykes for shipping the cargo to its intended destination. 

Deviation is defined as any significant change in the shipping conduct, such as failing to deliver to the specified port, which was the case here as the cargo was taken to a different location. Only 'unreasonable' deviations can affect the vessel's liability, and merely offloading cargo at an incorrect destination suffices to demonstrate unreasonable deviation. 

BBC's claim of commercial impracticability due to Argonaut/Pegasus's failure to provide necessary services (berth, stevedores, and freight payment) does not excuse the SEALAND's obligations under the contract with TMM/Lykes. The 'free in and out' provision clarifies that these costs were not the vessel's responsibility, and any breach by Argonaut/Pegasus cannot relieve the SEALAND or BBC from their contractual duties. Additionally, the failure to provide these services does not constitute commercial impracticability, as it does not render the discharge of cargo excessively costly or alter the nature of the agreement. Consequently, the district court's findings regarding the SEALAND's breach and subsequent liability for transshipment costs were upheld.

BBC contends that TMM/Lykes can only recover damages substantiated by documentary proof, conceding $43,886 is documented. However, the court determined that further expenses were verified through the deposition testimony of a TMM/Lykes corporate representative, whom BBC cross-examined. No specific costs were challenged by BBC, and all awarded damages totaling $124,509 were neither estimates nor speculative. The district court's decision to include oral testimony in its damage award was upheld.

Additionally, BBC argues that the district court wrongly allowed TMM/Lykes to relitigate the deviation issue by amending the judgment to include a finding of deviation, claiming this altered the judgment's legal substance. The district court had previously denied TMM/Lykes' claims against BBC and SEALAND, asserting that TMM/Lykes' deviation claim stemmed from its status as a third-party beneficiary of the Argonaut-BBC charter agreement, not the contract of carriage with SEALAND. TMM/Lykes filed a motion to amend the judgment, asserting that since SEALAND ratified the bills of lading, it should be liable for deviation and that the court incorrectly stated that no maritime lien arises without physical damage to the cargo.

On November 14, the court granted TMM/Lykes' motion, revising its findings to establish that TMM/Lykes' breach of contract claim against the in rem defendant was valid, affirming damages of $124,509 due to the breach. The court maintained previous findings regarding Argonaut/Pegasus' breach without issuing a revised final judgment. Subsequently, in December, BBC sought reconsideration, arguing that SEALAND should not be liable for not discharging in Venezuela and asserting that TMM/Lykes lacked support for its damages. Simultaneously, TMM/Lykes sought to correct the judgment, claiming it did not reflect the amended findings regarding in rem recovery for the deviation.

The district court issued an Amended Final Judgment allowing TMM/Lykes to recover from BBC, but did not initially include in rem liability against the SEALAND. Following this, TMM/Lykes filed a second Rule 60 Motion, which was granted, resulting in a Second Amended Final Judgment that permitted recovery of $124,509 against Argonaut/Pegasus/Cosvogiannis and/or the SEALAND. The judgment clarified that the SEALAND improperly discharged TMM/Lykes' cargo in Houston instead of Venezuela, constituting a deviation that made the vessel liable for transshipment costs.

BBC contended that the amended judgment improperly altered the original judgment through Rule 60. The court disagreed, asserting that the revised judgment was a clerical correction to align with the findings from TMM/Lykes' Rule 59 Motion, which established that the SEALAND's deviation constituted a breach of contract.

In summary, BBC chartered the SEALAND to Argonaut/Pegasus, which failed to pay charter hire. Argonaut/Pegasus arranged cargo transport with TMM/Lykes, who paid the freight. BBC, attempting self-help, refused to discharge the cargo in Venezuela and claimed a lien upon arrival in Houston. However, by accepting the cargo and issuing bills of lading, BBC created a binding contract with TMM/Lykes, which was breached by failing to discharge the cargo at the correct location. The court noted that BBC/SEALAND had several options to mitigate nonpayment risks but did not take them, leading to the affirmation of the judgment in favor of TMM/Lykes.

The district court also determined that these companies were the alter ego of Cosvogiannis. BBC's argument regarding the necessity of a reasonableness determination for deviation was not considered as it was raised too late in the proceedings.