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Marine Insurance: Broker's Lien

Heath Lambert Limited -v- Sociedad de Corretaje and Banesco Seguros C.A.

June 2006

This action has been mentioned previously on this website (summaries having been provided of the judgments which were handed down in October 2003 and June 2004). As then explained, Heath Lambert Limited ("the Brokers") commenced proceedings in July 2002 in an attempt to recover premium which the Brokers had paid (or become liable to pay) to London market reinsurers with whom they had placed facultative reinsurance for the benefit of the second defendant ("Banesco"), the Venezuelan insurer of a fleet of vessels operated by INC, a local dredging company. The first defendant, ("Scort"), acted as broker for INC in placing the primary cover with Banesco. Scort was also involved in placing the reinsurance protection that Banesco required. It was common ground that either Scort or Banesco was liable to reimburse the Brokers. Nevertheless neither had done so, each claiming that the other was liable for the premium. More recently, however, Scort's failure to take any active part in the proceedings had resulted in the Brokers obtaining a default judgment against them.

In December 2004 Banesco brought a counterclaim against the Brokers, seeking to recover some US$325,000 which the Brokers had collected from reinsurers in settlement of a particular average loss sustained by an INC dredger ("the loss proceeds"). The Brokers asserted that section 52(2) of the Marine Insurance Act 1906 gave them a lien on the loss proceeds and that justice required that they could retain the proceeds to secure the unpaid premium. However, Banesco submitted that the Brokers could not exercise a lien for unpaid premium over the loss proceeds in circumstances where these were payable to Banesco but the unpaid premium was claimed from Scort. They argued that, in the circumstances, the parties had implicitly agreed that no lien would attach. Banesco also contended that, if any such lien had existed, it had become merged in the judgment the Brokers had obtained against Scort and could no longer be maintained.

In the event Judge Mackie QC, sitting as a deputy judge of the Commercial Court, considered that it was clear from the judgment in Eide v Lowndes Lambert (1998) that a broker who had a lien over a policy had a commensurate right to retain claims proceeds collected under it to the extent necessary to satisfy the debt secured by the lien. There was also textbook authority (approved in Eide) to support the proposition that the broker enjoyed that right whether or not there was an intermediary in the chain. This was fatal to Banesco's submission that the particular facts of this case removed the lien or included some agreement to dispense with it. It also undermined the submission that the lien had merged with the judgment entered against Scort.

A common law lien that arises independently of contract affords a defence to an action for the recovery of goods by a person who, but for the lien, would be entitled to immediate possession of them. In the judge's view the position was the same with a statutory lien and the proceeds of a policy claim. There was nothing to suggest that the Brokers were party to any agreement to surrender their right to a lien. He concluded, therefore, that the Brokers had a lien over the loss proceeds as against both Banesco and any intermediary, whether or not Banesco had a direct obligation to pay the premium. That lien could be maintained until the premium was paid or the claim was satisfied in some other way. It would be unfair to require the Brokers to hand over the loss proceeds without being able to reimburse themselves for unpaid premium.

The Brokers' lien was, therefore, upheld, and Banesco's counterclaim for payment of the loss proceeds was stayed.

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