Transport providers, liens and insolvency: Know when to hold ‘em

The recent case of M Webster Holdings Pty Limited (administrators appointed) v Specific Freight Pty Limited [2017] FCA 269 illustrates how a transport provider can become ‘the meat in the sandwich’ when a consignee of goods becomes insolvent.

Webster, a fashion retailer, operated two well-known Australian businesses, David Lawrence and Marcs. Webster was placed into administration in February 2017 and its administrators continued to trade with a view to securing a purchaser.

Webster engaged Specific Freight, a freight forwarder, to provide services in respect of stock it had purchased from overseas suppliers. Before going into administration, Webster had ordered various consignments of clothing that:

(a)   had cleared customs and were held by Specific Freight;

(b)   were yet to clear customs but were destined to be held by Specific Freight; or

(c)   were in transit.

The overseas suppliers had rendered invoices that had not yet been paid. Some invoices had retention of title clauses, although no security interests were registered on the Personal Property Securities Register.

The suppliers were demanding that Specific Freight return the goods.

The administrators of the fashion retailer sought to have the freight forwarder deliver the clothing, some of which had been ordered online by customers, to Webster. The unavailability of the clothing was likely to adversely affect efforts to sell Webster’s business.

Specific Freight’s initial claim for a lien was satisfied as the administrators paid all outstanding charges owed to the freight forwarder. The administrators gave a further undertaking to the Court that they would meet all future lawful charges incurred by Specific Freight.

Specific Freight remained concerned that it may be sued by the suppliers if it released the goods to the administrators.

The Federal Court, upon hearing an urgent application by the administrators, made orders that:

(a)   the goods held by Specific Freight be delivered to the administrators;

(b)   the administrators were entitled to:

(i) possession of the clothing; and

(ii) sell the relevant clothing in the ordinary course of the Webster’s business (subject to the creation and observance of the fund mentioned in paragraph (c);

(c)   the administrators must, pursuant to section 442CC(2) of the Corporations Act, set aside the net proceeds of sale of the clothing with that fund to be applied to meet the claims of the suppliers whose goods were subject to a retention of the title clause.

The case illustrates the complex position in which transport providers can find themselves when seeking to rely upon liens and to retain goods in circumstances where various parties have conflicting interests. It is important that transport operators in these sorts of scenarios seek prompt legal advice to protect their interests.

Cooper Grace Ward is hosting a webinar on 11 July 2017 that will consider the issue of liens and the rights and obligations of transport and warehouse operators when their invoices remain unpaid. Details of that webinar are available here.