By Maurice Lynch, Senior Associate

A right of stoppage is the right of an unpaid seller to stop goods in transit that they have sold to a purchaser, and retain them until payment of the purchase price.

For an unpaid seller to exercise a right of stoppage it must, prior to possession of the goods transferring to a purchaser, give notice to a carrier or freight forwarder of its claim in respect of the goods. Once such notice is given, the carrier or freight forwarder must redeliver the goods and not deliver them to the purchaser.  Should a freight forwarder deliver the goods to the purchaser despite a seller’s request to exercise a right of stoppage, it could be exposed to a claim by the seller for damages for conversion.

The recent Federal Court of Australia decision in Toll Holdings Ltd v Stewart [2016] FCA 256, is a reminder to freight forwarders that when asked to exercise a right of stoppage they must:

• have adequate procedures in place to determine whether or not they have delivered goods to the purchaser;

• understand their contractual obligations with the purchaser and the seller and/or their agents to ascertain when the parties contemplated that delivery from the seller to the purchaser will occur; and

• not blindly follow the usual procedures for the collection of goods from a port of discharge, even if the goods are being collected under bond.

After having been requested to exercise a right of stoppage by the Chinese seller of a consignment of televisions to Dick Smith, Toll continued to adhere to the standard operating procedures it had under a master services agreement with Dick Smith. This meant that despite having been requested to exercise a right of stoppage, Toll continued to issue delivery orders to Australian Container Freight Service who had been appointed by Dick Smith to collect containers from the wharf, and then transferred them under bond to ACFS’s warehouse for local handling, unpacking, and redelivery of the goods to Dick Smith.

There was a dispute between the Chinese seller and the liquidator of Dick Smith as to who was entitled to the televisions. Accordingly, Toll commenced proceedings in the Federal Court to seek orders as to who was entitled to the televisions.

The Court found that Toll had delivered the televisions to Dick Smith in violation of the Chinese seller’s right of stoppage and was liable in damages for conversion. This was due to the following:

• Toll’s decision to issue delivery orders to Dick Smith’s appointed cartage service provider who was independent of Toll and unlike Toll, was responsible for all matters involving cartage of Dick Smith’s freight in Australia;

• section 71(f) of the Customs Act 1901 (Cth) allows an import entry to be withdrawn at any time by either the person who lodged the original import entry (in this case Toll), or the person on whose behalf that entry was lodged (Dick Smith). This meant that even though the goods were being moved by Australian Container Freight Service under bond, Dick Smith could withdraw and re-issue the entry for home consumption of the cargo at any time to secure the release of the goods from bond to it; and

• Toll’s failure to request Australian Container Freight Service to hold the goods for the Chinese seller or anyone other than Dick Smith.

Importantly, the decision confirms that even when a freight forwarder has made the Customs entry for home consumption for goods, and the Customs duties remains unpaid, this does not mean that the freight forwarder is still in possession of the goods and has not delivered them to the seller; nor does it mean that only the freight forwarder can pay the customs duties to release the goods from bond and allow them to be delivered to the purchaser.

In light of the above, when a freight forwarder is asked to exercise a right of stoppage, they should hold the cargo for the seller who has requested the right of stoppage be exercised and not undertake any act which favors one party over the other in respect of the goods.

If the freight forwarder is not confident of understanding when delivery of goods to a purchaser occurs or does not know what procedure to follow, then immediately upon being asked to exercise a right of stoppage, it should bring interpleader proceedings, requesting the court to determine who is entitled to possession of the goods in question.