Withholding law / lien in English law

Today I had a new case – actually related to the Russian invasion of Ukraine. A company has an ongoing deal for the supply of aircraft equipment to a Russian airline. The equipment was ready – then the Russian government ordered the invasion. The sanctions subsequently imposed by the EU and the USA are now causing major problems for the project. On the one hand, export clearance from the German authorities (BAFA) is currently more than questionable. Secondly, the sanctions could pose a major problem for payment by the Russian customer. Russia has been largely excluded from international payment systems. In addition, the Russian government has imposed restrictions on the export of foreign currency.

The German company now sees a specific risk in the fact that the delivery of goods to Russia may even be successful, but then payment cannot be made. According to the contract, the German company is currently obliged to deliver the goods.

A ‘rescue option’ was now being considered, whereby the German company would exercise a right of retention / a so-called lien. The question of whether this is possible must first be looked at in the specific contract. There is indeed a ‘loophole’ here and no statement about such a right of retention. Consequently, this gap can actually be filled by the provisions of the governing law.

The first thing to check here is whether a specific right has been established for the contract. In fact, a so-called choice of law clause is found here, but into English law.

Actually, legal literature provided some information: The English law lien gives the holder a lien over property of the debtor of a debt which is lawfully in the possession of the holder of the lien. A distinction is made between special and general liens. While the special lien only grants a right of retention if the outstanding liability is directly connected with the retained object (e.g. because this object was transported by the creditor and the remuneration for this transport is still outstanding), the holder of a general lien may retain any object of the debtor as long as the holder of the lien still has outstanding claims from the entire business relationship. In principle, a lien does not entitle the holder to sell the goods in question.

A lien may arise by law, equity and contract, with equitable liens occupying a special position in that they do not require possession by the holder of the lien. The main case of application here is open purchase price liabilities in the purchase of real estate.

However, the problem is that English law does know such a right – but one must always keep in mind that English law does not have the same deep dogmatic roots as German law. English law does have the so-called ‘Sale of Goods Act’. However, it is far less dogmatic than the German Civil Code. This is why a legal culture has established itself in England to always explicitly place corresponding rights in the contract as far as possible.

In my legal research, I have now found out that it is actually very difficult to invoke a so-called ‘lien’ if such a lien is not explicitly provided for in the contract. At least there should be indications in the contract that can be taken into account in the context of a supplementary interpretation of the contract.

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