Repudiation of contract - effect on lien

In Oyster Marine Ltd -v- Lomas and others, Re Gosport Realisations Limited [2003] All ER (D) 276 the Court of Appeal considered the effect on a contractual lien of an alleged repudiation of the contract, and also whether the party entitled to the lien could in turn grant a lien over the same assets to a third party.

The Facts

The claimant entered into a contract with the third defendant, under which the third defendant was to fit out yachts. The contract provided that, if the claimant failed to pay the sums due under the contract, the third defendant would have a lien over the yachts (in other words, a right to keep them, pending payment).

Subsequently certain invoices remained unpaid. The third defendant then went into administration and various events occurred which the claimant alleged amounted to a repudiation of the contract by the third defendant. The third defendant passed the yachts on to a third party and in turn granted it a lien. The claimant then issued proceedings for breach of contract. The judge at first instance held that the lien in favour of the third defendant was valid. The claimant appealed on the basis that the lien was unenforceable after the alleged repudiation of the contract, and after the grant of the lien to the third party.

The Decision

The appeal was dismissed. The Court of Appeal held that the third defendant had been legitimately entitled, under the contract, to retain the yachts under the lien after the invoices went unpaid. If a repudiation had occurred (i.e. a party had committed such a serious breach of the contract that the innocent party was discharged from its obligations under the contract), the contract would have ended. However, the sums already due at that point would not have ceased to be due just because the contract no longer existed. Therefore, the lien which related to the sums due and which had arisen prior to the alleged repudiation continued to apply. It was also held that the grant of the lien to the third party did not render the third defendant's lien unenforceable.

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