Menu
Court concludes delivery made in accordance with terms of LOIs

News /

Navig8 Chemical Pool v. Songa Chemicals AS (Songa Winds) [2018] EWCA 1901 (Civ) 

In this case, the Commercial Court found that letters of indemnity (LOIs) issued by the parties to a sale contract chain were valid and enforceable. Consequently, if the bank that financed the trade was ultimately successful in its misdelivery claim against the shipowner, it would be indemnified under the LOIs. The subsequent appeal was limited to whether a time bar clause in the voyage charterparty between two parties in the charterparty chain was incorporated into the relevant LOI with the effect of barring a claim made under that LOI. The Court of Appeal found that it was not and that the claim was not time-barred.

The background facts

Songa time-chartered their vessel to Navig8, who voyage-chartered the vessel to Glencore to carry a cargo of crude sunflower seed oil from Ukraine to India.

Glencore had entered into a sale contract to sell the goods to Aavanti who, in turn, had on-sold to Agritrading. The bills of lading were consigned to order and named Ruchi, an affiliated company of Agritrading, as the notify party. Aavanti’s purchase of the consignment was financed by SocGen.

The cargo was delivered to Ruchi at the Indian ports without presentation of the original bills, but as against LOIs issued under the sale contract and up the charterparty chain. The LOIs issued by Aavanti to Glencore were for delivery to Ruchi, or to such party as Glencore believed to be, to represent, or to be acting on behalf of Ruchi. In contrast, the LOIs from Glencore to Navig8 and from Navig8 to Songa requested delivery to be made to Aavanti, or to such party as the beneficiary believed to be, to represent, or to be acting on behalf of Aavanti.

Although Aavanti paid Glencore for the cargo, neither Aavanti nor SocGen were apparently paid for the quantities discharged. In arbitration, SocGen claimed for misdelivery as the lawful holder of the bills. Songa sought to rely on the Navig8 LOI and Navig8 sought to rely on the Glencore LOI. Glencore denied that the LOI it had issued was engaged. Songa and Navig8 applied to the Court, seeking a final declaration by way of summary judgment that the relevant LOIs were triggered by the deliveries to Ruchi.

The Commercial Court decision

The Court considered whether Ruchi, in taking delivery, was “representing or acting on behalf of” Aavanti, in accordance with the following wording in the Glencore LOI:

We, Glencore Grain B.V, hereby request you to deliver the said cargo to "Aavanti” or to such party as you believe to be or to represent “Aavanti” or to be acting on behalf of Aavanti".

On the facts of this case, the Court concluded that Ruchi were representing Aavanti and that, therefore, delivery had been effected as in fact intended by Aavanti and Glencore in the LOIs. As the LOI indemnity provisions were triggered, the Court did not need to consider the further issue of whether Songa “believed” that Ruchi represented or were acting on behalf of Aavanti.

The Court also commented on the scope of clause 4 of the IG standard form LOI wording, which was incorporated into the LOIs, and which provides as follows:

If the place at which we have asked you to make delivery is a bulk liquid or gas terminal or facility…then delivery to such terminal, [or] facility…shall be deemed to be delivery to the party to whom we have requested you to make such delivery.

The LOIs had named “the port of New Mangalore or Kakinada, India” as the place of delivery. They did not request delivery at a specific bulk liquid terminal or facility. The Court stated that any greater specificity as to the place of discharge came outside the scope of the LOIs and was only relevant to a claim under the charterparties, which would be dealt with in arbitration. Consequently, the pumping of the liquid cargo into bulk terminals at the named ports would not have been sufficient to invoke paragraph 4 and activate the LOIs, had indemnification in this case depended on it.

The Court also found that Navig8’s claim against Glencore was not time-barred under clause 38 of the charterparty, which was ambiguously drafted but which specified that the “period of validity” of any LOI would be three months from the date of issue, renewable on owners’ request. The LOIs did not incorporate the language of clause 38 and, even if they had done so, the Court thought that clause 38 was aimed at deliveries that did not take place within three months of issue, rather than instances where claims were brought after three months from delivery (as in this case). Had Glencore intended a different result, they could have specifically provided for it in the LOI.

The Court of Appeal decision

The appeal was limited to the time bar point. The Court of Appeal dismissed Glencore’s argument that clause 38 was incorporated into the Glencore LOI and that it barred Navig8’s claim. Firstly, clause 5 of the LOIs already covered the expiry of the LOIs (on the presentation of the original bills) and, in doing so, did not reference any terms, either from the relevant charterparty or elsewhere. This was not consistent with an intention to rely on clause 38.

Secondly, in the Court of Appeal’s view, the charterparty and LOIs were distinct   agreements with separate obligations and contrasting dispute resolution clauses. Clause 38 could not, therefore, be treated as ‘carved out’ of the voyage charter and construed as part of the LOIs. Glencore could have expressly incorporated clause 38 but chose not to, which was unsurprising in circumstances where there was no time limit in respect of their own obligations to Aavanti.

The Court of Appeal also highlighted that, in some circumstances, a third party might rely on a LOI, e.g. a head owner against a sub-charterer, but would not be privy to the relevant charterparty (e.g. between charterers and sub-charterers) as it would neither be party to that contract, nor aware of its terms. If those terms were subsequently implied into a LOI, this would lead to the unacceptable situation whereby the beneficiary’s right of recovery under the LOI might be limited in a way that it could not have been aware of.

Finally, while it did not strictly need to decide the point, the Court of Appeal found that clause 38 did bar claims brought more than three months from the date of the letter of indemnity.

Comment

This decision highlights a number of potential risks that can arise when delivering cargo against a LOI without presentation of original bills. Parties to LOIs should draft them carefully and ensure that their terms are strictly complied with so that they can be enforced.  

When parties deliver cargo against LOIs, there is generally no P & I cover for any liabilities, costs or expenses that might arise as a result. Therefore, in such instances parties should carefully consider their exposure and whether to purchase alternative insurance cover.

The authors of this article acted successfully for Navig8 in the Commercial Court and Court of Appeal.

Related sectors:

Related news & insights

News / Shipping gets smart

20-06-2022 / Maritime

On 25 November 2021, the UK Law Commission published its Advice to the UK Government on how English law currently applies to smart legal contracts. Subsequently, on 16 March 2022, the Law Commission published its report on electronic trade documents, together with draft legislation that would implement its recommendations to allow for the legal recognition of trade documents such as bills of lading and bills of exchange in electronic form.

Shipping gets smart

News / Carrier Under CMR Successful in Limiting Liability for Consignee’s Losses

14-06-2022 / Maritime

Paul Knapfield v. C.A.R.S. Ltd & others [2022] EWHC 1437 (Comm) Disputes under the Carriage of Goods by Road Act 1965, which incorporates the Convention on the Contract for the International Carriage of Goods by Road 1956 (CMR), do not come up very often. This decision is, therefore, useful in illustrating when and how the CMR applies. In this case, the Court found that the CMR limit of liability applied to the claimant’s claim, with the result that his losses far exceeded the amount he could ultimately recover from the carrier.

Carrier Under CMR Successful in Limiting Liability for Consignee’s Losses

News / CONVERSIONCON: An industry first

14-06-2022 / Maritime

BIMCO has recently published CONVERSIONCON, a new standard form contract for conversion projects. The authors of this article were honoured to be part of the drafting team tasked with developing and producing the first industry standard form contract for conversion projects.

CONVERSIONCON: An industry first

News / Taking a closer look at the biggest factors driving the progress of the UAE’s maritime sector

10-06-2022 / Maritime

As we move past the vertex of a U-shaped dip in the global shipping sector caused by supply chain restrictions arising from the COVID-19 pandemic, it is worthwhile to look back at the UAE maritime industry’s growth, lessons learned, and development outlook. Although international maritime trade dropped by 4.1 per cent in 2020, the UAE made significant achievements during this period, ranking third globally in the Bunker Supply Index, and fifth globally as a key competitive maritime hub.

Taking a closer look at the biggest factors driving the progress of the UAE’s maritime sector

News / Court construes scope of indemnity under Mortgagees’ Interest Insurance Policy

06-06-2022 / Insurance, Maritime

Piraeus Bank A.E. v Antares Underwriting Limited and others (The ZouZou) [2022] EWHC 1169 (Comm)

Court construes scope of indemnity under Mortgagees’ Interest Insurance Policy

News / Ince bolsters presence in Greece with seven new hires in Piraeus office

01-06-2022 / Maritime

Ince is growing its Piraeus office with the addition of three shipping litigators, three ship finance experts, and an additional mariner to the admiralty team.

Ince bolsters presence in Greece with seven new hires in Piraeus office