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Court orders specific performance of obligations under letter of indemnity

Insights / / London

Navig8 Chemical Pools Inc v. Aeturnum Energy International Pte Ltd (Navig8 Ametrine) [2021] EWHC 3132 (Comm)

This is the latest in a series of recent judgments in which the Court has upheld the rights of a disponent owner to enforce the terms of a letter of indemnity (LOI) against his charterer in a charterparty chain, in circumstances in which the LOI was given in return for agreeing to discharge the cargo without presentation of original bills of lading. The decision makes it clear that the Court will grant a mandatory injunction or specific performance, in addition to damages, as appropriate.

The background facts

This was a chemical/product tanker that was time chartered on a SHELLTIME 4 form with rider clauses. The Claimant time charterer sub-chartered the vessel to the Defendant on an amended BPVOY4 form with additional terms for a single voyage from Thailand to Singapore.

Both charterparties provided for charterers to request disponent owners to discharge cargo without production of the original bills of lading by invoking owners’ P&I Club LOI wording.

A cargo of light naptha was shipped under a bill of lading issued to the order of Sumitomo Mitsui Banking Corporation in Singapore. The Defendant then asked the Claimant to discharge the cargo in Singapore without presentation of original bills to a receiver identified as Hin Leong Trading Pte Ltd and invoked the relevant charterparty clause. In turn, the Claimant invoked the relevant clause in the head charterparty and asked the Head Owners to discharge to the named receiver.

Subsequently, ING bank alleged a misdelivery claim against the Head Owners and arrested the vessel in Singapore. The Head Owners asked the Claimant to invoke the LOI given by the Defendant. However, the Defendant failed to provide security to procure the release of the vessel within the relevant deadline or at all, alleging a lack of liquidity and an inability to obtain a suitable bank guarantee.

The Claimant applied for a mandatory injunction. This was granted on an interlocutory basis, with the judge deciding that the LOI had been invoked and its terms engaged. In the judge’s view, the Defendant had failed to demonstrate to the Court that it was impossible for it to provide security. The Defendant subsequently failed in its attempt to have this order set aside and the injunction was continued. The Defendant did not comply with the mandatory injunction and so the Claimant took steps to provide the Head Owners with the necessary security so that they could get the arrest lifted. The Claimant sought to recover its losses from the Defendant.

The Commercial Court decision

The Defendant did not participate in the trial proceedings. Nonetheless, the Court addressed the issues fully. It found as follows:

  1. Delivery of the cargo was effected in accordance with the Defendant’s instructions and the terms of the LOI. The Master was obliged to deliver to the party he reasonably believed to be the party identified by the Defendant, namely Hin Leong, and on the evidence, delivery was indeed effected to Hin Leong. This triggered the Defendant’s obligations under the LOI.
     
  2. Pursuant to the LOI, the Defendant was obliged to:
     
    1. indemnify the Claimant in respect of any liabilities incurred as a result of delivering the cargo in accordance with the Defendant’s request;
       
    2. provide the Claimant or its servants or agents with sufficient funds to defend any proceedings commenced against them as a result (with Head Owners acting as the Claimant’s servants/agents when they delivered the cargo to Hin Leong);
       
    3. provide security to secure the release of the vessel from arrest and indemnify the Claimant from any liability resulting from the arrest; and
       
    4. where the vessel has been released upon security being provided by the Head Owners, to provide substitute security;
       
  3. The Defendant had acted in breach of its obligations under the LOI.

It was well-established that these obligations could be enforced by a mandatory injunction/specific performance. Damages would not be an adequate remedy in this case. Further, although the Defendant had chosen not to participate at trial, it remained an active company in Singapore and was neither insolvent nor in judicial management. Consequently, it might yet comply with the Court’s order because of the prospect of contempt proceedings against the company and/or its directors. Conversely, if the injunction was not granted, the Defendant’s strategy of non-compliance and non-participation to date would have been rewarded by the Court. 

This was, therefore, an appropriate case for granting specific performance. In addition, the Claimant was entitled to damages for breach of the LOI which resulted in loss of the use of the vessel during her period of arrest. The Claimant was also granted declaratory relief: a declaration that the Defendant was obliged to indemnify the claimant for any liability and losses arising from delivery of the cargo without production of original bills; and a declaration that, upon request, the Defendant should supply the Claimant or Head Owners with sufficient funds to defend the arrest proceedings and/or any proceedings brought by the Head Owners or ING against the Claimant.

Comment

The decision shows the Court’s readiness to grant relief to ensure that an indemnifying party honours its obligations. It also usefully demonstrates how LOIs work in practice in a charterparty chain.

Jamila Khan

Jamila Khan Partner

Reema Shour

Reema Shour Professional Support Lawyer

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