Multiple LOI”s back to back – cargo discharged to receivers without bills of lading – typical case study
The facts
By an amended NYPE 1946 form of charterparty the vessel was chartered by the Owners to COSCO Bulk Carrier Co.Ltd. (“Cosbulk”). The vessel was sub-chartered under back-to-back charters to the Claimant, Farenco Shipping Co.Ltd. (“Farenco”), the Defendant, Daebo Shipping Co.Ltd. (“Daebo”), the Third Party, Dampskibsselskabet Norden A/S (“Norden”) and the Fourth Party, Deiulemar Shipping SPA (“Deiulemar”)
A cargo of 70,888 metric tonnes of Brazilian origin sinter feed was loaded on board the vessel at Tubarao, Brazil for carriage to and delivery at Bourgas, Bulgaria. Ten bills of lading were issued by the Owners in respect of the cargo. The bills named the consignee as “to the order of HSH Nordbank AG, London.” The notify address was “G and M-5, Bourgas, Bulgaria as agent and Kremikovtzi AD, Sofia, Botunetz”.
On arrival of the vessel at Bourgas the bills of lading were not available.
Clause 68 of each of the charterparties provided as follows:
“In case original Bills of Lading are not available at discharge port(s), Master/Owners to allow discharge and release the cargo on board against Charterers’ single Letter of Indemnity signed by Charterers only with wording as per Owners’ Protection and Indemnity Club recommendation.”
The Owners were requested to deliver the cargo without production of the bills. A letter of indemnity was provided by each charterer to its disponent owner. Each such letter was in the same form. Thus the letter provided by Daebo to Farenco provided as follows:
“The above cargo was shipped on the above ship by COMPANHIA VALE DO RIO DOCE and consigned to THE ORDER OF HSH NORDBANK AG, LONDON for delivery at the port of BOURGAS, BULGARIA but the bill of lading has not arrived and we, DAEBO SHIPPING CO., LTD, hereby request you to deliver the said cargo to KREMIKOVTZI AD, SOFIA – BOTUNETZ at PORT OF BOURGAS, BULGARIA without production of the original bill of lading.
In consideration of your complying with our above request, we hereby agree as follows:-
To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability, loss, damage or expense of whatsoever nature which you may sustain by reason of delivering the cargo in accordance with our request.
In the event of any proceedings being commenced against you or any of your servants or agents in connection with the delivery of the cargo as aforesaid, to provide you or them on demand with sufficient funds to defend the same.
If, in connection with the delivery of the cargo as aforesaid, the ship, or any other ship or property in the same or associated ownership, management or control, should be arrested or detained or should the arrest or detention thereof be threatened, or should there be any interference in the use or trading of the vessel (whether by virtue of a caveat being entered on the ship’s registry or otherwise howsoever), to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property or to remove such interference and to indemnify you in respect of any liability, loss, damage or expense caused by such arrest or detention or threatened arrest or detention or such interference, whether or not such arrest or detention or threatened arrest or detention or such interference may be justified.
If the place at which we have asked you to make delivery is a bulk liquid or gas terminal or facility, or another ship, lighter or barge, then delivery to such terminal, facility, ship, lighter or barge shall be deemed to be delivery to the party to whom we have requested you to make such delivery.
As soon as all original bills of lading for the above cargo have come into our possession, to deliver the same to you, or otherwise to cause all original bills of lading to be delivered to you, whereupon our liability hereunder shall cease.
The liability of each and every person under this indemnity shall be joint and several and shall not be conditional upon your proceeding first against any person, whether or not such person is party to or liable under this indemnity.
This indemnity shall be governed by and construed in accordance with English law and each and every person liable under this indemnity shall at your request submit to the jurisdiction of the High Court of Justice of England.”
The cargo was discharged at Bourgas. There is no evidence to whom the cargo was delivered.
Thereafter Stemcor UK Ltd. (“Stemcor”) informed the Owners that they were the holders of the bills of lading and asked the Owners to confirm that they were ready to deliver up possession of the cargo in return for the bills of lading.
Owners informed Cosbulk of this and called upon them to honour their obligations under the LOI. Similar messages were passed down the line of the charterers.
Stemcor arrested the vessel in Port Gladstone, Australia.
On the same day the Owners arranged for security to be put up in the form of a corporate guarantee in the sum of US$11m. to secure the vessel’s release.
Owners obtained against Cosbulk a Rule B Maritime Judgment for US$11m. on its New York bank accounts. They informed Cosbulk that the bank accounts would only be released in return for the provision to Stemcor of a first class bank guarantee in the amount of US$11m. and a second guarantee in respect of the Owners’ claims in the sum of US$500,000. These demands were passed down the line of charterers.
Farenco put up security directly to Stemcor by way of cash to be held in the escrow by Holman Fenwick and Willan who, at the time, were the solicitors representing Cosbulk.
Farenco called upon Daebo to provide substitute security to Stemcor. That request was passed down the line of the charterers.
Farenco issued proceedings against Daebo and sought injunctive relief. Daebo informed Norden that it would seek the same relief against Norden.
Findings
Aikens J granted interim mandatory relief requiring Norden, failing whom Daebo, to provide the funds necessary to replace those deposited by Farenco.
Aikens J also ordered an expedited trial of issues of construction as follows:
Whether the obligation in clause 3 of the Letter of Indemnity to provide such bail or other security was no longer a current obligation, the release of the Vessel having already been secured; and whether the undertakings provided were conditional upon delivery to Kremikovtzi.
Teare J held that the commercial purpose of the LOI’s would be thwarted by excusing charterers from honouring the LOI’s where the owners, to mitigate their losses, secured the release of their vessel themselves when charterers delayed in doing so. It might have been otherwise if owners had made no prior demand.
With regard to the second point, the LOI’s had to construed according to their terms. There was no room to argue that charterers could nominate substitute receivers informally. Owners were obliged on pain of liability for mis-delivery to deliver to the receivers named in the LOI.
Discussion
The facts of this and similar cases demonstrate the inconvenience caused to ship owners by being obliged by their charterparty to deliver against an LOI in place of original bills of lading.
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