Cargo released without bills of lading – LOI’s issued – typical case study
On 21 October 2013 SCIT Trading agreed to sell a cargo of 70,000 mt of iron ore to Xiamen on CFR China Main Port terms with Koolan Island as the loading port.
Clause 9 of the contract of sale provided for the discharge port agent to be appointed by the buyer, Xiamen.
On 6 November 2013 Xiamen agreed to sell the cargo to Cheongfuli Company Limited (“Cheongfuli”).
On 28 November 2013 Cheongfuli agreed to sell the cargo to Shanxi Haixin International Iron and Steel Co. Ltd. (“Shanxi Haixin”).
SCIT Services concluded a voyage charterparty dated 19 November 2013 with Oldendorff Carriers for the carriage of the cargo from Koolan Island to China.
The charter provided for the agents at the discharge port to be “Charterers’agents” and also provided that in the event that an original bill of lading was not available at the discharging port “the owners/master agree to discharge and release” the cargo against a letter of indemnity.
Oldendorff Carriers had in place a long term agreement, “General Agreement about Cargo Re-Lets” dated 5 March 2005, with Oldendorff whereby the latter would provide tonnage to the former. The agreement provided that any charter concluded would be on back to back terms with the relevant voyage charter that Oldendorff Carriers wished to perform.
On 3 December 2013 Oldendorff concluded a time charter trip on the NYPE form with the Owners of the Zagora.
The time charter provided that if an original bill of lading was not available at the discharge port the charterers would issue a letter of indemnity and “the vessel will not discharge until a faxed copy of the letter of indemnity has been received……”.
On 16 December 2013 Shanxi Haixin informed Xiamen that Lanshan was the discharge port and stated that the shipping agent was Sea-Road.
Between 17 and 18 December 2013 the Owners’ requested form of LOI was passed down the line to SCIT Services, SCIT Trading and Xiamen.
When Xiamen passed on the form of LOI to Shanxi Haixin on 18 December 2013, Xiamen identified the person to whom delivery was to be made as Sea-Road (or such party as was believed to be Sea-Road or to be acting on behalf of Sea-Road).
However, when Xiamen provided SCIT Trading with the requested LOI the person to whom delivery was to be made was identified as Xiamen (or such party as was believed to be Xiamen or to be acting on behalf of Xiamen). An LOI in this form was passed up the line so that on 19 December 2013 SCIT Services issued an LOI to Oldendorff Carriers and Oldendorff issued an LOI to the Owners.
On 29 December 2013 the Owners of the vessel instructed the master to deliver the cargo Xiamen without production of the original bill of lading.
A representative of Sea-Road boarded the vessel claiming to handle discharge on behalf of Xiamen and the cargo was released to him.
Eight months later, on 27 August 2014 when the vessel was again at Lanshan, she was arrested at the suit of the Bank of China as the holders of an original bill of lading.
Owners claimed an indemnity from Oldendorff pursuant to the terms of the letter of indemnity.
In addition claims for indemnities pursuant to related letters of indemnity were made down the chartering chain.
Following the arrest of the vessel in Lanshan on 27 August 2014 at the suit of the Bank of China the Owners called upon Oldendorff to obtain the release of the vessel pursuant to the LOI it had issued. Oldendorff Carriers made a like demand on SCIT Services and SCIT Trading passed on the demand to Xiamen.
On 5 September 2014 Oldendorff carriers obtained in interim mandatory injunction requiring SCIT Services to do what was necessary to secure the release of the vessel. SCIT Trading obtained a similar order against Xiamen but no action was taken to secure the release of the vessel.
Oldendorff provided security to obtain the release of the vessel and for the Owners’ losses without prejudice to their right to argue that the LOI had not been engaged and the vessel was released from arrest.
The only parties represented at the trial were the Owners, Oldendorff and Oldendorff Carriers.
Teare J held that the inevitable inference to be drawn from Xiamen naming itself as the person to whom the cargo should be delivered in the absence of an original bill of lading was that Xiamen intended that the nominated agent, Sea-Road, would take delivery of the cargo on its behalf.
That being so, the LOI’s were engaged.
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