The judgment delivered by the High Court in the Bremen Max on 11 November 2008 provides a timely reminder of the willingness of the English courts to enforce LOIs given under charters.

Bremen Max was arrested by Stemcor UK Ltd at Port Gladstone, Australia in August 2008 as security for a claim for the misdelivery at Bourgas, Bulgaria in March 2008 of a cargo of blast furnace feed for which Stemcor claimed to be the lawful holders of the bills of lading.

The vessel had been operating under a chain of back-to-back charters. The cargo was discharged at Bourgas without production of bills of lading against back-to-back LOIs which stated that if the vessel were arrested in connection with the delivery of cargo, the charterers would "provide on demand such bail or other security as may be required to prevent such arrest... or to secure the release of such ship". When the vessel was arrested her owners demanded the head charterers provide security to have her released. The demand was passed through the chain of sub-charters. Security was not provided by any of the charterers and the owners themselves put up security to have the vessel released.

Under threat of having assets attached in New York, one of the charterers, Farenco, later provided security to replace that provided by the owners. Farenco then applied to the High Court for an order requiring sub-charterers to perform their obligations under the LOIs.

The ultimate sub-charterers, Deiulemar Shipping SPA, argued that they were only required to put up security to prevent the arrest of the vessel or secure her release and that that was impossible when the vessel had already been released. The High Court rejected this argument as contrary to the commercial purpose of the LOIs: that the owners should not have to suffer the arrest of the vessel and that, in the event of an arrest, it would be the charterers who provided security.

The Court held that the provision of security by the owners did not release the charterers from their obligation to provide security and that in such circumstances it would make an order requiring charterers to put up security.

HFW acted on behalf of Farenco. Those with questions about the judgement should contact George Eddings.

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