UK: Court Concludes Delivery Made In Accordance With Terms Of LOIs

Last Updated: 19 October 2018
Article by Jeremy Biggs and Guy Fountaine

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.

02.10.2018

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions