It is not uncommon for charterers or shipowners to be offered a letter of indemnity (“LOI”) for delivery of cargo to a named receiver without the presentation of original bills of lading. This situation arises when the bills of lading cannot be produced or released at the load port before the cargo arrives at port, for example when there are delays in issuance of the bills of lading or when cargoes are traded for multiple times whilst being shipped in short voyages.
In such event, shipowners would usually discharge the cargo to the receiver in reliance of LOIs. While shipowners usually can have recourse to LOIs to protect their position, in the case of Bremen Max (2009) 1 Lloyd’s Rep 81, it was held, that any liability under the LOI indemnity clauses was conditional upon delivery having been made to the “receiver” as defined in the LOI delivery clause.
The decision in Songa Chemicals AS v Navig8 Chemicals Pool Inc (The “Songa Winds”) – QBD (Comm Ct)  EWHC 397 delivered on 2 March 2018 is the latest decision on UK P&I Club standard form LOI for delivering cargo without the production of original bills of lading. In this case, LOIs were provided to the carrier for cargo to be delivered to named receiver without production of bills of lading, but the cargo was delivered to a different person. The key issue was whether the person taking delivery represented or acted on behalf of the “receiver” named in LOI, in accordance with its terms. Only a positive answer can trigger the LOI protection to the carrier.
The “SONGA WINDS” – ruling on P&I Club Letters of Indemnity (“LOI”)
Under the current P&I standard form (the International Group Standard Form) LOI, shipowners are requested to deliver the cargo to a named receiver, at a specified location, without the production of the original bills of lading. The standard form LOI provides that the receiver should be a named receiver (X) “or…such party as you believe to be or to represent X or to be acting on behalf of X”, and contains the following instructions with regard to the location of delivery: “[insert place where delivery is to be made]”.
In the present case, the vessel Songa Winds was time-chartered by the plaintiff, Songa Chemical SA (“Songa”), to the defendant, Navig8 Chemical Pool Inc. (“Navig8”). On 2 February 2016 Navig8 sub-chartered the vessel to Glencore Grain BV (“Glencore”) to carry sunflower seed oil from Ilychevsk, Ukraine, for delivery at safe ports in the New Mangalore/Kakinada range in Glencore’s option. The vessel was chartered by Glencore, in part, to fulfil a contract concluded in late January 2016 to sell 6,000 mt of sunflower seed oil to Ruchi Agritrading (Pte) Ltd (“Agritrading”), a subsidiary or affiliate of Ruchi Soya Industries Ltd (“Ruchi”).
The sale contract between Glencore and Agritrading provided for property to remain with Glencore until payment. Bills of lading consigned to order were issued, dated 13 March 2016, naming Ruchi as the notify party.
After shipment, around 21 March 2016, Glencore’s sale contract with Agritrading was replaced by two contracts on materially back-to-back terms (except for price), whereby Glencore contracted to sell 6,000 m.t. to Aavanti Industries Pte Ltd (“Aavanti”), and Aavanti contracted to sell 6,000 m.t. to Ruchi. Under this arrangement, 4,000 m.t. were delivered to Ruchi at New Mangalore and 2,000 m.t. were delivered to Ruchi at Kakinada. Neither delivery was made against presentation of any originals bill of lading, but against LOIs on the International Group Standard Form, as follows:
- The Aavanti LOIs: Aavanti issued two LOIs to Glencore, dated 22 March 2016, requesting delivery without the presentation of bills of lading to Ruchi (or to such party as Glencore believed to be, to represent, or to be acting on behalf of Ruchi). One requested delivery “at the port of MANGALORE, INDIA”; the other, “at KAKINADA, INDIA”.
- The Glencore LOIs: Glencore issued two LOIs to Navig8, dated 6 and 13 April 2016, requesting delivery without the presentation of bills of lading to Aavanti (or to such party as Navig8 believed to be, to represent, or to be acting on behalf of Aavanti). Both requested delivery “at New Mangalore or Kakinada, India”.
- The Navig8 LOIs: Navig8 was deemed to have issued LOIs to Songa (under clause 87 of the time charter), on terms identical to the GLENCORE LOIs, requesting delivery without the presentation of bills of lading to Aavanti (or to such party as Songa believed to be, to represent, or to be acting on behalf of Aavanti).
The purchase of sunflower seed oil by Aavanti from Glencore was financed by Société Générale (“SocGen”), who claimed to be the lawful holder of the bills of lading for the cargo in question. Neither Aavanti nor SocGen had been paid for the cargo, whether by Agritrading or by Ruchi. The back-to-back arrangement had resulted into an unusual situation where Ruchi was given delivery of the cargo without any advanced payment or presentation of any bills of lading or even LOIs.
SocGen, having obtained security for its claim by way of a letter of undertaking provided by Glencore, against a threatened arrest of the vessel under in rem proceedings, initiated arbitration proceedings against Songa claiming damages for mis-delivery under the bills of lading, where SocGen claimed that it was the lawful holder of the bills of lading, and the cargoes should therefore have been delivered to SocGen, not Ruchi.
In response, Songa claimed against Navig8 (in the present proceedings) under the Navig8 LOIs, and Navig8, in turn, presented separate proceedings against Glencore under the Glencore LOIs. Both claimants sought declarations that the LOIs were triggered by the delivery of the cargo to Ruchi (on the basis that Ruchi represented or was acting on behalf of Aavanti or that Songa/Navig8 believed Ruchi to represent or act on behalf of Aavanti).
In both actions Songa and Navig8 respectively applied for summary judgment on the basis that Navig8/Glencore respectively had no real prospect of defending the claim that the Navig8 LOIs/Glencore LOIs were triggered by the deliveries to Ruchi. Glencore and Navig8 resisted the applications on the basis that the evidence was not sufficiently cogent to enable the court to give summary judgment. Specifically, the evidence did not establish that, in taking delivery of the cargo, Ruchi represented or acted on behalf of Aavanti. The matter should therefore be allowed to proceed to trial.
The Court held that it was not an obvious inference that, in taking delivery, Ruchi represented or was acting on behalf of Aavanti. In many cases a seller would no more want its buyer to get hold of the goods without paying for them than that they be stolen by a stranger. Having said that, every case should still be decided on its own facts. In the present case the evidence are that:
- Aavanti by its LOIs unconditionally requested Glencore to procure delivery to Ruchi although Aavanti had not been paid and without reference to whether it was going to be paid before delivery;
- There was a standing practice between Aavanti and Ruchi for delivery to be made to Ruchi of cargo sold to it by Aavanti without production of bills of lading and where Ruchi had not paid for the cargo prior to delivery;
- Ruchi was provided by Aavanti with a copy of the Aavanti LOIs as issued to Glencore, enabling Ruchi in fact to procure delivery to it of the cargo;
- Aavanti had no representative office or other presence in India and no right to import cargo into India; it had not appointed anyone to receive the cargo on its behalf unless it be Ruchi in accordance with the standing practice; by contrast, Ruchi had its own dedicated tanks at both ports, owned by it and bearing its insignia; and
- The change in wording between the Aavanti LOIs and the Glencore/Navig8 LOIs (the former requesting delivery to Ruchi, the latter requesting delivery to Aavanti) originated with Glencore and did not result from a change of heart on Aavanti’s part, having not yet been paid by Ruchi, as to whether the quantities in question should be delivered to Ruchi.
The Court concluded that there was no prospect of defeating the claim that Ruchi represented or was acting on behalf of Aavanti, so that delivery of the cargo without the presentation of the original bills of lading was made to the correct party, in accordance with the terms of both LOIs. The indemnification provisions were engaged, with Navig8 under an obligation to indemnify Songa in respect of SocGen’s claim, and Glencore under an obligation to indemnify Navig8 for the same. The Court therefore granted summary judgments against Glencore and Navig8.
The decision of this case is very fact sensitive. Yet it provides useful guidance on the interpretation and practical operation of the International Group Standard LOI wording concerning who is the receiver or “or… such party as you (the shipowner/carrier) believe to be or to represent the receiver or to be acting on behalf of receiver”.
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