That was the question in a recent case that came before the Court of Appeal (1).
Those interested in the facts can click here to access the report but the answer is – yes but only if there is an agency relationship!
Unfortunately, in the case in question the High Court and Court of Appeal found that there was no agency relationship so the shipowner (Berge Bulk) who was seeking to recover under an LOI issued by a company of no real financial standing could not go behind that company and say that they issued the LOI on behalf of other undisclosed principals. The Court declined jurisdiction to entertain any claim against those others on the basis that they were in New Zealand and not parties to the English law LOI.
As in most cases concerning claims under LOI’s, the dispute was triggered by the insolvency of the company that issued the LOI. It’s remarkable how often this happens. It is perhaps easy to say (with the benefit of hindsight) that shipowners should think carefully when contractually agreeing to accept LOI’s in exchange for delivering cargo without original bills. The reality is that most charters require the shipowner to accept an LOI in a form and wording proposed from a particular party. At the time of negotiating the charter it is always open to the ship owner to refuse and/or require the LOI to be issued by a parent company and/or to be countersigned by a bank. However, one suspects much of this would be down to the market conditions at the time that the charter was negotiated.
The reason why we see so many LOI claims in the Courts is because there is no P&I cover for cargo claims arising from delivery without original bills. Such claims usually amount to many millions of dollars. The LOI is the only lifeline that the shipowner has to make good its loss.
In this case, Berge Bulk were desperately trying to find a way around the problem they faced due to the insolvency of the party that issued the LOI – TPT Shipping. They argued that TPT Shipping was an agent for TPT Forests who were agents for the New Zealand timber exporters and, as such, the timber exporters were bound by the LOI’s.
For the lawyers out there, the judgment of the Court of Appeal is worth reading as it recaps the law on agency and undisclosed principals. One important point was that the liability of an undisclosed principal only arises when the agent has actual authority to conclude a contract on the principal’s behalf. An argument that the agent had ostensible authority would not be sufficient to confer liability on an undisclosed principal.
In the real world, there are often many contractual relationships governing the movement of goods from A to B. Where a shipowner is faced with problems under an LOI then it is always worth investigating if there is any way around those problems by relying on agency. That said, it is usually necessary for there to be something in the LOI itself to indicate an agency relationship, the most obvious being the use of the words “as agent”. Absent that there needs to be something to show that the undisclosed principal agreed to convey authority on its agents to enter into LOI’s on its behalf.
(1) Berge Bulk Shipping v Taumata Plantations [2025] EWCA Civ 876
Nick Burgess
Partner
