Readers of our blog may recall an article we released back in November 2020 in which we highlighted the risks that a ship owner is required to undertake when accepting a letter of indemnity (LOI) in exchange for releasing the cargo without the production of an original bill of lading. Those risks extend not just to the ship owner but also to those giving the LOI’s in circumstances where the LOI’s they may themselves receive are deficient or where there is a break in the contractual chain.
The recent judgment (1) of Judge Pelling KC is an example of what can go wrong when dealing with a long chain of LOI’s. The full case can be accessed by clicking here but the takeaway points are as follows:
- When dealing with long chains of indemnities, problems can arise where an LOI is provided to one entity within a group but, for whatever reason, the indemnity down the line is procured in favour of another entity within the group. This issue was resolved in the present case by the judge’s finding that there was an implied internal indemnity in place between the two group entities.
- The wording in the CP requiring the provision of an LOI needs to be clear. In this case, the wording used gave rise to an argument that there was no entitlement to an LOI because the Owners’ P&I Club wording was not submitted prior to lifting the subjects on the fixture. That argument was rejected on a proper construction of the clause in the context of the fixture.
- Care should be taken when dealing with any instruction to relinquish control of the cargo without the production of an original bill. That is a lesson learned from the Songa Winds(2) where the LOI permitted the cargo to be delivered to the party believed to be the agent of the intended receiver resulting in a dispute as to the nature of that belief. In the present case, however, the argument was that the LOI dealt with delivery whereas the instruction given was to discharge such that, it was argued, the owners should have discharged and retained possession of the cargo. That argument was dismissed by the judge as an “entirely unreal” submission on the facts of the case.
Of course, things can and do go wrong from time to time when it comes to LOI’s. If that were not the case, then there would be no need for lawyers and Courts. The lesson, however, is that when dealing with the potentially eye-watering uninsured exposures consequent on a misdelivery claim (around US$80M in this case), it is prudent to take time to check the legal position and the LOI wording at the time that it is provided. Had that been done here, then perhaps this case could have been avoided. Likewise, it is always prudent to check the position under LOI’s before considering the novation of a charter for internal business reasons.
- Trafigura Maritime Logistics PTE Ltd v Clearlake Shipping PTE Ltd (“The Miracle Hope”)  EWHC 2234 (Comm).
- Songa Chemicals AS v Navig8 Chemicals Pool Inc (“The Songa Winds”)  EWHC 397 (Comm).
Constantin von Hirsch