Oldendorff GmbH v Sea Powerful II Special Maritime Enterprises The Zagora
Oldendorff GmbH & Co KG v Sea Powerful II Special Maritime Enterprises (The “Zagora”)
English High Court (Commercial Court): Mr Justice Teare:  EWHC 3212; 15 December 2016
Luke Parsons QC and Chris Smith, instructed by MFB Solicitors, for Oldendorff and Oldendorff Carriers
Michael Ashcroft QC and Oliver Caplin, instructed by Ince & Co LLP, for Sea Powerful II, the owners of The “Zagora”
The other parties, SCIT Services Ltd, SCIT Trading Ltd and Xiamen C&D Minerals Co Ltd were not represented
LETTER OF INDEMNITY: WHETHER THE DISCHARGE PORT AGENT WAS ACTING ON BEHALF OF THE SHIPOWNERS OR THE PERSON NAMED IN THE LETTER OF INDEMNITY AS THE PERSON TO WHOM DELIVERY OF THE CARGO WAS TO BE MADE
The discharge port agent acted on behalf of the person named in the letter of indemnity as the person to whom delivery of the cargo was to be made. Thus, the shipowners were entitled to the protection under a letter of indemnity. The same would have been the case if the owners had an honest belief that the discharge port agent was acting on behalf of the person named in the letter of indemnity, where that was not in fact the case.
This note has been contributed by Pak Hei Li, LLB(Hons), PCLL (University of Hong Kong).
On 21 October 2013, SCIT Trading Ltd (“SCIT Trading”) agreed to sell some iron ore (“Cargo”) to Xiamen C&D Minerals Co Ltd (“Xiamen”) on CFR terms. The contract of sale provided that the discharge port agent would be appointed by the buyer, Xiamen. On 6 November 2013, Xiamen sold the cargo to Cheongfuli Co Ltd (“Cheongfuli”), which was a company associated with Xiamen and the business of which was to collect payments under letters of credit. Cheongfuli, on 28 November 2013, sold the Cargo to Shanxi Haixin International Iron and Steel Co Ltd (“Shanxi Haixin”). This contract of sale also provided that the discharge port agent would be appointed by the buyer, Shanxi Haixin. In short, SCIT was the head seller and Shanxi Haixin the ultimate buyer.
SCIT Trading had a contract of affreightment with SCIT Services, which assumed responsibility for transportation of cargoes sold by SCIT Trading. On 19 November 2013, SCIT Services concluded a voyage charterparty with Oldendorff Carriers for the Cargo to be shipped from Koolan Island in Western Australia to the People’s Republic of China. The charterparty provided that the agents at the discharge port would be “Charterers’ agents” and that the owners/master would agree to discharge the Cargo against a letter of indemnity (in the event that an original bill of lading was unavailable).
Oldendorff Carriers had a long-term agreement with Oldendorff (Plaintiff) which agreed to provide tonnage to the former. On 3 December 2013, Oldendorff concluded a time charter trip on the NYPE form with the owners of Zagora (“Vessel”). The charterparty provided that the vessel would discharge the Cargo only if it received a faxed copy of the letter of indemnity issued by the charterers.
On 16 December 2013, Shanxi Haixin informed Xiamen that Lanshan was the discharge port and stated that the shipping agent was Rizhao Sea-Road Shipping Agency Co Ltd (“Sea-Road”). The nomination of discharge port and shipping agent was passed up the chain to SCIT Trading, SCIT Services, Oldendorff Carriers and then the owners.
Anticipating the need for a letter of indemnity (“LOI”), the owners provided a copy of their standard form of LOI wording, which was then passed down the line to SCIT Services, SCIT Trading and Xiamen. When Xiamen passed on the form to Shanxi Haixin on 18 December 2013, Xiamen identified Sea-Road as the person to whom delivery ought to be made. However, when Xiamen provided SCIT Trading with the form, the form stated Xiamen as the person to whom delivery was to be made. This form was adopted as the LOI. On 19 December 2013, SCIT Services issued an LOI to Oldendorff Carriers and Oldendorff issued an LOI to the owners. On 20 December 2013, the owners informed the master that they had received an LOI for delivering the cargo to Xiamen. The master was instructed to deliver the cargo in accordance with the terms of the LOI and to keep a record of the name and ID number of the person who came on board for the discharge.
On 29 December 2013, the vessel berthed at Lanshan and a person, who identified himself as being with Sea-Road, boarded the vessel to handle discharge. Discharge was completed on 31 December 2013.
Eight months later, on 27 August 2014, the Vessel was arrested when it was at Lanshan again. Bank of China arrested the Vessel on the basis that it was the holder of the original bill of lading and that the Cargo was discharged without the production of it. The owners thus claimed an indemnity from Oldendorff pursuant to the LOI. Claims of indemnities pursuant to the related LOI were made down the chain. While the claims for an indemnity were heard by the English court, the claim asserted by the Bank of China was being litigated in China.
While SCIT Services, SCIT Trading and Xiamen were originally parties to this proceeding and pleaded their cases, their solicitors came off the record before trial and these parties did not appear at the pre-trial review or in the trial. Hence the only parties represented before the court at the trial were the owners, Oldendorff and Oldendorff Carriers. Nevertheless, in view of the difficulty of enforcing a default judgment against parties not represented before the court, the court was invited and agreed to give a judgment on the merits as between: 1) the owners and Oldendorff; 2) Oldendorff Carriers and SCIT Services; and 3) SCIT Trading and Xiamen. It should be noted that the three LOIs between these parties contained the same terms.
The court held that the Cargo was delivered to Xiamen through the agency of Sea-Road. Hence Oldendorff is liable to indemnify the owners in respect of the arrest of the Vessel and in respect of the liability the owners owed to the Bank of China for delivering the Cargo without the production of an original bill of lading. Likewise, SCIT Services was held liable to Oldendorff Carriers and Xiamen liable to SCIT Trading.
The basis of the court’s decision was that Sea-Road acted as the agent of Xiamen. The court emphasised the fact that Xiamen had identified itself as the party to whom the Cargo was to be delivered. Xiamen did so probably because it had not yet received a letter of credit from Shanxi Haixin. Indeed, such letter of credit was only received on 29 January 2014, long after the discharge. Hence Xiamen wanted to ensure that it would have possession of the Cargo and that it would not suffer loss when it reimbursed its bank for the letter of credit (in favour of SCIT Trading). The inevitable inference to be drawn from Xiamen naming itself as the person to whom the Cargo ought to be delivered, as the court concluded, was that Xiamen intended Sea-Road to act as its agent and take delivery of the Cargo on its behalf.
Xiamen’s case, on the other hand, was not sufficiently persuasive. The evidence did not explain why Xiamen, in the LOI, required delivery to itself. In addition, the owners had no interest in discharging the cargo into the possession of Sea-Road as the owners’ agent. Therefore, the court held that Sea-Road acted as the agent of Xiamen.
Alternatively, the court held that, even if it were the case that Sea-Road did not act as the agent of Xiamen, the LOI would still have been engaged on the basis that the owners honestly believed that Sea-Road was acting on behalf of Xiamen.
The judgment of this court depended heavily on the factual evidence, in particular the fact that Xiamen identified itself in the LOI as the party to whom the Cargo should be delivered. The interesting feature of this judgment arises from the court’s alternative reasoning that it would suffice for the owners to hold an honest belief that the discharge agent was acting on behalf of the person named in the LOI. Since, on the facts of this case, it was quite clear that such belief was reasonable and honest, the court did not have to address the issue whether there is an additional requirement that such belief must not be arbitrary, capricious or irrational. This will have to be dealt with by the courts in the future.