Oversea - Chinese Banking Corporation v Jiang Xin Shipping - The Yue You 902
Oversea-Chinese Banking Corporation v Jiang Xin Shipping (“YUE YOU 902”): Singapore High Court: Pang Khang Chau, Judicial Commissioner:  SGHC 106
Toh Kian Sing SC and Chen Zhida (Rajah & Tann Singapore LLP) for the Plaintiff/Holder of the original bills of lading, Oversea-Chinese Banking Corporation
Bazul Ashhab Bin Abdul Kader, Prakaash Silvam and Ang Kaili (Oon & Bazul LLP) for the Defendant/Owners of the “YUE YOU 902”
BILLS OF LADING: MISDELIVERY: WHETHER HOLDER’S KNOWLEDGE THAT CARGO HAD BEEN DISCHARGED BEFORE TAKING UP THE BILLS OF LADING DEFEATED A MISDELIVERY CLAIM: WHETHER HOLDER IN FACT HAD THAT KNOWLEDGE AT THAT TIME
This was an appeal against the decisions of a High Court Registrar to grant summary judgement on a bank’s claims for misdelivery against a shipowner. The bank had financed the cargo and held the original bills of lading. The bank’s decision to finance the cargo came after the cargo had been discharged. On this basis the shipowner raised numerous arguments against the misdelivery claim, none of which succeeded.
This case note is contributed by Justin Gan of Stephenson Harwood LLP in Singapore. The views expressed remain the contributor's own.
FGV Trading (“FGV”, a Felda group company) sold palm olein to Aavanti Industries (“Aavanti”) on Incoterms Cost & Freight, New Mangalore, India. Aavanti in turn sold the cargo to Ruchi Soya (“Ruchi”) on Cash Against Documents terms.
As C&F seller, FGV arranged carriage. It voyage-chartered the Vessel “Yue You 902”. Thereafter:
Date (all 2016) Event
15 April - Loaded 10,000 mt at Lubuk Ganang, Indonesia
19 April - Freight paid, Original Bills of Lading (OBLs) released by Owners to FGV
19-22 April- Letters of indemnity issued: Ruchi to Aavanti, Aavanti to FGV and FGV to Owners
24 April - Vessel arrives at discharge port New Mangalore and OBLs arrive at Aavanti’s bank Oversea-Chinese Banking Corporation; Aavanti requests financing soon after
27-29 April- Discharge, completed in the morning of 29 April
29 April Evening - The bank grants the loan and releases the purchase price to FGV
Later - Aavanti seeks extensions of time to service the financing, and eventually takes steps towards a Scheme of Arrangement – the financing is not repaid
In these circumstances, the bank decided to enforce its security as holder of the OBLs and in June 2016 arrested the Vessel and a sister ship in Singapore. The vessels were released after Owners furnished security of US$7.8m.
The bank applied for and obtained summary judgments before a High Court Registrar. Owners appealed to a High Court Judge, but without success.
Arguments and Judgment
Owners raised numerous arguments, based on the timing of events above. In particular, that financing was released only after discharge had been completed. These arguments have been grouped for ease of reference.
1. Owners said the OBLs were “spent” by the time the bank became holder of the OBLs by releasing financing for the cargo, since the cargo was discharged before financing was released. If correct, that would mean the bank did not gain title to sue by reason of the OBLs.
The Court reminded Owners that delivery of cargo to a party not entitled to the cargo under the OBLs does not render the OBLs “spent”.
2. Owners said that, at the time of discharge, FGV were still the holder of the OBLs, since the bank had not released financing and taken up the documents at that time. FGV was the voyage charterer and would have directed the Owners to release the cargo to Ruchi. In other words, the release of the cargo to Ruchi was done in accordance with instructions from the holder of the OBLs – so the contract of carriage was duly performed and the OBLs were “spent” before the bank became “holder”.
The Court noted, however, that FGV had already sent the OBLs to the bank on 26 April, duly endorsed. Discharge was completed in the morning of 29 April, and that evening the bank released financing and took up the documents. The Court found that just because the bank had yet to release the financing and so become the holder of the OBLs did not mean that FGV - having endorsed and sent the OBLs to the bank - retained the right to demand delivery of the cargo. (Had the OBLs been returned later, that right would have re-vested in FGV.)
3. Three, Owners said the bank did not become holder of the OBLs “in good faith”. This was a reference to s.5(2) of the Singapore Bills of Lading Act( fn.1), which requires a holder of OBLs to have become the holder in good faith. Owners argued that the bank must have known that the cargo was discharged by the time financing was released, and tendered expert evidence of banking practice to the effect that checks would have been made.
On the evidence, the Court found that, at the relevant time, the bank did not actually know the cargo had been discharged. The Court went further and found that even if the bank had known, it had still acted in good faith. First, s.5(2) “good faith” is not open ended – only unlawful or dishonest conduct would have sufficed to support Owners’ argument. Second, the bank had provided substantial financing against the security of the OBLs. There was no reason for the bank to expose itself.
Third, Aavanti had applied for a “trust receipt” loan, the features of which meant that Aavanti must have misled the bank:
“Thus, when Aavanti requested a trust receipt loan, the request constituted a proposal to pledge the bills of lading to OCBC as security for the loan as well as an indication that Aavanti planned to obtain physical delivery of the bills of lading from OCBC against a trust receipt in order to transfer the same to its sub-buyer. This amounts to a representation by Aavanti to OCBC that the bills of lading documents which could be meaningfully pledged as security.”
4. Owners argued that the bank had waived its rights to bring/was estopped from bringing a claim for misdelivery, because it had granted financing after the cargo was discharged and had not alerted Owners to this.
These arguments were given short shrift. There were no communications between the bank and Owners, and financing was granted after discharge – so the grant of financing could not be taken as consent for discharge. Further, the bank was under no legal obligation to inform Owners of its actions. Also, Owners had discharged the cargo in reliance on FGV’s letter of indemnity, not on any representation by the bank.
“The Yue You 902” case illustrates some of the difficulties faced by shipowners in dealing with claims for misdelivery. Even in this case where the timing of events allowed Owners to present the arguments set out above, there will – in practice - be significant difficulty, as here, in obtaining sufficient evidence to support those arguments.
Thus it is of paramount importance for Owners to ensure that LOIs are taken from creditworthy counterparties, whether the direct charterer, or parties further down the chain in certain circumstances – see for example, the case of Great Eastern Shipping Company Ltd v (1) Far East Chartering Ltd and (2) Binani Cement Ltd (The “Jag Ravi”)  EWHC 1372 (Comm), a good note on which can be found at https://www.steamshipmutual.com/publications/Articles/JagRavi0811.htm.
In this case, the voyage charterer FGV is a substantial undertaking. The writer understands that appeals were filed against this decision but subsequently withdrawn.
Fn.1 Bills of Lading Act (Chapter 384) s.5(2) reads as follows:
References in this Act to the holder of a bill of lading are references to any of the following persons:
(a) a person with possession of the bill who, by virtue of being the person identified in the bill, is the consignee of the goods to which the bill relates;
(b) a person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill;
(c) a person with possession of the bill as a result of any transaction by virtue of which he would have become a holder falling within paragraph (a) or (b) had not the transaction been effected at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates,
and a person shall be regarded for the purposes of this Act as having become the lawful holder of a bill of lading wherever he has become the holder of the bill in good faith.