UniCredit Bank v Euronav - The Sienna

DMC/SandT/23/02

England

Bank AG v Eurpnav NV (“The Sienna”)

English Commercial Court: [2022] EWHC 957 (Comm): 28 April 2022

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2022/957.html

John Russell QC and Gemma Morgan (instructed by HFW LLP) for the Claimant, UniCredit Bank

Robert Thomas QC and Paul Toms (instructed by Preston Turnbull LLP) for the Defendant, Euronav

CARRIAGE OF FUEL OIL: VOYAGE CHARTERPARTY: NOVATION OF CHARTERPARTY TO NEW CHARTERERS: FAILURE TO ENDORSE THE BILL OF LADING: TITLE TO SUE SHIPOWNERS FOR MISDELIVERY: NEW CHARTERERS HAVING “LIQUIDITY DISTRESS: WHETHER A NEW CONTRACT “SPRANG UP” WHERE THE BILL OF LADING AS A RECEIPT WAS NOT ENDORSED

Note: In June 2023, this judgment has been upheld by the Court of Appeal on the issue of causation, but overruled on the issue of the bill of lading - see [[1]]

Summary

The claimant bank brought a claim for mis-delivery of cargo against the vessel owners claiming the considerable sum of US$24,701,600. However, whereas in the normal course of events under a trade finance transaction the bank would eventually hold indorsed bills of lading, in this case, the bill was not indorsed – by reason of the COVID pandemic - until much later on, after the delivery of the cargo at the port of discharge. The original charterers (BP) were the holders of the bill of lading at the time of delivery, but they had novated the charter to new charterers (Gulf). The question was whether that bill, which was not endorsed, became a contract of carriage such that, once in the bank’s possession, it would allow it to sue the vessel owners. Moulder J held that, without endorsement, the bill of lading could not transform itself into a contract of carriage, with the result that the bank had no title to sue and its claim failed.

Case note contributed by Drewry Cooper, solicitor, England & Wales.

Background

This was a claim for damages brought by the Claimant, UniCredit Bank A.G. ("UniCredit" or the "Bank") for the alleged breach by the Defendant, Euronav N.V. ("Euronav" or the "Owners") of the bill of lading by delivering (part of) a cargo of low sulphur fuel oil (the "Cargo") to a third party without production of the bill of lading. Both liability and quantum were in issue. The Bank sought damages of US$24,701,600. The Bank was involved in commodities trade finance. The Defendant Owners were at all material times the owner of the vessel "SIENNA" (the "Vessel").

BP Oil International Ltd ("BP") were the sellers of the Cargo and the original charterers of the Vessel in relation to the carriage of the Cargo. Gulf Petrochem FZC ("Gulf") were the buyers of the Cargo from BP and became the charterers of the Vessel by a novation (the "Novation Agreement") on 6 April 2020.

By a bill of lading issued at Rotterdam dated 19 February 2020 (the "Bill of Lading") and signed by or on behalf of the Master of the Vessel, the Owners acknowledged shipment of the Cargo on board the Vessel in apparent good order and condition for carriage to and delivery at Fujairah, UAE. The Bill of Lading was made out to the order of BP or their assigns.

The Bank financed the purchase by Gulf of part of the Cargo ("the Financed Cargo") by way of letter of credit on or about 1 April 2020.

It was intended between the Bank and Gulf that the Financed Cargo would be re-sold to sub-buyers, approved by the Bank (the "Sub-buyers"), on payment terms that required those Sub-buyers to pay the Bank directly, 90 days from the date of invoice against presentation of the invoice and a Certificate of Quantity issued by an independent surveyor.

The Financed Cargo was discharged from the Vessel by Owners by STS transfer to two other vessels between about 26 April and 2 May 2020. Discharge occurred without Owners requiring production of the bill of lading by any person.

The dates for payment of the Bank’s invoices fell due in the period 26 July- 9 August 2020. Whilst in April/May 2020 - according to the Bank's evidence - the Bank had no specific concerns about Gulf falling into default, by mid-July the Bank was aware that Gulf had a "liquidity distress" and suspected "fraudulent behaviour".

On 7 August 2020, BP endorsed the original bill of lading to the Bank.

In 2019, the Bank had agreed to provide financing to Gulf by way of a facility agreement and first demand guarantee dated 18 December 2019 ("Facility Agreement"). As security for this financing, the Bank and Gulf entered into a pledge agreement and a deed of assignment, both also dated 18 December 2019 (the "Pledge Agreement" and the "Deed of Assignment"). Under these agreements, amongst other things, all rights under bills of lading issued in respect of financed goods were pledged and assigned to the Bank.

It was not in dispute that some of the trades which were financed by the Bank proceeded by way of the Bank's client on-selling the goods to its buyers. The repayment of the bank loan, so called "self-liquidating", was effected by the proceeds being paid directly by the sub-buyer to the Bank.

Issue 1: Did the bill of lading contain and/or evidence the/a contract of carriage in respect of the Cargo on or after 6 April 2020 (being the date of the Novation Agreement) and prior to the alleged misdelivery?

Issue 2: Alternatively, were Owners' obligations as regards the carriage of the Cargo contained exclusively in the Charterparty and/or the Novation Agreement of 6 April 2020?

Judgment

Moulder J stated the short point (at paragraph 21) as follows:

“The crux of these issues is whether when BP ceased to be the charterer on 6 April 2020 by reason of the novation of the charterparty to Gulf, the contract of carriage at the time of delivery was contained in the Bill of Lading. BP remained the holder of the Bill of Lading at the time of delivery”.

She understood it to be common ground that, where a shipper is also the charterer of the vessel, the bill of lading is not the contract of carriage of goods but a mere receipt.

She said it was clear on the authorities that, where a bill of lading is issued to a charterer and then indorsed to a third party, it attains contractual status upon indorsement on the basis that "a new contract appears to spring up between the ship and the consignee on the terms of the bill of lading" (Tate & Lyle Ltd. v Hain Steamship Co. (1936) 55 Ll. L. Rep. 159, 174).

However, in this case there was no indorsement of the bill of lading to a third party; rather BP, the original shipper, ceased to be the charterer and thus, from the date of the novation, the bill of lading was no longer in the hands of the charterer.

The Bank submitted that there was no reason to distinguish the situation in this case from the position which would normally result on indorsement of the bill. To the extent that a further contract came into existence between Gulf and the Owners in the form of the novated Charterparty, it was the Bank's case that that contract had no bearing on the bill of lading contract of carriage, or the rights or liabilities contained therein; the Novation Agreement operated simply as a transfer of rights and obligations under the Charterparty from BP to Gulf.

The Owners, on the other hand, submitted that there was no authority to support the proposition for which the Bank contended and that the Bank sought to draw a false analogy with the orthodox position and infer the creation of contractual rights. The Owners argued that the arrangements between the Owners and BP were terminated by the novation and that BP did not intend the relationship between them to be governed by the bill of lading, if their existing relationship was dissolved.

Moulder J reasoned that the blll of Lading did not contain the contract of carriage between the Owners and the lawful holder of the bill, BP, on or after 6 April 2020 (being the date of the Novation Agreement) and prior to the alleged misdelivery.

She accepted the submission that there was no reason to conclude that the parties intended that their relationship would be governed by the terms of the bill of lading at the point where the contractual relationship between them in the charterparty had just been terminated.

The claim failed on the bill of lading issue, but Moulder also found that if it had not failed on these grounds, it would still have failed on the basis that the Owners did not cause the Bank’s loss.

Comment

The case is interesting because the bill of lading in this case was not indorsed, contrary to the more usual course of events. This was because of the outbreak of COVID where getting signatures for documents became more difficult.

The Bank expected, as usual, that all the rights in the cargo would be represented by the bill which had been pledged to it under the Pledge Agreement and Deed of Assignment. However, there were no such rights, because the contractual nexus with the owner which is normally provided by an indorsed bill was absent.

The case shines a light on one of the fictions of maritime law, which is that a receipt “turns into” a contract by reason of its indorsement. Thus, a bank must ensure that bills of lading are indorsed to it, if it is to have a claim under them as a contract of carriage against the shipowner/carrier. This is the case, even though the bank is not interested in itself ever engaging in the carriage of goods.

Reference was made to the textbooks Scrutton on Charterparties and Bills of Lading (24th edition 2021) and Carver on Bills of Lading (4th edition 2017) which both acknowledge the fact that it is difficult to explain why or how a bill as a mere receipt becomes a contract of carriage upon indorsement. “Does a contract spring into existence on the transfer to the lawful holder, which had no existence before?”, Scrutton asks. In any case, Moulder J did not address this metaphysical problem in this case, but perhaps an appeal court will.