Great Eastern Shipping v Far East Chartering

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DMC/SandT/11/20

England

Great Eastern Shipping Co Ltd v. (1) Far East Chartering Ltd (2) Binani Cement Ltd

English High Court, Queen’s Bench Division: Judge Mackie QC: [2011] EWHC 1372 (Comm): 27 May 2011'

David Goldstone QC, instructed by Mays Brown, for the claimant shipowners

Stephen Gee QC and Nigel Eaton for the second defendant receivers; the first defendants were not represented

WHETHER SHIPOWNER ENTITLED TO ENFORCE LETTER OF INDEMNITY GIVEN BY RECEIVER TO CHARTERER FOR DELIVERY OF CARGO WITHOUT PRESENTATION OF BILLS OF LADING: CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999: WHETHER LETTER GIVEN TO CHARTERER: WHETHER CARGO “DELIVERED”: WHETHER LETTER OF INDEMNITY UNENFORCEABLE ON GROUNDS OF PUBLIC POLICY: WHETHER OWNERS ENTITLED TO RECOVER UNDER A UNILATERAL CONTRACT

Summary

In this case, the shipowner was held entitled to enforce a letter of indemnity given to the voyage charterer by the receiver of cargo where the cargo had been delivered to the receiver on the charterer's instructions in the absence of presentation of the original bills of lading. On the facts of the case, the letter had been issued to the charterer, the cargo had been ‘delivered’ as required by the letter and no issue of public policy was involved. But the judge doubted whether owners had also a good claim under a so-called unilateral contract with the receiver, as they were not aware of the offer of indemnity at the time they delivered the cargo.

Background

This case concerned a claim by shipowners, Great Eastern, under a Letter of Indemnity signed by Binani Cement, the defendant receivers of a cargo of coal. As the receivers supplied the Letter of Indemnity to the voyage charterers (Far East Chartering), the shipowners brought their claim under the Contracts (Rights of Third Parties) Act, 1999 and, alternatively, on the basis of a unilateral contract. The receivers denied liability on a variety of grounds, including public policy.

The Claimant was the owner of the “Jag Ravi” (“the vessel”). The first defendant (“FEC”) was the voyage charterer of the vessel but it was in liquidation and played no part in the trial.

In July 2008 an Indonesian company (“the shippers”) entered into a sale contract to supply shipments of coal FOB to a Swiss company Visa Comtrade AG (“VICAG”), part of a group of which FEC appears to have been the chartering arm. One of these shipments was on-sold by VICAG to the second defendant (“Binani”) on CIF terms under a contract dated 22 August 2008 (“the On-sale Contract”). Disputes arose between the shippers and VICAG over cargoes supplied under the Sale Contract, including the cargo shipped on the vessel. In consequence, VICAG did not pay the purchase price and did not take up the Bills of Lading. Neither owners nor Binani knew of this dispute at the time. FEC chartered the vessel on 10 September 2008 to lift the cargo, a quantity of 44,104 metric tonnes of coal. Loading was completed and five bills of lading were issued by owners on 30 September 2008.

The vessel sailed from Indonesia and arrived at Navlakhi, in India on 12 October. On 14 October owners issued a delivery order to the Port Authority in favour of Binani. Discharge of the cargo, initially onto barges, was completed on 16 October and the vessel left.

Between 16 and 21 October Binani removed about 7,400 mt from the port. On 21 October the discharge port surveyors reported that the cargo was below the specification required by the On-sale Contract. On 23 October Binani wrote to VICAG rejecting the consignment. Relations deteriorated and on 12 November the shippers' lawyers wrote to owners giving notice of a claim for damages for delivering the cargo to Binani without presentation of the bills of lading. Owners then wrote to the Port Authority to revoke the delivery order. The Port Authority did not appear to have accepted this revocation.

On 7 January 2009 Binani reached agreement with VICAG to take the cargo in return for a reduction in the purchase price from some US$6.8M down to $3.79M. Binani resumed removal of the cargo from 17 January 2009 and owners' further efforts to prevent the Port Authority from releasing it failed.

On 25 February 2009 owners applied in the High Court of Gujarat for an ex parte injunction against the Port Authority and Binani to prevent removal of further cargo from the port area. An ex parte injunction was granted but the Court set it aside on 6 March, concluding essentially that the dispute was a private law matter and could not be litigated by bringing public law proceedings alleging breaches of rights under the Constitution.

Once the injunction had been set aside, Binani removed the remaining cargo. The last of it went on 13 May.

On 4 June 2009, the shippers brought proceedings against the shipowner in Singapore, having arrested a sister ship of the “Jag Ravi”, and obtained judgment on liability.

The on-sale contract and the voyage charter provided for the cargo to be discharged against a letter of indemnity if the bills of lading were unavailable and the receiver had given such a letter of indemnity to FEC. Owners claimed that they were able to enforce the letter of indemnity under the Contracts (Rights of Third Parties) Act 1999, since FEC had instructed them to deliver the cargo to the receiver; for that purpose they were acting as FEC's agent and the letter of indemnity extended to FEC's “servants and agents”. The receiver submitted that, as a matter of public policy, owners could not rely on the letter of indemnity because they were not entitled to be indemnified against their own wrongdoing, namely the deliberate misdelivery of the cargo.

Judgment

The Judge held that owners were entitled to the indemnity that they claimed from Binani. He dealt with Binani’s objections as follows.

1. No letter of indemnity was issued by Binani to FEC, but only by Binani to the owners, so that there was no “contract” to which the Contracts (Rights of Third Parties) Act 1999 could apply. The judge held, however, that it was clear from the wording of the letter of indemnity that it was issued to FEC.

2. Delivery in the sense of the physical transfer of the full cargo to Binani was a condition precedent to Binani’s liability under the letter. In this case there had been no such “delivery”, given that owners had delivered the cargo into the custody of the port authority at Navlakhi and had then done their best to prevent its onward delivery to Binani. But the judge held, that – as a matter of construction of the letter of indemnity – the issue of the delivery order and the actual discharge of the cargo from the ship were sufficient to “amount to delivery”.

3. Delivery of cargo without production of the bill of lading was a deliberate wrongdoing and, as a matter of public policy, a party was not entitled to be indemnified against it. But the judge did not see this as a public policy case; none of the relevant acts could be fairly described as “manifestly unlawful or known to be unlawful by the parties…” The case of Brown Jenkinson v Percy Dalton [1957] 2 Lloyd’s Rep 1 was distinguished.

Although it was not relevant, given the Judge’s rejection of Binani’s arguments on the main issue, the Judge did comment on owners’ alternative claim that they had a direct right to enforce the letter of indemnity against Binani, on the grounds that it constituted a unilateral contract between them. Owners were named in the letter (as “agents” of the charterers) and they had accepted its terms by conduct in delivering the cargo as requested. But at the time of the cargo delivery, owners did not know of the existence of the letter and the judge inclined to the view that , as a matter of general contractual law, “an offer cannot be accepted so as to generate a binding contract by someone who does not know that the offer has been made.”