Unicredit Bank AG v Euronav NV - The Sienna

DMC/SandT/23/06

England

Unicredit Bank AG v Euronav NV (The “Sienna”)

English Court of Appeal: [2023] EWCA Civ 471: Asplin, Popplewell and Falk LJJ.: 4 May 2023

John Russell KC and Gemma Morgan, instructed by Holman Fenwick Willan LLP, for the appellant Bank

Robert Thomas KC, Paul Toms, instructed by Preston Turnbull LLP, for the respondent Owners

CLAIM UNDER BILL OF LADING (“BL”) FOR DELIVERY OF CARGO WITHOUT PRODUCTION OF ORIGINAL BL: BL ‘MERE RECEIPT’ WHILE IN HANDS OF CHARTERER/SELLER: CHARTERER NOVATED CHARTERPARTY TO THE BUYER: BL SUBSEQUENTLY ENDORSED BY THE CHARTERER TO THE BANK, AFTER DISCHARGE OF CARGO: WHETHER BL WAS A CONTRACT OF CARRIAGE, GIVING THE BANK RIGHTS AGAINST THE OWNERS: WHETHER, IF SO, DELIVERY OF CARGO WITHOUT PRODUCTION OF THE BL WAS CAUSATIVE OF THE LOSS

Summary

In this case, Popplewell LJ (the other members of the Court agreeing with him) held that the "mere receipt principle" still renders the bill of lading a contract of carriage between the shipper and owners operable when the charterparty ceased to perform that function upon the novation. This is because this is what the carrier and the endorsee of the bills intended.

This reversed the position which had been held by Moulder J in the High Court. However, importantly, Popplewell L.J also held (in line with Moulder J in the High Court) that the bank would have authorized the carrier to deliver the cargo under a letter of indemnity - as is standard practice and therefore, the Owners were not to blame, the loss would have occurred in any event. As a result, the bank was unsuccessful in its claim both in the High Court and in the Court of Appeal.

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

Background

The case concerned a claim for damages brought by the UniCredit Bank AG ("the Bank") for the alleged breach by the defendant, Euronav NV ("the Owners") of the bill of lading by delivering (part of) a cargo of low sulphur fuel oil to a third party without production of the BL. Both liability and quantum were in issue. The Bank sought damages of US$ 24,701,600. The Owners were at all material times the owners 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 on 6 April 2020. By a BL issued at Rotterdam dated 19 February 2020 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 BL was made out to the order of BP or their assigns.

The Bank financed the purchase by Gulf of part of the cargo by way of a letter of credit on or about 1 April 2020, and paid BP for it before completion of the voyage.

On the orders of Gulf, the Owners discharged the financed cargo from the Vessel by STS transfer to two other vessels between about 26 April and 2 May 2020. Discharge occurred without Owners requiring production of the bills of lading in exchange for a Letter of Indemnity (“LOI”) from Gulf. 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 it suspected "fraudulent behaviour". There was at the time a number of other court cases involving Gulf wherein fraudulent activity on letters of indemnity was in issue.

On 7 August 2020, BP endorsed the original bill of lading to the Bank - long after discharge had taken place.

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. 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. 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.

Thus, the Bank had an interest in the bills through two routes, the eventual endorsement, and the financing agreement with Gulf consisting of pledge and assignment.

The High Court decision centred on the bill of lading issues as follows:

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?

High Court decision [[1]

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). It is worth noting that such a novation is common in trading where parties often swap responsibility for the carriage of the cargo and hence respectively divest/take on responsibility under the charterparty with the owner. The question was whether those bills, which were not endorsed, became a contract of carriage such that, once in the Bank’s possession, they would allow the Bank to sue the vessel owners. Moulder J stated the well-known rule of law 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 ("the mere receipt principle / rule"). She said it was clear on the authorities that, where a bill of lading is issued to a charterer and then endorsed to a third party, it attains contractual status upon endorsement 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 endorsement of the bill of lading to a third party. Furthermore, 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.

Moulder J reasoned therefore that the bill 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. Where there had been no endorsement - which was caused by the difficulty in getting documents signed owing to Covid, there was no contract for bill of lading holder to sue under.

The claim against the Owners therefore failed on the bill of lading issue, but Moulder J 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, as the Bank would have agreed to delivery against a LOI in any event. It was this second finding that ended up determining the Court of Appeal decision.

Court of Appeal decision

The Court of Appeal reversed the decision of Moulder J in the High Court on the bill of lading point.

Popplewell LJ grappled with the convention of a contract springing into existence (at para 64) as follows, putting it down to a matter of intention.

"[T]he new contract "springs up" as a result of the operation of COGSA, and before it the Bills of Lading Act 1855, not as the result of the application of any common law principles of contract or estoppel. Nevertheless, the rationale underlying it is to my mind that it represents the presumed intention of both the carrier and the endorsee. If one asks why the carrier is prepared to issue a bill of lading so that it contains contractual terms vis a vis a non-charterer shipper, or any non-charterer endorsee, the answer is because the carrier will generally want its relationship with the person interested in the goods and the maritime adventure to be a contractual one. By putting the document into circulation, the carrier can impose the contractual terms commonly found in bills, subject to the constraints of the Hague and Hague-Visby Rules where they mandatorily apply, which form an internationally negotiated and accepted set of rules balancing the interests of carriers and cargo interests (as to which see Effort Shipping Co Ltd v Linden Management SA (The Giannis NK) [1998] AC 605, 621 and Deep Sea Maritime Ltd v Monjasa A/S (The Alhani) [2018] EWHC 1495 (Comm) [2018] 2 Lloyd's Rep 563 at [20]). Many aspects of the Hague or Hague-Visby Rules provide carriers with protections which would not exist absent a contract, such as the defences in Article IV rule 2 and time and package limitation. Bills of lading often contain a clause paramount incorporating the Hague or Hague-Visby Rules and it is often the carrier who is contending for the existence of a contract on the terms of the bill where its existence is disputed."

Therefore, the contract springs up to cater for the contractual need and this is what the parties intend. This is also why it is preferable that there is a contract rather than reliance on the law of negligence or bailment to deal with the relationship. It is in the interests of both the carrier and the charterer that their relationship should be contractual for so long as the latter has an interest in the goods and the voyage (at paras 69 – 71)."

Further, at paragraph 80 the court held "Owners knew nothing about whether BP retained title or an interest in the cargo on board, and nothing about whether BP remained the holder of the Bill. In those circumstances, it is impossible to attribute to Owners, from the mere existence of the novation agreement, an intention that all contractual relations with BP should cease. In order to displace the mere receipt principle it is necessary to find circumstances evidencing a mutual contrary intention."

Last, the court found that the "Bill was not a mere receipt in BP's hands at the time of discharge; it had become a document containing or evidencing a contract with BP from the date of the Novation Agreement, and remained so at the date of discharge." (Paragraph 82).

Despite this reversal, Owners were still successful on the appeal because Popplewell LJ also held that the cargo, which was the subject of the dispute, would have been delivered to the receivers under an LOI in any event. It had been an obvious conclusion in the High Court judgment that the bank would have permitted discharge without production of the BL and that the loss would have occurred in any event (paras 102, 107).

Hence, the Bank’s case failed on causation.

Comment

Following the High Court case, the appropriate legal advice would have been to be careful, when a contract of carriage is novated, to make sure that the bills are endorsed because otherwise there would be no contract with the Owner and no contract to sue under. Now, there is recognition that even without endorsement, since the intention is that the bills form the contract with the Owner, that is enough.

The focus of the Court of Appeal in this case on the intention of the parties is a more favourable route in dealing with the bill of lading contract in the hands of a charterer because in construing contracts, it is intention of the parties that should be the lodestar. Popplewell LJ. found that the Owners did not intend all contractual relations with BP in respect of the Gulf cargo on board the vessel to cease with the novation.

In trading nowadays, the feeling is that traders trade on LOIs rather than bills of lading and this case is a recognition of this practice which exists, for better or for worse, because the court held that from the point of view of causation, the bank would still have delivered under an LOI regardless of the bill of lading issue. Mr Russell KC for the bank commented that if the Owners’ case on causation prevailed, which it did, this would have a "calamitous" consequence for those providing commodity trade financing because it would be open to Owners in almost every case in which discharge took place against an LOI without production of the bill of lading to assert a similar causation defence. Popplewell LJ. responded saying that this is a practical consequence of market practices.

Until someone comes up with a better practice, we are indeed already in the position whereby traders trade on the strength of LOIs, knowing that more often than not the bills of lading will not be available. Whether this turns out in a calamity or not depends on whether the party accepting the LOI checks the creditworthiness of the party giving the LOI and is sure they can pay under it if called upon to do so.