QCR Autumn 2018: LOIs issued for discharge of cargo absent the original bills of lading - Whether obligations and rights contained in the LOIs are subject to the limitation provisions of the voyage charter

Glencore Agriculture BV v Navig8 Chemicals Pool Inc [2018] EWCA Civ 1901 on August 21st, 2018


The Songa Winds is an oil and chemical tanker owned by Songa Chemical AS and chartered under a pool agreement dated 27 November 2013, to Navig8, on time charter terms based on an amended Shelltime 4 form. Navig8 fixed her on voyage terms based on an amended Vegoilvoy form to Glencore, to carry sunflower seed oil from Ilychevsk, Ukraine, for delivery in India.

Clause 38 of the charter provided that, if bills of lading were not available at the discharge port, Glencore would issue letters of indemnity on their P&I Club's standard wording, and that the letters of indemnity so issued would have a "period of validity" of three months from the date of issue.

The vessel was chartered by Glencore, in part, so that it could fulfil a contract concluded in late January 2016 to sell 6,000 mt of crude edible grade sunflower seed oil in bulk to Ruchi Agritrading (Pte) Ltd (Agritrading), a subsidiary or affiliate of Ruchi Soya Industries Ltd (Ruchi). The delivery term of that contract was C&F pumped out at New Mangalore or Kakinada. The sale contract provided for property in the cargo to remain with Glencore until payment.

The vessel loaded under the voyage charter at Ilychevsk on or about 13 March 2016 and bills of lading consigned to order were issued with that date, naming Ruchi as the notify party. Subsequently, on 21 March 2016, Glencore's contract of sale with Agritrading was replaced by a contract to sell 6,000 mt of sunflower seed oil to Aavanti Industries Pte Ltd (Aavanti) on terms materially back-to-back (save as to price) to those of two contracts dated 18 February 2016 by which Aavanti had contracted to sell (in aggregate) 6,000 mt to Ruchi.

In due course, letters of indemnity were issued by Glencore on the International Group A standard form, in connection with a discharge of cargo at the Indian ports of New Mangalore and Kakinada. The LOIs were signed by and on behalf of Glencore and Navig8, and were governed by English law and the jurisdiction of the English High Court. Claims were subsequently made against Navig8 as a consequence of that discharge, in respect of which Navig8 sought an indemnity from Glencore.

In the lower court, the judge decided that Navig8 was entitled to be indemnified by Glencore under the LOIs. The judge rejected an argument by Glencore that the claim was precluded by virtue of clause 38 of the charterparty, since it was not brought within three months of the date of issue. The Glencore LOIs did not mention either the voyage charter or its terms but Glencore submitted that Clause 38 should be read into the LOIs, the effect of which was to bar Navig8's claims. The judge ruled that the time bar clause in the voyage charterparty did not apply to the LOIs. In doing so he also said that the first line of Clause 38 meant that it covered deliveries effected during that three month period and should not be interpreted as a time-bar.

Glencore appealed the decision.


Leave to appeal was granted to Glencore on the following two questions of law:

  1. Whether the three-month "period of validity" in clause 38 of the charterparty was incorporated into the LOIs (or otherwise applicable) notwithstanding that it was not expressly referred to in the LOIs.
  2. Whether the effect of clause 38 was such that no claims could be made after the expiry of three months from the date of issue (as Glencore contended), or whether its effect was that the indemnity only applied if discharge was made within three months from the date of issue (as Navig8 contended).

The Court of Appeal, upholding the lower court's decision, rejected Glencore's argument that clause 38 was capable of influencing the operation of the LOIs. It held that in the case of a letter of indemnity there was a "strong presumption" that the written contract contains all the terms of the bargain between the parties. In the circumstances of the case, the Court held that the "period of validity" in clause 38 was not applicable. One reason for this was that clause 38, on its proper construction, gave Glencore only a right to insist that the period of validity was incorporated into any letter of indemnity, but did not operate independently if that right was not specifically exercised. Another reason was that the LOIs were capable of having an effect on third parties, and so should not be affected by extraneous terms of which such parties might be unaware.

The voyage charter and the Glencore LOIs were "distinct agreements with separate and discrete rights and obligations" with disputes under the former to be resolved by arbitration and disputes under the latter to be resolved by the High Court. Any dispute as to the meaning and effect of Clause 38 was to be resolved by arbitration.

As a result of the Court's decision on the first issue, the second issue fell away. However, the Court of Appeal decided this issue in favour of Glencore. It held that the underlying purpose of the LOIs was to secure prompt delivery, and that the intended effect of clause 38 was to give Glencore a clearly defined time limit within which to calculate its contingent liabilities.


This decision provides helpful clarity on the interaction between time-bars in charterparties and the wording of a LOI. The Court recognizes that LOIs are important commercial instruments that need to be interpreted in a straightforward way. A charterparty term needs to be expressly included into an LOI if it is to take effect. Therefore if the Member wants to be able to take advantage of such rights, it needs to make sure the rights are expressly included in the LOI that is ultimately issued. During negotiations, Members need to be aware that LOIs will generally be taken on their wording.

Additionally, while not binding, the Court of Appeal's comments that a 'period of validity' for an LOI could operate as a limitation period for LOI claims are also of note.

Members are referred to a previous summary of this case in our QLU Spring 2018 [Link] when the lower court  dealt with the separate question of whether the LOIs issued were engaged when delivery of the cargo was made to a party ("Ruchi") other than the party named in the LOIs ("Aavanti").  The court concluded that the facts pointed to Ruchi having claimed delivery of the cargo on behalf of Aavanti.

Staff Author