Delivery of cargo without bills of lading - Back-to back chain of letters of indemnity on the International Group standard form -  Court recognises importance of allowing vessels to continue trading.

The vessel Universal Bremen was subject to a chain of charters from her owners Tulip Finance Corporation (Tulip) to Ausca Shipping HK Ltd (Ausca) to Harmony Innovation Shipping Ltd (Harmony) to Caravel Shipping Inc (CSI) to Caravel Carbons Ltd. The applicant Harmony was the disponent owner and Caravel was the charterer under a charterparty. Back-to-back letters of indemnity (LOI) were issued throughout the chartering chain for the discharge of a cargo of coal at Navlakhi Port India in the absence of bills of lading. Nine months later, a bank based in the Gulf presented a demand to Tulip claiming to be the lawful holders of the original bills of lading and demanding delivery up of the coal. This led to the arrest of the vessel in Singapore upon a claim for mis-delivery. The letters of indemnity were on the International Group standard form. Clause 3 of LOI required Charterers to put up security if vessel is arrested.

On 11^th February 2019, Phillips J granted Harmony an ex parte interim mandatory injunction requiring CSI, the sub-charterer, to provide security for release of the vessel in Singapore. CSI refused to put up the security and applied to discharge the injunction on the basis that the cargo had not been delivered to the receiver named in the letter of indemnity. Tulip, the head owner, then requested a similar injunction against Ausca.

Judgment

Sir Ross Cranston sitting as a Judge of the Commercial Court was persuaded that the injunction should be granted, on the basis that the Court could have a “high degree of assurance” that owners’ case would succeed at trial, and confirmed that an injunction was appropriate as to do otherwise would undermine the purpose of the letters of indemnity. The Court was satisfied that the delivery of the coal had been made in line with the LOI and/or that the master reasonably and honestly believed delivery was within the terms of the LOI.

The Court held that damages were not an adequate remedy to satisfy clause 3 of the LOI. Clause 3,  unlike the general indemnity in clause 1, was specifically intended to ensure that security was advanced to permit an arrested vessel to be released to continue trading.

Sub-charterers’ application for discharge of Phillips J’s order was rejected and the injunction requested by the Head Owners was granted.

Comments

This case, together with the Miracle Hope decision which is also reported in this quarter’s QCRs, highlight the importance and availability of urgent relief to owners seeking to enforce their rights under letters of indemnity against recalcitrant charterer who are not prepared to post security to ensure that arrested vessels are released promptly. It is a decision of considerable practical importance to owners in such situations, particularly as mis-delivery claims following discharge against letters of indemnity are not covered as of right under standard P&I cover, leaving many owners with the invidious proposition of having to put up cash-backed guarantees or having their vessel languish under arrest if they cannot obtain urgent relief against charterers.