Managing Associate, Neila Cheeks considers the judgment delivered by His Honor Justice Pelling KC on October 3, 2022 of Trafigura Maritime Logistics Pte Ltd (“J“) against Clearlake Shipping Pte Ltd (“CSPL“) and (1) Clearlake Chartering USA Inc (“CUSA“) (2) Clearlake Shipping Pte Ltd (“CSPL“) against Petroleo Brasileiro SA (“LNPP“) – (“The Miracle Hope (No 5)”) (“vessel“).
This judgment follows two previous judgments of April 27 and May 6, 2020 and relates to the execution of claims for compensation in a charter-party chain for a staggering sum of nearly 80 million US dollars for wrongful delivery of a oil cargo. Its reading is recommended because it highlights the risks of intergroup novation of chain contracts without compensation, poor drafting and the distinction between “discharge” and “delivery”. We summarize below some of the main lessons of this judgment of 122 paragraphs.
The CP chain and the sales contract
T Voyage chartered the vessel to CUSA (“tthe T Charter“) who chartered the vessel to PBSA. Both charters were on modified Shellvoy 6 forms in substantially similar terms. A subsidiary of PBSA; Petrobras Global Trading BV (“PGT“), sold a shipment of crude oil to Hontop Energy (Singapore) Pte Ltd (“Hontop“), DES Qingdao in China. Hontop financed this takeover from Natixis Bank (“Natixis“) who has issued an irrevocable letter of credit naming PGT as beneficiary and providing for payment against the original bills of lading (“OBL“) in the alternative, by a letter of guarantee.
Delivery without OBL
Upon arrival at the port of unloading, Hontop (identified as receiver and buyer with PGT) requested unloading without presentation of the OBLs. To this end, CSPL paid compensation to T and PBSA would have paid compensation to CUSA, as required by the charters.
Some time after the vessel discharged the oil and departed, the T charter was novated replacing CUSA with CSPL as the “charterer”. It is important to note that although the T charter was novated so that CSPL replaced CUSA, CUSA remained the disponent owner of PBSA. This created a gap in the charter chain and a possible “break” in the compensation chain.
During Hontop’s insolvency in February 2020, Natixis demanded that PBSA and PGT return the OBLs and claimed the delivery to Hontop was wrongful and arrested the vessel in Singapore. As expected, claims for compensation were made along the compensation chain. These claims have been the subject of previous Miracle Hope rulings here: https://www.bailii.org/ew/cases/EWHC/Comm/2020/1073.html https://www.bailii.org/ew/cases/EWHC/Comm/2020/995.html
The principal owner commenced arbitration against T, which in turn claimed CSPL for the indemnity awarded to T. CUSA and CSPL sued PBSA for the indemnity awarded to CUSA by PBSA.
PBSA argued that while CSPL is liable to T, it is not liable to CUSA or CSPL because the effect of the novation was that CUSA ceased to be liable to T under any indemnity (which had assumed by CSPL) and that PBSA had no contract with CSPL. This was referred to in the judgment as the “contractual gap issue”.
Indemnities have been continued from PBSA to principal owners. Some of the key takeaways from the judgment are:
The contractual gap issue: The court ruled that there was an internal indemnity provided by CUSA to CSPL. He decided that CSPL and CUSA intended for there to be internal indemnification between them to allow liabilities to flow through the indemnification chain. She justified this by citing (1) the need for implied indemnity (2) evidence of intent, and (3) the absence of any written indemnity was not error but established practice. The message here is to be aware of the required justification of the allowances necessary for the intergroup novation to avoid such contractual shortcomings.
Delivery vs Discharge: Unloading is the physical act of removing the cargo from the vessel while the delivery hands possession over to the consignee. The application of such a distinction depends on the context. On these facts, there was no such distinction. One of the many factors taken into account by the tribunal was that the nature of the cargo which, if unloaded and not delivered, would have required prior agreement as to storage at the port of discharge. There was no prior agreement of this type. Of course, each case will be considered on its own facts.
The importance of clear writing: Issues have arisen as to the meaning of a ‘Letter of Intent in the wording of the Owners P&I Club to be submitted to charterers before lifting ‘subtitles’ where no such Letter of Intent was provided before the topics were raised. Fortunately for T, the court took a commercial approach and did not accept that failure to provide the wording before matters were lifted meant that the intention of the parties was that PBSA would be entitled to require release or delivery. without presentation of OBLs without providing compensation. that the process by which the terms of the letter of intent were to be provided was unclear. The lesson to be learned is to ensure that the writing is clear and complete.
Delivery of goods without production of OBLS is common in commodity trading. Novation of charter parties for various internal business requirements is also common, as is the issue of maritime indemnities up and down the charter chain. Together, as seen in this case, they provide the perfect ingredients for a plethora of complex legal issues. While we fully appreciate the commercial realities and the rapid pace of shipping and trading, parties should bear in mind that novation does not always bind parties outside the group when they are third parties to a contractual chain. Unless an internal indemnity is recorded, there is a risk that these indemnity chains will be broken. Corporate lawyers would be justified in pressing a pause to discuss these issues with their business teams.
Please Click here for a copy of the full judgment.