Delivery without bills of lading. Enforceability of LOI.  

The Zagora (Oldendorff GmbH & Co KG v. Sea Powerful II Special Maritime Enterprises)  [2016] EWHC 3212.

Where bills of lading are not available at the discharge port, it is common practice for the cargo to be discharged to the receiver against a letter of indemnity which will be conditional on delivery of the cargo to the receiver specified therein. The Zagora involved an allegation that delivery had not been made to the nominated receiver and the LOI was therefore unenforceable.

A series of indemnities down the chartering chain were given in respect of delivery in China in December 2013. When the bank brought a claim for misdelivery the owners called on their indemnity from the charterers who made a similar claim on the indemnity from the receivers. The indemnities required delivery to Xiamen, the first buyer in a chain of sales, or “to such party as you believe to be or to represent Xiamen… or to be acting on behalf of Xiamen.” Delivery was made to the agent of Xiamen’s sub-purchaser, Sea Road, and it was argued that the indemnities were not enforceable as there had been no delivery to Xiamen.

Teare J held that the indemnities were enforceable and that the sub-purchaser’s agent was also Xiamen’s agent, and, if that were not the case, then the owners believed that they had been acting as such. The master’s recollection was that the representative of Sea-Road who boarded the vessel stated that he was there to handle discharge on behalf of Xiamen. The inevitable inference to be drawn from Xiamen naming itself as the person to whom the cargo should be delivered in the absence of an original bill of lading was that Xiamen intended that the nominated agent Sea-Road would take delivery of the cargo on its behalf. Conversely, the shipowners had no interest in discharging the cargo into the possession of Sea-Road as their own agent, as this would not provide the protection of the LOI because the owners would not have delivered the cargo to Xiamen, but would have retained possession of the cargo through Sea-Road.