Far East Chartering Ltd & Anor v Great Eastern Shipping Company Ltd

It is a commonplace in international trade that goods carried by sea arrive at their destination before the documents of title thereto have become available to the ultimate consignee. Often that is because the goods have been sold and resold and there has simply been insufficient time for the documents to make their way through the banking system as they are negotiated from one letter of credit provider to the next. Sometimes the process is held up by there arising perfectly bona fide disputes as to the amount loaded or the condition thereof, its compliance with contractual specification and so forth. In such circumstances it is common for shipowners to be asked to deliver the cargo to the ultimate consignee without production of the document or documents of title, typically a bill or bills of lading. Typically the shipowner is offered an indemnity in respect of the consequences of compliance with the request. So common and accepted is this procedure that the International Group of Protection and Indemnity Clubs circulates to its members recommended standard form letters of indemnity for use in the various situations which typically arise:-

Sometimes the letter of indemnity is furnished directly by the consignee to the shipowner. Sometimes however there is a chain of such letters. Thus a consignee might issue a letter of indemnity to his seller who might also be or be associated with the charterer of the vessel, who may in turn in reliance on the indemnity from the consignee issue his own Letter of Indemnity to the shipowner. Provision may be made in voyage charterparties obliging the shipowner to discharge cargo without production of bills of lading against a letter of indemnity from charterers in the owner’s P. & I. Club format. Sometimes a bank or other financial institution will join in the letter of indemnity with or without an aggregate limit of liability.

The “Laemthong Glory” (No.2) [2005] 1 Ll Rep 632 and [2005] 1 Ll Rep 688 was, so far as I am aware, the first reported occasion upon which shipowners sought to rely upon a letter of indemnity which was addressed not to themselves but to the charterers. It is important to note that in that case the letter of indemnity was addressed by the receivers to the charterers by name. Cooke J, with whom the Court of Appeal agreed, held that the shipowners were entitled to enforce against the receivers the letter of indemnity which the receivers had given to the charterers. They were entitled so to do by reliance upon the Contracts (Rights of Third Parties) Act 1999. The letter of indemnity by clause 1 offered to indemnify “you”, i.e. the charterers, your servants and agents. Delivery of the cargo could in practice be effected only by the shipowners who were in possession of it. The charterers could not themselves deliver the cargo except by making use of the shipowners to do so. Thus the charterers could only procure the delivery of the cargo to the receivers through the agency of the owners. The owners were accordingly the agents of the charterers for the purpose of complying with the receivers’ request in the receivers’ letter of indemnity addressed to the charterers, namely to deliver the cargo to them under the receivers’ letter of indemnity and were thus properly to be regarded as falling within the category of “agents” whom the receivers promised to indemnify in clause 1 of the letter of indemnity. The letter of indemnity therefore, in the statutory language, purported to confer a benefit upon the shipowners.

The present case is superficially similar to the Laemthong Glory and again shipowners seek to enforce a receivers’ letter of indemnity apparently addressed to the charterers. They seek to do so because the charterers from whom they in turn received a letter of indemnity addressed directly to themselves are in liquidation. His Honour Judge Mackie QC, sitting in the Commercial Court, held that they were entitled so to do. The receivers appeal. They say that for three distinct reasons the judge was wrong so to conclude on the facts of this case because:-

In order to set these arguments into context before addressing them, I must first set out the facts.

The Second Defendant and Appellant is an Indian company which, amongst other things, imports coal. I shall refer to it hereafter as “Binani”.

The Claimant and Respondent to the appeal is also an Indian company and is the owner of the vessel “Jag Ravi” to which I shall refer hereafter as “the vessel”. I shall refer to the Claimant/Respondent, perhaps inelegantly, as “the owners”.

In July 2008 an Indonesian company, PT Harkat Utama Mulia Mandiri, hereinafter “PTH”, agreed to sell to Visa Comtrade AG, hereinafter “VICAG”, for delivery fob Taboneo twelve monthly shipments of Indonesian steam coal from a specified mine, each of 40,000 tonnes plus or minus 10% or 45,000 tonnes max at vessel’s option.

In August 2008 VICAG agreed to sell to Binani one cargo of 50,000 tonnes plus or minus 10% Indonesian steam coal for delivery c and f fo Navlakhi.

Both contracts contained a contractual specification with which the cargo was to comply. The PTH-VICAG contract provided that analysis of load port samples was to be final and binding for the purposes of invoicing. The VICAG-Binani contract provided that the discharge port certificate of analysis was to be final and binding. In each case the buyer was entitled to a price reduction in the event that certain parameters in the specification were not met. If the discrepancy exceeded certain prescribed limits, the buyer was entitled to reject the coal. Although nothing turns on it, those prescribed limits were not the same in both contracts.

Clause 8.8 of the VICAG-Binani contract provided that:-

“In case the vessel reaches discharging port prior to Buyer receiving original documents, Seller will make prior arrangement with ship owners to allow unloading against Buyer’s Letter of Indemnity.”

The first PTH-VICAG cargo was shipped in mid-September 2008. VICAG complained that it was off-specification and withheld the final instalment of the price. PTH accepted that VICAG was entitled to a price reduction but calculated that a net balance was still due. VICAG adopted the position that it had already overpaid for the cargo.

This case relates to the second PTH-VICAG cargo, which VICAG appropriated to its contract with Binani. For this purpose VICAG’s associated company, Visa Comtrade (Asia), hereinafter “Visa”, on 10 September 2008 chartered the “Jag Ravi” from the owners for one cargo-carrying voyage from Taboneo, Indonesia, to Navlakhi on the west coast of India. The intended cargo was 45,000 tonnes of steam coal.

Clause 11 of the fixture recap provided:-

“IN CASE OF NON AVAILABILITY OF ORIGINAL B/LS AT DISCHARGE PORT, OWNERS TO ALLOW DISCHARGE OF CARGO AGAINST CHARTERERS’ LOI IN OWNERS’ PNI CLUB FORMAT. FAX COPY OF LOI TO BE ACCEPTABLE. COPY OF BS/L TO BE ATTACHED WITH THE LOI.”

The fixture recap further provided by Clause 18:-

“OTHERWISE AS PER M.V JAG RAVI/VISA CP DTD 14^TH FEBRUARY, 2008 WITH LOGICAL CHANGES, ALTERATIONS AND AMENDMENTS AS PER MAINTERMS AGREED.

Clause 67 of the earlier charterparty had provided:-

“In case the original Bills of Lading not be available upon vessel’s arrival discharge port, Owners/Master agree to discharging/release cargo against presentation of Charterers Letter of Indemnity in Owners P&I Club wording signed by Charterers only. Fax copy of Letter of Indemnity to be acceptable. Copy of bill of lading to be attached with the Letter of Indemnity.”

Visa is now known as Far East Chartering Limited but is in liquidation. It is the First Defendant in these proceedings but it has taken no part. I shall refer to it hereafter as either “Visa” or “the charterers”.

The cargo, 44,104 tonnes, was loaded by 30 September 2008 and five bills of lading of that date were issued.

VICAG did not pay PTH all of the second instalment of the price, which was payable within three working days after completion of loading of all barges and production of signed copies of the barge bills of lading at the load port, or any part of the balance of the price. VICAG’s purported justification was that this cargo, like the first shipment under its contract with PTH, was off-specification, and furthermore that it was entitled to compensation on account of the first cargo. PTH again accepted that VICAG was entitled to a price reduction, but again calculated that a net balance was due. VICAG again took the position that it had in fact already overpaid. It also asserted claims for loss of profit and loss of goodwill. PTH did not release the original bills of lading to VICAG.

On 6 October 2008 the charterers sent Binani an email message:-

“Enclosed please find format of LOI required from receivers for discharge of cargo without presentation of original Bills of Lading. Please send us the LOI duly executed to enable us to take owners’ confirmation on the LOI.”

Attached was a draft LOI and photocopies of the front of the five bills of lading.

Binani signed the draft LOI as requested and returned it to the charterers. It was in these terms:-

““Date: 6^th October 2008

To: The Owners / Disponent Owners / Charterers of the MV JAG RAVI

Dear Sirs,

Ship: MV JAG RAVI

Voyage: TABONEO ANCHORAGE, SOUTH KALIMANTAN, INDONESIA to NAVLAKHI SEAPORT, INDIA

Cargo: INDONESIAN STEAM (NON-COKING) COAL IN BULK

Bill of lading:

S.No.	B/L No.	Date	Place of issue	Quantity
1.	01A/BJM-IND/08	30TH SEPTEMBER 2008	BANJARMASIN	10,000 MT
2.	01B/BJM-IND/08	30TH SEPTEMBER 2008	BANJARMASIN	10,000 MT
3.	01C/BJM-IND/08	30TH SEPTEMBER 2008	BANJARMASIN	10,000 MT
4.	01D/BJM-IND/08	30TH SEPTEMBER 2008	BANJARMASIN	10,000 MT
5.	01E/BJM-IND/08	30TH SEPTEMBER 2008	BANJARMASIN	4,104 MT
			TOTAL:	44,104 MT

The above cargo was shipped on the above ship by;

P.T.HARKAT UTAMA MULIA MANDIRI

JL. AHMAD YANI KM.37^TH, SUNGAI PERING,

MARTAPURA – BANJAR

SOUTH KALIMANTAN, INDONESIA

TEL: +62 511 4773577 FAX: +62 511 4773577

and consigned TO ORDER for delivery at the port of NAVLAKHI SEAPORT, INDIA but the bill of lading has not arrived and we, BINANI CEMENT LIMITED, hereby request you to deliver the said cargo to BINANI CEMENT LIMITED at NAVLAKHI SEAPORT, INDIA without production of the original bill of lading.

In consideration of your complying with our above request, we hereby agree as follows:

1.

To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability, loss, damage or expense of whatsoever nature which you may sustain by reason of delivering the cargo in accordance with our request.

2.

In the event of any proceedings being commenced against you or any of your servants or agents in connection with the delivery of the cargo as aforesaid, to provide you or them on demand with sufficient funds to defend the same.

3.

If, in connection with the delivery of the cargo as aforesaid, the ship, or any other ship or property in the same or associated ownership, management or control, should be arrested or detained or should the arrest or detention thereof be threatened, or should there be any interference in the use or trading of the vessel (whether by virtue of a caveat being entered on the ship’s registry or otherwise howsoever), to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property or to remove such interference and to indemnify you in respect of any liability, loss, damage or expense caused by such arrest or detention or threatened arrest or detention or such interference, whether or not such arrest or detention or threatened arrest or detention or such interference may be justified.

4.

If the place at which we have asked you to make delivery is a bulk liquid or gas terminal or facility, or another ship, lighter or barge, then delivery to such terminal, facility, ship, lighter or barge shall be deemed to be delivery to the party to whom we have requested you to make such delivery.

5.

As soon as all original bills of lading for the above cargo shall have come into our possession to deliver the same to you, or otherwise to cause all original bills of lading to be delivered to you, whereupon our liability hereunder shall cease.

6.

The liability of each and every person under this indemnity shall be joint and several and shall not be conditional upon your proceeding first against any person, whether or not such person is party to or liable under this indemnity.

7.

This indemnity shall be governed by and construed in accordance with English law and each and every person liable under this indemnity shall at your request submit to the jurisdiction of the High Court of Justice England.

Yours faithfully

For and on behalf of Binani Cement Limited”

With one important exception this is in precisely the form envisaged by version A of the International Group of P. and I. Clubs standard form LOI. After the date of the document the standard form envisages that the maker of the document will [insert name of Owners], who are then on the next line described as “The Owners of the [insert name of ship]” with the next line inviting the maker of the document to [insert address] of the Owners. Here, the charterers invited Binani to issue a letter of indemnity addressed to “The Owners/Disponent Owners/Charterers of the MV Jag Ravi”.

On the same day, 6 October 2008, the charterers Visa issued a letter of indemnity in identical terms save only that:-

Visa’s LOI was sent to owners’ agents for “Owners’ confirmation on the LOI”.

On 7 October 2008 the owners informed the Master of the vessel:-

“We hv recd chrtrs loi for dely of cargo without obl. You are authorised to disch cargo on arrival navlakhi without obl and deliver cargo to binani cement limited.”

Owners requested that the full address of the receivers as appeared on the bills of lading be included within the text of charterers’ LOI. A revised LOI was issued by charterers on 8 October 2008 incorporating that additional information and that was sent to the owners.

The vessel arrived at Navlakhi on 12 October 2008. Between 12 and 16 October the cargo was discharged at the anchorage into barges. There was no evidence at trial as to by whom the barges were ordered or arranged. The barges were off-loaded into trucks which, in turn, deposited the cargo at stackyards within the confines of the port. The stackyards appear to have been owned and/or controlled by the port authority, the Gujarat Maritime Board, hereinafter the “GMB”.

On 14 October 2008 the owners by their local agents issued a delivery order to the GMB which stated:-

“SUB: M.V. JAG RAVI AT NAVLAKHI PORT – DELIVERY ORDER

With reference to the above, we request your goodself to kindly deliver the below mentioned cargo being discharged from the subject vessel at Navlakhi Anch to the Receivers, M/s. Binani Cement Ltd. through their handling agents M/s. United Shippers Ltd, Jamnagar. The details are as under:

Binani began removing the cargo from the port by road on 15 October 2008. Between 15 and 21 October it removed about 7,400 tonnes.

On 23 October 2008 Binani notified VICAG that it was rejecting the cargo as being off-specification. It ceased removing cargo from the port.

On 12 November 2008 PTH’s Singaporean lawyers, Messrs Haridass Ho, wrote to the shipowners asserting PTH’s rights as holders of the original bills of lading and complaining that, in breach of the contracts contained in or evidenced by the bills of lading, the shipowners had “discharged and delivered the coal to the Indian receivers without production of the original bills of lading”. The owners were notified of a claim for the loss and damage suffered by PTH in consequence of this breach of contract, namely US$ 1.5M odd, being the balance of the price allegedly due from PTH’s buyer. Proceedings were threatened, including the arrest of the vessel or a sister ship.

In consequence, on 15 November 2008 the owners wrote to GMB “to requesting and urging” it not to deliver any further cargo to Binani and to treat the Delivery Order as being revoked and cancelled. GMB appears to have taken the view that it could not prevent further delivery when it had received a Delivery Order. At all events, as the judge found, it “does not appear to have accepted this revocation”.

On 7 January 2009 Binani reached agreement with VICAG to accept the cargo at a reduced price, US$ 3.79M as against US$ 6.8M. On 11 January 2009 Binani resumed taking delivery of the coal by both road and rail. The owners’ further efforts to prevent the port authority, GMB, from releasing the cargo were unavailing. Between 17 January and 11 February 2009 a further approximately 12,000 tonnes were removed by Binani.

On 25 February 2009 the owners applied in the High Court of Gujurat for an ex parte injunction against the port authority GMB and Binani to prevent removal of further cargo from the port area. The proceedings were brought in public law, asserting breaches of the owners’ constitutional rights. An interim injunction was granted, but was set aside on Binani’s application on 6 March 2009 on the basis that the dispute involved private law rights, and could not be litigated by way of public law proceedings. It was through the evidence deployed in these short-lived proceedings that the owners learned that Binani had issued a letter of indemnity on 6 October 2008.

Binani resumed removal of cargo from the port on 13 March 2009, again by road and rail. By 24 March approximately 75% of the cargo had been removed from the port.

On 25 March 2009 GMB declared that it would not allow the balance of the cargo to be removed unless it was furnished with an indemnity. On 24 April 2009 Binani issued to GMB a letter of indemnity in respect of “any financial liability, loss or damages which they may sustain due to the dispute raised” in the Indian proceedings “on account of delivering the cargo” to Binani. VICAG provided to Binani a counter-indemnity against any liability under its LOI given to GMB. The balance of the cargo was then removed from the port by Binani by road and rail between 7 and 13 May 2009. Binani apparently withheld US$ 1.7M of the reduced price due to VICAG on the grounds that it had not received the original bills of lading.

In June 2009 PTH arrested the vessel’s sister “Jag Lyall” in Singapore. The owners’ claim in this Action is for an indemnity against any liability to PTH in Singapore and against other miscellaneous costs/expenses. The Singapore court gave judgment for PTH on liability in August 2010. Damages have yet to be assessed. Judge Mackie declared that Binani is bound to indemnify the owners in respect of this liability pursuant to its letter of indemnity dated 6 October 2008.

As noted above, the claim is brought under the Contracts (Rights of Third Parties) Act 1999. The Act provides, so far as material:-

“1.

– (1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if –

(a)

the contract expressly provides that he may, or

(b)

subject to subsection (2), the term purports to confer a benefit on him.

(2)

Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

(3)

The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.

3.

–(1) Subsections (2) to (5) apply where, in reliance on section 1, proceedings for the enforcement of a term of a contract are brought by a third party.

(2)

The promisor shall have available to him by way of defence or set-off any matter that-

(a)

arises from or in connection with the contract and is relevant to the term, and

(b)

would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.

(3)

The promisor shall also have available to him by way of defence or set-off any matter if-

(a)

an express term of the contract provides for it to be available to him in proceedings brought by the third party, and

(b)

it would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.

(4)

The promisor shall also have available to him-

(a)

by way of defence or set-off any matter, and

(b)

by way of counterclaim any matter not arising from the contract,

that would have been available to him by way of defence or set-off or, as the case may be, by way of counterclaim against the third party if the third party had been a party to the contract.

(5)

Subsections (2) and (4) are subject to any express term of the contract as to the matters that are not to be available to the promisor by way of defence, set-off or counterclaim.

(6)

Where in any proceedings brought against him a third party seeks in reliance on section 1 to enforce a term of a contract (including, in particular, a term purporting to exclude or limit liability), he may not do so if he could not have done so (whether by reason of any particular circumstances relating to him or otherwise) had he been a party to the contract.”

Although this is the second ground of appeal it seems logical to address it first, as did the judge. Mr Steven Gee QC for Binani submitted that the letter of indemnity was not addressed to the charterers, or rather to Visa, and that it was not therefore capable of being accepted by their agents, the shipowners, on their behalf by their conduct in delivering the cargo, if they did. The charterers had not been invited to perform the task required to complete the unilateral contract offered by Binani. They had not been invited to “walk to York”. Mr Gee accepted that the LOI appeared on its face to be addressed to both owners and charterers but submitted that on its true construction it was not addressed to Visa, the voyage charterers of the vessel. Mr Gee recognised that his own clients’ evidence deployed before the judge contradicted this submission. The evidence of Mr Venkataraman, Senior Vice President (Commercial) of Binani was to this effect:-

“I would clarify that the LOI was not sent to GE (the owners) at any stage. As was agreed with Visa Asia, we would issue the LOI to them and they, in turn, would issue their own letter of indemnity to GE, as is the normal practice.”

However the identity of the addressee of the document was, submitted Mr Gee, a matter of construction on which the subjective understanding of Mr Venkataraman was of no relevance. I agree with Mr Gee on that point. However the evidence was admissible as showing that it is in fact normal practice for there to be a chain of letters of indemnity, so if on its true construction this document was addressed to Visa that would not be an unexpected or anomalous outcome.

Mr Gee prayed in aid the context in which the LOI was given. He pointed to the circumstance that clause 8.8 of Binani’s contract with VICAG envisaged VICAG making arrangements with the shipowners to allow unloading against Buyer’s letter of indemnity, which demonstrated, he suggested, a contemplation that Binani’s LOI would be provided to shipowners, not to VICAG or to VICAG’s sister company, the charterers. He pointed out that the bills of lading, copies of which were sent to Binani with the draft letter of indemnity, were owners’ bills and that it was the shipowners not the voyage charterers who were at risk of being sued by the holders of the original bills in the event that the cargo was delivered without their production. He pointed out that the wording of the LOI is appropriate to confer benefits upon the contracting carrier with possession of the cargo rather than upon a voyage charterer, with a corresponding obligation upon Binani to deliver up the original bills of lading when they came into its possession. Those bills of lading would naturally be expected to be presented to the contracting carrier, said Mr Gee, rather than to a voyage charterer who would have no interest in them. Next, Mr Gee pointed out that under the VICAG-Binani sale contract VICAG had an obligation to deliver original bills of lading to Binani. Why then would Binani undertake to indemnify VICAG’s sister company if the original bills of lading were unavailable? Lastly, Mr Gee pointed to the email under cover of which the draft letter of indemnity was sent by Visa to Binani, which contained the wording “Please send us the LOI duly executed to enable us to take owners’ confirmation on the LOI.” What that meant, as a matter of ordinary language, was that the charterers were going to show Binani’s LOI to owners and ask whether they would deliver the cargo against it.

Mr Gee’s argument necessarily involves that the phrase “The Owners/Disponent Owners/Charterers” is a compendious way of describing a single offeree, that being the contracting carrier with possession of the cargo, who alone would need the protection of the LOI in the event that the cargo was delivered without production of the bills of lading. I do not find that convincing, particularly in the light of the evidence that it is normal practice for receivers to issue letters of indemnity to voyage charterers who, in turn, issue their own letters of indemnity in reliance thereon. The “Laemthong Glory” is an example of a letter of indemnity issued by a receiver to a voyage charterer by name. The Court of Appeal regarded such a letter of indemnity as “by no means lacking in meaning as a contract between them” – see per Clarke LJ at paragraph 30, page 693. It is not difficult to envisage a voyage charterer attracting liability in the event of delivery of cargo without production of bills of lading on the basis of inducing breach of contract or as a joint tortfeasor.

It is I think significant that the form of the LOI for which Binani was here asked represented a departure from the standard P. and I. Club form in that it was addressed not just to the owners of the vessel but also to Disponent Owners/ Charterers. Furthermore, if Visa were contemplating furnishing owners with their own letter of indemnity in the form required by the charterparty, standard P. and I. Club form, it would be natural that they would require a counter-indemnity from receivers, including an obligation that the bills of lading be delivered up by Binani when they came into their possession. The charterers would therefore have an interest in recovering those bills of lading, and it must be remembered that Visa had no pre-existing contract with Binani. It is not a satisfactory answer to that point that Visa happened to be an associated company of VICAG. The email under cover of which the draft letter of indemnity was sent is, I think, at best ambiguous. It could mean that Visa intended to submit Binani’s letter of indemnity to owners for their approval as if it were a contractual undertaking offered to owners directly, but equally it could mean that Visa intended to submit to the owners their own letter of indemnity, but with the same wording as that for which Binani was asked and which therefore required owners’ approval.

I do not consider that the words “The Owners/Disponent Owners/Charterers” can or properly should in this context be construed as a compendious way of describing a single offeree. The letter of indemnity for which Visa asked is addressed severally to three different categories of party, the last of which naturally refers to the voyage charterers, Visa. I am not dissuaded from this view by the argument that “charterers” might mean bareboat charterers, who would of course have possession of the vessel and could therefore be bailees of the cargo. It seems to me that it is more natural to regard the phrase as comprising a descending hierarchy, progressing from the owners through time charterers down to voyage charterers. If anyone was applying their mind to the possibility of a bareboat charterer issuing his own bills of lading they would, I suspect, more readily equate them with the owners at the top of the chain than with the charterers at the bottom of the chain, below therefore the disponent owners by whom in this context is undoubtedly meant time charterers.

For all these reasons in my judgment the natural and proper meaning of the letter of indemnity is that it is addressed to both the owners and the charterers, Visa. In asking for it in that form Visa were in my view keeping their options open. Perhaps they were acting in accordance with their own usual practice. In other circumstances perhaps they would have tendered the document direct to the owners, although under this charterparty owners were entitled to a letter of indemnity from charterers themselves. However, the fact that it would be normal practice for the charterers to rely on this document in furnishing their own letter of indemnity to the owners serves only to reinforce my view that it is appropriate in the context to regard it as addressed to and capable of acceptance by the charterers themselves, as well as by others. I therefore agree with the judge on this point.

Mr Gee submits that there was no delivery of the cargo by the owners to Binani and hence no fulfilment by the charterers of the request made to them in the letter of indemnity. Mr Gee made the point, rightly, that delivery is in this context a legal concept and that it should not be confused with discharge. He reminded us that in Barclays Bank Limited v Customs and Excise [1963] 1 Ll Rep 81 at 88-89, Diplock LJ held that a contract contained in or evidenced by a bill of lading for the carriage of goods by sea is a combined contract of transportation and bailment which is not discharged by performance until the shipowner has actually surrendered possession, that is, has divested himself of all power to compel any physical dealing in the goods, to the person entitled under the contract to obtain possession of them. Delivery to GMB as the shipowners’ bailee was plainly not delivery to Binani. The Delivery Order was no more than an authority in the form of a request to transfer physical possession to Binani. Mr Gee did however accept that the effect of the Delivery Order was that delivery by GMB to Binani pursuant to this authority would have been a good discharge of the GMB’s obligations as the shipowners’ bailee. However, he submitted, unless and until the GMB acted on the authority, it continued to hold the cargo as a bailee for the shipowners. The mere giving by a bailor to a bailee of authority to deliver goods to a third party is not the same as physical delivery of possession by the bailor to the third party.

Mr Gee recognised that 7,400 tonnes of the cargo had indeed been made available to and taken by Binani before Binani stopped taking delivery on 23 October 2008. That however did not avail the shipowners, he submitted, because the letter of indemnity requested that “the said cargo” be delivered and that meant the entire cargo, not part thereof. Insofar as Binani had obtained possession of the balance of the cargo between January and May 2009 that had been achieved without any co-operation at all from the owners and in fact in spite of their best efforts to prevent GMB from permitting Binani to take possession. The shipowners had cancelled their authority to GMB to deliver to Binani or at the very least had attempted to do so. Furthermore, submitted Mr Gee, the GMB had itself done the precise opposite of what it had been asked by shipowners to do in that it had itself demanded a letter of indemnity from Binani. All this was the very antithesis of what was asked for and contemplated under the letter of indemnity, which was that Binani would obtain a prompt transfer of possession from the shipowners, or from the shipowners’ agents with their consent, in return for, and only for, the indemnity promised in the letter.

Attractively and persuasively though these arguments were presented by Mr Gee, I cannot accept that they lead to the conclusion that the shipowners here failed to comply with the request to deliver the cargo. Delivery does not necessarily involve that the shipowners must themselves physically hand over the cargo to the receivers in the sense of physically shovelling the coal onto the consignees’ lorries. As the citation from Diplock LJ makes clear, what is involved in this context is the divesting or relinquishing of the power to compel any dealing in or with the cargo which can prevent the consignee from obtaining possession. Such divesting must of course be effective. The judge held that as a matter of construction of the letter of indemnity the issue of the Delivery Order and the discharge of the cargo were sufficient to amount to delivery. I do not agree that that alone was sufficient, for as the facts here show a shipowner may attempt to revoke the authority given by a Delivery Order and may succeed in doing so. Whether in any given case a shipowner will in fact succeed in revoking an authority given in that way will no doubt depend upon the law governing the relationship between the shipowners and the person to whom the Delivery Order is addressed, and may be affected by the question whether the addressee of the Delivery Order has subsequently attorned to the consignees named in the bill of lading. Evidently the GMB considered that the instruction given to it was irrevocable, albeit it later imposed a condition upon its own compliance. The fact remains however that as a result of the shipowners discharging the cargo into the custody of the GMB and instructing it to deliver the same to Binani without production of the bills of lading, Binani was enabled to obtain possession. The shipowners surrendered possession. As demonstrated by events, the shipowners divested themselves of all power to compel any physical dealing with the cargo. Their attempts to regain control of the cargo and/or to prevent Binani from obtaining possession failed. In these circumstances, in my judgment, the shipowners, as agents for the charterers, have complied with the request to deliver the cargo to Binani at Navlakhi without production of the original bills of lading.

I accept that Binani did not expect to have to appear in proceedings in the Gujurat High Court in order to set aside the shipowners’ interim injunction. But that interlude does not detract from the fact that as a result of the shipowners surrendering possession of the cargo and divesting themselves of the right to compel dealings in it, Binani was enabled to obtain possession thereof without production of the original bills of lading. If anything, the ineffective nature of the shipowners’ intervention goes to show that their measures had indeed been effective to enable Binani to obtain possession in this way.

At a late stage in the process of effecting delivery the GMB placed an impediment on further delivery in the shape of its demand for a letter of indemnity. Mr David Goldstone QC for the shipowners submitted that the GMB was not entitled to ask for an indemnity and in so doing it acted outside the authority given to it by the shipowners. That analysis may be correct as a matter of the law governing the relationship between the shipowners and the GMB. Mr Goldstone also submitted that in any event faced with that demand Binani could have declined to take possession of any further cargo. It could have said that it would wait until such time as it was in possession of the original bills of lading. However Binani chose to comply with the request and continued to take possession of the cargo on the terms proposed by the GMB. In so doing Binani continued to take the benefit of the shipowners’ compliance with the request made by the LOI of 6 October 2008. Binani continued to take possession of the cargo pursuant to the arrangements put in hand by the shipowners to that end, their discharge of the cargo into the hands of the GMB and their instruction to the GMB to deliver it to Binani without production of the bills of lading. I agree with Mr Goldstone that in such circumstances Binani cannot continue to take the benefit of shipowners’ compliance, as charterers’ agents, with the request made in the LOI without also accepting the burden imposed thereby, the indemnity promised in consideration of compliance with the request.

In the event Binani obtained possession of the entire cargo, subject only to some small and inconsequential losses which are said to have been due to “spontaneous combustion”. It is not suggested that these losses detract from the conclusion that Binani received the full cargo. The question whether the indemnity offered in the LOI is available only against delivery of the entire cargo does not therefore arise. However, for the avoidance of doubt, I should indicate my view that on its true construction the LOI offers an indemnity in respect of such delivery as has been effected. If it were to be construed as requiring delivery of the entire cargo before any entitlement to an indemnity arises it would be productive of disputes as to shortages, unpumpable residues and the like. I can see no reason why the indemnity offered should not be regarded as co-extensive with the delivery effected without production of the bills of lading. That is, as it seems to me, the natural and most workable reading.

I have recorded above Mr Gee’s submission that what was asked for under the LOI was a “prompt” transfer of possession. It may be that there is to be implied some such requirement as to timely compliance consistent with the commercial object of the underlying request to deliver cargo without production of original bills of lading. What is a reasonable time might therefore vary with the nature of the cargo, whether it is perishable and so forth. However I do not consider that any such argument can possibly avail Binani here. Binani ceased taking delivery of the cargo on 23 October 2008 having rejected it as off-specification. It did not agree to resume taking delivery until two and a half months later, and then on the basis of a reduced price. It was the existence of the contractual dispute between seller, buyer and sub-buyer which caused the delivery to be other than prompt. Other than the delay caused by the interim injunction, which was minimal, and the delay caused by the GMB’s request for a letter of indemnity, which was beyond charterers’ or shipowners’ control and was again in context insignificant, there is no suggestion that the process of Binani taking delivery was delayed by anything other than the existence of the underlying contractual dispute, or limitations as to the speed at which Binani could itself remove the cargo by road and rail.

I turn finally to public policy. In his oral address Mr Gee developed an argument further to that summarised at paragraph 4(iii) above, which was adumbrated in his skeleton argument. Founding himself upon Dugdale v Lovering (1875) LR 10 CP 196 for the proposition that a carrier may not seek or enforce an indemnity in respect of the consequences of an act which is manifestly illegal or tortious to his knowledge, Mr Gee suggested that that is precisely what the shipowners are here seeking to do. The shipowners have known, he submitted, since receipt of the letter from Messrs Haridass Ho of 12 November 2008 that the original bills of lading were being retained by the shippers as security for payment of the price which was being withheld.

As Mr Gee rightly observed, the practice of taking an express indemnity in exchange for delivery of the cargo without presentation of the original bills of lading developed in response to the problem in modern short-voyage trades of the vessel arriving while the original bills are still in the banking chain. See the discussion in Carver on Bills of Lading, 2^nd Ed., 2005 at paragraph 6-009; The ‘Delfini’ [1990] 1 Ll Rep 252 at page 257; The ‘Sormovskiy’ [1994] 2 Ll Rep 266 at 274; and The ‘Berge Sisar’ [2011] 1 Ll Rep 663 at paragraph 35. In such a case, there is an apparently innocent explanation for the absence of the original bills. An implied right of indemnity would apply in such circumstances and it appears to be generally accepted that an innocent carrier is also entitled to enforce an express indemnity. However, submitted Mr Gee, no implied indemnity lies where the carrier knows that delivery is wrongful: Dugdale v Lovering; The ‘Nogar Marin’ [1988] 1 Ll Rep 412. And, while case law is admittedly slight, it follows as a matter of principle that an express indemnity is equally unenforceable in such circumstances. In support of the latter proposition he cited Brown Jenkinson v Percy Dalton [1957] 2 QB 621, which is concerned with an express indemnity in respect of the consequences of issuing a bill of lading known to contain misrepresentations as to the condition of the cargo on shipment, and Aikens et al, Bills of Lading, 2006 paragraph 3.135.

There is some irony in seeking to suggest that the shipowners should be disentitled from claiming an indemnity where at all times after they became aware of the shippers’ claims they attempted to prevent Binani from obtaining possession of the cargo, as indeed Mr Gee complains in a different context. However, like the judge, I do not consider that public policy is here engaged. As Mr Goldstone was able to demonstrate, largely by reference to evidence supplied by Binani itself for use in the proceedings in Singapore, the evidence shows that from the first there was a dispute between PTH and VICAG as to the amount payable for the cargo, having regard to the fact that it did not comply with the contractual specification. This manifested itself at an early stage since clauses 8.2 and 8.3 of the sale contract between PTH and VICAG called for the second and third instalments of the price, payable three days after completion of loading of barges and within fourteen days after the date of the bills of lading respectively, to be calculated, in the first instance, by reference to the estimated fob value of the shipment and, in the second case, by reference to the quality of the coal actually loaded, particularly its gross calorific value. Evidently the cargo was not homogeneous, coming from multiple sources. The variance in reported gross calorific value for each barge was large. There was difficulty and dispute over the sampling and analysis arrangements at the load port. It will be recalled that by clause 5.1 of the PTH-VICAG contract the results of load port sampling and analysis were final and binding. Sampling and analysis on arrival in India did not correspond with load port results, no doubt as a result of the lack of homogeneity of the cargo. The original bills of lading were of course to be released against payment for the cargo and it is clear that there was at all material times a bona fide dispute as to the amount payable. That dispute was the subject of an ICC arbitration between VICAG and PTH begun by VICAG. It is unclear on the evidence deployed in this action precisely when the dispute crystallised, although it can have been no later than when the payment instalment fell due after loading of barges, which was before the end of September 2008. There is no basis whatever for the assertion that Visa, through its sister company VICAG, was on 6 October, when it asked for the LOI from Binani, acting in anything other than complete good faith. There was a bona fide dispute as to the amount payable for the cargo, in the light whereof the original bills of lading might well be unavailable at the discharge port on arrival of the vessel. In those circumstances the LOI was not in my judgment obtained for a purpose which renders it unenforceable. It was obtained in a perfectly normal and lawful manner in circumstances where VICAG believed in good faith that it had made full payment for the cargo and was therefore entitled to release of the original bills of lading. At the very least it is not shown that VICAG did not have that belief. When the shipowners surrendered possession of the cargo and issued their Delivery Order they knew nothing of any dispute between the sellers and the intermediate buyers as to the entitlement to receive original bills of lading. Thereafter when they did learn of the dispute they learned simply that there was a contractual dispute. They were in no position to assess whether delivery or further delivery of the cargo without production of the bills of lading would be manifestly unlawful or tortious, but in any event they proved powerless to intervene in order to prevent Binani taking delivery of the cargo. Accordingly, public policy would not prevent enforcement of the LOI by Visa against Binani and nor does it prevent enforcement by the shipowners against Binani.

For all these reasons I would dismiss this appeal.

I agree that this appeal should be dismissed for the reasons given by Tomlinson LJ.

In so far as Mr Gee placed reliance, under his third ground, on the doctrine (still conventionally framed in Latin) of ex turpi causa, the basis for such a plea was most hesitantly and equivocally advanced in Binani’s pleaded defence and further information thereafter provided. Mr Gee accepted in argument that he was not in a position to assert that there was dishonesty or bad faith on the part of VICAG or Visa, let alone the owners. In truth there was no evidence sufficient to show that VICAG or Visa knew (or even believed) that the bills of lading would never be forthcoming. It is a point of comment, moreover, that it seems to have been Binani which was pressing for delivery against production of a LOI.

I agree with both judgments.