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

This is a claim by shipowners under a Letter of Indemnity signed by the Defendant receivers of a cargo of coal. As the receivers supplied the Letter of Indemnity to the voyage charterers the shipowners bring their claim under the Contracts (Rights of Third Parties) Act 1999 and, alternatively, on the basis of a unilateral contract. The receivers deny liability on a variety of grounds including public policy.

The Claimant (“owners”) is the owner of the JAG RAVI (“the vessel”). The First Defendant (“FEC”) was the voyage charterer of the vessel but it is in liquidation and has played no part in the trial. In July 2008 an Indonesian company called PT Harkat Utama Mulia Mandiri (“the shippers”) entered into a sale contract (“the Sale Contract”) to supply shipments of coal FOB to a Swiss company Visa Comtrade AG (“VICAG”) part of a group of which FEC appears to have been the chartering arm. One of these shipments was on-sold by VICAG to the Second Defendant (“Binani”) on CIF terms under a contract dated 22 August 2008 (“the On-sale Contract”). Disputes arose between the shippers and VICAG over cargoes supplied under the Sale Contract including the cargo shipped on the vessel. VICAG was not going to pay to take up the Bills of Lading. Neither owners nor Binani knew of this dispute at the time.

FEC chartered the vessel on 10 September 2008 to lift the cargo, a quantity of 44,104 metric tonnes (“mt”) of coal. Loading was completed and five bills of lading were issued by owners on 30 September 2008. The vessel sailed from Indonesia and arrived at Navlakhi, in India on 12 October. On 14 October owners issued a delivery order to the Port Authority in favour of Binani. Discharge of the cargo, initially on to barges, was completed on 16 October and the vessel left. Between 16 and 21 October Binani removed about 7,400 mt from the port. On 21 October the discharge port surveyors reported that the cargo was below the specification required by the On-sale Contract. Under the Sale Contract quality was determined at the loadport but under the On-sale Contract inspection was at the discharge port. On 23 October Binani wrote to VICAG rejecting the consignment. Relations deteriorated and on 12 November the shippers’ lawyers wrote to owners giving notice of a claim for damages for delivering the cargo to Binani without presentation of the bills of lading. Owners then wrote to the Port Authority to revoke the delivery order. The Port Authority does not appear to have accepted this revocation. On 7 January 2009 Binani reached agreement with VICAG to take the cargo in return for a reduction in the purchase price from some US$6.8M down to $3.79M. Binani resumed removal of the cargo from 17 January 2009 and owners’ further efforts to prevent the Port Authority from releasing it failed.

On 25 February 2009 owners applied in the High Court of Gujarat for an ex parte injunction against the Port Authority and Binani to prevent removal of further cargo from the port area. An ex parte injunction was granted but the Court set it aside on 6 March concluding essentially that the dispute was a private law matter and could not be litigated by bringing public law proceedings alleging breaches of rights under the Constitution.

Once the injunction had been set aside Binani removed the remaining cargo. The last of it went on 13 May.

Binani retained $1.72M from what it had agreed to pay VICAG on the grounds that VICAG had not supplied the bills of lading. Mr Goldstone QC for the owners reasonably contends that since VICAG is insolvent and in liquidation it is unlikely to start legal action to obtain the bills of lading.

On 4 June 2009 the shippers brought proceedings in Singapore against owners having arrested a sister ship of the JAG RAVI. Owners put up security in the amount of $2,040,410. The shippers have obtained judgment on liability but quantum remains to be determined. There have also been Rule B attachment proceedings in New York.

The trial lasted only two days because it was unnecessary to call live evidence. Seven witness statements were submitted from representatives of the parties and their lawyers but these were little referred to. Submissions about the facts were made on the numerous available documents. The facts, although not much in dispute, are complex. I shall refer only to those which seem to me directly relevant to the issues. However, I commend to other courts concerned with this depressing saga an appendix to Binani’s skeleton argument entitled “factual background” which with some amendments suggested by Mr Goldstone is an admirably comprehensive guide to the facts of a dispute which has now been aired in four jurisdictions.

The Sale Contract of 23 July 2008 provided by Article 10 that title would pass to VICAG when the seller had received payment for the shipment. The agreement was varied by letter to change the payment terms but also to the effect that “original bills of lading of mother vessel to be released by the vessel agents directly to Visa”.

The On-sale Contract contained terms set out in a Purchase Order sent from Binani to VICAG on 22 August and clause 8.8 provided:-

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

The Recap for the Charterparty stated at paragraph 11:-

“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 Recap also provided that other terms were to be the same as the previous charter Clause 67 of which had provided:-

“67.

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.”

On 6 October 2008 FEC sent the form of LOI required from Binani in an email to which Binani attaches importance. It read:-

“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”.

On 6 October 2008 Binani sent the LOI which was in the following P&I club standard term:-

“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”

The Delivery Order of 14 October 2008 which is said by Binani to be simply a revocable request and an authority to make delivery was in the following terms:-

“The Port Officer,

GMB, Navlakhi Port

MORBI

Dear Sir,

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:

MARKS & NOS	DESCRIPTION	QUANTITY	LOADPORT
Nil – In Bulk	Indonesian Steam (Non-Coking) Coal	44104 MT	Taboneo (Indonesia)

Please note that this Delivery order is issued subject to terms, conditions & exceptions of the Relevant Charter Party.

Thanking you,”

Owners’ primary case is that this is a straightforward claim under an LOI. The LOI was issued by Binani to FEC and owners were not aware of it until disclosure in the Indian proceedings. Owners say, nevertheless, that they are able to enforce the LOI. FEC instructed owners to deliver the cargo to Binani. For that purpose the owners were acting as charterers’ agents. Under the terms of the LOI the indemnity is extended to the “servants and agents” of charterers. It should follow that owners are entitled to enforce under the Contracts (Rights of Third Parties) Act 1999. The submissions of the parties about the Act focus on The Laemthong Glory (No 2) [2005] 1 Lloyd’s Rep 632 (Cooke J) and 688 (Court of Appeal).

Section 1 and 3 of the Act provide in relevant part:-

“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.

The LOI does not expressly provide that a third party may enforce the term but, in The Laemthong Glory the court decided that the relevant operating provisions of the LOI purported to confer a benefit upon owners in their capacity as the agents of charterers for the purpose of delivering the cargo. That was the decision of Cooke J in The Laemthong Glory – see Paragraph 42 - and endorsed by the Court of Appeal. The case also endorsed the view that once a third party is brought within Section 1(1) the burden shifts to the Defendant to show that as a matter of construction the contract was not intended to be enforceable by the third party and that Section 1(2) applies. The requirement of identification in Section 1(3) was met in The Laemthong Glory because the owners qualified as agents of the charterers. Owners in this case rely on that and also upon the fact that the LOI is addressed, amongst other things, to “owners”.

In The Laemthong Glory the Court was concerned with two LOI’s in terms identical to the one in this case except in minor respects I refer to below. The charterers’ LOI was addressed to the owners and the receivers’ LOI to the charterers. This court held that the terms of the receivers’ LOI purported to confer a benefit upon the owners within Section 1(1) of the Act. The owners were entitled to enforce the LOI in their own name and there was nothing to suggest that the parties did not intend the relevant provisions to be enforceable by the owners.

Mr Goldstone submits that the situation here is indistinguishable except in irrelevant respects from that which arose in The Laemthong Glory and that owners are therefore entitled to be paid. He also submits that as the LOI in this case, unlike those in The Laemthong Glory, was addressed not only to charterers but also to owners his clients have a direct right to enforce against Binani on the basis of a unilateral contract. If owners succeed in unilateral contract it then becomes unnecessary to deal with the issues of public policy I refer to later. Mr Goldstone recognises at the outset that there is a potential obstacle to his unilateral contract case. It is open to question whether a party is able to claim under the terms of the unilateral contract if he performs the requested act but does so in ignorance of the offer, an issue to which I will return.

The case put forward by Mr Gee QC and Mr Eaton differs in certain respects from that set out in the Defence. (Owners do not object to that except in minor respects). They point out that the owners have the burden of proof on all the issues and I bear that in mind. They next contend first that the claim in unilateral contract must fail. Owners knew nothing about Binani’s LOI at the relevant time. Conduct in ignorance of an offer is incapable in law of constituting acceptance. Secondly, they argue that there was no contract which permitted the Act to be invoked. The LOI in The Laemthong Glory was addressed by intended receivers to voyage charterers. When its terms were performed by delivery of the cargo it became a binding and enforceable contract of indemnity between receivers and voyage charterers. The ship owners seek to enforce the contract for an indemnity as the agent who provided the stipulated delivery. In this case Binani’s LOI was provided to FEC, as the email put it for “owners’ confirmation”. Without an underlying contract between these two parties no question of enforcement by owners can arise.

Thirdly, they contend that a condition precedent to formation of the contract of indemnity between Binani and FEC is delivery under it to Binani by FEC of the full cargo. In contrast with the facts of The Laemthong Glory the cargo was not delivered as requested. The Court of Appeal held that owners had delivered as agents for voyage charterers so that charterers had accepted the offer by performance of what was required. There was no such contract in this case.

Fourthly, they contend that owners did not deliver the cargo in accordance with the LOI so there was no satisfaction of the condition precedent to the obligation to indemnify becoming enforceable. Delivery meant transfer to Binani of physical possession of the full cargo but owners did not provide this. Owners gave possession of the cargo to the port authorities and on 14 October 2008 issued a Delivery Order. This gave possession of the cargo to owners own bailees with a revocable authority to them to deliver to Binani. An authority to deliver is not delivery. They contend that the eventual transfer of physical possession of most of the cargo to Binani was not delivery as required by the LOI. That delivery meant delivery into Binani’s hands promptly without litigation and allowing Binani to use or deal with the cargo free from interference whilst VICAG obtained the shipping documents and tendered them.

Fifthly they argue that owners were on notice of the claims of the shippers, from 12 November 2008 at a point when only 7,400 mt had been received. If with that knowledge the LOI did take effect as a contract FEC could not have enforced it because they knew that the cargo belonged to the shippers which held the original bills of lading and that the shippers were retaining them because they had not been paid. Delivery of the cargo without presentation of the bills of lading would thus have been wrongful to FEC’s knowledge and have precluded it from enforcing the LOI. Under Section 3 of the Act owners are in no better position.

Sixthly they contend that Binani’s liability is limited to the 7,400 mt because if the LOI took effect as a contract and there was delivery it was limited to that which Binani received before the shippers asserted their rights and owners revoked the delivery order and obtained the injunction. Finally, various quantum issues are raised.

Mr Gee argues that the words in the LOI are alternative ways of describing a single offeree, the Claimant, as is clear when the factual matrix is examined. The LOI was not addressed to FEC or therefore capable of maturing into a contract between it and Binani. Reliance is placed on the email from FEC to Binani stating “please send us the LOI duly executed to enable us to take owners’ confirmation on the LOI”. It is said that as a matter of ordinary language FEC was not going to rely on the LOI itself but only be the conduit providing the draft document for a third party. This is part of the relevant background as is Clause 8.8 of the On-sale Contract requiring VICAG to make prior arrangement “with shipowners” to allow unloading against the “buyers” LOI. Further, the form of the LOI was appropriate for the carrier in possession, as opposed to a voyage charterer like FEC who was not in possession and had no control.

As I see it this is too elaborate a perception of the situation. The LOI is addressed generically to charterers as opposed to, as was the case in The Laemthong Glory, the charterers by name. The covering email adds nothing as I see it. The words do not indicate that FEC was not going to rely upon the LOI itself. The email needs to be seen in context written by someone whose first language was probably not English. The document to look at is the LOI itself. The factual matrix is identified to construe the word of the contract not to replace them. Furthermore Mr Goldstone draws attention to evidence produced by Binani both in a challenge to jurisdiction in this Court and in the proceedings in India in which Binani indicates, contrary to Mr Gee’s submissions, that the LOI was intended to operate as a contract between them and charterers and not between them and owners. To give one example Mr Venkataraman of Binani says this:-

“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 ... I would note that it was never intended that GE would be a beneficiary under our LOI issued to Visa Asia”.

The point is also made in earlier submissions by Binani in the case. It is suggested that these indications by Binani are irrelevant to the question of construction. I disagree. They are admissions. But, even without this material, it is clear from the terms of the LOI that it was issued to charterers.

Mr Gee submits that there was no binding contract between FEC, the charterers and Binani unless and until the cargo was delivered to Binani within the meaning of the LOI. He argues that there must have been performance of what was required in order to obtain the contractual indemnity. In oral submissions Mr Gee placed particular emphasis on the requirement in the LOI of “your complying with our above request”. Discharge, the process by which the goods are unloaded from the ship to the shore, is distinct from delivery which places the goods physically in the possession of the receiver at the discharge port. Delivery under the LOI was not intended to mean anything less than the delivery by which the carriers’ obligations are fulfilled under a bill of lading contract. Owners delivered no cargo into Binani’s possession. Instead it physically delivered the entire cargo to the Port Authority which received it not as Binani’s agent but as bailee for owners. Mr Gee points out that that is how owners characterised the position in the Indian and Singapore proceedings. The delivery order did not change the position as it was simply an irrevocable instruction to the Port Authority, and not delivery to Binani. The Court was referred to case law about the meaning of delivery to help inform what is essentially a question of construction of the meaning of the word as used in the LOI. In short there was no compliance with the request.

Mr Goldstone responds that it is unreal to suggest that there was no delivery when Binani has received and used the entire cargo following its discharge to agents at the port. What would owners have had to do to deliver the cargo under the bill of lading contract if Binani had presented the bill, other than what they did in fact do? The legal status of the port authority is a matter of Indian law and not in play in the action. He submits that the meaning of delivery under the LOI is derived from the purpose of the document which is to enable the receivers to get the goods and to protect the owners from any claims that they may be exposed to by delivery of the goods without production of the bills of lading. There is no suggestion that what happened in this case was other than the ordinary practice. The goods were discharged to the custody of the port authority and there was a delivery order from the carrier to that authority in favour of the receiver. Those steps were sufficient to enable the receiver to take delivery despite the efforts of the owner to stop delivery. Further either at the stage of discharge or certainly at the point at which the owner issues the delivery order the purpose of protecting the owner from claims has been achieved. If for any reason there is no delivery at that point then there is assuredly delivery at the point of subsequent release of the cargo by the port authority to Binani. (In the Indian and Singapore proceedings owners characterised the position of the Port Authority as being owners’ bailee). In those proceedings claims were made, unsuccessfully, against the port officer for the “wrongful and illegal delivery” of the consignment to Binani.

Mr Gee relies on the observation of Diplock J, as he then was, in Barclays v Customs & Excise [1963] 1 Lloyd’s Rep 81 at 89 that a bill of lading contract is “not discharged by performance until the shipowner has actually surrendered possession (that it, has divested himself of all powers to control any physical dealing in the goods) to the person entitled under the terms of the contract to obtain possession of them”. He also relies on a passage from Cooke on Voyage Charters Third Edition at paragraph 10.2 “delivery occurs when “the goods are so completely under the control of the consignee that he may do what he likes with them”, or when they are “placed under the absolute dominion and control of the consignees”. In practice, upon the discharge of goods from the ship they are frequently in the custody of agents or contractors rather than the shipowner or consignee themselves, and in those circumstances delivery will occur when the goods are placed in the hands of an agent of the consignee”. He also took me to cases which cast light on the meaning and significance of a delivery note. However Mr Goldstone makes the fair point that the legal effect of the revocation of a delivery order given by the Indian agent of an Indian ship owner to an Indian port authority in respect of a cargo lying in a port in India is a matter for Indian law and the issue has not been pleaded at all. He also counters with affidavit evidence from Binani in the Indian proceedings, in particular from a Mr Khara, asserting that the owner does not have any authority to direct the port authority not to deliver the balance of the cargo to Binani. Binani’s position was that the ship owner had released the cargo to its bailee and by that point of those proceedings some of the cargo had already in turn been released to Binani. Mr Goldstone says that the fact that owners unsuccessfully tried to revoke the delivery order is not to the point and emphasises that the delay caused by the temporary injunction in India was only between 25 February and 6 March. He also relies on Paragraph 4 of the LOI which provides that if the place “at which we have asked you to make delivery is a ... barge, then delivery to such ... barge shall be deemed to be delivery to the party to whom we have requested you to make such delivery”. Since the cargo was discharged into a barge which must have been procured by or at the request of Binani that is an end to the matter.

It is undisputed that the vessel arrived at the discharge port on 12 October 2008 and that the cargo was then discharged to barges. From that point, subject to the fracas, that later developed, the cargo was available to Binani. “Delivery” for this purpose is a question of construction of the LOI and I prefer the approach of Mr Goldstone. Mr Gee’s ingenious and interesting arguments are it seems to me over elaborate. The position became temporarily confused during the relatively short interval of the Indian proceedings where both parties to this case took up positions inconsistent with what they now argue. It seems to me that owners’ attempt to establish by litigation a position in relation to delivery that turned out not to be correct, while confusing, does not affect the basic position. The point on Paragraph 4 of the LOI should be approached with caution as it arose only in the course of the argument on the inspiration of (and to the credit of) owners’ solicitor. Mr Gee’s response is that discharge to the barge is just that and not true delivery. But that seems to me to overlook the wording of the provision and how the barges probably came to be used. VICAG and FEC were under no obligation to procure barges or incur the cost of doing so. Owners would not have done so. It seems very likely therefore that the party that did it was Binani or one of its agents. That being so paragraph 4 applies. Leaving Paragraph 4 aside it still seems to me that as a matter of construction of the LOI the issue of the delivery order and the discharge of the cargo was sufficient to amount to delivery.

Owners contend that even if there was no delivery around 12-14 October this did take place when the Port Authority physically released the balance of the cargo to Binani. Binani makes two objections to that. First while accepting that possession of the cargo was physically transferred to Binani over the period from October 2008 to May 2009 it was not transferred by owners. What Binani received was not delivery from owners of the entire cargo on arrival at the port as contemplated by the LOI but delivery from the Port Authority months after arrival. This was not “delivery” within the LOI. It is true that Binani received the cargo over a long period albeit at a greatly reduced price but if I am wrong about delivery having been made in October that does not it seems to me prevent the release of the entire cargo to Binani constituting “delivery” within the LOI. It seems to me again that Binani’s approach involves too close and literal an approach to the wording of the LOI. In the context of the LOI, and in any ordinary use of the English language, a cargo which has reached a port, been discharged and collected by the receiver has been delivered.

If I am wrong about delivery having been made in October 2008 but right about it having been completed in May 2009 Binani raises another defence which is that delivery after 12 November 2008 would have been wrongful to the knowledge of owners and they could not rely on their own wrong to obtain and enforce rights under the LOI. Mr Gee contends that as a matter of principle a party is not entitled to be indemnified against the consequences of actions which were to its knowledge wrongful as against a third party. If a receiver induces a carrier to deliver goods contrary to the rights of the true owner the carrier is guilty of breach of contract and the carrier and receiver are both guilty of conversion. There is a common law implied indemnity where the carrier has acted bona fide and without knowing that delivery was wrongful. That implied indemnity does not lie where the carrier knows that delivery is wrongful. Mr Gee relies on Dugdale v Lovering (1875) 1 10 CP 196. The essential good faith is missing here because owners were on notice from 12 November that the shippers still held the original bills of lading and were asserting their rights as holder. Any delivery after 12 November would therefore have been wrongful to owners knowledge. Owners could not have relied on their own wrong to obtain and enforce contractual rights under the LOI.

Mr Goldstone submits this contention must be rejected simply because owners did nothing inappropriate after November 2008. The delivery was out of their hands. They tried in the event unsuccessfully to stop the delivery. There is nothing reprehensible or immoral about that so as to engage public policy. Whatever the merits of the principle as a matter of law the point turns on the same facts as those which arise on a wider public policy point

Mr Gee therefore submits that as a matter of interpretation of the indemnity provisions in the LOI owners are not entitled to be indemnified against their own deliberate wrongdoing. He also puts this on the basis that regardless of the construction of the LOI, as a matter of public policy a person is not entitled to take advantage of his own deliberate wrong.

The policy was described in the following terms by Lord Mansfield in Holman v Johnson 1 Cowp. 342 at 343; 98 ER 1120 at 1121:-

“The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the Court says he has no right to be assisted. It is upon that ground the Court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis”.

The policy was put as follows by Lord Wrenbury in Weld-Blundell v Stephens[1920] AC 956 at 997 in what, it is common ground, is the most usual modern formulation:-

“It has, I think, long been settled law that if an act is manifestly unlawful, or the doer of it knows it to be unlawful, as constituting either a civil wrong or a criminal offence, he cannot maintain an action for contribution or for an indemnity against the liability which results to him therefrom.”

Mr Gee cites the decision of Flaux J in this court in Safeway Stores Ltd v Twigger [2010] EWHC 11 (Comm). This contains a most helpful summary of the public policy defence and applies it to anti-competitive acts in breach of the Competition Act 1998. Binani also submits, as I see it correctly, that Section 3 (2)(b) of the 1999 Act makes this defence available to it.

It is also common ground that an important more modern decision in this area is Brown Jenkinson v Percy Dalton [1957] 2 Lloyd’s Rep 1. In this case the shippers requested the owners to issue clean bills of lading even though both parties knew that the condition of the cargo was such that the bills ought to have been claused and were thus guilty of fraudulent conduct in deceiving the receivers about the condition of the cargo on shipment. The majority of the Court of Appeal held that in those circumstances the defendants were able to assert that the LOI was unenforceable on grounds of public policy.

Mr Goldstone emphasises that the defence operates within narrow limits. He points to the distinction drawn in Brown Jenkinson between an agreement made “with the intention of one or both parties to make use of the subject- matter for an unlawful purpose, that is to say a purpose that is illegal, immoral or contrary to public policy” and one where an LOI is issued where there is a good faith dispute. He relies also on the observation of Steyn J, as he then was, in Mitsubishi v. Alafouzos [1988] 1 Lloyd’s Rep 191 at 194 that:-

“one must keep constantly in mind that one is dealing with a head of public policy, which requires the Court to proceed with great caution, and that the particular facts of the case matter greatly”. He also cites the judgment of the Court of Appeal in Saunders v. Edwards [1987] 2 All E.R. 651 and in particular that of Lord Justice Bingham at page 665 that: “it is unacceptable that the Court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss or how disproportionate his loss to the unlawfulness of his conduct”.

There is little disagreement about the existence and extent of the policy. The issue is whether it is applicable to the facts of this case. Binani submits that the necessary element of moral reprehensibility or wrongdoing is satisfied here where, on its case, there has been deliberate misdelivery by owners or FEC.

Owners respond that this is a paradigm case of a bona fide commercial dispute. VICAG believed that nothing further was due to the shippers and that they were entitled to possession of the bills of lading. The shippers believed otherwise. Unless Binani is able to establish that there was no genuine dispute and that VICAG’s stated position was not genuinely held, public policy is not engaged at all. It contends that the question of whether or not the shippers were in the right having regard to the terms of their sale contract with VICAG is not the question. The issue is simply whether the instructions given to owners to deliver the cargo without the bills of lading were given for an illegal purpose.

As I see it this is not a public policy case. It is a depressing but not uncommon saga of a straightforward commercial transaction with some complex aspects, going wrong. Nothing suggests that VICAG did not reasonably believe that nothing further was due to the shippers or that this was anything beyond a routine commercial dispute. The caution urged by the then Steyn J and Bingham LJ needs to be borne in mind. Even with the close analysis and mature reflection now available it does not seem to me that there are any relevant acts here which can fairly be described as manifestly unlawful or known to be unlawful by the parties to this action. The decision of Flaux J in Safeway neither seeks to take the pre-existing law further nor supplies the support for its position claimed by Binani. The law is already complex enough in this area of trade without developing this aspect of public policy so as to cause further uncertainty.

For the reasons I have given owners’ claim succeeds. The goods have been delivered so owners are entitled to enforce the LOI. LOIs, particularly those in standard form, are important commercial instruments which need to be interpreted robustly and in a straightforward way. They are often issued and relied upon by those for whom English is not their first language and whose opportunities for close textual analysis before committing to a wording are in the real world very limited.

Owners have an alternative case under unilateral contract put forward on the basis that they have a direct right to enforce the LOI against Binani as a unilateral contract. Mr Goldstone submits that this argument is open to him because unlike the position in The Laemthong Glory the LOI issued by Binani was addressed not only to charterers but also to owners. This raises the question whether a party is able to claim under the terms of a unilateral contract if he performs the requested act but does so in ignorance of the offer.

The issue is encapsulated in the current addition of Chitty on Contracts 30^th Edition at 2-041 as follows:-

“Acceptance in ignorance of offer: unilateral contracts: In some jurisdictions it has been held that a person who gives information for which a reward has been offered cannot claim the reward unless he knew of the offer at the time of giving the information; and the position has been said to be the same where that person once knew of the offer but had, at the time of the alleged acceptance, forgotten it. The English case of Gibbons v Proctor is sometimes thought to support the contrary view, but the actual decision can probably be explained on the ground that the claimant did know of the offer of reward by the time the information was given on his behalf to the person named in the advertisement. To allow recovery where the claimant did not know of the offer when he gave the information may raise the doctrinal difficulty that, in such cases, the parties have not reached any agreement; the position is simply that their wishes coincide. But in the case of a unilateral contract it is hard to see what legitimate interest of the promisor is prejudiced by holding him liable to a party who has in fact complied with the terms of the offer, though without being aware of it.”

Mr Goldstone relies on this “doctrinal difficulty” to support his submission that there may be acceptance despite ignorance of an offer. In response Mr Gee and Mr Eaton in their skeleton argument put forward detailed submissions citing English and Commonwealth authority as well as other text books to support Binani’s position that, as a matter of law, an offer cannot be accepted so as to generate a binding contract by someone who does not know that the offer has been made. As they put it “any other conclusion would be inconsistent with the basic principle that contract is routed in mutual agreement, through offer and acceptance”.

Binani clearly have the better of this argument and indeed Mr Goldstone accepted that the cases “tend to point more towards the position which Mr Gee is taking than the position which I am taking”. The issue is an open one under English law and an important one. No decision on the point is necessary if I am right on the owners’ main case. It is not necessary for me to decide any questions of primary fact to enable the Court of Appeal to determine the point should the need arise. In those circumstances, particularly where there has been limited time for argument on the point, I do not propose to decide it.

The largest part of owners’ claim relates to the liability they will incur once damages are assessed in Singapore. The claim extends to other items which are more controversial. Owners claim expenses incurred over the litigation in India which they contend are covered by “any ... loss, damage or expense of whatsoever nature that you may sustain by reason of delivering the cargo in accordance with our request”.

Owners claim in respect of the action in India Rupees 1.2M for legal fees plus Rupees 60,000 for the costs of Mr Iyer attending the hearings. Owners say that they brought the proceedings to try and prevent the release of the balance of cargo to Binani in circumstances where the shippers had put owners on notice of their claim. This expense arose directly out of the delivery of the cargo to Binani without presentation of the bills of lading. The expenditure would never have been incurred but for the delivery.

Binani points out that the proceedings in India were dismissed as being an inappropriate attempt to litigate private law issues through a public law form of action. The launching of a defective law suit is well away from the expense sustained by reason of delivering the cargo. It was not an inevitable consequence of compliance with the request that owners should have to start litigation in India. Mr Iyer was a witness who gave evidence by affidavit and there is no reason why it was necessary for him to attend the hearing. Moreover, the information available about costs in India is insufficient at present. I have sympathy for Binani’s position.

Binani make similar points about the Singapore proceeding and attendance there by Mr Iyer and by owners’ Indian lawyers. Mr Gee also submits that information about future costs is too vague for this court to evaluate at present. I agree.

Similar considerations arise with claims for legal advice in London and Hong Kong apparently obtained about the provision of security and also in respect of the Rule B proceedings in New York which it is suggested were in the circumstances unnecessary and in any event prosecuted at too much cost and expense.

I share Mr Gee’s view that some of these claims are short on detail. I will therefore defer a decision on quantum until the hand down of this judgment at which time the parties may make additional submissions supported, if appropriate, by further evidence. I will then endeavour to give judgment on the spot about these outstanding items. I will also hear further argument about the extent of any declaration to be granted by the Court as this discussion will now be informed by the conclusions I have reached.

It follows that this claim succeeds on the Claimant’s primary argument and that I accept the Defendant’s submissions on the alternative case.

I shall be grateful if Counsel will let me have, not less than 48 hours before hand down of this judgment, a list of corrections and a draft order, both preferably agreed, and a note setting out their position on issues arising at the hand-down. I am most grateful to Counsel and solicitors for their skilled and effective preparation and presentation of this case.