Farenco Shipping Company Ltd v Daebo Shipping Company Ltd (the Bremen Max)
| Jurisdiction | England & Wales |
| Judgment Date | 11 November 2008 |
| Neutral Citation | [2008] EWHC 2755 (Comm) |
| Docket Number | Case No: 2008 FOLIO NO.1105 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 11 November 2008 |
[2008] EWHC 2755 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr.justice Teare
Case No: 2008 FOLIO NO.1105
Stephen Hofmeyr QC and Sarah Martin (instructed by Holman, Fenwick and Willan) for the Claimants
Lawrence Akka (instructed by Mays Brown) for the Defendants
David Mildon QC (instructed by Mills and Co.)for the Third Party
Robert Bright QC (instructed by Reed Smith) for the Fourth Party
Mr. Justice Teare:
On 6 November 2008 the Court heard argument on two preliminary issues of construction of a Letter of Indemnity. The parties were anxious to know the Court's decision on those two issues as soon as possible. I was able to inform the parties of the Court's decision on 7 November 2008. These are the reasons for the Court's decision. A further issue was argued on 7 November 2008. This judgment gives my decision and reasons on that further issue.
Factual Background
BREMEN MAX is a bulk carrier of some 73,500 dwt. owned by Pavey Services Ltd. (“The Owners”). By an amended NYPE 1946 form of charterparty dated 18 April 2007 the vessel was chartered by the Owners to COSCO Bulk Carrier Co.Ltd. (“Cosbulk”). The vessel was sub-chartered under back-to-back charters to the Claimant, Farenco Shipping Co.Ltd. (“Farenco”), the Defendant, Daebo Shipping Co.Ltd. (“Daebo”), the Third Party, Dampskibsselskabet Norden A/S (“Norden”) and the Fourth Party, Deiulemar Shipping SPA (“Deiulemar”).
In March 2008 a cargo of 70,888 metric tonnes of Brazilian origin Sinter Feed Opportunity Tubarao (“the cargo”) were loaded on board the vessel at Tubarao, Brazil for carriage to and delivery at Bourgas, Bulgaria. Ten bills of lading were issued by the Owners in respect of the cargo. The bills named the consignee as “to the order of HSH Nordbank AG, London.” The notify address was “G and M-5, Bourgas, Bulgaria as agent and Kremikovtzi AD, Sofia, Botunetz”. I am told that Kremikovtzi are Bulgaria's biggest steel producer.
On arrival of the vessel at Bourgas in late March 2008 the bills of lading were not available. Clause 68 of each of the charterparties provided as follows:
“In case original Bills of Lading are not available at discharge port(s), Master/Owners to allow discharge and release the cargo on board against Charterers' single Letter of Indemnity signed by Charterers only with wording as per Owners' Protection and Indemnity Club recommendation.”
The Owners were requested to deliver the cargo without production of the bills. A letter of indemnity was provided by each charterer to its disponent owner. Each such letter was in the same form. Thus the letter provided by Daebo to Farenco provided as follows:
“The above cargo was shipped on the above ship by COMPANHIA VALE DO RIO DOCE and consigned to THE ORDER OF HSH NORDBANK AG, LONDON for delivery at the port of BOURGAS, BULGARIA but the bill of lading has not arrived and we, DAEBO SHIPPING CO., LTD, hereby request you to deliver the said cargo to KREMIKOVTZI AD, SOFIA – BOTUNETZ at PORT OF BOURGAS, BULGARIA 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 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 of England.”
The cargo was discharged at Bourgas between 28 March and 2 April 2008. There is no evidence as to whom the cargo was in fact delivered. Deiulemar say that it was not delivered to Kremikovtzi. Whether that is so remains to be decided.
On 29 July 2008 Stemcor UK Ltd. (“Stemcor”) informed the Owners that they were the holders of the bills of lading and asked the Owners to confirm that they were ready to deliver up possession of the cargo in return for the bills of lading. Owners informed Cosbulk of this and called upon them to honour their obligations under the LOI. Similar messages were passed down the line of the charterers. Stemcor threatened to arrest the vessel and the Owners, on 6 August 2008, said to Cosbulk that “it would be preferable for you to offer to intervene now and prevent this happening in accordance with the terms and conditions of the LOI …… we will in any event be looking to you to post satisfactory security on owners' behalf and without delay.” On 14 August 2008 Stemcor informed the Owners that it would commence proceedings against the vessel and the Owners in order to obtain security for its claims for misdelivery in the sum of US$11m. The Owners informed Cosbulk of this threat. The information was passed down the line of charterers.
The vessel arrived in Australia on or about 20 August 2008. Neither Cosbulk nor any of the other charterers down the line provided security to avoid the arrest of the vessel. On 23 August Stemcor arrested the vessel in Port Gladstone, Australia. On the same day the Owners arranged for security to be put up in the form of a corporate guarantee in the sum of US$11m. to secure the vessel's release. The Owners undertook to replace the corporate guarantee within 6 months with a first class London bank guarantee failing which the vessel was liable to re-arrest.
On 26 August 2008 the Owners obtained against Cosbulk a Rule B Maritime Judgment for US$11m. on its New York bank accounts. They informed Cosbulk that the bank accounts would only be released in return for the provision to Stemcor of a first class bank guarantee in the amount of US$11m. and a second guarantee in respect of the Owners' claims in the sum of US$500,000. These demands were passed down the line of charterers.
Farenco were aware that should Cosbulk obtain a Rule B attachment against them, their business activities would be seriously disrupted. Farenco therefore decided to put up security directly to Stemcor by way of cash to be held in the escrow by Holman Fenwick and Willan who, at the time, were the solicitors representing Cosbulk. Farenco called upon Daebo to provide substitute security to Stemcor. That request was passed down the line of the charterers.
Farenco borrowed the cash to fund the escrow accounts. HFW received the funds in its client account on 11 September 2008, US$11m. in respect of Stemcor's claim and US$500,000 in respect of the Owners' claim. Farenco then found its liquidity severely restricted because freight rates in the bulk shipping market fell sharply in late September/early October and, in addition, Farenco was exposed to defaults by a counterparty on forward freight agreements and faced monthly margin calls on such agreements.
The proceedings
On 24 October 2008 Farenco issued proceedings in this court against Daebo and sought injunctive relief. Daebo informed Norden that it would seek the same relief against Norden. On 30 October 2008 Aikens J. granted interim mandatory relief requiring Norden, failing whom Daebo, to provide the funds necessary to replace those deposited by Farenco. Aikens J. also ordered an expedited trial on 6 November 2008 of several issues of construction as follows:
“1. Whether clause 3 of the Letter of Indemnity obliges the party giving the indemnity to provide security directly to Stemcor UK Ltd and/or Stemcor Europe AG”
2. Whether the obligation in clause 3 of the Letter of Indemnity to provide such bail or other security is no longer a current obligation, the release of the Vessel having already been secured
3. Whether the undertakings provided are conditional upon...
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