Case Update: Letters of indemnity and delivery without production of original bills of lading.

In the recent decision of the “Songa Winds”, the English Court has considered the enforceability of a chain of letters of indemnity (LOIs) entered into in circumstances where the original bills of lading (OBLs) were not produced at the discharge port.

Glencore had challenged the LOIs, as the party ultimately responsible for indemnifying the shipowner against any claims arising out of the delivery without production of the OBLs. Very broadly, the challenge was based on an argument that delivery had been made to someone other than the person named in the LOIs, therefore the LOIs had not been triggered. Had the Court found in Glencore’s favour, the shipowner would have been required to face the claims on its own, and without any insurance cover. Although the International Group have a recommended standard form wording for LOIs, Club cover is not available for delivery without production of the OBLs. The LOI itself therefore becomes the owners’ only recourse in the event of what may be a very significant claim.

Although the LOI chain was ultimately found to have been triggered in the “Songa Winds” and the LOIs were therefore enforceable in the any of any claim, the case demonstrates precisely why LOIs are said to be fraught with legal danger. In particular, it is critical to pay attention to the wording of the LOI with respect to the legal person to whom delivery is required to be made – and ensure that delivery is in fact made to that person or, if the wording permits, to such party as you believe to be or to represent that person or to be acting on behalf of that person. 

This question has triggered a number of cases in recent years, including the well reported “Zagora” decision (2017). Although the standard form LOI wording has been significantly expanded since the “Bremen Max” decision in 2009, care must still be taken to ensure delivery is made to the correct legal person.

Case citation: The “Songa Winds” [2018] EWHC 397 (Comm)