DMC Category Rating: Developed

This case note is based on an Article in the June 2005 Edition of the ‘Marine Bulletin’, published by the Marine team at the international firm of lawyers, DLA Piper Rudnick Gray Cary. DLA Piper is an International Contributor to this website

Background
The "Laemthong Glory" was voyage chartered under an amended form of sugar charterparty dated 8 December 2003. Clause 42 provided:

"In the event of the Original Bills of lading not being available at discharge port on vessel's arrival, if so required by Charterers, Owners/Master to release the cargo to Receivers on receipt of Faxed letter of Indemnity. Such letter of Indemnity to be issued on Charterers head paper, wording in accordance with the usual P&I Club wording and signed by Charterers only always without a bank counter-signature".

But for this clause, the owners would not have been entitled or obliged to deliver the cargo otherwise than against original bills of lading.

The bills of lading consigned the cargo of sugar "to the order of" the shipper. The shippers sold the sugar to the charterers and the charterers sold it to the receivers. That sale contract provided for payment by letters of credit opened at a bank acceptable to the charterers. The documents to be submitted to the bank included the bills of lading and a signed copy of the charterparty.

In the ordinary course of events, the bills of lading would have been delivered to the receivers, who would present them to the owners to obtain delivery of the cargo. But shortly before the vessel was due to arrive at its destination, the receivers sent a fax to the charterers saying that the original bills had not been received and asking them to issue a letter of indemnity under clause 42 of the charterparty. The charterers asked the receivers to provide their own letter of indemnity first, which they did. The charterers then sent this, along with their letter of indemnity to the owners, and the master released the cargo.

After discharge was completed, the vessel was arrested by the bank, which alleged that it held the original bills of lading and made a claim for the value of the cargo.

The owners issued proceedings for a declaration that they were entitled to be indemnified in respect of any liability to the bank under both letters of indemnity. The receivers' letter was only addressed to the charterers, but the owners claimed they were entitled to enforce its terms under the Contract (Rights of Third Parties) Act 1999.

Conferring a benefit
Clause 1(1) of the 1999 Act provides that a person who is not a party to a contract may nevertheless enforce a term of it if the contract expressly provides that he may or the term purports to confer a benefit on that third party. No benefit is conferred if, on a proper construction of the contract, it appears the parties did not intend the term to be enforceable by the third party.

Did the terms of the receivers' letter of indemnity purport to confer a benefit on the owners? The letter, addressed to the charterers, promised "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".

The owners said the terms of the letter were for their benefit because they were acting as agents for the charterers for the limited purpose of delivering the cargo to the receivers. The Court of Appeal agreed.

The only way in which the charterers could procure delivery of the cargo to the receivers was through the owners. The owners were, accordingly, the agents of the charterers for the purpose of complying with the receivers' request and were properly to be regarded as falling within the category of agents whom the receivers promised to indemnify.

The parties undoubtedly envisaged it would be the owners not the charterers who effected the delivery. This did not mean that the owners became a party to the receivers' letter of indemnity, but simply that the parties agreed that they should have the benefit of it as the agents of the charterers in delivering the cargo. Consequently, the owners were entitled to enforce the benefit of the receivers' letter and claim an indemnity from them.

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