Laemthong International Lines Company Ltd v Artis & Ors

A third party may enforce a contractual indemnity under section 1 of the Contracts (Rights of Third Parties) Act 1999 where the contract purports to confer a benefit on it, unless the contract properly construed shows that enforcement was not intended. A shipowner delivering cargo under a sale contract may fall within a charterer’s agents for this purpose. Where an indemnity’s essential purpose is to secure release of an arrested vessel, damages may be inadequate and specific performance may be ordered to require provision of bail or other security.

The owners of Laemthong Glory had chartered the vessel to the first defendants for carriage of sugar. The cargo was discharged at Aden without production of the original bills of lading against letters of indemnity from the charterers and the receivers. The vessel was subsequently arrested in Yemen in proceedings brought by a bank claiming rights under the bills of lading.

Colman J ordered trial of preliminary issues concerning whether the owners could require the charterers and receivers to provide security for release of the vessel, and whether the charterers could require the receivers to do so. The central questions concerned the construction and enforceability of the receivers’ letter of indemnity and the availability of specific performance.

1. Enforceability by the owners. The receivers’ letter of indemnity was enforceable by the owners under section 1 of the Contracts (Rights of Third Parties) Act 1999. The indemnity expressly covered delivery by the charterers or their agents. In the commercial context, the owners were the primary agents through whom the charterers could deliver the cargo.
2. The owners’ role was supported by the sale contract. The charterers had undertaken carriage as principals, retained the right of disposal until payment, and had reserved title under section 19(1) of the Sale of Goods Act 1979. Shipment did not therefore amount to delivery to the receivers. The owners were carrying and delivering the cargo on the charterers’ behalf.
3. Clause 1 of the indemnity protected the owners against liability arising from delivery. Clause 3 also conferred a benefit on them. Its provisions for bail or other security were directed principally to the owners, because they owned the vessel and would ordinarily face proceedings and the consequences of arrest. The absence of an express reference to agents in clause 3 did not alter that conclusion.
4. The alleged chain of indemnities did not rebut the statutory presumption of enforceability. The receivers’ indemnity was not framed merely as protection for the charterers against their own indemnity to the owners. Each letter had to be construed according to its terms and commercial context. The court also accepted the approach in Nisshin v Cleaves [2004] 1 Lloyds Reports 38 that the burden lay on those opposing third-party enforcement to show that enforcement was not intended.
5. Specific performance. Damages were inadequate against the receivers because enforcement in Yemen was difficult. Although damages against the charterers were more readily enforceable, clause 3 had the particular purpose of securing release of the vessel and avoiding detention losses. Specific performance was therefore appropriate against both charterers and receivers, requiring them to fulfil their clause 3 obligations forthwith, whether by cooperation or otherwise.
6. The owners were entitled to enforce both letters of indemnity. Costs were awarded to the owners against each defendant in respect of the applications against them, subject to detailed assessment. The charterers were also awarded their costs against the receivers in relation to their successful application.

On 22 October 2004, Colman J ordered the trial of two preliminary issues. This judgment determined those issues at first instance. Permission to appeal was refused.