Farenco Shipping Co.Ltd. v Daebo Shipping Co.Ltd.

An indemnity requiring charterers to provide bail or other security to prevent, or secure the release of, a vessel from arrest creates an accrued obligation when the threatened arrest is not prevented. The shipowner’s subsequent provision of security mitigates the loss but does not discharge the charterers’ obligation. Specific performance may require replacement of the security provided by the shipowner. Where delivery without bills of lading is requested to a named receiver, the indemnity undertakings are conditional upon delivery to that receiver, unless the contractual wording provides otherwise.

The claimant and defendant were parties to a chain of back-to-back charterparties for the vessel Bremen Max. The vessel’s cargo was delivered without production of the original bills of lading under letters of indemnity containing undertakings to provide security against arrest and related liabilities.

After the lawful bill holders threatened proceedings, the owners provided security following the charterers’ failure to do so. The claimant then sought replacement security and specific performance. The court determined whether the security obligation remained current after release of the vessel, whether the indemnity undertakings depended upon delivery to Kremikovtzi, and whether an agreement had been concluded between two parties down the charter chain concerning the form of security.

1. Security obligation. The obligation in clause 3 of the letter of indemnity to provide bail or other security accrued when the owners demanded security while arrest was threatened. The charterers’ failure to provide it was a breach.
2. The owners’ subsequent provision of security ended the vessel’s detention and mitigated the loss, but did not discharge the charterers’ accrued obligation. To hold otherwise would frustrate the commercial purpose of the indemnity, which was to ensure that the owners did not have to incur the cost of providing security themselves.
3. Specific performance was appropriate. The order could require the charterers to provide security in place of that supplied by the owners. This was neither impossible nor outside the charterers’ promise. It would place the parties in the position they would have occupied had the obligation been performed. The reasoning in The Laemthong Glory (No.2) [2005] 1 Lloyds Rep. 632 supported that conclusion.
4. The analysis might differ where the owner provided security without first demanding it from the charterers. On the facts, however, demands had been made and passed down the charter chain.
5. Named receiver. Discharge and delivery are distinct. Clause 68 required the shipowner to allow discharge and release the cargo, with delivery being effected by the shipowner. The letter of indemnity contained a clear request to deliver to Kremikovtzi. The undertakings were therefore conditional upon delivery to Kremikovtzi, and were not engaged by delivery to another person without production of the bills. This construction was consistent with The Laemthong Glory [2005] 1 Lloyd's Rep. 688.
6. Agreement between Norden and Deiulemar. Although the wording and quantum of security had been agreed, the phrase “in principle” had to be construed in the context of the back-to-back charter and indemnity arrangements. It indicated that the agreement was subject to the form of security required or agreed by parties higher in the chain. No final and binding agreement had therefore been concluded.