Far East Chartering Ltd & Anor v Great Eastern Shipping Company Ltd

A shipowner may enforce a receiver’s letter of indemnity under the Contracts (Rights of Third Parties) Act 1999 where the letter is addressed to the charterer and purports to benefit the shipowner as the charterer’s agent. Delivery does not require the shipowner physically to hand over the cargo. It is sufficient that the shipowner effectively surrenders possession and divests itself of power to prevent the consignee obtaining possession. The indemnity is ordinarily co-extensive with the delivery actually effected. Public policy does not bar enforcement where non-production of bills of lading results from a bona fide contractual dispute and the carrier did not knowingly procure a manifestly unlawful delivery.

Binani Cement Limited, the receiver, issued a letter of indemnity for delivery of coal without production of the original bills of lading. It was addressed to the owners, disponent owners and charterers of the vessel. The voyage charterers issued an identical indemnity to the shipowners, who later faced a claim by the original shipper after the cargo was delivered.

The Commercial Court held that the shipowners could enforce Binani’s indemnity under the Contracts (Rights of Third Parties) Act 1999: 2011 EWHC 1372 (Comm). The appeal concerned whether Binani’s letter was addressed to the charterers, whether the shipowners had delivered the cargo, and whether enforcement was barred by public policy or ex turpi causa.

The appeal was dismissed. Tomlinson LJ gave the principal judgment, with Davis LJ and Longmore LJ agreeing.

1. Address of the letter. The wording referring to owners, disponent owners and charterers was not a compendious description of a single offeree. In its commercial context it addressed three categories of party, including the voyage charterers. The charterers could therefore accept and rely on the indemnity, and the shipowners could enforce it derivatively as agents of the charterers under section 1 of the Contracts (Rights of Third Parties) Act 1999.
2. Delivery. Delivery in this context is a legal concept distinct from discharge. The relevant question is whether the shipowner has surrendered possession and divested itself of power to compel physical dealings which would prevent the consignee obtaining possession. Discharge into the custody of the port authority, coupled with an instruction to deliver without bills of lading, satisfied that test. The owners’ later attempts to prevent delivery failed, so the request had been complied with. The court applied the approach stated in Barclays Bank Limited v Customs and Excise [1963] 1 Ll Rep 81.
3. Benefit and burden. By continuing to take possession through arrangements created by the owners, Binani continued to take the benefit of compliance with the request and had to accept the corresponding burden of the indemnity.
4. Extent and timing. Tomlinson LJ indicated, for avoidance of doubt, that the indemnity would be co-extensive with delivery actually effected and would not require delivery of the entire cargo before liability arose. That whole-cargo point was obiter because the entire cargo was in fact received. Any implied requirement of timely delivery depended on the commercial object and circumstances, but the delay here did not defeat the claim.
5. Public policy. Enforcement was not barred. The evidence showed a bona fide dispute about the cargo’s quality and the price payable. The indemnity had been obtained in a normal and lawful context, and the owners did not know at the time of surrendering possession that delivery was manifestly unlawful or tortious. Later awareness of a contractual dispute did not establish the necessary illegality.

1. Court of Appeal (Civil Division) dismissed the appeal and upheld the Commercial Court’s declaration that Binani was bound to indemnify the owners under the letter dated 6 October 2008.
2. High Court of Justice, Queen’s Bench Division, Commercial Court, His Honour Judge Mackie QC, held that the owners were entitled to enforce the indemnity: 2011 EWHC 1372 (Comm).