Standard Chartered Bank v Dorchester Lng (2) Ltd Re: MT ERIN SCHULTE

Under Carriage of Goods By Sea Act 1992, delivery of an indorsed bill of lading is a bilateral act requiring the intention of both parties. A named indorsee may accept delivery, and become the lawful holder, when the bill is received into its possession and retained. Acceptance does not depend on the bank’s prior decision to take up documents or honour a letter of credit.

Rights transferred under the Act operate independently of banking arrangements. Where competing causes may explain a later delivery of spent bills, the court asks which was the real and effective cause. A carrier ordinarily breaches the contract of carriage by delivering without production of the original bill. A financing bank with contractual rights under the bill may recover the value of the security lost through that breach.

Standard Chartered Bank financed an international sale of gasoil through letters of credit. Bills of lading for cargo carried on the MT Erin Schulte were consigned to the order of Societe Generale and indorsed to the bank. The cargo was discharged to replacement buyers against letters of indemnity, without production of the bills.

The bank paid Gunvor International BV under the transfer letter of credit after Gunvor commenced proceedings. It claimed damages from the shipowner for misdelivery, alleging that it had become the lawful holder of the bills and had lost the security which they provided. The central issues were whether the bank had title to sue under sections 2 and 5 of Carriage of Goods By Sea Act 1992, whether discharge without the bills was a breach, and whether the bank had suffered recoverable loss.

1. Title to sue. Under sections 2(1) and 5(2)(b) of Carriage of Goods By Sea Act 1992, delivery of an indorsed bill requires the requisite intention of the deliveror and deliveree. On the facts, the bills were received into the bank’s possession on 4 June 2010, retained, scanned and sent for checking. That conduct established acceptance of delivery.
2. The bank’s status as holder was not postponed until the documents were found compliant or the letter of credit was honoured. The authorities on letters of credit concerned different questions and could not displace the statutory scheme. The reasoning in East West Corporation v DKBS supported the conclusion that a personally indorsed bank could be holder even while holding the bills to the order of the presenter. The banking arrangements did not prevent the transfer of contractual rights.
3. Alternative case. If delivery occurred only on payment on 7 July 2010, the bank would still have title to sue under sections 2(2)(a) and 5(2)(b). Where there are competing causes, the relevant inquiry is the real and effective cause of the transfer. Here, the transfer letter of credit, rather than the settlement of the litigation, was that cause and had been arranged before the bills were spent.
4. Breach and loss. Delivery without production of the bills breached the contract of carriage. Even assuming an exception where the carrier is reasonably satisfied that the person seeking possession is entitled to it and there is a reasonable explanation for the missing bills, the shipowner had not proved those matters.
5. The bank’s security arose from the pledge intended by the indorsement. It could obtain delivery and realise the goods for the purposes of that security. The shipowner’s breach therefore caused loss measured by the agreed realisable value of the cargo.

Judgment was entered for the bank for US$6,132,355.74, with interest and costs.

First-instance judgment in the High Court (Commercial Court). No earlier decision is stated in the judgment.