Euro-Asian Oil SA v Abilo (UK) Ltd & Ors

A contract remains a CIF contract where its commercial and documentary terms retain the essential CIF characteristics. Payment against a letter of indemnity in place of unavailable shipping documents does not, by itself, alter that character.

Warranties in a letter of indemnity take effect when the letter is presented, unless the contract clearly provides otherwise. An undertaking to surrender bills of lading requires bills which remain effective and unspent. A bank jointly and severally liable under the letter of indemnity may obtain a contribution from the seller, assessed by relative responsibility.

Euro-Asian bought ultra-low sulphur diesel from Abilo through four related transactions and paid through letters of credit. Abilo financed its purchases through Credit Suisse, which co-signed letters of indemnity presented under Euro-Asian’s letters of credit.

The Fourth transaction concerned cargo identified as having been shipped on the Ariadne. Euro-Asian contended that the cargo had already been used in an earlier transaction and that Abilo consequently had no title, authority to deliver, or effective bills of lading. Abilo and Credit Suisse contended that separate arrangements permitted a carousel of transactions supported by holding certificates rather than conventional CIF delivery.

The issues included the construction of the Fourth sale contract and letter of indemnity, the effect of the alleged separate arrangements, liability for deceit, damages, and Credit Suisse’s claim for an indemnity or contribution.

1. Claims allowed in part. Euro-Asian succeeded against Abilo and Credit Suisse on the Fourth letter of indemnity and against Abilo on the Fourth sale contract. Its deceit claim against Abilo and Mr Igniska was not proved. Credit Suisse obtained an 80 per cent contribution from Abilo.
2. The Fourth sale contract was a conventional CIF contract. Its delivery clause, Incoterms provisions, shipping-document requirements, and provisions concerning quality, quantity, laytime, demurrage and insurance were consistent with CIF terms. Payment against a commercial invoice and letter of indemnity where original shipping documents were unavailable did not transform the contract into a different type of contract. The deferred payment provision extended credit; it did not defer tender of documents. The contract therefore did not fall within the principles discussed in The Delfini [1990] 1 Lloyd’s Rep 252, Filiatra Legacy [1991] 2 Lloyd’s Rep 337 and The Future Express [1992] 2 Lloyd’s Rep 79.
3. The alleged separate arrangements were not established. Euro-Asian’s knowledge of earlier mis-performance and its continued dealings with Abilo did not amount to acceptance or approval of the carousel. The entire agreement clauses also presented legal difficulties for the alleged collateral arrangements.
4. The warranties in the Fourth letter of indemnity applied to the Fourth transaction and took effect when the letter and commercial invoice were presented on 6 January 2011. Abilo breached them because the identified cargo had already been delivered and paid for under the Third transaction. Euro-Asian thereby suffered loss by effectively paying twice for that cargo.
5. The undertaking to locate and surrender the original bills required bills which remained effective and unspent. After discharge of the cargo, the bills could not transfer rights under section 2(2)(a) of the Carriage of Goods by Sea Act 1992, because Euro-Asian became holder only after the right to possession had ceased.
6. Credit Suisse’s liability was joint and several with Abilo. No implied or construed term entitled it to a full indemnity from Abilo. It was, however, entitled to contribution under the Civil Liability (Contribution) Act 1978. Abilo bore the greater responsibility because Mr Igniska initiated and maintained the carousel and concealed it from Credit Suisse.
7. Damages were capped at US$15,889,500, the price invoiced to Real Oil. The market-value rule in section 51(3) of the Sale of Goods Act 1979 was displaced by the parties’ contemplated back-to-back arrangements.

First-instance decision. No appellate history is stated in the judgment.