Article

by Roger Fayers

At first sight it may seem strange that issues arising under the sale of a cargo of oil by a Dutch company carried under a charter party with an Indonesian shipowner concluded in Singapore, under bills of lading issued to an Indonesian oil major for delivery to a buyer in Pyongtaek, South Korea, and financed under a letter of credit issued by a South Korean bank could end up before the commercial court in London, where its resolution turned on the terms of the English Private International Law (Miscellaneous Provisions) Act 1995. But this indeed was the outcome in one of a series of proceedings between Trafigua Beheer BV and Kookmin Bank Co.1.

The contractual arrangements

So, how did matters arise? Trafigua agreed to sell a cargo of oil to Huron Co. It first purchased the consignment from Pertimina, who shipped it on board a vessel chartered by Trafigua's associate company in Singapore from Indonesian shipowners. To finance the purchase, Huron had arranged for its Korean bank, Kookmin Bank, to issue a letter of credit to be advised through ANZ Bank in London to the sellers. The cargo was loaded by the owners' managers and duly arrived at Pyongtaek. Documents were presented to ANZ, the USD 5.290 million price was paid, the cargo was released to the buyer and ANZ were reimbursed by Kookmin. Huron, however, fell into liquidation before it made reimbursement and, not unnaturally, Kookmin cast its eyes over the various transactions in a search for likely culprits.

Before turning to the bank's search, it is necessary to say a little more about the contractual arrangements and, in particular, about the various laws that governed them. The sale contract itself was expressly subject to English law and all disputes under it were to be submitted to the exclusive jurisdiction of the English courts. The charter party too was subject to English law. The bills of lading issued to Pertimina as shippers were governed by the law of Indonesia. The form of letter of indemnity (an optional document under the charter party and the letter of credit) was expressly governed by English law and had an English jurisdiction clause.

It is apparently common practice in the oil trade for shipping documents to be unavailable at the discharging port and for cargoes to be delivered against some form of letter of indemnity. The other contractual documents reflected this practice. Based on the BPVoy 3 form, the charter party permitted the charterers to give the shipowners orders to discharge the cargo without presentation of bills of lading if one was not available at the discharge port. Pursuant to this, discharge was made on the basis of a letter of indemnity into a bonded warehouse. In earlier proceedings 2, the law governing the L/C had been found to be English law. It was subject to UCP (1993 Revision), and Trafigua was required to present a full set of 3/3 original bills of lading together with other documents in order to obtain payment. It also mirrored a provision in the sale contract that payment could be made against other documents "if documents required are not available at the time of payment".

In view of this option and the fact that a number of discrepancies were noticed in the bills, Trafigua presented at ANZ's London branch a seller's invoice and a letter of indemnity in the prescribed form. ANZ accepted these documents and duly paid Trafigua the amount of the credit. ANZ then sent the documents to Kookmin and was reimbursed in the usual way. Subsequently, Trafigua, having received payment under the credit, the cargo was released to Huron.

The bank's claims

The "Englishness" of the contractual arrangements did not, however, deter the bank. It issued proceedings in South Korea against the shipowners, the vessel's managers, Pertamina and Trafigua. The precise details of these claims need not be related save to say that so far as concerns the issue in the present case they involved allegations that the way Trafigua dealt with the discharge of the cargo and the bills of lading amounted to breaches of the Korean Civil Code 3. The loss the bank sought to recover was equivalent to the value of the cargo that was discharged to the buyer (Huron) without presentation of the bills of lading, and that value was the price paid to Trafigua under the L/C.

The English proceedings

But Trafigua too was not slow off the mark. It countered the Korean proceedings by starting the present action in which it claimed against Kookmin a declaration of non-liability. Trafigua also sought an anti-suit injunction to prevent the bank from carrying on the Korean proceedings. In response, Kookmin challenged the court's jurisdiction. This issue was determined against the bank by Cooke J, who held that the English court did have jurisdiction and was the appropriate forum to decide all matters raised in both Trafigua's English proceedings and Kookmin's claim in Korea.

Accordingly, trial of the following preliminary issue was ordered: what law was applicable to determine whether Trafigua was liable to the bank on the claims advanced against it by the bank in proceedings in Korea?

The 1995 Act

Because this was a question being put before an English court, the court had to answer it by reference to English conflict of law rules now formulated in the 1995 Act. Under this Act 4, the process for determining the governing law of a tort claim is a combination of working out an algebraic equation and making a value judgement. Step 1 is to determine whether the issues raised by the claim are "issues relating to tort (delict)". If they are, step 2 involves a geographical search for the country in which the "most significant element or elements" of the events that constitute that tort occur: are they in Country A or in Country B or C? This is described in section 11(1) as being the "general rule" and will point (say) to Country A.

But supposing there are other factors, step 3 then requires that these be looked into in order to see whether they connect the tort to another country, (say) to Country B. This is described in section 12 as the "displacement of the general rule". And if there are connections to Country B, step 4 calls for a judgement to be made as to whether the factors that do connect it to Country B are such that it is "substantially more appropriate" for the law of Country B to be the applicable law to determine the issues relating to that tort rather than the law of Country A.

Aikens' J conclusions

In concluding that Kookmin's claims be decided in the English courts, Aikens J strode down these steps and answered the various questions as follows. (1) He felt he should not obliterate all thoughts about other systems of law nor should he ignore the way Kookmin had put its case before the court in Korea on the basis of a non-contractual civil wrong. Looking therefore at the concept of tort through wider eyes than those of an English lawyer, he concluded that the issues between the parties did relate to tort. It followed that the rules set out in sections 11 and 12 of the Act had to be applied. (2) Turning to the significance of the particular elements in the case, he considered that in accordance with the "general rule" Singapore was the country where they occurred, and accordingly that the law of Singapore should determine the issues relating to Kookmin's claim. (3) However, section 12 invites a court to make a comparison between the significance of factors connecting the tort to another country. Moreover, there is no pre-condition to this further enquiry; it all depends on the facts of the particular case.

Here there were several significant factors, viz (a) the existence of the L/C contract governing the rights and obligations of Trafigua and Kookmin as, respectively, beneficiary and issuing bank; (b) the fact that English law had either been expressly chosen or had been held to govern all but one of the other contractual relationships between the various parties 5; and (c) the fact that without the pre-existing contractual relationship under the L/C, Kookmin could not create the necessary connection between itself, as issuing bank, and Trafigua, as beneficiary, so as to give rise to duties that the bank says are owed to it under Korean law.

Accordingly, in making his value judgement, the judge concluded that it was substantially more appropriate that the law governing issues relating to tort claims between Trafigua and Kookmin should be the same as that which governed the contractual relationship between them, viz English law. The law identified under the "general rule" was therefore displaced. When the law governing all the contractual relationships between the relevant parties and its financing was English law, it would, the judge thought, be "bizarre" to hold that the applicable law to determine issues arising in relation to Kookmin's tort claim against Trafigua should be the law of another country, viz Singapore. In the result, Trafigua was entitled to a declaration of non-liability in Kookmin's English action 6.

Roger Fayers' email is roger.fayers@ntlworld.com

1. Before Aikens J [2006]EWHC 1450 (Comm); [2006]2 Lloyds Rep 455.

2. Before Cooke J [2005]EWHC 2350 (Comm).

3. Specifiically of article 750 that provides "Any person who causes loss or infllicts injuries on another person by an unlawful act, wilfully or negligently, shall be bound to make compensation for damages arising therefrom." The gist of the bank's argument was that Trafiigua's actions had deprived it of the ability to enforce its rights under the bills of lading against the carrier.

4. This Act revised the old and rather infllexible common law rules as to the law applicable to tort claims and put them on a statutory basis.

5. i.e., that between the sellers (Trafiigua) and the buyers; that between Trafiigua and the carriers; that between the issuing bank (Kookmin) and the advising/negotiating/paying bank; and that between the sellers and the buyers under the letter of indemnity.

6. The judge did not rule on Trafiigua's application for an anti-suit injunction in respect of Kookmin's claim against it in Korea. This was decided in yet further proceedings before Field J ([2006] EWHC 1921 (Comm)) who ordered that Trafiigua was entitled to an injunction restraining, not only the bank's current proceedings in Korea, but also any claim asserting liability, in tort or contract, arising out of Trafiigua's actions in relation to the bills of lading.