Article

Note: Nantong Angang Garments Co. Ltd. (Seller/Consignor) arranged for Hellmann International Forwarders Ltd. (Freight Forwarder) to provide house air waybills naming Lerner Stores Inc. (Buyer) as consignee for shipment FOB of 903 cartons of silk blouses and pants from Shanghai, China to Columbus, Ohio, USA. On Buyer's instruction, Freight Forwarder also produced parallel air waybills for delivery of the garments to buyer's agent, Silking Development Ltd. (Buyer's Agent) in Hong Kong, without informing Seller/Consignor. Although an LC had been issued by Citibank, Seller was not paid.

Seller/Consignor exercised its rights under the Warsaw Convention to stop delivery under the first air waybills, with the result that Buyer was not entitled to the goods. Freight Forwarder subsequently sent the following letter:

"As per your update written instruction on this afternoon regarding the above shipment which should be routed via HKG, you will be much appreciated if you can sign a letter of indemnity to our company, indicate precisely that you will undertake and agree to bear full responsibilities / liabilities whatsoever directly or indirectly arising from or relating to the said route change. Kindly execute accordingly / immediately.

However, according to the aforesaid route change, we are being claimed by the airline for the deadfreight penalty. Please note that we will bill back those penalties to your company accordingly. Kindly acknowledge by return."

Buyer's Agent then provided Freight Forwarder with a letter of indemnity to induce it to deliver the goods to Buyer's Agent in Hong Kong. The letter stated:

"As an agent act for [Buyer], we were instructed that the ... shipment [of 903 cartons] should be routed via HKG and not direct fly to Columbus.

Due to the above said route changed. We hereby confirm to you that we will undertake and agree to bear full responsibilities/ liabilities whatsoever directly or indirectly arising from or relating to the said route change."

Relying on this indemnity, Freight Forwarder delivered the goods to Buyer's Agent in Hong Kong without informing Seller/Consignor.

Seller/Consignor sued Freight Forwarder for violating its rights as consignor. Freight Forwarder consented to a judgment in favor of Seller/Consignor for USD 370,000. Freight Forwarder then sued Buyer's Agent and Buyer for full indemnification under the letter of indemnity. The High Court of the Hong Kong Special Administrative Region, Court of First Instance, in an opinion by Reyes, J., ruled in favor of Freight Forwarder. On appeal, the High Court of the Hong Kong Special Administrative Region, Court of Appeal, in an opinion by VP Hon Tang, affirmed.

Buyer contended that, when read with the letter reproduced above, the indemnity applied only to charges by the carrier arising from deadfreight and the routing change. The appellate court rejected this interpretation, ruling that the Freight Forwarder's insistence on execution of the letter of indemnity prior to releasing the goods to Buyer's Agent made clear its reliance on full indemnification. The appellate court further found that the decision of Buyer and Buyer's Agent intentionally to induce delivery without Seller/Consignor's knowledge or agreement made clear their understanding of the letter's purpose.

[JEB/mlm]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.