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Note: Win Goal Trading Ltd (Seller), a Chinese company, contracted for the sale of steel billets to be delivered to an Algerian buyer (“Buyer/Applicant”) in Djendjen, Algeria. Buyer/Applicant arranged for the issuance of an LC in the amount of USD 11,190,800 by the Algerian Bank BADR (Issuer) in favor of Seller/Beneficiary for payment for the goods against documents, including a bill of lading. The LC was subject to UCP600 and nominated Deutsche Bank (Nominated Bank).

Seller/Beneficiary arranged shipment by voyage charter with a co-defendant (likely a related entity), which had sub-chartered from Med-Asia Shipping BV (Charterer). Charterer had time chartered the vessel from the shipowner, Calm Ocean Shipping SA (Shipowner). The terms of the contract of carriage were contained in a charterparty bill of lading with Seller/Beneficiary as shipper and consigned to the order of Issuer (BADR B/L).

Seller/Beneficiary presented documents including the BADR B/L to Nominated Bank on 11 August 2015, which then forwarded the documents to Issuer two days later.1 When the vessel arrived in port at Djendjen on 11 September 2015, Charterer issued a letter of indemnity to Shipowner and “demanded discharge of the cargo without production of the [BADR B/L].” Buyer/Applicant rejected the cargo, however, on the grounds that it was radioactive. On 14 September 2015, over a month after presentation, Nominated Bank forwarded a message from Issuer to Seller/Beneficiary’s bank stating that "the certificate did not specify affirmatively the absence of any trace of radioactivity as required and so [Issuer] considered that the documents did not conform and the payment would not be effected until the applicant's . . . agreement.”

The vessel could not proceed to its next port of call in Italy without discharging the steel billet cargo due to draft limits in the intended Italian port. Thus, able to neither enter Algeria to discharge its cargo nor proceed on its voyage, the ship anchored in Malta, accruing a USD 7,500 per day demurrage while it awaited instructions.

Shipowner sued Seller/Beneficiary in Hong Kong seeking injunctive relief to dispose of the cargo based on the ‘self-help’ rights contained in the BADR B/L. The Hong Kong Court of First Instance, Queeny Au-Yeung, J. denied the request for injunctive relief absent the owner and pledgee of the cargo.

Shipowner argued that because Issuer had refused the presentation of documents, Seller/Beneficiary still had rights over the cargo.Shipowner asserted that it therefore needed either the BADR B/L or new instructions from Seller/Beneficiary to discharge the cargo so as to avoid potentially running afoul of the law in unfamiliar Algeria.

Seller/Beneficiary disagreed, arguing that it had validly presented documents to Issuer or, alternatively, that Issuer was precluded from refusing to honor the documents under UCP600 Art. 16(f) for failing to give a timely notice of refusal. Buyer/Applicant is, therefore, the owner subject to the Issuer’s pledge over the goods as consignee under the BADR B/L. Essentially, Shipowner had sued the wrong party; the real parties in interest were Buyer/Applicant and Issuer.

The Judge found that ownership in the cargo had passed to the Buyer/Applicant subject to the pledge of Issuer as consignee when Seller/Beneficiary presented the BADR B/L. Citing Jack on Documentary Credits, the Judge noted that Buyer/Applicant’s rejection of the goods did not then return their ownership to Seller/Beneficiary.

The Judge, having noted the importance of time and certainty in international trade, reasoned that “[t]o ask [Seller/Beneficiary] to retrieve the BADR B/L on a without prejudice basis is tantamount to asking [Seller/Beneficiary] to give up a certainty (the bank’s promise to pay under the LC), in exchange for uncertainty (being treated as having waived its rights under the LC and resort to sale of the cargo to get back the price) to help out the [Shipowner]. This will cause serious injustice to [Seller/Beneficiary], who is as much a victim as the plaintiff.”

[MJB]

1
It is unclear from the opinion whether or to what extent Nominated Bank acted on its nomination, although the opinion seems to imply that Nominated Bank was acting as either a negotiating or a confirming bank.

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