Article

Note: The plaintiff is the Oversea-Chinese Banking Corp. Ltd.(Remitting Bank), in Singapore, and the defendant is Jiang Xin Shipping Co. Ltd. (Vessel Owner), the owner of the ship Yue You 902. Remitting Bank claimed against Vessel Owner for its failure to deliver to Remitting Banka cargo of palm oil to which 14 bills of lading in Remitting Bank’s possession related as security for a trust receipt loan to the intermediate-buyer, Aavanti Industries Pte. Ltd. (Buyer). The loan was governed by a facility agreement between Remitting Bank and Buyer made several years ago.

After Buyer requested the loan but before Remitting Bank granted it, Vessel Owner discharged the cargo to Ruchi Soya Industries Ltd. (Ultimate Buyer) at the request of the original seller as well as voyage charterer, FGV Trading Sdn. Bhd. (Seller). The discharge was made against a letter of indemnity (LOI) provided by Seller to Vessel Owner. Buyer had contracted with Ultimate Buyer to sell 10,000 metric tons of refined, bleached, and deodorized palm olein (the palm oil) to Ultimate Buyer. Buyer was to purchase the palm oil from Selleron “Incoterms CNF Mangalore, India”.

Initially, Vessel Owner received instructions for Yue You 902 to ship the palm oil from Lubuk Gaung, Indonesia to Chittagong, Bangladesh, but subsequently received revised instructions for the palm oil to be shipped instead to New Mangalore, India. On 15 April 2016, Yue You 902 took on 9,999.964 metric tons of palm oil from Lubuk Gaung, Indonesia and 14 bills of lading were issued on behalf of Vessel Owner. The 14 bills of lading were signed by the master.

The bills of lading identified the shipper as PT Intibenua Perkasatama and the consignee as “to order”. They also named New Mangalore, India as the port of delivery and Ultimate Buyer as the notify party. The bills of lading were released to Seller following payment of freight to Vessel Owner.

Clause 11 of the voyage charter party between Seller and Vessel Owner provided that: “If original bills of lading are not available for presentation at discharging part(s) prior to [vessel’s] arrival, [vessel] to discharge the [charterer’s] entire cargo to receivers against [charterer’s] LOI (with text according to owner’s P[ & ]I club format) without any supporting bank guarantee.”

Similarly, Clause 6 of the sales contract between Seller and Buyer provided that: “At discharge port, in the absence of original B/L, buyer/receiver to receive cargo by providing letter of indemnity (wording as per vessel owner’s P and I club format) with first class bank guarantee.”

There was a chain of back-to-back LOIs from Ultimate Buyer to Buyer, and then to Seller, and finally to Vessel Owner. On 22 April 2016, Seller issued an LOI to Vessel Owner, requesting Vessel Owner to discharge the palm oil to Ultimate Buyer without production of the original bills of lading. On the same day, Buyer issued a back-to-back LOI to Seller requesting Seller to deliver the palm oil to Ultimate Buyer without production of the original bills of lading. Before these LOIs were issued, Ultimate Buyer had, on 19 April 2016, issued a back-to-back LOI to Buyer requesting Buyer to deliver the palm oil to Ultimate Buyer without presentation of the original bills of lading.

Yue You 902 arrived at New Mangalore on 24 April 2016 and began discharging the palm oil on 27 April 2019. The cargo was completely discharged on 29 April 2016 at 8:55 am local time (11:25 am Singapore time). In the meantime, Remitting Bank received amongst other documents, 14 sets of the bills of lading from Seller through Maybank (Presenting Bank) on 26 April 2016 under a documents against payment collection schedule. The bills of lading were blank endorsed by Seller.

On the same day, Remitting Bank informed Buyer of the receipt of documents and requested payment instructions. Buyer replied, requesting financing for the full purchase price of USD7,454,973.16 by way of trust receipt financing. Remitting Bank approved the trust receipt financing on 29 April 2016 with a tenor of 21 days and remitted payment to Presenting Bank on the evening of the same day. In other words, the palm oil had been completely discharged from the Yue You 902 before Remitting Bank effected payment to Presenting Bank.

At the end of 21 days, Buyer obtained an extension of the tenor from Remitting Bank till 3 June 2016 but nevertheless failed to timely repay the trust receipt. After Buyer defaulted on the trust receipt financing, Remitting Bank proceeded on 14 June 2016 to enforce its security over the 14 bills of lading by demanding delivery of the palm oil from Vessel Owner. Vessel Owner was not able to do so as the palm oil had been delivered to Ultimate Buyer against the LOI provided by Seller.

Subsequently, Remitting Bank initiated proceedings against Vessel Owner pursuant to the 14 bills of lading for breach of contract of carriage, breach of contract of bailment, conversion and detinue.

Remitting Bank split its claim regarding the 14 bills of lading across two admiralty in rem actions. Yue You 902 and its sister ship, GNG Concord 1 were arrested pursuant to the actions. Both ships were released when Vessel Owner furnished security of USD7.8 million. An Assistant Registrar granted Remitting Bank summary judgement against Vessel Owner for the principal amount plus interest. Vessel Owner appealed. The High Court of Singapore, Pang Khang Chau, J., dismissed Vessel Owner’s appeal.

1
Dr. Soh Chee Seng is Technical Consultant to the Association of Banks in Singapore (ABS), Associate Director of the Institute of International Banking Law & Practice, and a Contributing Editor of Documentary Credit World.

Legal Analysis:

Judgment:

1. Whether Remitting Bank acquired any right of suit under the Singapore Bills of Lading Act as holder of the blank endorsed bills of lading?

If a bill of lading is issued to order, it entitles the holder to call for delivery of the goods to which the bill of lading relates. The carrier who issues the bill of lading is obliged to deliver the goods only to the person in possession of the bill of lading, whether as original shipper or transferee of the bill of lading by endorsement and delivery.

Vessel Owner raised six separate defences. Among others, Vessel Owner claimed that Remitting Bank had not acquired any right of suit under the Bills of Lading Act as the palm oil had been discharged prior to Remitting Bank becoming the holder of the bills of lading. It argued that the bills of lading had become spent before Remitting Bank acquired the bills of lading.

The learned judge began by reviewing the Singapore Bills of Lading Act, particularly section 2(2) which limits the rights of suit on bills in section 2(1) and provides, in part, that “when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates…”. The judge then reviewed relevant sources and case law to determine whether the quoted phrase “refer[s] to the transfer of contractual right to possession or to the transfer of constructive possession”. The judge concluded that, “irrespective” of whether it refers to either, the text “ought to be interpreted as covering the situation where a bill of lading would at common law be regarded as spent.”Thereafter, the judge turned to Vessel Owner’s argument that delivery by a carrier of goods to a person not entitled to them under a bill of lading renders the bill of lading spent. The judge noted that Vessel Owner’s argument went against “the case law of the past 150 years”, and, after discussing relevant precedent, concluded that “[d]elivery against a LOI to a person who is not entitled to delivery under the bill of lading does not cause the bill to be spent.”

Having failed to prevail on its prior argument, Vessel Owner argued that even though the endorsed bills were held by Remitting Bank at the time of discharge, neither it nor Buyer could be considered holders because the purchase price had not been paid and Vessel Owner’s delivery to Ultimate Buyer by instruction of Seller amounted to delivery to Seller as an entitled person. The judge, however, noted that this “suggestion…under the relevant contractual arrangements, [that] a seller in Seller’s position would retain the ability to demand delivery of the cargo as the lawful holder of the bills of lading while the bills were physically with the buyer’s bank awaiting the buyer’s acceptance simply does not make sense.” The judge also noted that Seller giving to Vessel Owner its LOI was a “recogni[tion] that [Seller] was not, at the material time, a person entitled to delivery under the bill of lading.”

Ultimately, the learned judge held that the bills of lading were not spent before Remitting Bank became the holder of the bills of lading.

2. Was Remitting Bank a holder of the bills of lading in good faith?

Vessel Owner also alleged that Remitting Bank was not a holder of the bills of lading in good faith as it had obtained the bills of lading for a mere right of suit and it knew that the cargo had been discharged against a LOI before it agreed to extend the trust receipt loan to Buyer.

After reviewing prior cases regarding good faith, the judge concluded that “the holder of a bill of lading holds it in good faith for the purpose of s 5(2) of the Bills of Lading Act if he became its holder honestly.” The learned judge viewed the decision by Remitting Bank to grant the trust receipt loan, even assuming it already knew that the cargo had been discharged, as not constituting dishonest conduct. As far as Remitting Bank was concerned, the bills of lading remained, by all appearances, effective and valid documents of title.

3. Whether Remitting Bank consented to the carrier discharging the cargo without presentation of the bills of lading?

Vessel Owner submitted that, by granting the trust receipt loan to Buyer with the knowledge that the cargo would be or had been delivered against a LOI without presentation of bills of lading, Remitting Bank had consented to the discharge of the cargo without presentation of the bills of lading, and that such consent afforded Vessel Owner a valid defence against Remitting Bank’s claim.

The learned judge was of the view that since the loan was granted only after the discharge of cargo was completed, there could have been no prior consent by Remitting Bank to the discharge of the cargo. Vessel Owner’s reaction to Remitting Bank’s claim had been to immediately institute its own claim against Seller under the relevant LOI. Clearly, Vessel Owner discharged the cargo because it believed that its potential liability under the bills of lading for misdelivery was covered by the LOI and not because it believed that it no longer had liabilities under the bills of lading due to any perceived consent on Remitting Bank’s part.

4. Whether Remitting Bank is estopped from asserting a misdelivery claim?

Vessel Owner submitted on both estoppel by acquiescence and estoppel by convention.

The learned judge viewed that Vessel Owner’s defence on this front had no merit. Its acceptance of and reliance on Seller’s LOI demonstrated that Vessel Owner was not mistaken as to its legal rights. It followed that both the defences of estoppel by acquiescence and estoppel by convention did not raise triable issues.

5. Conversion, detinue and bailment.

Given that the findings on issues 1 through 4 above were sufficient for judgment to be granted in favour of Remitting Bank, the learned judge concluded that it was not necessary to consider Remitting Bank’s claims of conversion, detinue and bailment.

Comment: The opinion reinforces the rights of suit transferred to the holder of an “order” bill of lading pursuant to the Singapore Bills of Lading Act even though it may be a charter party bill of lading. Seller was the charterer of the Yue You 902 and the bills of lading were issued by Vessel Owner, although they were signed by the master. It is settled law that an order bill of lading entitles the holder to call for delivery of the cargo to which the bill of lading relates. The carrier who issued the bill of lading, even if the bill of lading is signed by its agent, or master, is obliged to deliver the cargo only to the person in possession of the bill of lading.

However, there is still a difference in the negotiable nature between a marine bill of lading and a charter party bill of lading. A negotiable marine bill of lading is a document of title, the holder of the bill of lading has full title to claim possession of the cargo. However, there are circumstances that the holder of a negotiable charter party bill of lading may not have full title to the cargo in the event of a dispute between the charterer and the owner. The latter may retain the rights to lay claim to the vessel and the cargo upon it.

While not an LC case per se, this decision has noteworthy relevance to LC practice. Buyer’s request for trust receipt financing in this instance would be similar to that under an import LC when the applicant applies for trust receipt financing following a complying presentation.

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 the ICC or Coastline Solutions.