1. On 8 December 2023, Adrian Beltrami KC (sitting as a Deputy High Court Judge) handed down judgment in Songa Tankers I AS v OKA Tanker PTE Limited and others [2023] EWHC 3501 (Comm), in which Alexander Wright KC of 4 Pump Court appeared on behalf of the Claimant having been instructed by Fanos Theophani (Partner), Tim Guyer (Senior Associate), Natalie Johnston (Senior Associate) and Emilie Bird (Trainee) of Preston Turnbull LLP.
2. The decision will be of interest to shipping practitioners, in particular in relation to the scope of the indemnity under the International Group Standard Form Letter of Indemnity A (2010 edition) clauses 2 and 3.
Facts
3. The hearing proceeded on agreed or undisputed facts:
a. The Claimant was the owner and the Defendant the head charterer of the MT SONGA KARI (the “Vessel”).
b. The Vessel was chartered for a single voyage carrying palm oil from Indonesia to Chennai, India.
c. In respect of part of the cargo, the notify party under the bills of lading was Aetos Agro Merchants Private Limited (“Aetos”).
d. The Defendant requested the Claimant to deliver the cargo to Aetos at Chennai without production of the original bills of lading, providing the usual letter of indemnity on International Group Standard Form A (2010 edition) terms (the “Letter of Indemnity”).
e. On 25 and 26 May 2023, the cargo was delivered at Chennai to the notify parties, including Aetos.
f. On 18 July 2023, the Vessel was arrested in Singapore by order of the High Court of Singapore on the application of Virgoz Oil & Fats PTE Ltd (“Virgoz”), which alleged that it was an unpaid seller of the cargo and that the cargo had been misdelivered. Virgoz also started a claim in arbitration against the Claimant.
g. On 19 July 2023, the Claimant called on the Defendant to honour its obligations under the Letter of Indemnity by providing funds to defend Virgoz’s claim and security to release the Vessel. Receiving no reply, the Claimant provided an Owners’ Club Letter of Undertaking (the “LOU”) to Virgoz, allowing the Vessel to be released.
The Letter of Indemnity
4. By the Letter of Indemnity, the Defendant agreed (in relevant part) to:
a. By clause 2:
In the event of any proceedings being commenced against you or any of your servants or agents in connection with the delivery of the cargo as aforesaid, to provide you or them on demand with sufficient funds to defend the same.
b. By clause 3:
If, in connection with the delivery of the cargo, as aforesaid, the ship or any other ship or property in the same or associated ownership, management or control should be arrested or detained or should the arrest or detention thereafter be threatened, or should there be any interference in the use or trading of the vessel (whether by virtue of a caveat being entered on the ship’s registry or otherwise howsoever) to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property or to remove such interference.
The Applications
5. The Applications before the Court were for interim mandatory injunctions requiring the Defendant to:
a. Provide Owners with sufficient funds to defend Virgoz’s claim in accordance with Clause 2 of the Letter of Indemnity; and
b. Post replacement security for the LOU in accordance with clause 3 of the Letter of Indemnity.
The Defendant’s Position
6. The Defendant resisted the application, arguing:
a. The Defendant had entered into back-to-back sub- and sub-sub-charterparties with MMTC Transnational PTE Ltd (“MMTC”) and Aetos respectively, under which it had obtained letters of indemnity applying up the contractual chain. It added MMTC and Aetos as Part 20 Defendants and argued that any order against it should be conditioned on back-to-back orders against those parties;
b. Clause 3 of the Letter of Indemnity did not impose a present obligation on the Defendant in circumstances where the Claimant had already provided security;
c. In circumstances where the Vessel had already been released, damages would be an adequate remedy; and
d. The injunctions should not be ordered as the Defendant would find it impossible to comply because it did not have the funds to do so.
Decision
Back-to-back orders against Part 20 Defendants
7. The Judge rejected the suggestion that any order should or could be made conditional on any performance or action by the Part 20 Defendants, holding at [17]:
To make the defendant’s liability to the claimant conditional upon performance by other parties dilutes the obligation owed by the defendant to the claimant under the letter of indemnity and gives the claimant substantially less than it bargained for as between those two parties.
No present obligation on Defendant where Claimant had provided security
8. The Judge noted that a similar argument had been rejected by Teare J in The Bremen Max [2009] 1 Lloyd’s Rep 81 and followed by Butcher J in Scorpio LR2 Pool Ltd v Winson Oil Trading PTE Limited [2021] EWHC 1305 (Comm) and by Christopher Hancock KC (sitting as a Judge of the High Court) in the Navig8 Ametrine [2022] 1 Lloyd’s Rep. 277. Teare J held at [21] that the “intention and commercial purpose of clause 3 of the LOI is that the shipowner should not have to suffer the arrest of the vessel and that any bail or other security to prevent the arrest of the vessel should not be put up by the shipowner but by the charterer”.
9. The Defendant argued that the decision in The Bremen Max was wrong and accorded too much significance to the commercial purpose of the clause and not enough to the plain wording of the clause.
10. The Judge rejected that submission, following The Bremen Max, concluding that the decision was not obviously wrong and certainly gave rise to a good arguable case on the part of the Claimant sufficient to obtain an interim injunction.
Damages would be an adequate remedy
11. The Judge followed (at [14] and [30]) a long line of case law, which he held “…consistently make clear that, in principle at least, because of the very nature of the instrument involved, damages are not to be treated as an adequate remedy for breach of the obligations under a maritime indemnity, or else the very benefit of the indemnity is itself wasted”. He therefore rejected this submission.
The Defendant would find it impossible to comply with any injunction
12. The Judge accepted that the Court will not make an order that is impossible to comply with. The Judge followed the decision of HHJ Pelling QC in Tenacity Marine Inc v NOC Swiss LLC [2021] Bus LR 1108 that:
“The court would not accede to a submission of impossibility to comply with a mandatory order that it would otherwise be minded to grant unless the evidence clearly established impossibility, since all the evidence concerning the truth or otherwise of asserted impossibility rested with the party asserting it. There was a heavy onus on that party to set out the position fully and frankly”
13. The Judge rejected the Defendant’s submission, holding at [28] that such evidence simply was not available in this case.
Conclusion
14. The decision serves as a useful reminder of the commercial purpose served by maritime letters of indemnity, which remains a strong driver for the courts in interpreting and enforcing them.
15. In relation to the argument that the clause 3 obligation serves no present purpose once the owners have put up security, it is of note that the September 2023 update to the International Group Standard Form Letter of Indemnity A expressly addresses this situation in clause 3. The 2023 revision includes the added wording: “if you have already provided security, to provide on demand equivalent substitute or counter security, whether or not you have made any prior demand upon us and whether or not such security exceeds the value of the Vessel or such other vessel”. However, even where that extended wording is not used, this decision is an important reminder that the English Courts are likely to order replacement security on the basis of the decision in The Bremen Max.
