UniCredit Bank AG v Euronav NV

The Claimant, UniCredit Bank AG (the “Bank”), brought a claim for damages against Euronav NV (“Euronav”), the registered owner of the vessel MT Sienna (the “Vessel”), for an alleged breach of the bill of lading contract in delivering part of a cargo of LSFO to a third party without production of the bills of lading. The Bank claimed US$24,701,600.00 in damages.

Background

The Vessel was originally chartered out to BP Oil International Ltd ("BP"). BP subsequently sold the cargo of LSFO (the “Cargo”) to Gulf Petrochem FZC ("Gulf").

A bill of lading dated 19 February 2020 was issued at Rotterdam and signed by or on behalf of the Master of the Vessel (the “Bill of Lading”). In signing the Bill of Lading, Euronav acknowledged shipment of the Cargo on board the MT Sienna in apparent good order and condition for carriage to and delivery at Fujairah, UAE. The Bill of Lading was made out to the order of BP or their assigns.

The Bank financed the purchase by Gulf of part of the Cargo (the “Financed Cargo") by way of letter of credit on or about 1 April 2020 pursuant to a financing agreement in place with Gulf from late 2019. Under this financing agreement, amongst other things, all rights under bills of lading issued in respect of goods financed under that agreement were pledged and assigned to the Bank.

It was intended by the Bank and Gulf that the Financed Cargo would be re-sold to sub-buyers, approved by the Bank (the “Sub-buyers”), on payment terms that required those Sub-buyers to pay the Bank directly, 90 days from the date of invoice against presentation of the invoice and a Certificate of Quality issued by an independent surveyor.

On 6 April 2020, the charterparty was novated so that Gulf became the new charterers of the MT Sienna (the “Novation Agreement”).

The Financed Cargo was discharged from the MT Sienna by Owners by STS transfer to two other vessels, MT Kutch Bay and MT Prestigious between 26 April and 2 May 2020 at Sohar, Oman (the "Discharge"). Discharge occurred without Euronav requiring production of the Bill of Lading by any person.

The dates for payment of the Sub-buyer invoices fell due in the period 26 July - 9 August 2020. Whilst in April / May 2020, the Bank had no specific concerns about Gulf falling into default, by mid-July 2020 the Bank was aware that Gulf had a liquidity distress and suspected fraudulent behaviour. The Bank failed to receive the sums due under the Sub-buyer invoices.

On 7 August 2020, BP endorsed the original Bill of Lading to the Bank and this was received by the Bank at their offices in Hamburg on 13 August 2020.

Thereafter, the Bank brought a claim against Euronav for damages for an alleged breach of the bill of lading contract in delivering the Financed Cargo to a third party not against production of the billing lading.

Issues

The judgment considered the following issues:

1. The Bank’s case - Did the Bill of Lading contain and/or evidence the/a contract of carriage in respect of the Cargo on or after 6 April 2020 (being the date of the Novation Agreement) and prior to the alleged misdelivery? As lawful holder of the Bill 4 months after discharge, did they have a right to claim for misdelivery of the Financed Cargo?
2. Euronav’s case – Were Owners' obligations as regards the carriage of the Cargo contained exclusively in the charterparty and/or the Novation Agreement of 6 April 2020 since the Bill of Lading was a mere receipt and never attained contractual status defeating a misdelivery claim; alternatively if the Bill was a contract, the delivery to Gulf and/or their agents did not cause the loss?

The crux of these issues was whether, when BP ceased to be the charterer on 6 April 2020 by reason of the Novation Agreement, the contract of carriage at the time of Delivery was contained in the Bill of Lading. As the Bill of Lading was not endorsed to the Bank until 13 August 2020, BP remained the lawful holder of the Bill of Lading at the time of Delivery.

The Judge noted that it was common ground between the parties that where a shipper is also the voyage charterer, the bill of lading is not the contract of carriage of goods but a mere receipt. It was also noted that was clear on the authorities that where a bill of lading was issued to a charterer and then indorsed to a third party, it attains contractual status upon indorsement on the basis that “a new contract appears to spring up between the ship and the consignee on the terms of the bill of lading” (Tate & Lyle Ltd. v Hain Steamship Co. (1936) 55 Ll. L. Rep. 159, 174).

In this case, however, there was no indorsement of the Bill of Lading to a third party; rather BP ceased to be voyage charterers from the date of the novation agreement and from that date the Bill of Lading was no longer in the hands of the voyage charterer.

The Bank argued that there was no reason to distinguish the situation in this case (where they say there was a transfer of the Bill of Lading by the Novation Agreement) from the position which would result on indorsement of the Bill of Lading.

It was submitted on behalf of Euronav that there was no authority to support this proposition and that the Bank sought to draw a false analogy with the orthodox position and infer the creation of contractual rights. It was further submitted by Euronav that by the Novation Agreement the arrangements between the Owners and BP were terminated by the Novation Agreement and BP did not intend the relationship to be governed by the Bill of Lading, if the existing relationship was dissolved.

As a footnote, Euronav also argued that since BP had invoked the contractual right to discharge without production of the Bill of Lading, then as lawful holder of the Bill, BP had, on their behalf and for all subsequent holders of the Bill, waived and /or were estopped from arguing discharge without production of the original Bill was a misdelivery sounding in damages. This was a point not decided by the Court.

Mrs Justice Moulder considered the relevant authorities, and held that it supported the Bank’s submission that a new bill of lading contract “springs up” when the bill is transferred by the shipper to a new lawful holder. However, she was not convinced that the Bank had established the premise that the Bill of Lading had “temporarily lost its full contractual status” whilst in the hands of BP or that, when the charterparty was novated to Gulf, the Bill of Lading was no longer in the hands of the charterer of the MT Sienna and had attained contractual status, thus no longer being a “mere receipt”.

The Judge agreed with Euronav that at the time the Bill of Lading was issued, BP and Euronav did not intend their contractual relationship to be contained in the Bill of Lading, as the charterparty regulated that relationship, and that while BP and Euronav intended when the Bill of Lading was issued that it would regulate the legal relationship between Euronav and a third party if BP transferred to indorsed the Bill of Lading to a third party, there is no reason to conclude that they intended that relationship to be governed by the terms of the Bill of Lading in the event the contractual relationship between BP and Euronav was dissolved (as it was) by the Novation Agreement.

Mrs Justice Moulder therefore held that the Bill of Lading did not contain the contract of carriage between Euronav and BP on or after 6 April 2020 and prior to the alleged misdelivery and for that reason, the Bank’s claim failed.

Causation

For completeness, Mrs Justice Moulder went on to set out the alternative basis on which the claim fell to be dismissed, namely causation. The issue considered by Mrs Justice Moulder was whether the failure by Euronav to require production of the Bill of Lading caused the loss or whether the Bank would have suffered the same loss in any event.

Euronav argued that any loss or damage was caused by the Bank authorising and / or permitting Gulf to arrange delivery / discharge of the Financed Cargo by Euronav without production of the Bill of Lading by the lawful holder of the Bill of Lading.

The Bank pleaded that it did not authorise and / or permit Gulf to arrange delivery / discharge of the Financed Cargo by Euronav to the two vessels without production of the Bill of Lading and that had Euronav performed the Bill of Lading Contract of Carriage in accordance with its terms it would not have discharged / delivered the Cargo without presentation of the original Bill of Lading. Further the Bank argued that absent Euronav’s breach, the Financed Cargo would not have been delivered to Gulf and it was that breach which caused its loss.

During the hearing, the Bank submitted, in effect, that even though there may have been authorisation or approval by the Bank to Gulf to deliver without the production of the Bill of Lading, there was no “general approval”, nor was there approval for delivery to be made by Gulf to the Sub-buyers by STS.

Euronav submitted that on the evidence of the Bank’s main witness (who was the Bank’s day-to-day contact with Gulf) there was no “alternative reality” in which the misdelivery of the Financed Cargo would not have occurred given:

1. The Bank accepted the Bill of Lading would not be available until after discharge had taken place (this was essential to the financing scheme between the Bank and Gulf);
2. That if the Bank had been told that discharge would be taking place at Sohar by STS transfer it would have consented to such an operation; and
3. The Bank trusted Gulf and would have left it to communicate its instructions to Euronav (the Bank had not challenged any information provided by Gulf leading up to the Discharge and if they had been told that the Financed Cargo was to be discharged at Sohar to two STS Vessels, they would not have objected – hence, the breach did not cause the loss).

The Judge considered the correspondence between the Bank and Gulf leading up to the Discharge in detail in which it was clear that the Bank:

1. was aware that Discharge of the Financed Cargo would be carried out directly from the MT Sienna;
2. was aware that the Bill of Lading would not be available at Discharge;
3. accepted Gulf’s response that the Sub-buyers were acceptable and in no way related to Gulf
4. was aware that it would benefit from the trade credit insurance policy Gulf had in place in relation to the sales to the Sub-buyers and that it would receive a 10% cash margin; and
5. continually monitored the MT Sienna’s location during April 2020 and was aware that it had moved to Sohar, Oman.

The Judge also considered the wider background of whether the Bank would have insisted on production of the Bill of Lading and whether it would have permitted discharge without production of the Bill of Lading, including by STS at Sohar and noted that:

1. The Bank had no specific concerns about Gulf falling into default at end of April 2020;
2. Gulf had taken out trade credit insurance covering 90% of the receivables under the contracts with the Sub-buyers and the Bank had the benefit of an assignment of this policy and thus believed at the time that it was insured as to 90% against credit risk (the Bank was also expecting a 10% cash margin from Gulf which covered the remaining credit risk); and
3. The Bank had been told the names of the Sub-buyers and had confirmed that they were acceptable and had received the invoices.

When the evidence of the Bank’s main witness was considered against the economic background, the Judge found that:

1. The Bank did permit and in any event would have permitted discharge without production of the Bill of Lading;
2. The Bank would have permitted discharge at Sohar by STS;
3. If the Bank had been aware or told that discharge was to be mad by STS at Sohar, the Bank would not have halted discharge and have carried out further investigations into Gulf and/or the Sub-buyers; and
4. The loss would have occurred in any event.

Comment

This decision is based on slightly unusual facts stemming out of the pandemic lock down and the inability of those interested in the Bill to endorse it. The backdrop was a major fraud on the shipping community by Gulf which has been the subject of much litigation globally. The judgement is thought provoking on two fronts:

Firstly, in its analysis of the scenarios where a bill of lading does and does not “spring up” from being a mere receipt in the hands of the voyage charterer. This legal fiction has simply been accepted without detailed analysis of why a Bill of Lading should one day be a receipt and under what circumstances it springs to life as a contract of carriage. The position now appears to be that a bill of lading does not automatically “spring up” due to the fact there has been a novation of the voyage charter.

Secondly, recent cases in London and Singapore - the Nika, the LUNA and now the SIENNA – show the Courts are now increasingly open to questioning whether a shipowner will always be liable where cargo has been delivered without production of original bills of lading. They are now clearly willing to fully examine the factual and economic background to the discharge in question and the understanding / expectation of those involved in the financing arrangements underpinning the delivery of the cargo.

Andrew Preston, Dolly Brown and Paul Best of Preston Turnbull acted for Euronav together with Robert Thomas QC and Paul Toms of Quadrant Chambers.