DEFENDING THE OWNER’S RIGHTS

Nick Parton and Nils Dahl-Nielsen, founding partners of UK lawyers Jackson Parton, detail the significance of the 'Laemthong Glory' case, in relation to the Contracts (Rights of Third Parties) Act 1999.

The case of the 'Laemthong Glory' represented an attempt by cargo
receivers in Yemen - no doubt emboldened by such major incidents
as the "USS COLE" in 2000 and the "LIMBURG" in 2002 - to indulge
in some serious commercial blackmail. It involved the American Club in litigation in the English courts throughout much of 2004 and was
finally resolved in the early part of 2005 - very successfully, from both
the Club and the Member's point of view.

The case is significant from a legal standpoint, since the Court of Appeal in London has now made it clear that a shipowner who is
not a party to a contract (in this case, a letter of indemnity between
a charterer and the receiver) can enforce a term of that contract to benefit him. The shipowner relied on the Contracts (Rights of Third Parties) Act 1999 ("the 1999 Act") to obtain the benefit of the terms of the letter of indemnity issued by the receivers to the charterers. The Court of Appeal upheld the decision in the owner's favor made by Mr. Justice Cooke in the London High Court five months previously. Both decisions are reported; the Court of Appeal's at 2005 1 Ll 688 and the High Court’s at 2005 1 Ll 632.

In order to explain the commercial importance of this case, it is necessary to give some background facts. The Member was the registered owner of the MV 'Laemthong Glory'. The owner chartered the vessel on an amended Sugar Charter Party 1999 form, in December 2003, to French charterers for a voyage from Santos to Aden, with a cargo of 14,000 metric tons of bagged sugar. The cargo was loaded
in Santos and bills of lading were issued in late January 2004. They
were signed by the Master, for and on behalf of the shipowner as
carrier, and consigned "to order". The cargo was shipped pursuant
to a sale contract concluded between the charterers as sellers and
the Yemeni receivers as buyers, at the end of January 2004.

The vessel arrived at Aden in late February 2004 and the parties agreed that she would discharge the cargo not against production
of the bills of lading but against two letters of indemnity dated 25
February 2004, one addressed by the receivers to the charterers,
the other addressed by the charterers to the shipowner. The cargo
was subsequently delivered to the receivers and discharge was completed in early March 2004. Following discharge, the vessel
was arrested by a Yemeni bank which alleged that it held all the
bills of lading, asserting a claim for the value of the cargo - at
well over US$ 3,000,000 - together with interest and costs.

The vessel was not released from arrest until November 2004,
shortly after the High Court trial before Mr. Justice Cooke (referred
to above). The arrest had occurred apparently because - the reasons were never entirely clear - the receivers decided not to pay their
own bank. This was particularly ironic as the individual behind
the receivers was also the largest shareholder in the arresting bank, holding nearly one-fifth of the shares. It became clear in the build-up
to the trial that the reason given for the receivers' non-payment was patent nonsense. This was simply an attempt by the bank/receivers
to 'exert commercial pressure' on the shipowner, in order to obtain
some form of payment (no doubt, a very large one, the vessel having
been arrested for an alleged claim of over US$ 3,000,000), to ensure
the vessel's release from arrest.

Under the terms of the letter of indemnity given by the charterers to
the shipowner, it was clear that the former would have to indemnify
the latter in full for all the losses caused by the arrest. However, the French charterers had gone into administration/liquidation and so
the letter of indemnity given to shipowner was worthless. The
shipowner therefore wanted to enforce the letter of indemnity,
which the receivers had given the charterers, directly against the
receivers themselves. It was here that the provisions of the 1999
Act proved vital to the shipowner's cause. The receivers' letter of indemnity, which Mr. Justice Cooke, at first instance, held the
shipowner was entitled to enforce directly against them, provided
that "In consideration of your complying with our above request
(i.e. to deliver the cargo), we hereby agree as follows: 1) To indemnify
you, your servants and agents and to hold all of you harmless in
respect of any liability loss damage or expense of whatsoever
nature which you may sustain by reason of delivering the cargo
in accordance with our request".

After the Court of Appeal hearing which upheld Mr. Justice Cooke's decision, there was a further hearing before Mr. Justice Aikens where
the shipowner claimed an indemnity/damages from the receivers for
the "liability loss, damage or expense"they had suffered by reason
of the bank's arrest (about which, more below).

It is clear therefore that the Court of Appeal's decision was vital
to the shipowner's cause. In order to determine the parties' rights under the 1999 Act, a two-stage approach is required. The first question is whether the contract or contract term in question purports to confer a benefit on the third party seeking to enforce it Secondly, if it does, the third party is entitled to enforce that contract or term, unless it appears that the parties did not intend the term to be enforceable by him. The third party does not need to be named in the contract. It is simply sufficient for him to be a member of a class or to answer a particular description identified in the contract.

In this case, it was not in dispute that the receiver’s letter of indemnity was valid and effective as between the charterers and the receivers, nor that it purported to confer a benefit on the charterers’ “servants or agents”. The two questions the Court of Appeal had to decide therefore were: 1) Were the ship owners identified in the receivers’ letters of indemnity as “servants or agents” of the charterers? 2) If so, did it appear on the true construction of the receivers’ letter of lndemnity that the charterers and the receivers did not intend the term to be enforceable by the shipowner?
The Court of Appeal, in dismissing the receivers’ appeal, said that Mr. Justice Cooke was correct in finding that the terms of receivers’ letter qf indemnity relied upon by the shipowner purported to confer a benefit on the shipowner within the meaning of the 1999 Act As Lord Justice Clarke said (page 697 of the report): “The parties undoubtedly envisaged it would be the owners, and not the charterers, who effected the delivery. In those circumstances, the fact that the charterers “request you to deliver the said cargo” must be a request which extends to physical delivery by the owners.” Earlier, (page 694 of the report) the same judge had said: “If the very act for which the indemnity was being given was described in the receivers’ LOI as one to be carried out by the charterers, in circumstances where it was known to all the parties that it was physically to be carried out by the owners, it seems to us that the only way in which it could be sensibly said that the charterers “deliver[ed]” the cargo was on the basis that the owners were the agents,
On the second issue, the court held that there was nothing in the receivers’ letter of indemnity which led to the conclusion that the parties did not intend the terms to be enforceable by the shipowner. As Lord Justice Clarke said (page 698 of the judgment): “The whole purpose of the receivers’ LOl was on the one hand to ensure that the receivers received the cargo from the ship without production of the original bills of lading and on the other hand to ensure that the owners were fully protected from the consequences of arrest or other action which might be taken by the holders of the original bills of lading. In short, in our judgment the Judge was correct on this second issue as well as the first.

As the Court of Appeal had dismissed the receivers’ appeal, the shipowner’s action against the receivers to recover their losses could proceed. The hearing which, as stated above, took place In the High Court before Mr. JustIce Aikens determined the amount of the losses suffered by the shipowner and whether or not, as a matter of Yemeni law; the individual behind the receivers (a partnership/company) was personally liable. In the event, in a judgment yet to be reported, the Judge awarded the shipowner nearly US$ 3.5 million, plus costs, and declared that both the receivers and the individual behind them were both jointly and severally liable. The shipowner subsequently made a full recovery of all his losses, including all the legal costs and expenses incurred.
In exercising its discretion to appoint well-placed local correspondents and experts and by instructing lawyers to pursue litigation through the English Courts, the American Club took a tough, principled line, with the result that a cargo receiver and his bank were taught a very expensive lesson. It is believed that the Club’s firm stance in this and other similar cases will pay dividends in the future for the Membership, as word spreads in Yemeni shipping circles that enough is enough.