21/08/2018

The Songa Winds judgment handed down by Court of Appeal

Navig8 Chemicals Pool Inc v Glencore Agriculture BV (The Songa Winds) [2018] EWCA 1901 (Civ)

The Court of Appeal has today handed down judgment in The Songa Winds, a case concerning the proper interpretation and effect of two letters of indemnity issued for the discharge of cargo absent the original bills of lading.

The appellant (“Glencore”) chartered the vessel “Songa Winds” to the respondent (“Navig8”) on voyage terms. Clause 38 of the charter provided that, if bills of lading were not available at the discharge port, Glencore would issue letters of indemnity on their P&I club’s standard wording, and that the letters of indemnity so issued would have a “period of validity” of three months from the date of issue.

In due course, letters of indemnity were issued by Glencore on the International Group A standard form, in connection with a discharge of cargo at the Indian ports of New Mangalore and Kakinada (the “LOIs”). Claims were subsequently made against Navig8 as a consequence of that discharge, in respect of which Navig8 sought an indemnity from Glencore.

In February, Andrew Baker J ([2018] EHWC 397 (Comm); [2018] 2 Lloyd’s Rep 47) decided that Navig8 was entitled to be indemnified by Glencore under the LOIs. In the course of that decision Andrew Baker J rejected an argument by Glencore that the claim was precluded by virtue of clause 38 of the charterparty, since it was not brought within three months of the date of issue.

Glencore appealed. There were two issues before the Court of Appeal:

• First, whether the three-month “period of validity” in clause 38 of the charterparty was incorporated into the LOIs (or otherwise applicable) notwithstanding that it was not expressly referred to in the LOIs.
• Second, whether the effect of clause 38 was such that no claims could be made after the expiry of three months from the date of issue (as Glencore contended), or whether its effect was that the indemnity only applied if discharge was made within three months from the date of issue (as Navig8 contended).

​The Court of Appeal rejected Glencore’s argument that clause 38 was capable of influencing the operation of the LOIs. It held that in the case of a letter of indemnity there was a “strong presumption” that the written contract contains all the terms of the bargain between the parties (para 23). In the circumstances of the case, the Court held that the “period of validity” in clause 38 was not applicable. One reason for this was that clause 38, on its proper construction, gave Glencore only a right to insist that the period of validity was incorporated into any letter of indemnity, but did not operate independently if that right was not specifically exercised. Another reason was that the LOIs were capable of having an effect on third parties, and so should not be affected by extraneous terms of which such parties might be unaware (para 29).

As a result of the Court’s decision on the first issue, the second issue fell away. However, the Court of Appeal decided that issue in favour of Glencore. It held that the underlying purpose of the LOIs was to secure prompt delivery, and that the intended effect of clause 38 was to give Glencore a clearly defined time limit within which to calculate its contingent liabilities (para 34).

The decision of the Court of Appeal will be of interest to owners and charterers who have agreed in their charterparties bespoke rights in relation to letters of indemnity outside of the P&I Clubs standard terms. The message is: if you want to be able to take advantage of such rights, make sure they are included expressly in the letters of indemnity that are ultimately issued.

Michael Ashcroft QC and Oliver Caplin acted for Navig8, instructed by Ince & Co LLP.

Timothy Young QC and Luke Pearce acted for Glencore, instructed by Reed Smith LLP.