The Maersk Katalin: Shipowners’ Risk and the Causation Defence in Misdelivery Claims
Introduction
In the fast-moving world of international trade, shippers sometimes resort to issuing letters of indemnity to shipowners in lieu of presenting the original bills of lading (“OBLs”) for the discharge of a cargo. However, a shipowner who delivers goods without production of the OBLs does so at their peril, as it may expose them to misdelivery claims.
In the recent decision of The Maersk Katalin [2024] SGHC 282, the Singapore High Court found for the claimant bank against the defendant shipowner (“Maersk”) for misdelivery. This article focusses on the causation defence and compares the Court’s handling of this defence against the English Court of Appeal’s handling of a similar causation defence in The Sienna [2024] 1 Lloyd’s Rep 177.
We conclude with some takeaways for traders and shippers to consider in situations where OBLs are not available.
A. Relevant Facts
The dispute concerned United Overseas Bank Ltd’s (the “UOB”) claim against Maersk as lawful holder of the OBLs relating to two parcels of a shipment of gasoil (the “Cargo”) onboard the “Maersk Princess” (the “Vessel”) that was voyage chartered by Winson Oil Trading Pte Ltd (“Winson”). The Cargo was purchased by Winson from various sellers and eventually on-sold to Hin Leong Pte Ltd (“Hin Leong”) on DES terms from Mailiao, Taiwan to Universal Terminal, Singapore.
The Vessel commenced discharge of the Cargo on 28 February 2020 without presentment of the OBLs, but under a letter of indemnity issued by Winson to Maersk. On 3 March 2020, Hin Leong applied to UOB for a letter of credit (“L/C”) to finance the purchase of the Cargo. UOB approved Hin Leong’s application and issued the L/C the next day. On 5 March 2020, Winson presented compliant documents under the L/C and UOB made payment shortly after. UOB eventually received the OBLs for the Cargo sometime in June and July 2020. Upon receiving the OBLs and following Hin Leong’s announcement of insolvency, UOB sought to enforce its security by pursuing a misdelivery claim against Maersk.
B. The Causation Defence
Maersk and Winson (as intervener in the action) raised a number of defences, among which was the causation defence.
Maersk and Winson argued that UOB would have authorised the discharge of the Cargo without presentation of the OBLs in any event. As such, it was argued that the discharge of the Cargo without the OBLs did not cause UOB’s losses, or that UOB would have suffered the same loss in any event.
The causation defence raised by the defendants in The Maersk Katalin was similar to the “negative causation’ defence that succeeded in The Sienna , which was decided by the English Court of Appeal.
C. The Decisions
For the purpose of this article, we compare key aspects of the evidence tested at trial in both The Sienna and The Maersk Katalin. Whilst the causation defence succeeded in the former case but not the latter, it is worth noting that there was no major shift or change to the legal principles adopted by both courts. In fact, the main reason for the different outcome lay primarily with the evidence. As such, to understand why the outcomes differed it is necessary to delve more deeply into the evidence presented by parties in both cases.
On the evidence, Justice Moulder (at first instance) found that Unicredit did, at least implicitly, approve discharge of the Fujairah cargo without production of the OBLs. We highlight three pieces of evidence that was considered by the Judge:
a. First, Unicredit accepted that the Fujairah Cargo would not be discharged into storage at Fujairah even though this meant that the bank lost the additional protection of control over the storage facilities. On 25 March 2020 (prior to discharge), Unicredit’s liaison with Gulf (“Ms Bodnya”) sought an update from Gulf on the transaction in an email that read as follows:
Will you please update me on the status of the BP transaction and the related transport documents.
Are the goods still on the vessel or have they already arrived to Fujairah? Latest NOR was March the 24th
Any news on the offtaker?
Gulf responded the next day, stating that:
…Goods are still on vessel and will not be discharged without approval from UniCredit.
Traders are discussing sales with some counterparties. Once confirmed will let you know.
Following further exchanges between the parties, Gulf sent an email to Ms Bodnya to state that:
…Cargo will be sold in small clips of 5000-6000 MT each to regular customers – delivered from the vessel.
(emphasis added)
Crucially, Ms Bodnya admitted during trial that the bank understood that at the time, there would be no delivery to the storage in Fujairah which was initially envisaged.
b. Second, Unicredit was aware that the OBLs would not be available until after the discharge had taken place. On 1 April 2020 (prior to discharge), Ms Bodnya wrote to Gulf to, amongst others, request for copies of the endorsed OBLs in light of the fact that the cargo was to remain on the vessel “as floating storage until further transaction settlement”.
However, on 3 April 2020 Gulf forwarded to Ms Bodnya a response from BP rejecting her request for copies of the OBLs and stating that delivery of the originals “will be difficult due to COVID-19 restrictions” but that they would be provided to Unicredit “as soon as practicably possible”.
On the same day, Ms Bodnya responded as follows:
Situation is well noted and completely understood. I believe to the point you would get the originals, the goods would already be with the offtakers. Given LOI in place and current situation it can take long indeed.So we would proceed as agreed under consideration of below.
During cross-examination, with reference to Ms Bodnya’s aforementioned email, the bank representative acknowledged that if no OBLs were present at the time of discharge, then “discharge would be done against LOI, which is more than practical in the oil business”.
c. Third, the Judge also found that Unicredit had no specific concerns about Gulf falling into default at the time, given that Gulf had taken out trade credit insurance covering 90 per cent of the receivables under the contracts with the sub-buyers of the Fujairah Cargo, and that the bank had the benefit of an assignment of this policy and thus believed at the time that it was insured as to 90 per cent against credit risk.
It was against this backdrop of evidence that the negative causation defence succeeded in The Sienna. Moulder J’s reasoning and findings at first instance were upheld on appeal.
Conversely, in The Maersk Katalin, Mohan J found a contextual and factual gap in establishing the “intermediate steps” leading to the counterfactual ending that UOB would have authorised discharge of the cargo without the OBLs. Mohan J nevertheless considered the evidence presented and whether it supported a general inference that UOB would have consented to the discharge without the OBLs. However, even on that footing, the Judge was unpersuaded.We highlight two pieces of evidence that was raised during trial:
a. First, Maersk and Winson argued that UOB knew that the Cargo had already been discharged prior to the issuance of the L/C. As a result, UOB could not have treated the Cargo or the OBLs as security and would have therefore authorised the discharge to Hin Leong without the presentation of the OBLs in any event. Reliance was placed on certain statements contained in Hin Leong’s application form for the L/C (the “Transaction Form”) which reads as follows:
Vessel & ETA: MT Maersk Princess IMO Number 9308948 (ETA arrived Singapore 29Feb2020)
…
Performing vessel is “MT Maersk Princess”. Shipment has been effected around 21Feb2020. Pending copy of BL/CQ.
Shipment from Taiwan to Singapore. Latest Delivery Date is the NOR tenderred (sic) at discharge port ia 29Feb2020. As per copy of Purchase Contract, delivery is between 21-25Feb2020. Vessel’s checked: ETA Singapore 29Feb2020.
b. Second, Maersk and Winson also raised a telephone conversation between UOB’s and Hin Leong’s representatives regarding the latter’s application for the L/C (the “Telephone Conversation”). In particular, UOB’s representative noted that:
Okay. And then the shipment already effected right… if we don’t really have a copy of BL, copy to CQ. Because the delivery CQ-delivery date is 29—was 29, 29th of February.
On the other hand, UOB maintained that it did not have any knowledge of the discharge prior to issuing the L/C. With regard to the statements in the Transaction Form, UOB highlighted that there was also a handwritten note that read “Gasoil, DES at UT, to be discharged to HL’s own tanks” (emphasis added). Further, Hin Leong’s cover email to UOB enclosing the Transaction Form read as follows:
Dear All
Enclose the DOXLC APPLICATION for the subject LC issuance
LOADPORT / ORIGIN – TAIWAN
INTENDED PORT OF DISCHARGE – SINGAPORE
With regard to the Telephone Conversation, UOB’s evidence at trial was that the reference to “delivery” was understood to mean arrival of the Vessel at the discharge port with the Cargo still onboard, and the reference to the shipment having been “effected” was understood to mean that the Vessel had departed from the load port with the Cargo.
In his analysis, Mohan J was not persuaded on a balance of probabilities that UOB knew that the Cargo had already been discharged at the time it issued the L/C. The learned Judge was of the view that the transaction was processed in a very short time (i.e. in under two days) and that it was “one conducted between professional bankers and their clients”, to which “the active monitoring of financed cargoes is not one of the bank officers’ primary functions”.
D. Takeaways
The Maersk Katalin serves as a valuable reminder for traders, operators, and shippers to adopt best practices, including:
- ensure that OBLs are properly endorsed before trading. It would be prudent to review current business practices to ensure that clerical errors on the OBLs can be identified and resolved swiftly with the bill of lading issuer.
- avoid assuming that financing banks understand industry shorthand or the various shipping terms used in correspondence. Always ensure that correspondence with the banks is clear and precise. It may be worthwhile to train representatives in communicating clearly with the objective of eliminating typographical errors and inconsistencies.
- regularly review and update company policies on third-party credit ratings to mitigate the risk of accepting letters of indemnity from potentially defaulting entities.
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Rafizah GaffoorPartner JTJB Singapore Office |
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Benaiah LimAssociate JTJB Singapore Office |
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[1] Unicredit Bank AG v Euronav NV [2022] 2 Lloyd’s Rep 467 (EWHC); and Unicredit Bank AG v Euronav NV [2024] 1 Lloyd’s Rep 177 (EWCA).
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