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Shipowners granted summary judgment and mandatory injunction on Letter of Indemnity

18/01/22

The Commercial Court ruled last week that three claimant shipowners were entitled to summary judgment under letters of indemnity and to a mandatory injunction requiring the defendant to put up security in relation to third party claim.

This case reflects a common scenario where a bank finances the purchase of an oil cargo by a trader, who takes delivery from the shipowner carrying the cargo, under a letter of indemnity rather than against presentation of bills of lading. When the trader experiences financial difficulties the bank sues the carrier for misdelivery and the carrier in turn seeks indemnification under letter of indemnity. This hearing concerned a series of related applications in three different actions where the claimant shipowners sought summary judgment against GP, a UAE based oil trading company which experienced serious financial difficulties in early 2020 and, so the claimants alleged (although not critical to the current issue), had been guilty of systematic fraud against its banks. The claimants claimed under the letters of indemnity against which cargoes had been delivered to GP or its order.

The hearing raised two main issues, being whether GP could obtain permission to amend its defence to allege that the letters of indemnity were signed without authority, and whether no mandatory injunction, requiring it to put up security for the third party claims, should be granted because it was financially impossible to comply.

Both issues were resolved in favour of the claimants. The first issue involved questions of conflict of law, UAE law, English law on authority and ratification, and procedural issues on permission to amend and withdraw admissions. On the second issue the Judge observed that despite being technically insolvent, GP continued to trade with the support of some of its creditors and rejected the contention that it was impossible to comply with an order to put up security.

The judgment is here

Richard Lord QC, instructed by Winter Scott LLP, acted for Torm, the well-known shipowners who were one of the claimants, and who are facing a claim of about $11 million from Natixis Bank who had financed a purchase of cargo by GP.