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Time Bars and Letters of Indemnity – Guidance from the Court of Appeal

August 23 2018

On 21 August 2018 the Court of Appeal handed down its judgment in Glencore Agriculture BV v Navig8 Chemicals Pool Inc [2018] EWCA Civ 1901. The judgment provides useful guidance on the interaction between time-bars in charterparties and the wording of a Letters of Indemnity (LOI’s). The underlying facts of the case, which are not required for the purposes of this article, are set out in the First Instance judgment dated 2 March 2018.

The Facts

Glencore Agriculture BV (“Glencore”) provided two LOIs addressed to Navig8 Chemical Pools Inc (“Navig8”) dated 6 and 13 April 2016 requesting that delivery be made to the nominated receiver without production of bills of lading. The LOI’s were signed by and on behalf of Glencore and Navig8 and were governed by English law and the jurisdiction of the English High Court. They were on the standard International Group form.

First Instance

At First Instance, before Justice Baker, Glencore had argued that the period of validity of the LOI’s was 3 months from the date of issue and that they had expired in July 2016 without any claim being made by Navig8 before time expired. This argument was based on Clause 38 of the applicable voyage charterparty which stated:

The period of validity of any letter of indemnity will be 3 months from date of issue. The period may be extended, as necessary, upon owners written request for further extension and confirmation (at time of extension request) that 1/3 original bills of lading have not been surrendered to owner. In absence of extension requests the indemnity will expire at the end of initial three month period, or any further extension period.

The Glencore LOIs mentioned neither the voyage charter nor its terms but Glencore submitted that Clause 38 should be read into the LOI’s, the effect of which was to bar Navig8’s claims.
Justice Baker ruled that the time bar clause in the voyage charterparty did not apply to the LOI’s. In doing so he also said that the first line of Clause 38 meant that it covered deliveries effected during that three month period and should not be interpreted as a time-bar. Glencore appealed the decision.

Court of Appeal

1. In its judgment, the Court of Appeal said that the material rights and obligations in Clause 38 should not be transposed into the LOIs for various reasons including that: the Glencore LOIs contained a provision that limited Glencore’s liability, with no reference to external terms that might affect the time limit of that liability;

2. the voyage charter and Glencore LOIs were “distinct agreements with separate and discrete rights and obligations” with disputes under the former to be resolved by arbitration and disputes under the latter to be resolved by the High Court - any dispute as to the meaning and effect of Clause 38 was to be resolved by arbitration;

3. Glencore entered into the LOIs on the terms of the International Group form, without any reservation or reference to the voyage charter or its provisions; and

4. the Glencore LOIs set out self-contained obligations and rights and it was common ground that they could be relied on by third parties who would be unaware of Clause 38.

Therefore, finding for Navig8 on the point, it concluded that Clause 38 was not incorporated into the LOIs.

The Court of Appeal then gave some brief consideration to the effect of Clause 38 had it been incorporated into the LOI. Navig8 maintained that Justice Baker’s analysis had been correct on this point and that the period during which the requested delivery of the cargo must take place without original bills of lading was 3 months from the date of delivery. The Court of Appeal disagreed on this point saying that the clause provided a primary, but unilaterally extendable, time limit for the making of claims.

Conclusion

The Courts recognise that LOI’s are important commercial instruments that need to be interpreted in a straightforward way. This judgment only reinforces that principle. A charterparty term needs to be expressly incorporated into an LOI if it is to take effect.

MFB are frequently instructed in relation to LOI disputes. Should you wish to speak with us concerning any of the matters raised in this article, please refer to your usual contact at the firm or the authors.

Matthew Montgomery
Alex Ferrigno

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