The collapse of the Hin Leong Trading (“HLT”) empire spawned a large number of litigation between banks, shipowners and other traders.  It is a well known practice in the oil trade that cargoes are normally delivered against a letter of indemnity instead of presentation of the original bills of lading.  Against this background, a number of banks are left holding on to the original bills of lading having financed the purchase of the cargo which unsurprisingly resulted in a number of claims being made against the various shipowners for mis-delivery without presentation of the original bills of lading.

While the banks have succeeded in a number of cases against the shipowners, two cases stand out where the Singapore High Court refused to grant summary judgment in favour of the banks.  One of these is the STI Orchard [2022] SGHCR 6 and the other is the case of Standard Chartered Bank (Singapore) Ltd v. Maersk Tankers Singapore Pte Ltd [2022] SGHC 242 (the “Stanchart Case”).

In this edition of the Notes from the Bar, we take a look at the Stanchart Case and the reason why the Singapore High Court refused to grant summary judgment in favour of the bank.

Facts of the case

On 12 February 2020, HLT entered into a contract to purchase 750,000 barrels of gasoil from Winson Oil Trading (“WOT”) on DES Singapore terms.  The contract provides that payment was to be made in the form of an irrevocable letter of credit 30 days after the vessel carrying the cargo had tendered its notice of readiness at the discharge port.

The cargo was shipped on board in Taiwan on 21 February 2020 and arrived at Universal Termina, Singapore on 27 February 2020 whereupon the vessel tendered its notice of readiness on the same day.  The cargo was completely discharged by 28 February 2020.

It was common ground that discharge of the cargo at Universal Terminal would amount to delivery to HLT pursuant to the terms of the contract with WOT.  It was also undisputed that delivery was made against a LOI and not by presentation of the original bills of lading.

On 3 March 2020, HLT applied to the bank for the issuance of a letter of credit in favour of WOT.  The application provided as follows: “LATEST DELIVERY DATE IS THE NOR TENDERED AT DISCHARGE PORT: 29 FEBRUARY 2020.”

The bank issued the letter of credit on 4 March 2020, and in line with the application by HLT, the letter of credit provided that the cargo was to be delivered DES basis at Universal Terminal, Singapore, and that the “LATEST DELIVERY DATE IS THE NOR TENDERED AT DISCHARGE PORT: 29 FEBRUARY 2020.”

As is usual in the oil trade, the letter of credit provides that payment was to be made against the letter of indemnity in case the original bills of lading are not available.  The form of the letter of indemnity was also attached to the letter of credit.

It is noteworthy that the letter of indemnity was addressed to HLT and it contained a clause excluding the rights of third parties.

WOT presented the documents through their bank and eventually received payment from Standard Chartered Bank.  The original bills of lading were eventually endorsed and delivered to Standard Chartered Bank, who in their capacity as the lawful holders of the bills of lading, wrote to the shipowners and demanded delivery of the cargo.

The bank commenced legal proceedings against the shipowners in the Singapore High Court and applied for summary judgment to be entered against the shipowners.  At the hearing before the Learned Assistant Registrar, the Court granted interlocutory judgment in favour of the bank with damages to be assessed.  The shipowners appealed against that decision.

The discussion

At the hearing of the appeal, counsel for the shipowners focused mainly on one aspect of the bank’s claim as raising triable issues, namely the question of whether the shipowners’ delivery of the cargo without presentation of the original bills of lading caused the bank’s loss.

It was submitted that based on HLT’s application for the issuance of the letter of credit, the bank already knew at the time the credit was applied for that the cargo had already been delivered.  This is clear from the statement in the letter of credit that the latest delivery date was 29 February 2020.  Notwithstanding that, the bank proceeded to issue the letter of credit on 4 March 2020.

Counsel for the shipowners further submitted that since the bank financed the purchase after it was already delivered, the bank never intended to look to the shipowners to deliver up the cargo in the event HLT defaulted on its payment obligations.  It was also argued that the finance documents produced by the bank showed that the bank was financing was granted on an unsecured basis.

As the bank never regarded the bills of lading as security for the financing granted to HLT, it was argued that the effective or proximate cause of the bank’s loss was not the mis-delivery by the shipowners without presentation of the original bills of lading, but rather, the insolvency of HLT and the way in which the bank’s financing arrangements were structured.

The Court accepted the shipowners’ argument in that the facts showed that there were triable issues in relation to the issue of causation.  It was held that there is a triable issue as to whether the bank’s loss was a recoverable loss from the shipowners’ breach of the contract of carriage in delivering without presentation of the original bills of lading.

The Court went on and held that whether the bank looked to the bills of lading as security for its financing of the transaction is also a triable issue.  To answer this question, the Court would need to scrutinize the financing arrangements between the bank and HLT and this is something that should be left to a full trial and not be determined summarily based on affidavit evidence alone.

Our Comments

In a passing remark by the Court, the Court noted that the position at law is unclear as to how the test of causation should be applied.  The English cases cited appeared to suggest that the court should consider if misdelivery is the effective or proximate cause of the loss.  If this is the test to be applied, then it would appear that mis-delivery would not be the effective or proximate cause of the loss in cases where the claimant would not have insisted on the discharge of the cargo against the presentation of the original bills of lading in any event.

Hopefully this question of how the test of causation should be applied in such cases will be answered by the Court sooner rather than later as this is a point which may have far reaching commercial implications for international trade as a whole and the role and function of the bill of lading as the key to the warehouse.

For example, in a case where a seller sells his cargo where payment is by means of a letter of credit.  Assuming the contract of sale permits delivery against a letter of indemnity, it could be argued that the seller would not have insisted on discharge against the presentation of the original bills of lading in any event.  In such a case, if the seller is unable to receive payment for any reasons whatsoever, does it mean that the seller in possession of the original bills of lading is unable to claim against the shipowners due to lack of causation?  Would this also mean that an unpaid seller must always object to the shipowner discharging without the original bills of lading until the seller received payment?

We look forward to future insights on this issue in the form of a judgment of the Singapore courts when this matter proceeds on to trial.

Disclaimer: This article is for general information only and not intended to constitute legal advice. We shall not be liable for any errors or omissions, nor shall we be liable for reliance on the contents of this article.