Article – LOIs and the paper they’re written on

Yangtze Navigation (Asia) Co Ltd & others  v TPT Shipping Ltd & Others  (the “Xing Zhi Hai”)

CJC’s Ian Short and Richard Guy acted for TPT Forests Ltd, the successful party that applied under Part 11 for the setting aside of service out of the jurisdiction of the Claimants’ claim form.

The underlying facts were not novel to the court.  The Claimants (the “Owners”) claimed under three letters of indemnity that were provided to the Owners in return for the Owners delivering without presentation of bills for three cargoes of logs on three different vessels.  The lawful bill of lading holders alleged misdelivery of the cargo and apparently then made various ship arrests for the purpose of securing the claims. 

The LOIs were in the usual Club approved form, which provided for English law and that each person liable under the LOI was to submit to the jurisdiction of the English High Court. 

The Owners sought to rely on the LOIs and presented a claim against TPT Shipping Ltd (“Shipping), which was the named provider of the LOI.  Shipping was placed into voluntary administration and is now in liquidation. 

This is where matters diverge from the usual course.  In light of the liquidation of Shipping, the Owners sought to add the other Defendants to the proceedings. These being the third to fifth Defendants (the “Producers”), producers of the logs, and, our clients, TPT Forests Ltd (“Forests”).  Forests was in the business of providing export marketing service to, among others, the Producers. 

The arrangement between the Producers and Forests was set out in a number of Log Marketing and Sales Agency Agreements (the “LMSAAs”).  The LMSAAs accommodated the shipping of cargoes on tonnage chartered by Shipping. 

Forests in turn had entered into a Shipping Services Agreement with Shipping (the “SSA”).  Under the SSA, Forests contracted solely as agent on behalf of the Producers. 

The Owners’ argument, as against Forests, as to why it was the undisclosed principle under the LOI had two branches.  Under the first the Owners argued that Forests was also the undisclosed principle under three Charterparties that Shipping had entered into for the carriage of the cargo and so the LOIs must have been issued on behalf of Forests.  Under the Second the Owners argued that Forests had expressly authorised Shipping to enter into the LOI’s on its behalf.

The Court, in determining the issue of jurisdiction, was required to consider the primary underlying issue between the parties, this being whether Forests and the other defendants were the undisclosed principal to the LOI and therefore party to the LOI.  If they were not a party to the LOI then, since this contained the jurisdiction clause, there was no basis on which to claim against the Producers or Shipping and neither did the Court have jurisdiction. 

The Owners, as is often the case in Part 11 applications, had made extensive demands for disclosure of documents and indeed been provided with extensive disclosure.     

In light of this, the Judge had no hesitation in dismissing the argument that Forests was the true charterer of the vessels, placing particular reliance on the key agreements between the defendants, in particular the LMSAAs and the SSA, which gave no indication that Forests was the charterer.   Because of the Owners’ failure on the first argument, the second line of argument could not be sustained, since Forests had no reason or obligation to authorise Shipping to issue the LOIs.