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BlackStone & Gold: Misdelivery – Are BLs good security anymore?

Law firm discusses relevance of BL holder’s knowledge and conduct in misdelivery claims by studying the recent case of UniCredit Bank v Euronav, where English Court of Appeal dismissed a misdelivery claim.

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The following article by law firm BlackStone & Gold LLC was shared with Singapore-based bunkering publication Manifold Times discussing the relevance of BL holder’s knowledge and conduct in misdelivery cases using the recent case of UniCredit Bank A.G. v Euronav N.V. 

It also draws attention that the decision on the case aligned with two summary judgement decisions in Singapore last year. The decisions showed judicial scrutiny of financing structures and the conduct of financing banks in deciding misdelivery claims brought by them against carriers:

By Baldev Bhinder, Managing Director, and Ramandeep Kaur, Associate Director of BlackStone & Gold

Bill of ladings (BLs) have formed an integral part of the trade finance structure. They are often a fundamental security for banks to receive because they give the lawful holder the right of possession to the cargo, and failing that, the right to bring a misdelivery claim against the shipowner that issues the BL. But international trade involves a disjunct: BLs are held by trade finance banks while cargo can be discharged without BLs by traders through letters of indemnity. Banks have allowed such practices to continue without objection with the comfort that if all else fails, they can still bring misdelivery claims against the carrier. But a string case of cases in Singapore and England is recasting these fundamentals of trade finance, with the key question now turning on what a bank would have done if it knew cargo was going to be discharged without BLs? The spotlight is now very much on the banks’ actions as gleaned from the recent case of UniCredit Bank A.G. v Euronav N.V. where the English Court of Appeal dismissed a misdelivery claim.

Facts

BP Oil International Limited (“BP”) sold a cargo of oil to Gulf Petroleum FZC (“Gulf”) for delivery ex ship Fujairah or Singapore. BP voyage chartered the vessel for the cargo from Euronav N.V. (“Euronav”), who issued a BL to BP for the shipment. UniCredit had financed Gulf’s purchase of the cargo on terms which provided, among other things, that the BL for the financed cargo would be pledged as security, and Gulf’s sub-buyers would pay UniCredit directly. UniCredit paid BP the purchase price and Gulf became owners of the cargo with UniCredit getting security of the BLs. UniCredit however did not receive the BLs by the time of discharge due largely to Covid restrictions. After BP was paid, Euronav, BP and Gulf entered into a novation agreement by which Gulf became the voyage charterer in place of BP. Euronav discharged the oil on Gulf’s instructions by ship-to-ship (“STS”) transfers against an LOI and without requiring the presentation of any BL. It then transpired that Gulf had perpetrated a fraud on UniCredit and did not repay UniCredit. After receiving the BLs, UniCredit brought a claim against Euronav for the value of the cargo alleging breach of the contract of carriage contained in or evidenced by the BL in delivering the cargo without production of the BL.

Contract of Carriage – BL or Charterparty?

The BL’s all powerful status in misdelivery claims rests on one fundamental basis: that it contains or evidences a contract of carriage. At first instance, the High Court found that since BP was also the charterer, the BL, when issued to it, was a mere receipt of the cargo, the contract of carriage being contained in the charterparty. After BP novated the charterparty to Gulf, the indorsement of the BL did not, in the court’s view, cause a new contract to spring up between Euronav and UniCredit and as such the bank had no right to pursue a misdelivery claim. The Court of Appeal however disagreed, reasoning that where a BL is issued to a charterer, the presumed intention of the parties is that the BL would not be a contract of carriage only as long as shipper and charterer remained the same entity. On the facts, the BL became a document containing or evidencing the contract of carriage when the CP was novated, and remained so until the date of discharge. There was no term of novation agreement which displaced this intention. At the time of discharge therefore, there was a BL contract between Euronav and UniCredit as the BL holder which was breached by discharge without production of BL.

Misdelivery: Did the Bank cause its own loss?

On the issue of causation, the Court upheld the first instance finding that UniCredit’s loss was not caused by Euronav delivering the oil without the production of the BL. The court considered that it was insufficient to conclude that breach caused the loss simply because in the absence of breach cargo would have initially remained on board the vessel. It was necessary to ask what would have happened to UniCredit’s security interest if Euronav had initially refused to discharge without production of the BL. As to this, the court noted that it was UniCredit’s own case that if Euronav refused to discharge without original BLs, instructions would ultimately be sought from UniCredit. As to what UniCredit would have done, the court below had made a number of significant findings of fact: UniCredit did permit and would have permitted discharge without original BLs; UniCredit would have permitted discharge by STS or would not have halted it upon becoming aware of it; and the loss would have occurred in any event. In making these findings, the court noted the following:

  • It was inherent in the structure of financing and common practice in the oil market for cargo to be discharged without the production of BLs. UniCredit’s witness admitted in cross-examination that she was aware that the cargo would be discharged without BLs, and the original BLs would not be available until after discharge.
  • The court rejected UniCredit’s position that it would specifically not have permitted discharge of the cargo by STS transfers. In reaching this conclusion, the court noted certain factors for example, UniCredit did not take the view that the conditions of the financing had to be strictly followed since it agreed that the cargo would not be discharged into storage at Fujairah, even though this meant that it lost its additional protection of control over storage facilities. Further, a request for STS may not have been entirely abnormal in the prevailing times of Covid induced port congestions.

The court also considered it relevant that UniCredit’s behaviour should be considered against the context where it had no concerns about Gulf falling into default at the time; UniCredit had the benefit of insurance covering 90% of the sub-buyer’s default; and it had confirmed sub-buyers were acceptable.

Comment: Spotlight on the Bank

A similar inquiry into causation was conducted in the local case of Standard Chartered Bank v Maersk Tankers (2022 SGHC) (see here) where the Singapore High Court examined the underlying financing arrangements and concluded that it was arguable that the bank did not regard the BLs as security. The court had also referred to the first instance decision of UniCredit v Euronav in its analysis. Although not framed as a question of causation, the Singapore High Court in The ‘STI Orchard’ (2022 SGHC) (see here) also examined the underlying financing arrangements and concluded that it was arguable that the bank did not meet the threshold for honest conduct required to be a good faith holder of BLs as it did not look to the BLs as security when it financed the cargo. These recent local cases concerned applications for summary judgment on misdelivery claims, and the shipowners were granted unconditional leave to defend the claims. The judgments on merits are awaited.

That said, these cases do signal a greater scrutiny of banks’ treatment of BLs in their financing arrangements than misdelivery cases have traditionally called for. Not every case will replicate the factual matrix of UniCredit, in particular the court being swayed by the fact that UniCredit was wholly or largely secured in other ways. That said, the message is clear: if the bank wishes to maintain its security over its BLs its conduct with respect to the facility and borrower will have to be consistent with that position. This leaves a bank in a delicate position knowing that cargo is often discharged without BLs or not insisting on such a discharge because other types of security are in place.

So is this the end of the BL as the security backbone of a trade finance structure?

 

Photo credit: BlackStone & Gold LLC
Published: 19 June, 2023

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Environment

Singapore: Allision between dredger and bunker tanker was not caused by port congestion, says Transport Minister

‘Investigations are still on-going, but preliminary findings show that the allision on 14 June was caused by the dredger experiencing sudden loss of engine and steering controls,’ says Chee Hong Tat.

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Singapore: Allision between dredger and bunker tanker was not caused by port congestion, says Transport Minister

The allision between Netherlands-registered dredger VOX MAXIMA and stationary bunker tanker MARINE HONOUR on 14 June was not caused by port congestion, Transport Minister Chee Hong Tat said on Tuesday (18 June). 

Netherlands-flagged dredger Vox Maxima crashed into a stationary Singapore-flagged bunker vessel Marine Honour on 14 June, causing oil from the bunker vessel’s cargo tank to spill into Singapore waters. 

Chee said some members of the public have asked if this incident was due to congestion in our port waters.

“Investigations are still on-going, but preliminary findings show that the allision on 14 June was caused by the dredger experiencing sudden loss of engine and steering controls,” he said a social media post.

“It is not due to port congestion as our port waters and anchorages are not congested. The earlier reports on delays experienced by container vessels are a separate matter that is due to the bunching of container vessels arriving at PSA.”

Chee added it will take time for Maritime and Port Authority of Singapore (MPA) to complete the full investigations and progressively clean up the oil spill. 

“We seek the understanding of members of the public and businesses who are affected by this incident. We will do our best to complete the clean up as soon as possible.”

Manifold Times previously reported MPA stating that it saw large increases in container volumes and the “bunching” of container vessel arrivals over the previous months due to supply chain disruptions in upstream locations.

Later, MPA confirmed that since the beginning of 2024, Singapore saw a significant increase in vessel arrivals.

In the first four months of 2024, MPA said the monthly average tonnage of container vessel arrivals reached 72.4 million gross tonnage (GT). This is an increase of more than one million GT per month, compared to the same period last year. 

On 20 June, in a joint statement, authorities said the northern part of the Pasir Panjang Container Terminal (PPT) is cleared of oil slicks following the deployment of the Current Buster, an oil recovery and containment system, since 18 June. 

Thorough cleaning of the oil-stained Berth 36 near the allision area using high-pressure jets is on-going.

PPT was the location of the oil spillage following the 14 June allision between Netherlands-registered dredger VOX MAXIMA and stationary bunker tanker MARINE HONOUR. 

“The deployment of the Current Buster at this upstream location is important to prevent surface oil from flowing westwards towards West Coast Park which is unaffected till date, and also eastward towards downstream locations, including Sentosa beaches, Sentosa Cove, Southern Islands, and Keppel Marina,” authorities, including MPA, said.  

Three Current Buster systems have been deployed. Two systems capable of five tonnes of recovered oil per load are deployed off western affected areas at PPT and Sentosa. The other system capable of 35 tonnes load is deployed off eastern affected areas off East Coast and Changi East as a precaution to recover any oil and prevent further spread. Another 35 tonnes-load Current Buster system will be deployed shortly.

Total length of booms deployed since 14 June is 3400 meters. This is more than the approximate 3100 meters originally planned.

Note: The full statement by Singapore authorities including progress of the shore clean-up effort can be found here

Related: Singapore: Oil spill cleanup after allision between dredger “Vox Maxima” and bunker tanker “Marine Honour”
Related: Singapore sees large increases in container volumes, bunkering activities remain unaffected
Related: MPA reports ‘significant increase’ in vessel arrivals in Singapore

 

Photo credit: Singapore Transport Ministry / Chee Hong Tat
Published: 20 June, 2024

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Methanol

Mitsubishi Shipbuilding receives orders for Japan’s first methanol-fuelled RoRo cargo ship duo

Two ships will be built at the Enoura Plant of MHI’s Shimonoseki Shipyard & Machinery Works in Yamaguchi Prefecture, with scheduled completion and delivery by the end of fiscal 2027.

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Mitsubishi Shipbuilding receives orders for Japan's first methanol-fuelled RoRo cargo ship duo

Mitsubishi Shipbuilding Co., Ltd., a part of Mitsubishi Heavy Industries (MHI) Group, on Wednesday (19 June) said it has received orders from Toyofuji Shipping and Fukuju Shipping for Japan's first methanol-fueled roll-on/roll-off (RORO) cargo ships. 

The two ships will be built at the Enoura Plant of MHI's Shimonoseki Shipyard & Machinery Works in Yamaguchi Prefecture, with scheduled completion and delivery by the end of fiscal 2027.

The ships will be approximately 169.9 meters in overall length and 30.2 meters in breadth, with 15,750 gross tonnage, and loading capacity for around 2,300 passenger vehicles.

A windscreen at the bow and a vertical stem are used to reduce propulsion resistance, while fuel efficiency is improved by employing MHI's proprietary energy-saving system technology combing high-efficiency propellers and high-performance rudders with reduced resistance. 

The main engine is a high-performance dual-fuel engine that can use both methanol and A heavy fuel oil, reducing CO2 emissions by more than 10% compared to ships with the same hull and powered by fuel oil, contributing to a reduced environmental impact. 

In the future, the use of green methanol(2) may lead to further reduction in CO2 emissions, including throughout the lifecycle of the fuel. Methanol-fueled RORO ships have already entered into service as ocean-going vessels around the world, but this is the first construction of coastal vessels for service in Japan.

In addition, the significant increase in vehicle loading capacity and transport capacity per voyage compared to conventional vessels will provide greater leeway in the ship allocation schedule, securing more holiday and rest time for the crew, thereby contributing to working style reforms.

Mitsubishi Shipbuilding, to address the growing needs from the modal shift in marine transport against the backdrop of CO2 reductions in land transportation, labor shortages, and working style reforms, will continue to work with its business partners to provide solutions for a range of societal issues by building ferries and RORO vessels with excellent fuel efficiency and environmental performance that contribute to stable navigation for customers.

 

Photo credit: Mitsubishi Shipbuilding
Published: 20 June, 2024

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EU ETS

VPS and Normec Verifavia to offer data-driven and verified emissions data

Both firms signed a partnership agreement with Normec Verifavia to support improved vessel data for MRV / EU ETS reporting and beyond.

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VPS and Normec Verifavia to offer data-driven and verified emissions data

Marine fuels testing company VPS on Monday (17 June) said it has signed a partnership agreement with Normec Verifavia to support improved vessel data for MRV / EU ETS reporting and beyond. 

In the face of tightening regulations and focus, VPS said large parts of the maritime industry are in the midst of stepping up their efforts to collect high-quality emissions data from vessel operations. 

“To meet this demand, VPS and Normec Verifavia will offer vessel owners and the wider maritime ecosystem to have indisputable emission numbers produced in a data-driven way,” the firm said.

“For vessel owners, this ensures compliance with upcoming MRV and EU ETS requirements where reported emission numbers need to be verified by a certified verification body.”

The partnership will combine the strengths that VPS have in data-driven decarb and Normec Verifavia´s position as an agile and independent third-party data verifier. The two companies offer a plug-and-play setup, where the vessel owner can experience a seamless and integrated experience in the handling and verification of fleet fuel- and emission numbers. 

 The first step of the partnership is to offer verification for VPS customers using the Maress system for data-driven decarbonisation. Maress is a leading tool in the offshore industry, handling the complexities around fuels- and emissions optimization and assisting crew and onshore personnel in making informed decisions on how to reduce vessel and fleet footprint. Maress is used by a diverse set of stakeholders in the offshore sector, such as vessel owners, contractors, management companies, charterers and more.  

Further, VPS also offers the Emsys technology for precise and real-time measurement of the emissions going through the vessel smokestack. This data can be fed directly to Maress and subsequently verified by Normec Verifavia to provide full control of all aspects of the fuels- and emissions related to vessel operations.

Jan Wilhelmsson, COO, Digital & Decarbonisation of VPS

Jan Wilhelmsson, COO, Digital & Decarbonisation of VPS

Jan Wilhelmsson, COO, Digital & Decarbonisation of VPS, said, "We see a rapid development where the market is no longer willing to take the risk of not knowing -precisely- what the emissions from operations are. We are excited about the fact that the partnership with Normec Verifavia enables all Maress users to get their emission numbers verified. It will literally be a one stop shop for data collection, analytics, collaboration and verified emission reporting."

Yuvraj Thakur, Managing Director & VP Commercial, Normec Verifavia, said: “The maritime industry faces a crucial challenge: achieving transparency and driving progress towards a decarbonised future. Normec Verifavia's collaboration with VPS represents a significant step forward in this direction.”

“By leveraging their expertise in data-driven decarbonization tools like Maress, we can empower asset owners to streamline the entire emissions data lifecycle. This will not only enhance the accuracy of reported data but also significantly reduce the administrative complexities faced by many stakeholders. This collaborative effort strengthens the foundation for a more sustainable maritime industry.”

The ability for Maress customers to verify emission numbers will be immediately commercially available.

Photo credit: VPS
Published: 20 June, 2024

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