Business

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.

Published

1 year ago

June 19, 2023

Admin

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

Business

Singapore: Sing Fuels appoints Sanket Naik as Managing Director

Sanket joined Sing Fuels in 2016 as a Credit Manager and has ‘immersed himself’ in all departments; will drive company to expand into areas like sustainability and biofuels.

Published

10 hours ago

December 9, 2024

Admin

Singapore: Sing Fuels appoints Sanket Naik as Managing Director

Singapore-based provider of marine fuel solutions Sing Fuels on Saturday (7 December) said Sanket Naik, was recently promoted to Managing Director of Sing Fuels.

The firm said Sanket joined Sing Fuels in 2016 as a Credit Manager.

“He immersed himself across all departments, ranging from investment to business development, gaining a 360-degree understanding of the business and serving as a key driver of growth and success at Sing Fuels,” Sing Fuels said in a social media post.

“As Managing Director, Sanket is poised to drive Sing Fuels 3.0, expanding into areas like sustainability and biofuels, ensuring we stay at the forefront of industry innovation.”

Photo credit: Sing Fuels
Published: 9 December, 2024

Alternative Fuels

DNV: Use of ammonia as a bunker fuel among highlights in IMO MSC 109

Amendments to the IGC Code to enable the use of ammonia cargo as fuel were adopted and interim guidelines for the general use of ammonia as fuel were approved during session.

Published

11 hours ago

December 9, 2024

Admin

Classification society DNV on Saturday (7 December) shared a statutory news article that provides a summary of the 109th session of the International Maritime Organization’s (IMO) Maritime Safety Committee (MSC 109) including adopted amendments to the IGC Code to enable the use of ammonia cargo as fuel and approved draft interim guidelines for ammonia as a marine fuel.

The following is an excerpt from the news update relating to bunker fuels:

The 109th session of the IMO’s Maritime Safety Committee (MSC 109) was held from 2 to 6 December 2024. Amendments to the IGC Code to enable the use of ammonia cargo as fuel were adopted, and interim guidelines for the general use of ammonia as fuel were approved. The IGF Code was amended to improve the safety of ships using natural gas as fuel. MSC 109 further approved draft SOLAS amendments to enhance the safety of pilot transfer arrangements and progress was made on the new safety code for Maritime Autonomous Surface Ships.

Meeting highlights

Adopted amendments to the IGC Code to enable the use of ammonia cargo as fuel
Adopted amendments to the IGF Code for ships using natural gas as fuel
Approved draft interim guidelines for ammonia as fuel
Approved draft amendments to SOLAS Regulation V/23 and the related performance standards to improve the safety of pilot transfer arrangements
Advanced the non-mandatory Code on Maritime Autono- mous Surface Ships (MASS)

Amendments to mandatory instruments

Ammonia cargo as fuel (IGC Code) MSC 109 adopted amendments to Paragraph 16.9.2 of the International Code for the Construction and Equipment of Ships Carrying Liquefied Gases in Bulk (IGC Code) to enable the use of ammonia as fuel on ammonia carriers.

An MSC circular to encourage the voluntary early implementation of the amendments to Chapter 16 was approved.

The amendments will enter into force on 1 July 2026.

Safety of ships using natural gas as fuel (IGF Code)

MSC 109 adopted amendments to the International Code of Safety for Ships Using Gases or Other Low-flashpoint Fuels (IGF Code), based on experience with the code since its entry into force in 2017.

The amendments include:

Clarified application provisions
Alignment with the IGC Code on suction wells for fuel tanks extending below the lowermost boundary of the tank
Alignment with the IGC Code on discharge from pressure relief valves to discharge to tanks under certain conditions
Clarified requirements to fire insulation for deck structures in relation to fuel tanks on open deck
Clarified requirements for hazardous ducts through non-hazardous spaces and vice versa
Updated requirements for the hazardous zone radius for fuel tank vent mast outlets, increasing to 6 metres for zone 1 and 4 metres for zone 2

The amendments will enter into force on 1 January 2028.

Goal-based new ship construction standards

Goal-based standards (GBS) for the new construction of bulk carriers and oil tankers are, conceptually, the IMO’s rules for class rules. Under the GBS, IMO auditors use guidelines to verify the construction rules for bulk carriers and oil tankers of class societies acting as Recognized Organizations (Resolution MSC.454(100)).

Initial GBS verification of Biro Klasifikasi Indonesia (BKI) BKI has requested GBS verification of their ship construction rules for bulk carries and oil tankers. MSC 109 agreed that the BKI rules comply with the GBS, provided non-conformities and observations are rectified and verified in a new audit.

North Atlantic wave data (IACS Recommendation No. 34, Revision 2) MSC 109 noted that IACS is currently undertaking a review of its Common Structural Rules (CSR) for bulk carriers and oil

tankers to reflect advances in data, materials, technologies and calculation methodologies. The CSR are implemented in the individual class rules of the IACS members, which are subject to compliance with the GBS.

MSC 109 further noted that IACS has now issued a revision of the North Atlantic wave data to ensure more scientific data as a basis for the rule formulas in the CSR. The new scatter diagram in Revision 2 of IACS Recommendation No. 34 shows the probability of occurrence of different sea states and is based on wave data from advanced hindcast wave models combined with ships’ AIS data for all SOLAS vessels in the period from 2013 to 2020.

MSC 109 agreed that an observation from the initial CSR audit in 2015, that the scatter diagram in Revision 1 of IACS Recommendation No. 34 was based on past statistics, was now considered addressed.

MSC 109 further invited IACS to provide more information about the assumptions, modelling and technical background for Revision 2 of IACS Recommendation No. 34, and agreed that the GBS audit of the revision to follow should be carried out in conjunction with the consequential rule changes in the CSR.

New technologies and alternative fuels

Identification of gaps in current IMO instruments MSC 109 continued its consideration of potential alternative fuels and new technologies to support the reduction of GHG emissions from ships from a safety perspective. The intention is to identify safety obstacles, barriers and gaps in the current IMO instruments that may impede the use of the various alter- native fuels and new technologies.

MSC 109 agreed to add “swappable traction lithium-ion battery containers” to the list of alternative fuels and new technologies. The list already includes fuels and technologies such as ammonia, hydrogen, fuel cell power installations, nuclear power, solar power, wind power, lithium-ion batteries and supercapacitor energy storage technology.

Recommendations to address each of the identified barriers and gaps in the IMO regulatory framework will be considered in a Correspondence Group until MSC 110 (June 2025). Application of the IGF Code

MSC 109 agreed on draft amendments to SOLAS to clarify that the IGF Code applies to ships using gaseous fuels, whether they are low-flashpoint or not. The term “gaseous fuels” was added to the definitions in SOLAS Regulation II-1/2 and to the application provisions of SOLAS Regulations II-1/56 and 57.

The draft amendments are expected to enter into force on 1 January 2027, subject to adoption by MSC 110 (June 2025).

Carriage of cargoes and containers

Ammonia as fuel

MSC 109 approved draft interim guidelines for the safety of ships using ammonia as fuel.

Ships carrying liquefied gases in bulk (IGC Code)

MSC approved draft amendments to the IGC Code to incorporate the large number of Unified Interpretations developed since the latest major review of the code, which entered into force in 2016. The primary objective of the draft amendments is to remove ambiguity and promote the consistent implementation of the IGC Code requirements.

Photo credit: CHUTTERSNAP on Unsplash
Published: 9 December, 2024

Methanol

Methanol Institute welcomes HIF Global as its newest member

HIF Global will collaborate with industry leaders, policymakers, and stakeholders to promote the adoption of methanol-based solutions and e-Fuels in the transition to a low-carbon future.

Published

11 hours ago

December 9, 2024

Admin

HIF Global joins Methanol Institute as its newest member

The Methanol Institute (MI) on Thursday (5 December) welcomed HIF Global as its newest member.

HIF Global is an innovator in the production of e-Fuels, offering sustainable alternatives to fossil fuels that are compatible with today’s transportation and industrial infrastructure.

As part of MI’s membership, HIF Global will collaborate with other industry leaders, policymakers, and stakeholders to promote the adoption of methanol-based solutions and e-Fuels in the transition to a low-carbon future.

MI said HIF Global’s pioneering approach combines renewable energy with technology to produce green hydrogen through electrolysis and capture CO₂ from atmospheric, biogenic, and industrial sources.

These components are then synthesised to create e-Fuels, including e-Methanol for ships, e-SAF for planes, and e-Gasoline for cars, which are crucial to decarbonizing global transportation and reducing greenhouse gas emissions.

At the heart of HIF Global’s operations is HIF Haru Oni in Magallanes, Chile, the world’s first operating e-Fuels facility, which was inaugurated in December 2022. The company is scaling its production globally, with projects underway in the United States, Chile, Australia, Uruguay and Brazil. Its most advanced commercial-scale project, the HIF Matagorda e-Fuels Facility in Texas, is designed to produce 1.4 million metric tons (466 million gallons/1.76 billing liters) of e-Methanol annually once fully operational.

“We are thrilled to welcome HIF Global to the Methanol Institute,” said CEO of MI Greg Dolan.

“HIF Global’s work in e-Fuels, particularly e-Methanol, is a crucial contribution to the energy transition. Their innovative approach underscores methanol’s potential as a key solution for decarbonizing transportation and industry, and we look forward to collaborating to accelerate this transformation.”

Cesar Norton, President and CEO of HIF Global, said: “e-Fuels are essential to achieving a sustainable future. We applaud the Methanol Institute for their leadership in methanol markets and join them to drive forward the vision to expand e-Methanol based e-Fuels that support our global circular economy.”

“Together we will advance the energy transition by pioneering e-Methanol solutions that utilize existing infrastructure to inspire innovation and reduce costs.”

Photo credit: Methanol Institute
Published: 9 December, 2024