UniCredit loses $24.7m damages claim against shipper over missing oil cargo

A UK court has rejected an attempt by Italy-based bank UniCredit to obtain $24.7m in damages from shipping company Euronav after an oil cargo it was financing went missing amid the demise of oil trader Gulf Petrochem.

The Claimant, Germany-based UniCredit Bank AG, a subsidiary of Italian bank UniCredit, brought a claim for damages against Euronav NV  the registered owner of tanker MT Sienna (IMO 9336971), for an alleged breach of the bill of lading contract in delivering part of a cargo of LSFO to a third party without production of the bills of lading. The Bank claimed about $24.7m in damages.

The Vessel was originally chartered out to BP Oil International Ltd. BP subsequently sold the cargo of LSFO to Gulf Petrochem FZC.

A bill of lading (BOL) dated February 19th 2020 was issued at Rotterdam and signed by or on behalf of the Master of the Vessel. In signing the BOL Euronav acknowledged shipment of the Cargo on board the MT Sienna in apparent good order and condition for carriage to and delivery at Fujairah, UAE. The BOL was made out to the order of BP or their assigns.

The Bank financed the purchase by Gulf of part of the Cargo by way of a letter of credit (LOC) on or about April 1st 2020. This was pursuant to a financing agreement in place with Gulf from late 2019, under which all rights under bills of lading issued in respect of goods financed under that agreement were pledged and assigned to the Bank.

It was intended by the Bank and Gulf that the Financed Cargo would be re-sold to sub-buyers that were approved by the Bank, on payment terms that required those Sub-buyers to pay the Bank directly 90 days from the date of invoice against presentation of the invoice and a Certificate of Quality issued by an independent surveyor.

On April 6th 2020, the charterparty was novated so that Gulf became the new charterers of the MT Sienna, rather than BP.

The Financed Cargo was discharged from the MT Sienna by ship-to-ship transfer to two other vessels, the Kutch Bay (IMO 9169536, now broken up at Chittagong) and Prestigious (IMO 9257498) between April 26th and May 2nd 2020 at Sohar, Oman. The Discharge occurred without Euronav requiring production of the BOL by any person.

The dates for payment of the Sub-buyer invoices fell due in the period July 26th to August 9th 2020. During April / May 2020 the Bank had no specific concerns about Gulf falling into default, but by mid-July 2020 it had become aware that Gulf had a liquidity distress. The Bank also suspected fraudulent behaviour. The Bank failed to receive the sums due under the Sub-buyer invoices.

On August 7th 2020 BP endorsed the original BOL to the Bank and this was received by the Bank at their offices in Hamburg on August 13th 2020.

The Bank brought a claim against Euronav for damages for an alleged breach of the BOL contract in delivering the Financed Cargo to a third party, but not against the production of the billing lading.

The judgment considered the following issues:

The Bank’s case

Did the Bill of Lading contain/evidence a contract of carriage in respect of the Cargo on or after April 6th 2020 (the date of the Novation Agreement) and prior to the alleged misdelivery? As the lawful holder of the Bill four months after discharge, did they have a right to claim for misdelivery of the Financed Cargo?

Euronav’s case

Were the Owners’ obligations as regards the carriage of the Cargo contained exclusively in the charterparty and/or the Novation Agreement of April 6th 2020, since the Bill of Lading was a mere receipt and never attained contractual status defeating a misdelivery claim.

Alternatively if the Bill was a contract, was it not the case that the delivery to Gulf and/or their agents did not cause the loss?

The crux of these issues was whether, when BP ceased to be the charterer on April 6th 2020 by reason of the Novation Agreement, the contract of carriage at the time of Delivery was contained in the BOL. As this was not endorsed to the Bank until August 13th 2020, BP remained the lawful holder of the BOL at the time of Delivery.

Mrs Justice Moulder noted that it was common ground between the parties that, where a shipper was also the voyage charterer, the BOL was not the contract of carriage of goods, but a mere receipt.

It was also noted that, where a bill of lading was issued to a charterer and then indorsed to a third party, it attained contractual status upon indorsement on the basis that “a new contract appears to spring up between the ship and the consignee on the terms of the bill of lading” (Tate & Lyle Ltd v Hain Steamship Co (1936).

In this case, however, there was no indorsement of the BOL to a third party; rather, BP ceased to be voyage charterers from the date of the novation agreement and from that date the BOL was no longer in the hands of the voyage charterer.

The Bank argued that there was no reason to distinguish the situation in this case (where they say there was a transfer of the BOL by dint of the Novation Agreement) from the position which would result on indorsement of the BOL.

Euronav’s representatives submitted that there was no authority to support this proposition and that the Bank sought to draw a false analogy with the orthodox position and infer the creation of contractual rights.

It was further submitted by Euronav that the arrangements between the Owners and BP were terminated by the Novation Agreement and BP did not intend the relationship to be governed by the BOL if the existing relationship was dissolved.

Euronav also argued that, since BP had invoked the contractual right to discharge without production of the BOL, then as lawful holder of the Bill, BP had, on their behalf and for all subsequent holders of the Bill, waived and /or were estopped from arguing discharge without production of the original BOL

This was a point not decided by the Court.

Moulder J held that the relevant authorities supported the Bank’s submission that a new BOL contract “springs up” when the bill is transferred by the shipper to a new lawful holder. However, she was not convinced that the Bank had established the premise that the BOL had “temporarily lost its full contractual status” whilst in the hands of BP. Neither was she convinced that, when the charterparty was novated to Gulf, the BOL was no longer in the hands of the charterer of the MT Sienna and had attained contractual status, thus no longer being a “mere receipt”.

The Judge agreed with Euronav that, at the time the BOL was issued, BP and Euronav did not intend their contractual relationship to be contained in the BOL, as the charterparty regulated that relationship. She agreed that, while BP and Euronav intended when the BOL was issued that it would regulate the legal relationship between Euronav and a third party if BP transferred to indorsed the Bill of Lading to a third party, there was no reason to conclude that they intended that relationship to be governed by the terms of the BOL in the event the contractual relationship between BP and Euronav was dissolved (as it was) by the Novation Agreement.

Mrs Justice Moulder therefore held that the BOL did not contain the contract of carriage between Euronav and BP on or after April 6th 2020 and prior to the alleged misdelivery.

For that reason, the Bank’s claim failed.

For completeness, Mrs Justice Moulder went on to set out the alternative basis on which the claim fell to be dismissed, namely causation. The issue considered by Mrs Justice Moulder was whether the failure by Euronav to require production of the BOL caused the loss or whether the Bank would have suffered the same loss in any event.

Euronav argued that any loss or damage was caused by the Bank authorizing / permitting Gulf to arrange delivery / discharge of the Financed Cargo by Euronav without production of the BOL by the lawful holder of the BOL.

The Bank asserted that it did not authorize Gulf to arrange delivery / discharge of the Financed Cargo by Euronav to the two vessels without production of the BOL. UniCredit said that, had Euronav performed the BOL Contract of Carriage in accordance with its terms, it would not have discharged / delivered the Cargo without presentation of the original BOL.

Further, the Bank argued that, absent Euronav’s breach, the Financed Cargo would not have been delivered to Gulf and it was that breach which caused its loss.

The Bank submitted that, even though there may have been authorization or approval by the Bank to Gulf to deliver without the production of the Bill of Lading, there was no “general approval”, nor was there approval for delivery to be made by Gulf to the Sub-buyers by STS.

Euronav submitted that, on the evidence of the Bank’s main witness (who was the Bank’s day-to-day contact with Gulf) there was no “alternative reality” in which the misdelivery of the Financed Cargo would not have occurred. It noted that the Bank accepted the BOL would not be available until after discharge had taken place. Euronav also noted that, if the Bank had been told that discharge would be taking place at Sohar by STS transfer, it would have consented to such an operation. Finally, Euronav said that the Bank trusted Gulf and would have left it to communicate its instructions to Euronav. That is to say, the Bank had not challenged any information provided by Gulf leading up to the Discharge, and if they had been told that the Financed Cargo was to be discharged at Sohar to two STS Vessels, they would not have objected. Hence the breach did not cause the loss).

The Judge considered the correspondence between the Bank and Gulf leading up to the Discharge in detail. In it it was clear that the Bank:

  • was aware that Discharge of the Financed Cargo would be carried out directly from the MT Sienna;
  • was aware that the Bill of Lading would not be available at Discharge;
  • accepted Gulf’s response that the Sub-buyers were acceptable and in no way related to Gulf
  • was aware that it would benefit from the trade credit insurance policy Gulf had in place in relation to the sales to the Sub-buyers and that it would receive a 10% cash margin; and
  • continually monitored the MT Sienna’s location during April 2020 and was aware that it had moved to Sohar, Oman.

The Judge also considered the wider background of whether the Bank would have insisted on production of the BOL and whether it would have permitted discharge without production of the BOL, including by STS at Sohar. She noted that:

  • The Bank had no specific concerns about Gulf falling into default at end of April 2020;
  • Gulf had taken out trade credit insurance covering 90% of the receivables under the contracts with the Sub-buyers and the Bank had the benefit of an assignment of this policy and thus believed at the time that it was insured as to 90% against credit risk (the Bank was also expecting a 10% cash margin from Gulf which covered the remaining credit risk); and
  • The Bank had been told the names of the Sub-buyers and had confirmed that they were acceptable and had received the invoices.

Correspondence between Diana Bodnya, UniCredit AG’s director of commodity trade finance, Switzerland, and a Mr Agarwal of Gulf Petrochem, reproduced in the judgement, showed that lockdowns and shipping chaos brought about by the early months of the coronavirus pandemic had a significant impact on the transaction.

Bodnya repeatedly asked Gulf Petrochem for updates on the deal, due to congested ports in the UAE, full storage tanks and the slowdown in documentary trade processes. In emails to Gulf Petrochem, Bodnya accepted that the original bill of lading would not be available until after discharge to buyers had occurred, but said there was a letter of indemnity in place.

The cargo was supposed to be discharged into storage at the port of Fujairah in the UAE. However, in late March Gulf Petrochem told UniCredit it planned to sell the oil in small clips of 5,000-6,000mt to regular customers, providing a 10% cash margin to the bank for each sale. Gulf Petrochem also said that the new offtakers were not related parties to the trader.

Bodnya then asked for the original bill of lading to be endorsed to the bank, but this was delayed because of the pandemic.

By the end of April UniCredit’s emails were becoming more insistent and concerned, as the sale was continually delayed and Gulf Petrochem failed to disclose the location of the discharge.

Subsequent to the sale being agreed with the original buyers, the price of oil had collapsed – at one point US benchmark prices dropped below zero. This was at about the same time that Bodnya queried the buyers’ willingness to pay.

Agarwal responded that the buyers would be willing to pay the (higher) March prices for the cargo because they were long-term customers. This was an explanation that Justice Moulder said “does not appear to have any commercial logic”.

Bodnya emailed the trader again when she noticed that the Sienna, had left the UAE and sailed to the port of Sohar in Oman. Under cross-examination, Bodnya said she was not aware the vessel was discharging via ship-to-ship transfer at Sohar.

  • Bodnya told the court she would not have agreed to a sale to the sub-buyers without production of the bill of lading if she had known that the method of discharge was ship-to-ship transfers.

When the evidence of the Bank’s main witness was considered against the economic background, the Judge found that:

  • The Bank did permit and in any event would have permitted discharge without production of the Bill of Lading;
  • The Bank would have permitted discharge at Sohar by STS;
  • If the Bank had been aware or told that discharge was to be mad by STS at Sohar, the Bank would not have halted discharge and have carried out further investigations into Gulf and/or the Sub-buyers; and
  • The loss would have occurred in any event.

Comment

Preston Turnbull said that the decision was based on slightly unusual facts stemming out of the pandemic lock down and the inability of those interested in the Bill to endorse it. The backdrop was a major fraud on the shipping community by Gulf, which has been the subject of much litigation globally.

Gulf Petrochem’s parent company, GP Global, is a Dubai-based commodities trader which ran into financial difficulties in mid-2020.

The legal form said that the judgment was thought-provoking on two fronts:

Firstly, in its analysis of the scenarios where a bill of lading does and does not “spring up” from being a mere receipt in the hands of the voyage charterer. “This legal fiction has simply been accepted without detailed analysis of why a Bill of Lading should one day be a receipt and under what circumstances it springs to life as a contract of carriage. The position now appears to be that a bill of lading does not automatically “spring up” due to the fact there has been a novation of the voyage charter.”

Secondly, recent cases in London and Singapore – the Nika, the LUNA and now the SIENNA – showed that the Courts were now increasingly open to questioning whether a shipowner would always be liable where cargo has been delivered without production of original bills of lading. “They are now clearly willing to fully examine the factual and economic background to the discharge in question and the understanding / expectation of those involved in the financing arrangements underpinning the delivery of the cargo.”

Andrew Preston, Dolly Brown and Paul Best of Preston Turnbull acted for Euronav together with Robert Thomas QC and Paul Toms of Quadrant Chambers.

2007-built, Belgium-flagged, 79,235 gt Sienna is owned and managed by Euronav NV of Antwerp, Belgium. ISM manager is Euronav Ship management of Athens, Greece. It is entered with Britannia on behalf of Euronav NV.

2003-built, Marshall Islands-flagged, 40,037 gt Prestigious is owned by Prestigious Shipping Cor care of manager Coral Shipping Corp of Athens, Greece. It is entered with Gard on behalf of Prestigious Shipping Corp.

1997-built, 57,943 gt Kutch Bay was renamed the “Bay” in July 2021 and assigned to the St Kitts and Nevis Flag, having formerly been Panama-flagged. In July last year the owner became Drake Shiptrade Ltd of Maharashtra, India, and the manager became Machtrans Ship Management Pvt of Maharashtra, India. The Kutch Bay itself only started operating under that name on March 1st 2020, having previously been called the Sea Topaz 1 (and prior to that a number of other names).

https://www.preston-turnbull.com/insights/unicredit-bank-ag-v-euronav-nv