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Where a bank finances an international sale of goods, original bills of lading (“OBLs”) are amongst the documents that will be presented by a seller to the bank to obtain payment for the goods. The OBLs are held by the bank as security for the financing extended to the buyer. If the cargo is discharged by the carrier without presentation of the OBLs, the bank has a claim in misdelivery against the carrier.
One of the defences raised against a misdelivery claim is that the bank would have consented to the cargo being discharged from the carrier without presentation of the OBLs in any event. As such, it is argued, the bank is not entitled to the damages sought as the carrier’s breach of the contract of carriage did not cause the loss allegedly suffered by the bank. Such a defence was successfully established in Unicredit Bank AG v Euronav NV [2022] 2 Lloyd’s Rep 467, where the English High Court rejected the plaintiff bank’s misdelivery claim. The decision was affirmed on appeal. In the recent case of The Maersk Katalin [2024] SGHC 282, the same defence was considered by the Singapore High Court, but the carrier in that case failed to succeed in this defence. Nevertheless, the case serves as a reminder that a bank’s security over the cargo (by virtue of being holder of the OBLs) would be compromised if the carrier is able to prove that the bank would have counterfactually consented to the discharge of the cargo without presentation of the OBLs.^[1]BackgroundWinson Oil Trading Pte Ltd (“Winson”) sold a shipment of cargo (the “Cargo”) on board the Maersk Princess (the “Vessel”) to Hin Leong Trading (Pte) Ltd (“HLT”). Winson issued the owners of the Vessel, Maersk Tankers Singapore Pte Ltd (“Maersk”), a Letter of Indemnity in relation to their instructions to discharge and deliver the Cargo to HLT without presentation of the OBLs.

After the Cargo was received into its possession, HLT applied for a letter of credit (the “LC”) with UOB to finance its purchase of the Cargo. The OBLs were pledged by HLT to UOB pursuant to a General Memorandum of Pledge of Goods, which accompanied the Letter of Offer under which the LC application was made.

Having gone insolvent, HLT failed to fulfil its repayment obligations under the LC. UOB thus commenced a claim against Maersk for misdelivery of the Cargo, and Winson later intervened in the action. For convenience, Maersk and Winson will be collectively referred to as the “Defendants”.

While Maersk admitted that the Cargo had been discharged and delivered to HLT without presentation of the OBLs, one of the main defences raised was that Maersk’s breach of the contract of carriage did not cause UOB any loss, and/or UOB would have suffered the same loss in any event (the “Causation Defence”). In this regard, the Defendants asserted that even if Maersk did not breach the contract of carriage, UOB would have authorised the discharge of the Cargo to HLT without the presentation of the OBLs (the “Defendants’ Counterfactual Scenario”).^[2]

The Court’s decision

Justice S Mohan allowed UOB’s misdelivery claim, dismissing all the defences raised by the Defendants. The salient points of the Judge’s holdings in relation to the Causation Defence are summarised below.

Legal Principles

It was uncontroversial that for UOB to succeed on its misdelivery claim, it had to prove that Maersk’s breach of the contract of carriage was the dominant or effective cause of its loss.^[3] In other words, UOB’s claim would fail if it was found that, in the absence of any breach committed by Maersk, the Cargo would have nevertheless been discharged from the Vessel without presentation of the OBLs.

However, the Judge clarified that it was for the Defendants to evidentially prove that there was a more than even chance of UOB authorising the discharge of the Cargo without the OBLs having been presented to Maersk.^[4]

The holdings above are premised on a baseline inference that banks like UOB take security for a reason, and would not part with the same in the absence of commercial reasons for doing so.^[5] Therefore, it would not accord with commercial reality if UOB were to be saddled with the burden of proving that it would not have authorised the release of the Cargo without the presentation of the OBLs, in order to make out a claim in misdelivery.

Application

Considering the facts, the Judge found that there were material evidential gaps in the Defendants’ Counterfactual Scenario which rendered the same little more than speculation. To begin with, it was unclear whether Maersk would have looked to UOB, or would have been directed by other parties to inquire with UOB, for instructions regarding the release of the Cargo without presentation of the OBLs. The Judge therefore found it unsafe to find that UOB would, on a balance of probabilities, have authorised Maersk to discharge the Cargo to HLT without presentation of the OBLs, if Maersk initially refused to do so.^[6]

Notably, the Judge also sought to distinguish the facts of the case from English High Court decision of Unicredit Bank AG v Euronav NV [2022] 2 Lloyd’s Rep 467, and the decision on appeal, Unicredit Bank AG v Euronav NV [2024] 1 Lloyd’s Rep 177 (“Euronav”). There, the plaintiff bank failed in its misdelivery claim as the Court found that there was a more than even chance that the plaintiff would have eventually consented to discharge of the cargo without presentation of the original bills of lading.

The Judge considered that the decision reached in Euronav was a result of the plaintiff bank’s asserted counterfactual scenario that if the owners refused to discharge the cargo in the absence of original bills of lading: (a) the owners would have contacted BP as the bill of lading holder; (b) BP would then have advised the owners that the bill of lading would be endorsed and transferred to the plaintiffs; (c) the owners would have then sought the plaintiff for instructions on whether to discharge the cargo; and (d) the plaintiff would have instructed the owners not to discharge the cargo without its consent.^[7]

In this connection, the Judge observed that in running its case on the basis of certain postulations as to what would have happened if the owners initially declined to deliver the cargo, the plaintiff in Euronav effectively conceded the factual steps that ultimately enabled the court to focus its mind on how the bank would have responded to a hypothetical request for authorisation.^[8]

In contrast, in The Maersk Katalin, UOB had maintained that Maersk should have retained possession of the Cargo until the OBLs were presented for delivery.^[9] This left the Defendants to frame – and to unsuccessfully prove – the intermediate steps between a hypothetical request by Maersk for authorisation to release the Cargo, and UOB’s granting of authorisation for Maersk to release the Cargo to HLT without presentation of the OBLs.

Significance

The Maersk Katalin is a timely reminder to a holder of an original bill of lading (“OBL holder”) that a misdelivery claim against a carrier for the discharge of goods without presentation of the original bill of lading may not succeed if the carrier can prove that the OBL holder would have consented to the discharge of the cargo in any event. The Court will decide this as a question of fact.

In this regard, the factors that the Court may consider include the established business practice between the parties,^[10] the relevant trading and financing arrangement structure,^[11] and the circumstances surrounding the bank’s provision of financing.^[12] If the carrier is able to adduce sufficient evidence to prove that the OBL holder would have in any case consented to the discharge of the cargo without presentation of the OBLs, the OBL holder’s security interest would not be given effect to.

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[1] [159] of the Judgment

[2] [153] of the Judgment

[3] [154] of the Judgment

[4] [159] of the Judgment

[5] [157] of the Judgment

[6] [162]-[164] of the Judgment

[7] [145] of the Judgment

[8] [161] of the Judgment

[9] [162] of the Judgment

[10] [168], [191]-[192] of the Judgment

[11] [171]-[173], [188]-[189] of the Judgment

[12] [174]-[176], [181]-[182] of the Judgment