Pacific Carriers Ltd v Bnp Paribas

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Gleeson CJ,Gummow,Hayne,Callinan,Heydon JJ
• Judgment Date: 05 August 2004
• Neutral Citation: 2004-0805 HCA A,[2004] HCA 35
• Docket Number: S585/2003
• Date: 05 August 2004

[2004] HCA 35

HIGH COURT OF AUSTRALIA

Gleeson CJ, Gummow, Hayne, Callinan AND Heydon JJ

S585/2003

Pacific Carriers Limited

Appellant

and

BNP Paribas

RESPONDENT

Representation:

D F Jackson QC with A W Street SC and G J Nell for the appellant (instructed by Norton White)

B W Rayment QC with I E Davidson for the respondent (instructed by Corrs Chambers Westgarth)

Pacific Carriers Limited v BNP Paribas

Contract — Carriage of goods — Carriage by sea — Delivery of goods without surrendering bills of lading — Indemnity to carrier.

Contract — Construction and interpretation — Relevant principles — Objective interpretation of commercial documents — Letters of indemnity executed by trader in favour of carrier relating to unloading cargo without bills of lading — Where documents also signed by officer of the respondent bank — Whether letters of indemnity purported to bind the respondent as an indemnifying party.

Contract — Agency — Ostensible authority — Documents of the kind commonly relied upon and intended to be relied upon by third parties — Whether the assumption made by the appellant that the respondent was party to the letters of indemnity was induced or assisted by the respondent's conduct in such a way that it would be unjust to permit the respondent to depart from the assumption.

ORDER

• 1. Appeal allowed with costs.

• 2. Set aside the orders of the New South Wales Court of Appeal made on 29 November 2002.

• 3. Remit the matter to the New South Wales Court of Appeal to deal with outstanding issues in conformity with the reasoning of this Court and to makeorders disposing of the costs of the appeal to the Court of Appeal.

1 Gleeson CJ, Gummow, Hayne, Callinan AND Heydon JJ. The issues in this appeal are narrower than the claims and cross-claims litigated before Hunter J in the Supreme Court of New South Wales 1, or those aspects of the matter that went to the Court of Appeal 2.

2 The proceedings arose out of the sale of a cargo of legumes, comprising 10,000 metric tonnes of chick peas and 10,000 metric tonnes of dun peas, by an Australian grain trader, New England Agricultural Traders Pty Ltd (NEAT), to Royal Trading Company (Royal), an Indian grain trader operating out of Calcutta. The respondent, BNP Paribas (BNP), was NEAT's Sydney banker, and was financing the export transaction. A company based in Singapore, Swiss Singapore Overseas Enterprises Pte Ltd (SSOE), was Royal's financier. The appellant, Pacific Carriers Limited (Pacific), was the time charterer of the MV Nelson, the vessel on which the cargo was carried.

3 The venture was something of a disaster. There was confusion about the letters of credit and bills of lading. While the cargo was between Australia and India there was a fall in the market for legumes. Hunter J found that Royal dishonestly delayed accepting the cargo, and failed to pay the purchase price. The carrier experienced problems with discharging in India, partly because of difficulties with the size of the vessel and the port draught. The cargo was delivered without production of the relevant bills of lading. The vessel was arrested. Claims made by SSOE against Pacific went to arbitration, and were settled on the basis that Pacific paid substantial damages and interest. NEAT became insolvent.

4 The particular matter giving rise to this appeal concerns two letters of indemnity which were signed, or purportedly signed, by NEAT and BNP, and addressed and delivered to Pacific. Pacific claimed, pursuant to those letters of indemnity, to be entitled to be indemnified by BNP in respect of the losses it suffered by reason of delivering the cargo in the absence of bills of lading. BNP's defence to that claim was based mainly on two contentions: first, that on the true construction of the letters of indemnity BNP did not agree to indemnify

Pacific (the construction issue); secondly, that the letters of indemnity were signed without BNP's authority and were therefore not binding (the authority issue).

The letters of indemnity

5 The two letters of indemnity were dated respectively 28 January and 19 February 1999.

6 This was not the first occasion on which BNP had co-signed, with NEAT, a letter of indemnity, addressed to carriers, agreeing to indemnify them in respect of any liability or loss or damage the carriers may sustain by reason of delivering cargo without production of bills of lading by the receiver. In September 1997, NEAT arranged for BNP to join in signing such a letter of indemnity addressed to the ‘Owners/Managers/Masters/Agents of the SS/MV Alam Tangkas’. That letter of indemnity was procured by an employee of the Pacific group, who described it as a ‘bank letter of indemnity’ and asked the brokers for the Alam Tangkas to ‘confirm the names and designations of the persons who have signed on behalf of the bankers’. The brokers replied: ‘Signatories to L0I from [BNP] are Ms Era Dhiri — Manager Trade Finance — and Mr Phil Arndell — Senior Trade Officer’. The document bore the signatures of Ms Dhiri and Mr Arndell and the same bank stamp, or ‘chop’, as was to be used on the 1999 documents. There is no evidence that the indemnity was enforced, or that it was adverted to in 1999.

7 There was some other evidence of commercial practice. The 1999 documents were based on a standard form of letter of indemnity, described by the authors of a text on bills of lading 3 as being ‘designed … to be provided by those who want to have the cargo delivered to them but do not have the bill. It provides protection for the carrier up to a certain figure … It will normally be backed by a bank.’ The reasons why carriers might seek such an indemnity are obvious. There could be a number of circumstances in which, upon the arrival of cargo, delivery is sought without the production of bills of lading. In that event, a carrier will seek an indemnity before delivery. Since the indemnifying party may be an entity whose credit is unknown to the carrier, the carrier may require that a bank join in the indemnity. The editors of an Australian text on the law relating to banker and customer refer 4 to ‘undertakings relating to the delivery of goods

by a ship's master without surrender of the bill of lading’ as a recognised form of guarantee given by a bank. In his evidence, Mr Ryan, the State Manager of BNP, referred to ‘a bank endorsed absent bill of lading guarantee’. Substituting ‘indemnity’ for ‘guarantee’, that is what Pacific says it sought, and obtained, in September 1997, and again in January and February 1999.

8 A carrier ordinarily will not know the details of the financial and other arrangements between the primary party to such an indemnity and the bank which endorses it. There was evidence that a bank would normally charge a substantial fee for joining in such an indemnity. It is likely that a carrier would not know whether such a fee had been paid, or what, if any, security the bank held. In the present case, no fee was charged by BNP, and no adequate security to cover any potential liability as an indemnifier was held, but Pacific was not aware, and could not reasonably have been expected to be aware, of that.

9 The legumes were sold by NEAT to Royal under four contracts made in July and August 1998. Shipment was to be made between dates in November and December 1998. The discharge port was Calcutta. Payment was to be by letters of credit to be opened and payable in Sydney with BNP. SSOE arranged for letters of credit to be opened. In December 1998, Pacific entered into a time charter of the MV Nelson, and NEAT entered into a voyage charter. Loading was completed in January 1999.

10 On 24 January 1999, the vessel arrived in India. It is unnecessary to go into the problems then encountered. The initial bills of lading covering the cargo were switched and split. There were delays in discharge. NEAT sent a facsimile message to a firm of brokers saying:

‘To avoid delay in discharge we have prepared LOI text for Royal to open to shipping company to commence discharging against LOI pending B/L's arrival. This needs to be signed by Royal Trading's bank and original lodged with shipowner's agent in Calcutta.’

On 28 January, the brokers sent to NEAT a form of letter of indemnity signed by Royal, but with an endorsement by a bank which disclaimed any liability on the part of the bank and merely confirmed Royal's signature. This was rejected by Pacific. It may be noted, however, that the text prepared by NEAT for Royal and its bank to sign was in the form of a receivers' indemnity, not a shippers indemnity. As will appear, the same form was used later when NEAT itself signed the two letters of indemnity now in question. The bank involved in the original attempt to satisfy the requirements of Pacific made clear that it was not undertaking liability as an indemnifier. NEAT knew that Royal's letter of indemnity had been rejected. This occurrence illustrates the commercial importance of the capacity in which a bank signs a letter of indemnity of the kind in question. Royal's bank specified and limited the capacity in which it signed, for the obvious purpose of avoiding potential liability as an indemnifying party.

11 On 25 January 1999, an officer of NEAT had spoken to Ms Dhiri of BNP. He referred to the possibility of ‘a back to back LOI’. On 28 January, NEAT sent a facsimile to Ms Dhiri referring to the ‘need to get LOI in place at Calcutta to allow vessel to commence lightening … .’ He attached the first of the two relevant letters of indemnity. Ms Dhiri was requested to have it signed and sent to Pacific. Ms Dhiri signed it in the space reserved for ‘Banker's signature’ and affixed BNP's stamp.

12 The document sent by NEAT to Ms Dhiri for signature by BNP was in the following form:

‘

To PACIFIC CARRIERS LTD

The owners of the M/V Nelson

c/— MULTIMODE MARITIME PVT...