Yangtze Navigation (Asia) Co Ltd & another v. TPT Shipping Ltd & others (The “Xing Zhi Hai”) [2024] EWHC 2371 (Comm)

A. Introductory Summary

The judgment of Christopher Hancock KC, handed down on 18 September 2024, concerns three letters of indemnity (“LOIs”) provided in the absence of bills of lading, whose alleged lawful holders subsequently made mis-delivery claims against Owners.

The Claimant Ship Owners (“Owners”) brought a claim against the bills nominal giver, the First Defendant / TPT Shipping Limited (“Shipping”), which was placed into voluntary administration and ultimate liquidation.

Hence Owners looked elsewhere to the other Defendants, the Second to Fifth, for a source of funds and on the basis they were principals to the LOIs. The said Defendants challenged the jurisdiction of the English court to determine the claims.

The agreed, central, question for determination by the court was whether there was a sufficiently good, arguable case that D2 to D5 were principals to the LOIs.

TPT Forests Ltd (“Forests” / D2) successfully opposed Owners’ argument that it was liable as an undisclosed principal under the LOIs issued by Forests affiliated company, Shipping.

The other three defendants were likewise successful in their analogous submissions.

B. Relevant Facts

Cargoes of logs were transported from New Zealand to India under three separate voyage Charterparties.

The logs were produced by the Third to Fifth Defendants (“the Suppliers”), who had entered into Log Marketing and Sales Agency Agreements with Forests, pursuant to which Forests acted as their agent for the sale and marketing of the logs abroad.

Forests had contracted with Shipping, as agent for the Suppliers, on the terms of a Shipping Services Agreement.

Shipping entered into the three voyage charterparties with Owners in its own name, pursuant to which the Suppliers logs were transported.

At the discharge port of Kandla, India as no original bills of lading were available, Shipping issued LOIs in its name. Claims were subsequently made by the owners of the cargoes / bill of lading holders against Owners, alleging mis-delivery of the logs. Various ship arrests followed.

Owners’ claim was based on its assertions that

(i) Forests was the true Charterer of the vessels because it was Shipping's undisclosed principal under the Charterparties - thus the LOIs were also issued by Forests and

(ii) Forests had expressly authorised Shipping to issue the LOIs on its behalf.

C. The Decision

The judge rejected Owners’ submissions that Forests was the actual Charterer, acting as an undisclosed principal.

The Charterparties provided no evidence that Shipping was acting other than as principal.

The Agreement between Forests and the Suppliers provided pertinent evidence that the former only ever intended to act as agent for the Suppliers and not principal, and there was no contrary evidence.

Further, it was acknowledged that the Charterparties were in place before Shipping knew whose cargo was to be shipped, contradicting the assertion that the Charterparties were entered by Shipping under the authority of Forests.

The fact that Shipping sought approval of Forests before issuing the LOIs in favour of Owners was not evidence, in itself,  that Forests had agreed to be bound as an undisclosed principal. The judge found Shipping had a legitimate commercial reason for seeking Forests approval for the issuance of the LOIs and discharge of the cargo, as the cargo represented security for payments for those goods to Forests and once discharged the security would be lost.

It was accepted that in terms of the corporate structure Shipping was created to insulate the rest of the companies in the group, including Forests, from chartering risks. It would thus be counter to this purpose if Forests intended to act as an undisclosed principal, thus bearing those risks as a separate legal entity.

The Judge also rejected Owners’ submissions that

(i) they should be allowed to investigate the matter through disclosure – this was speculative and

(ii) by cross-examination of witnesses at trial – this would not change what was apparent from the face of the documents.

Accordingly, Owners’ claims were dismissed.

D. Observations

The judgment confirms the position that the courts are unwilling to hold a party liable for the acts of another as an undisclosed principal without clear evidence of an agency relationship, under which the agent agrees and intends to bind its principal.

As ever, a clear objective reading of the contracts / Charterparties is the starting point, if this does not set out any agency relationship then compelling evidence of the same is needed to overrule the contractual terms.

This is a victory for corporate personality which will not easily be undermined without clear, contemporaneous, evidence to the contrary. Merely because corporate parties are affiliated and/or their approval is sought for commercial transactions is insufficient to establish an agency relationship and support a finding that one is acting as an undisclosed principal for another.

The judgment also provides welcome certainty to the shipping market.