The court interpreted the terms of a voyage charter party (“VC”) and two letters of indemnity (“LOI”) to answer whether a claim brought by the disponent owners (“Navig8”) under the letter was defeated by the operation of a time bar clause in the voyage charter party.
This was an appeal by a voyage charterer (“Glencore”) following a decision from the commercial court that a claim brought under a letter of indemnity was not time-barred by reason of a clause in the voyage charter party agreement. Under that clause, the period of validity of any letter of indemnity issued by the parties was three months from the date of issue. This provision conflicted with the terms of the LOI which, under its cl.5, stated that there was no time bar for any claim under the letter and that it expired only when the original bills of lading were returned to the carrier.
The appellant argued that cl.38 of the voyage charter applied to any letter of indemnity issued by the parties, thus the respondent’s claim, which was brought more than three months after the date of issue, was barred. The respondent insisted that letters of indemnity are, by their very nature, independent agreements and only its terms are relevant to it.
The decision in favor of the Respondents.
Cl.38 of the VC was irrelevant to the letter of indemnity. The decision was based on the following factors:
- Cl.5 of the LOI was sufficiently clear in respect of the respondent limitations for claims against the appellant. It contained no reference to any extraneous term, which might impact on the time limit of that liability.
- Disputes under the VC were to be resolved by arbitration and under the LOI by litigation in the High Court. Thus, any dispute regarding cl.38 of the VC was to be resolved by arbitration. There was no logic in the appellant’s argument that cl.38 was to be treated as part of the letters of indemnity as if it had been written into it.
- Cl.38 provided a contractual right for the parties to the VC to insist that a letter of indemnity complied with the time bar limitations. However, the respondent entered into the letters of indemnity on the terms of the standard International Group form, without any reference to the voyage charter or its provisions.
- It was common ground that the letters could be relied on by third parties as against the appellant. Thus, the letters had to be interpreted based on their own terms, since they made no reference to another contract, otherwise, the third parties would be at risk of being unfairly denied their rights to claim for damages caused by the issuer of the Letter.
As reaffirmed by the Court of Appeal, the Letters of Indemnity are stand-alone agreements that must be treated in accordance with their own terms. The parties to it may only rely on terms from another contract between them through express reference or incorporation; otherwise, they will be treated as completely independent agreements.
This is a case where the circumstances would lead the parties to believe that the LOI was automatically subject to the terms of the VC, due to the wording of clause 38. Thus, it is important that the courts reaffirm the separation of the two contractual relationships, giving the necessary clarity to parties issuing and relying on Letters of Indemnity.