Partner London
"Courts are hesitant to allow agency principles to override the doctrine of separate corporate personality."
This is what happened in Yangtze Navigation (Asia) Co Ltd & anor v TPT Shipping Ltd & ors (The “Xing Zhi Hai”) [2024] EWHC 2371 (Comm). The result, from a legal perspective, is a useful discussion of the law on undisclosed principals, in the context of liability under letters of indemnity.
This decision affirms the long-standing approach that the courts are hesitant to allow agency principles to override the doctrine of separate corporate personality, which is a hallmark of a typical shipping company structure. It also considers the difficulty which can arise where the third party deals with an agent who is known normally to act for principals, but the position is unclear on this occasion.
Background
- the claim concerned three shipments of logs from New Zealand to India;
- the logs were produced by the third to fifth defendants (the “Exporters”). They entered into Log Marketing and Sales Agency Agreements (“LMSAAs”) with TPT Forests Ltd (“Forests”);
- under the LMSAAs, Forests acted as Exporters’ agent for the sale and promotion of their logs overseas. Accordingly, Forests entered into a shipping services agreement (“SSA”) with TPT Shipping Ltd (“TPT Shipping”) as agent for and on behalf of the Exporters; and
- in turn, TPT Shipping entered into three voyage charterparties (the “Charterparties”) with the claimant owners in its own name.
Contractual Provisions
- SSA: The “Services” provided by TPT Shipping pursuant to the SSA were defined as “… all services for the handling and shipment of the Products from the time of receipt of the Products at the dispatch port to the agreed point of delivery at the destination Port”;
- LMSAAs: Appendix 2 contained the “Request for Authorisation” (“RFA”) procedure, which applied “When LOI is required for discharging the cargo and documentation (specifically the Bill of Lading) has not been received by the agent at the discharging port”;
- the Charterparties were governed by English law and provided that any dispute arising from or in connection with them was to be referred to arbitration in London;
- the bills of lading that were issued for the cargoes were owners’ bills. Those bills each identified Forests as the “Shipper”, and the “Consignee” as being to order. In each case, a company called Amrose Singapore Pte Ltd (“Amrose”) was the buyer of the cargoes, and the notify party was Amrose or companies believed to be its financial backers; and
- the letters of indemnity (“LOI”) were in conventional form and those issued by TPT Shipping to owners were signed “for and on behalf of” TPT Shipping by one Jason Smith (Shipping Manager and a director of TPT Shipping). They provided for English governing law and English High Court jurisdiction.
"Resulted in a number of claims down through the LOI chain."
Events
At the discharge port, in the absence of original bills of lading, a chain of LOIs were issued:
- the owners issued an LOI in favour of the head owners;
- TPT Shipping issued the LOIs in favour of the owners; and
- Amrose issued LOIs in favour of TPT Shipping.
Following discharge, Arnav Shipping Pvt Ltd, the port agents, released the cargoes to Amrose against further LOIs, but without requiring presentation of original bills of lading. Disputes arose between Amrose and its financial backers, and those financial backers arrested vessels and brought claims against the head owners alleging misdelivery under the bills of lading contracts, which (in turn) resulted in a number of claims down through the LOI chain.
Owners commenced proceedings initially against TPT Shipping, but when TPT Shipping entered into liquidation, owners decided to pursue Forests and the Exporters.
The owners’ claimed that:
- Forests was the true charterer of the vessels because it was TPT Shipping’s undisclosed principal under the Charterparties. Therefore, the LOIs had also been issued on behalf of Forests; and
- Forests had expressly authorised TPT Shipping to issue LOIs on its behalf. This assertion was based on correspondence between TPT Shipping and Forests that had been disclosed in the proceedings.
Decision of the Court
A. True charterer of the vessels
The judge said that he had “little hesitation in rejecting any suggestion that Forests were an undisclosed principal to the charter contracts.” He also stated that it was quite clear from the other contracts that had been disclosed (including the LMSAAs and the SSA) that Forests acted as agent for the Exporters. This was further reinforced by the evidence that TPT Shipping had contracted as principal not agent, including that:
- TPT Shipping was set up to insulate the TPT group from chartering risks. If it did not act as principal, this aim would not be achieved;
- there was no link between the cargoes being shipped and the Charterparties being entered into. The Charterparties were entered into before the tonnage was allocated to a particular vessel; and
- there was no plausible evidential basis that the Exporters were parties to the Charterparties, as opposed to using space on ships chartered by TPT Shipping. The LMSAA also contemplated this type of arrangement; the Exporters did not become a party to the contract with the shipowner, through Forests as agent. Instead TPT Shipping chartered in ships and the Exporters would use space provided by TPT Shipping on those ships.
"The court will be reluctant to depart from clearly stated wording in the contemporaneous documents."
B. LOIs were issued on behalf of Forests
The background to this argument was that in each case, TPT Shipping sought Forests’ approval before issuing a LOI on TPT Shipping headed paper. The owners argued that it was clear from the correspondence between TPT Shipping and Forests at the time of discharge that the LOIs were approved by Forests. This was said to indicate that TPT Shipping clearly required the authorisation of Forests to issue the LOIs, which made Forests liable on those contracts.
The court also rejected this argument primarily on the following grounds:
- Forests were not party to the Charterparties. As a result, the obligation to issue a LOI rested with TPT Shipping as the charterer and only TPT Shipping had the right to request discharge against a LOI;
- as mentioned above, TPT Shipping had been incorporated to insulate Forests from chartering risks. Forests had “studiously avoided” liability under the Charterparties in this way and was unlikely to expose itself to any such liability by issuing letters of indemnity when it was not obliged to do so; and
- the reason why TPT Shipping would want to seek Forests’ approval before issuing a LOI and discharging the goods, was that the goods represented security for payment for those goods. When those goods were discharged, that security would be lost.
Key takeaways
As illustrated by this decision the court will be reluctant to allow agency principles to override the doctrine of separate corporate personality. The question of whether the agency relationship exists will always depend on the particular facts of a situation but it is clear that the court will likely consider the following factors:
- the circumstances behind the creation of the company structure and allocation of risks and responsibilities;
- what the documents say. The court will be reluctant to depart from clearly stated wording in the contemporaneous documents;
- whether the agent subjectively intended to act on behalf of the principal;
- the timing of the contractual arrangements. Entering into a charter at a time when the agent did not know whose cargo would be shipped on the vessel is inconsistent with the idea that that charter was made pursuant to an express authority given to the agent by the alleged principal;
- the documents relating to the flow of funds and accounting, subject to expert accounting evidence; and
- any particular processes for authorisation and whether they were followed.
The judgment is available here.
Please contact the authors if you have any queries on the above or wish to discuss any similar issues.
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