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Unicredit Bank AG v Euronav NV: is a charterparty bill of lading now worthless security?

Posted: 31/05/2023

The Court of Appeal addressed two key issues earlier this month in its decision in the Unicredit v Euronav appeal: (i) the status of a bill of lading in the hands of a voyage charterer after it has ceased to be the charterer under the terms of the charterparty; and (ii) the principles of causation to be applied where a cargo is released without presentation of a bill of lading.


Gulf Petroleum FZC purchased 80k mt of low sulphur fuel from BP Oil International Limited. BP had chartered the vessel, ‘SIENNA’, under a voyage charter, clause 30.7 of which required the owners Euronav to discharge the cargo without production of the bill of lading in return for a letter of indemnity. BP was named on the bill of lading issued by the owners.

On 1 April 2020, Gulf purchased the cargo and on 6 April 2020 Gulf, BP and the vessel’s owners entered into a novation agreement, under the terms of which Gulf became the charterer of the vessel in place of BP. The purchase was financed by Unicredit Bank.

Between 26 April and 2 May, the owners discharged the cargo against a letter of indemnity from Gulf and without production of the bills of lading. After discharge, the bill of lading was endorsed over to and forwarded to the bank.

The bank was not repaid by Gulf and sought recovery from the owners on the basis that by delivering the cargo without production of the bill of lading, they had done so in breach of their obligations under the terms of the contract of carriage contained in the bill of lading.

The bank lost at first instance on the basis that the bill of lading was only a receipt (not the contract of carriage, which provided for discharge without production of a bill of lading). The judge also noted that, based on the evidence, the bank would have agreed to discharge without production of the bills of lading in any event and so such a discharge could not be said to have caused the loss that the bank had suffered.  

The appeal 

The bank appealed the first instance decision on the grounds that (i) the bill of lading was a contract of carriage between it and the owners, not just a receipt and (ii) because the owners had discharged the cargo in breach of that contract (ie discharging other than against production of the original bill of lading), the owners should compensate them (as endorsee and pledgee of the bill of lading) for their loss.

The bank succeeded on the first ground of appeal and the Court of Appeal held that the bill of lading was more than a mere receipt: it was the contract of carriage between the owners and BP when the charterparty ceased to perform that function.

On the second, causation issue, however, the bank’s appeal failed. The Court of Appeal held that the judge at first instance had made no error and that, given the evidence that the bank would have permitted discharge without production of the bill of lading, the breach by the owners in doing so, had not caused the bank’s loss.

Key considerations

Commentators and, indeed, the judgment itself, have concentrated on the first part of the judgment and the interpretation and guidance it provides surrounding the role and effect of bills of lading issued to a charterer. However, it is the causation issues and defences raised by the second part of the judgment that are likely to cause trade financiers the greatest concern.  

From a ship owner’s point of view, even if the impact of the case is restricted to its particular facts, it opens the door further to defences of causation where, in breach of its obligations, an owner has delivered cargo other than against production of the bill of lading (whether against a letter of indemnity or otherwise).

For trade financiers, however, it will further knock their confidence in the security traditionally provided by bills of lading and the increasing practice, beyond the oil trade, of discharge against letters of indemnity. 

As a valid endorsee and holder of the bill of lading, the bank argued that by discharging the cargo, other than against production of the bill of lading, the owners were in breach of their obligations to them under the contract of carriage and were, therefore, responsible for the loss caused to the bank (which could not then enforce its security against the cargo). This reflects the traditional position described by Lord Denning (Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959]): ‘It is perfectly clear law that a shipowner who delivers without production of the bill of lading does so at his peril.’

Causation arguments have recently been put forward to successfully defeat applications for summary judgment in misdelivery cases before the Singapore High Court. The Court of Appeal appears to have followed this approach in this case and accepted similar causation arguments. The bank’s claim failed on the basis that the evidence indicated that the bank did not take steps to prevent discharge and, had it been asked by the owners, it would have agreed to such a discharge without presentation of the bill of lading. 

Both at first instance, and also in the Court of Appeal judgment, reference is made to other forms of security which trade finance banks may have recourse to, such as credit risk insurance and that ‘until 1992 taking a pledge of the bill of lading did not confer the security now said to be critical’. Although the Court of Appeal seeks to emphasise that the decision is limited to the facts of the case, those facts (namely insolvency/non-payment by its customer) are the circumstances when financing banks will be looking to the security that traditionally has been provided by the second limb of function of the bill of lading (namely a document of title whose possession confers a constructive right to possession of the cargo). 

Not only will financiers be concerned that the traditional security provided by pledged and endorsed bills of lading may be eroded by defences of causation, but they will also be concerned to note that, by taking additional security (such as credit insurance), they may be further prejudicing the effectiveness of their primary security over the cargo. 

What clients should know 

For ship owners and their insurers, although restricted to its facts, the case provides support for causation defences following discharge of cargo, other than against production of the relevant bills of lading. Pending any possible further appeal, the consequences and concerns raised by the decision are likely to be greater and more widespread for trade financiers.  Letter of credit terms and procedures for drawdown other than in exchange for a full set of endorsed bills of lading should be reviewed.  If the security provided by the pledged and endorsed bill of lading is being eroded, trade financiers may be more willing to release payment against sellers’ letters of indemnity, but that also comes with risks. 

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