In our May 2013 Commodities Bulletin (, we reported on the decision in Standard Chartered Bank v Dorchester LNG (2) Limited (18 April 2013). This decision was subsequently appealed and the Court of Appeal handed down its judgment on 22 October 2014. It has important implications for traders as beneficiaries under a letter of credit.


The underlying facts are complex and relate to the sale of two cargoes of gasoil from Gunvor International BV (Gunvor) to UIDC and to Cirrus Oil Services Ltd (Cirrus). Cirrus opened a letter of credit (LC) in UIDC’s favour with Standard Chartered Bank (SCB) as the confirming bank. UIDC subsequently transferred the LC to Gunvor.

A dispute arose over the quality of the gasoil and Cirrus agreed with UIDC that it would accept only one cargo and at a reduced price. SCB refused to pay out on the documents as presented. In order to avoid further delays, UIDC issued a letter of indemnity to the carrier to enable discharge to take place without presentation of the bills of lading (which were held by SCB). A subsequent settlement between SCB and Gunvor, whereby SCB agreed to pay the full amount claimed by Gunvor, ended the dispute.

SCB then brought proceedings against the owners of the vessel, the defendants in these proceedings, for misdelivery of the cargo. SCB argued that it was the lawful holder of the bills of lading within the meaning of Section 5(2)(b) of the Carriage of Goods by Sea Act 1992 (COGSA).

The decision

The Court of Appeal upheld the first instance judgment, which found in favour of SCB. However, it did so by means of a different interpretation as to the meaning and effect of Section 5 of COGSA, which identifies who is a bill of lading holder.

The Court pointed to the difference between a “consignee” and “endorsee” under Section 5 COGSA. Whilst it was sufficient for a consignee to be in possession of the bills in order to become the holder, in the case of an endorsee, delivery is “an essential element in a series of voluntary acts designed to give effect to the holder’s intention to transfer the rights which it represents”.

The Court of Appeal disagreed with the first instance finding that SCB had become holder of the bills upon presentation of the documents by Gunvor. Completion of an endorsement by delivery requires “the voluntary and unconditional transfer of possession” by the holder to the endorsee and “an unconditional acceptance” by the endorsee. By rejecting the presentation, SCB had rejected delivery, thereby preventing completion of the endorsement in its favour.

However, the Court of Appeal found that SCB became the lawful holder of the bills of lading on the date of the settlement agreement, once it had paid the sums due to Gunvor under the LC. All that was necessary was for Gunvor to make it clear that it was willing for SCB to accept the documents and therefore liability for payment. It was immaterial whether a fresh presentation was required.


The Court of Appeal conceded that it seems surprising that UIDC should have incurred a liability to indemnify the vessel’s owners in respect of a misdelivery of the goods as a result of the actions of another party.

A seller, as the beneficiary under an LC, may be left with a dilemma when faced with wrongful rejection of documents. A claim in debt against the bank may only be brought upon transfer of the documents. By such transfer, however, the rights of the ultimate buyer to take delivery of the goods may interfere with the rights of the bank as holder of the bills of lading, as was the case here.

The alternative is just as problematic. A beneficiary under an LC could request that the bills be returned upon the bank’s refusal to pay, thereby cancelling the endorsement, and present the bills to the vessel itself. However, this would leave the beneficiary with nothing more than a claim for damages against the bank and the challenge of paying for the cargo without financing in place.