Lloyd's Maritime and Commercial Law Quarterly

Professor Francis D Rose

Document

LIABILITY FOR UNAUTHORIZED LETTER OF INDEMNITY

Pacific Carriers v. BNP Paribas

In the High Court of Australia,1 Pacific Carriers Ltd (‘‘Pacific’’) has been successful in its appeal from the decision of the New South Wales Court of Appeal,2 which had reversed Hunter J’s decision,3 which had held that the carrier could succeed in its action against Banque Nationale De Paris (‘‘BNP’’). BNP incurred that liability by reason of the fact that its customer, New England Agricultural Traders Pty Ltd (‘‘NEAT’’), entered into letters of indemnity with Pacific, to enable cargo to be discharged to Royal Trading Co, in India, to whom it had sold 10,000 metric tonnes each of chick peas and dunn peas. Although BNP was sued as a contracting party under the letters of indemnity, to which it was a signatory, Hunter J did not find for Pacific on this ground.

BNP had defended the claims made against it by Pacific on the basis that its execution of the document was only for the purposes of authentication of the execution by NEAT. As Hunter J said: ‘‘If it was a matter merely of authentication one would expect to find words so designating the effect of Dhiri’s signing the document on behalf of BNP.’’ (Ms Dhiri was the employee of BNP who signed the document.)

The letters of indemnity were in a typical form for such documents. They were, for example, headed ‘‘Standard form of undertaking to be given by cargo receivers in return for receiving cargo without production of the bills of lading’’. The cargo receivers did in fact execute such a form of letter of undertaking and had it counter-signed by its bankers but those bankers expressly stated alongside their signature that they were only verifying the signatures of the other party to the document.

The carrier also required the shipper, NEAT, to enter into letters of undertaking. Its letters of undertaking had places for signature at the foot of the documents in which it was stated: ‘‘For and on behalf of New England Agricultural Traders Pty Limited’’, its address, contact details and the names of the two directors who signed the document. Beneath their signatures it read ‘‘For and on behalf of Banque Nationale De Paris’’, followed by its address and the words: ‘‘Bankers signature’’.

The conclusion reached by Hunter J as to the role played by BNP was that its signature was ‘‘neither an indemnification of Pacific in terms of the document, nor is it merely signifying some form of authentication of execution of the document by NEAT. I am satisfied that it carries an assurance that NEAT’s undertaking and indemnification comes from an entity that can make good that undertaking and indemnity’’. For those reasons BNP could not be held liable as indemnifier nor as guarantor. But the claim was also made against it in negligence and Hunter J found in favour of the plaintiff on that ground.

Hunter J found that BNP’s execution was ‘‘NEAT banker’s assurance that its customer was good for the subject indemnity. That is the only way I have been able to read the unqualified form of BNP’s execution of the NEAT LOIs’’. As there was no issue in the case that NEAT was not in a financial position to make good such an indemnity to Pacific,

1. [2004] HCA 35; 78 ALJR 1045 (joint judgment of Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

2. [2002] NSWGA 379 (judgment delivered by Sheller JA; Handley and Giles JJA agreeing); digested M.J. Davies [2003] IMCLY § 1.