Photo: High Court of Kuala Lumpur
The recent case Jiang Xin Shipping Co Ltd v FGV Trading Sdn Bhd ( 8 MLJ 716) before the High Court of Kuala Lumpur concerned an agreement to deliver cargo from Indonesia to India. The plaintiff, Jiang Xin Shipping Co Ltd, had brought an action against the defendant seeking indemnity for the losses incurred by the plaintiff in connection with an arrest of the plaintiff’s vessel on delivery of the cargo.
The plaintiff was the registered owner of the motor tanker Yue You 902, while the defendant was a company in the business of trading palm oil and palm oil products. The parties had entered a charterparty for the carriage of crude palm oil (the cargo) from Indonesia to India. Financed by Oversea-Chinese Banking Corp Ltd (OCBC), the defendant had also entered into a business arrangement with Aavanti Industries Pte Ltd (‘the Chennai company’) for the sale of the cargo.
The defendant had issued a letter of indemnity under which the defendant agreed to indemnify the plaintiff of all liability, loss and damages which the plaintiff sustained following the release of the cargo without the production of the original bills of lading.
Yue You 902 arrived in India and the cargo was delivered to Ruchi Soya Industries Ltd (‘the New Mangalore company’).
Problems arose when Yue You 902 was arrested in Singapore based on a warrant of arrest issued in the instance of the OCBC as the original holder of the bills of lading, claiming that the cargo was meant to be delivered to the Chennai company.
The main issue for the court was the interpretation of the letter of indemnity. The plaintiff contended that:
- the letter of indemnity must be properly interpreted to apply to the cargo delivered to the New Mangalore company; and
- even if the letter of indemnity did not provide for delivery to the New Mangalore company, the court should grant an order rectifying the letter of indemnity by substituting references to the Chennai company with references to the New Mangalore company.
The plaintiff took the position that the remedy of rectification was available to it, irrespective of whether this was a case of mutual or unilateral mistake.
The defendant in turn took the position that the letter of indemnity issued was for the delivery of the cargo to the Chennai company, not the New Mangalore company. Therefore, since the cargo was delivered to the New Mangalore company instead of the Chennai company, the letter of indemnity could not be engaged.
Interpretation of letter of indemnity
The court determined that the above issue concerned the construction of a commercial contract.
Referring to the Court of Appeal decision in Borneo Helicopters Sdn Bhd v Sabah Air Aviation Sdn Bhd (formerly known as Penerbangan Sabah Sdn Bhd) ( 1 MLJ 656), the court cited that a commercial contract:
must be construed in a commercially sensible manner, that is to say, in a manner in which a reasonable commercial person would construe them… To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties.
The court therefore looked to ascertain the intention of the parties by:
- reading the letter of indemnity as a whole;
- examining the parties’ relationship; and
- considering all relevant facts surrounding the transaction, so far as known to the parties at the time when the contract was made.
The court did not seek to inquire into the parties’ subjective states of mind, but to make an objective judgment based on the materials already identified.
Based on the following observations, the court held – in favour of the plaintiff – that the parties’ common intention as per the letter of indemnity was that the cargo be delivered to the New Mangalore company and not the Chennai company because:
Accordingly, the court found that the letter of indemnity was engaged and that the defendant was to indemnify the plaintiff of all liability, loss and damages sustained as a result of releasing the cargo to the New Mangalore company without the production of the OCBC’s original bills of lading.